tiểu luận financial planning and forecasting for saigon beer alcohol and beverage joint stock corporation

* Discussing the revenue Provide constructive feedback Le Thi Hien environment Economic, Political - Legal, Population* Discussing the revenue Provide constructive feedback 100 Pham Minh

i

DA NANG UNIVERSITY

DA NANG UNIVERSITY OF ECONOMICS

FACULTY OF FINANCE -& -

Supervisor: PhD Nguyen Quang Minh Nhi

Da Nang, 11/2023

1 A brief description of the company 1

1.1 Company Overview 1

1.2 Main source of income 1

1.3 Mission and vision 2

1.4 Competitors 2

2 Evaluating the external business environment 2

2.1 Economic 2

2.2 Political - Legal 3

2.3 Population 3

2.4 Natural environment 4

2.5 Technological 4

2.6 Social-Culture 4

3 The company’s Pro Forma Statements: 4

3.1 Forecasting the sales growth rate in 2023: 4

3.2 Pro Forma Financial Statements in 2023 6

3.3 Computing external financing needed (EFN) in 2023 9

4 Computing the company’s WACC 10

4.1 Cost of equity (Re) 10

4.2 Equity (E) 11

4.3 Debt (D) 11

4.4 Cost of debt (Rd) 11

4.5 Corporate tax rate (T) 12

4.6 Calculating WACC 12

REFERENCES 13

APPENDIX 14

LIST OF TABLES

Table 3.1 Pro forma income statment 7

Table 3.2 Pro forma balance sheet 9

Table 3.3 New pro forma balance sheet after allocating excess capital 10

Table 4.1 Lending interest rate of 4 typical banks in Vietnam 11

EVALUATION FORM

Member Task

Evaluation (Working attitude, Participation, Contributions, etc )

Evaluation

by group (%)

* Rebuilding the balance sheet

after adding the EFN

Participate fully in group meetings

Complete the task on time Actively contribute opinions to

Provide constructive feedback

* Computing the cost of

equity in WACC formula

Participate fully in group meetings

Complete the task on time Actively contribute opinions to

Provide constructive feedback

* Computing the cost of

equity in WACC formula

Participate fully in group meetings

Complete the task on time Actively contribute opinions to

Provide constructive feedback

Complete the task on time 100

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* Discussing the revenue

Provide constructive feedback

Le Thi Hien

environment (Economic,

Political - Legal, Population)

* Discussing the revenue

Provide constructive feedback

Political - Legal, Population)

* Discussing the revenue

* Buiding the pro forma

* Generating complete reports

Participate fully in group meetings

Complete the task on time Actively contribute opinions to

Provide constructive feedback

100

1 A brief description of the company

General information

- Business name: Saigon Beer Alcohol Beverage Corporation- -

- Stock code: SAB

- Industry: Beverage Manufacturing

- Business lines: manufacturing beer, alcohol and beverages

- Business registration address: 187 Nguyen Chi Thanh, Ward 12, District 5, Ho

Chi Minh City, Vietnam

- Contact: (+84)283.829.4081 283.829.4083/ sabeco@sabeco.com.vn-

- Website: https://www.sabeco.com.vn/en-Us/home

- Sales of beers

- Sales of raw materials;

- Other activities include sales of alcohol, beverages and other products and provision of rental and other services

Distribution

- SABECO has now exported SAIGON Beer products to many oversea markets, including:

- The Americas: USA, Canada, Chile, Panama…

- Europe: Germany, Denmark, France, Netherlands, England, Sweden, Switzerland, Spain

- Oceania: Australia, New Zealand

- Africa: West Africa

- Asia: China, Japan, Taiwan, Hong Kong, Korea, Singapore, Thailand, Philippines, Malaysia, Laos, Cambodia

Saigon Beer - Alcohol Beverage Corporation mainly focuses on manufacturing - and supplying a variety of beer products for both domestic and international customers Besides, Sabeco also has large revenues from packaging, wine, soft drinks, alcohol

2

In addition, the contribution of financial activities to Sabeco's business results is also very important In particular, this financial revenue is mainly income from deposit interest The company also has income from provision of rental activities

Ensure the development towards international integration

2 Evaluating the external business environment

After 2 years of heavy impact since the Covid pandemic, the beverage industry in Vietnam has grown strongly again since 2022.The beverage manufacturing industry maintains high growth momentum from February 2022 to the end of 2022, estimated to increase by 32.3% for the whole year, of which: Beer products of all kinds increase by 35.3% [2] According to a report from Vietnam-Briefing, Vietnam's beer consumption

Due to the impact of the COVID-19 epidemic, according to the General Statistics Office, in 2022 the average spending per person/month will decrease compared to 2020, combined with rising inflation, causing households to tend to tighten spending, especially with non-essential items such as beer and wine People's demand for alcoholic beverages has decreased, so beer consumption is lower Specifically, in 2022 people's alcohol consumption will decrease by about 8% compared to 2020

Vietnam has a relatively stable political system under the leadership of the Party with no conflicts or terrorism, applying a civil law system that creates favorable conditions for business enterprises.According to a World Bank report, Vietnam has made significant improvements in the business environment in recent years, ranking 70/190 countries in the ease of doing business index in 2020 [5]

Since the Ministry of Health promulgated the Law on preventing harmful effects

of alcohol combined with Decree 117 and Decree 100 of the Government on sanctioning traffic violations related to alcohol, it has strongly affected the revenue of alcohol-related businesses this sector Beer is a special commodity, so special consumption tax must be paid according to the Special Consumption Tax Law

The country's average population in 2022 is estimated at 99.46 million people, an increase of 955.5 thousand people, equivalent to an increase of 0.97% compared to 2021 [6] According to the General Statistics Office, Vietnam is still in the golden population

In a time when technology is developing and changing rapidly, the company's focus and investment in advanced manufacturing technologies is an important factor determining competitiveness in the industry Applying technology to automate processes, starting from the supply chain, warehouse operations, sales and intelligent business systems contributes to improving productivity and product quality, while reducing costs in the process production stages

The drinking culture of Vietnamese people is a favorable condition for the beer market to develop Besides, Vietnamese youth tend to Westernize, often using beer for entertainment parties to add fullness of emotion

In addition, Vietnam's tourism culture also promotes beer consumption The number of tourists coming to Vietnam is increasing again Common tourist activities include exploring the landscape and enjoying food and drinks SABECO also attracted more domestic and international customers when launching the "63 is 1" collection to advertise homeland tourism on each can of beer

3 The company’s Pro Forma Statements:

After the Covid-19 pandemic, thanks to the State's opening and promotion activities for tourism, the beer industry will continue to recover, thereby developing on-trade channels through full openness.hotel services, restaurants, entertainment activities and the number of foreign tourists increased This will be an open opportunity to

5

promote consumption in the beer industry in particular and the beverage industry in general.The 4 "big guys" in the beer industry are Sabeco, Habeco, Heineken and Carlsberg Of which, Heineken and Sabeco have a total market share of 78.3%, overwhelming the remaining two companies.again Outside Public investment, FDI, and tourism are considered positive drivers of GDP growth in 2023 These are considered factors that have a positive impact on SAB's revenue

2022 is expected to be a year of post pandemic revival global economy But the reality is marked by many events and factors that negatively affect the global economy such as: strategic competition between major countries, disruption of supply chains due

-to the impact of the Russia-Ukraine conflict, COVID-19 epidemic prevention measures

in China and negative effects from climate change According to some forecasts, 2023 could be a gloomier year: According to a November 2022 report, the IMF forecasts that world economic growth in 2022 will reach 3.2% and will decrease to 2.7% this year

2023, global trade growth will decrease from 10.1% in 2021 to 4.3% in 2022 and is expected to reach 2.5% in 2023, The price of gasoline, oil and raw materials fluctuates strongly, greatly affecting many industries and fields, including the beer industry The fluctuating prices of energy products (which in 2022 have reached a record high) have greatly affected business activities, SAB has had to cut orders because the cost of operating machinery and logistics is also high increases because the brewing industry requires ingredients to be produced and shipped by different manufacturers and transporters

According to the World Bank, Vietnam's economic growth is predicted to decrease

to 6.3% in 2023 from 8% in 2022.The deterioration of the economy is causing many businesses and consumers to fall into a "defensive" state and be cautious in the face of all market fluctuations It is forecasted that Sabeco's business results will decline The explanation for this is the fierce competition between international beer companies, the domestic economic recession due to global economic instability and the continued focus

on Decree 100/CP (penalties on drinkers) wine); Along with that is the impact of higher input costs, sales costs, business management costs and inflation

With the above analysis, We believe that the demand for beer and alcohol consumption will not be able to return strongly in the near future due to the economic outlook both domestically and internationally not being too prosperous, and strong

We have projected a 6 percent decrease in sales for 2023, so we are anticipating sales of 34,979 x (1-0.06) = 32 880.26 (Billion VND) To generate a Pro Forma income ,statement, we assume that total costs will continue to run at 24,208/34,979 = 69.21% of sales With this assumption, SAB’s Pro Forma income statement is shown in Table Next, we project the dividend payment This amount is up to SAB’s management We'll make the following assumptions about the distribution of net income in 2023: + The addition of retained earnings to net income in 2023 is equal to 50% of net income

+ The dividend payment is equal to 50% of net income

As a result, the projected addition to retained earnings = 50% x 5,170 = 2 585 ,(Billion VND), and the projected dividends paid to shareholders = 50% x 5,170 = 2 585 ,(Billion VND)

Table 3.1 Pro forma income statment

We assume that certain elements on our Balance Sheet closely correlate with sales while others do not For items that vary with sales, we express each as a percentage of sales for the year 2022 Items (i.e., current assets, fixed assets, current liabilities, expenses) for the year 2023 are calculated by using the same percentage of sales in the

year 2022 When an item does not vary directly with sales, we write “n/a” stands for

“not applicable.”

On the asset side, inventory is equal to 6.27 percent of sales (2,194/34,979) for the year 2022 Cash and account receivables are also calculated similarly In general, the ratio of total assets to sales for the year 2022 is 34,465/34,979 = 0.9853, or 98.53%

On the liability side of the Balance Sheet, we show short-term liabilities varying with sales The reason for this is that we anticipate placing more orders with our suppliers as sales volume increases As sales increase, SAB may need to buy more materials or goods on credit, causing short-term liabilities (accounts payable) to change spontaneously with sales We use “n/a” for long-term debt because it won’t automatically change with sales

We assume that SAB's common stocks will remain unchanged We will explicitly calculate the change in retained earnings based on our projected net income and

8

dividends The change in retained earnings is equal to the 2 585 (Billion VND) addition ,

to retained earnings we calculated earlier We have projected retained earnings = 15,565 + 2,585 = 18,150 (Billion VND)

Now we can create a partial Pro Forma Balance Sheet for SAB To do this, we compute the projected amounts, whenever possible, using the percentages we just computed For example, fixed assets are 21.74 percent of sales; so, with a new sales level of 32,880 (Billion VND), the projected fixed asset amount will be 0.2174 x 32 880 ,

= 7,149 (Billion VND) For items that don’t vary directly with sales, we initially assume

no change and simply enter the original amounts of those items The result is shown in Table 3.2

(Unit: Billion VND)

BALANCE SHEET

2023F

% compared to revenues of

2 Shareholder's equity 27,176 24,591 22,595 21,215

9

Total liabilities and equity 36,497 n/a 34,465 30,487 27,375

Table 3.2 Pro forma balance sheet

Upon reviewing our Pro Forma Balance Sheet, we observe that the total projected assets are 32,397 (Billion VND) However, the total projected liabilities and equity are

up to 36,497 (Billion VND) As a result, SAB will have excess capital for 36,497 - 32,397 = 4,100 (Billion VND)

As mentioned in the previous section, after inspecting our Pro Forma Balance Sheet, we noticed that total assets are projected 4,100 (Billion VND) lower than total liabilities and equity We label this amount as external financing needed (EFN) We have external financing needed = Total assets - Total liabilities and equity = 32,397 - 36,497 = 4,100 (Billion VND)-

When the Pro Forma Balance Sheet shows that total assets are lower than total liabilities and equity, SAB should make some investments SAB's External Financing Need is negative, which means that the company does not need to find additional funding from external sources, but can balance its finances with revenue and profits or existing assets This demonstrates that the business is able to generate enough cash flow

to cover its capital requirements without requiring outside investment or the need to borrow more money

The decision on how to handle excess funds should be based on the company's business goals and strategy, as well as current and expected financial needs After considering tax, legal, regulatory, and other factors of SAB, we decided to continue accumulating excess cash to ensure future financial stability or to cope with contingency challenges

After adding the excess capital of 4,100 (Billion VND) to cash in the year 2023,

we have a new Pro Forma Balance Sheet shown in Table 3.3