financial statement of masan meatlife in 2021 and 2022

Today, Masan MEATLife, a subsidiary of Masan Group Corporation “Masan Group”, is Vietnam’s largest fully-integrated “Feed – Farm – Food” business model branded meat platform, focused on

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BANKING ACADEMY FACULTY OF ACCOUNTING AND AUDITING

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TABLE OF CONTENTS

1 About MEATLife 1

1.1 General information about MEATLife and its environment 1

1.2 Impact of the information on Masan MEATLife’s operations in the first half of 2022 2

2 Inherrent risk and responsed audit procedures 3

2.1 Inherent risk for inventory 3

2.2 Inherent risk for selling 4

2.3 Inherent risk for purchasing 5

3 Calculation of materiality for the whole financial statements 7

4 Risk assessment from the company's accounting ratios: 7

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• Company name: Masan MEATLife Corporation (“Masan MEATLife”) (formerly known as “Masan Nutri Science Corporation”)-

• Headquarter: 10th Floor, Central Plaza, 17 Le Duan, Ben Nghe Ward, District 1, Ho Chi Minh City, Viet Nam

• Authozied capital: 3.267.148.470.000 VNĐ

• Stock code: MML

Masan MEATLife was incorporated on October 7, 2011 Today, Masan MEATLife,

a subsidiary of Masan Group Corporation (“Masan Group”), is Vietnam’s largest integrated (“Feed – Farm – Food” business model) branded meat platform, focused on driving productivity in Vietnam’s animal protein industry and ultimately directly serving consumers with traceable, quality and affordable meat products in a USD 15 billion opportunity

fully-In line with the grand vision to becoming a leading company in Vietnam's meat market, MML has chosen the starting point in the meat supply chain, animal nutrition, by merging the two leading animal feed companies in Vietnam, ANCO and PROCONCO in

2015, and launched "Bio-zeem" - the leading brand in high-performance feed MML then has actively invested in the rest of the supply chain - Farm, Processing Plants, Retail chains

- in 2017 and 2018 to bring the fresh chilled meat under the MEATDeli brand to the market

at the end of 2018 MEATDeli is the first chilled, branded meat in Vietnam produced by state-of-the-art European processing technology

Masan MEATLife’s range of products, from pork to poultry, is currently available

at more than 3,000 POS in Hanoi, Ho Chi Minh City and surrounding areas with a customer base spanning millions of people MML’s meat products are sold at leading modern trade retailers such as WinMart, WinMart+, Co.opmart, Big C, Lotte, Aeon, MEATDeli stores and agents, etc

Vietnam's meat industry market is currently crowded with many large companies such as CP Food, GreenFeed, Japfa, CJ Vina Agri, etc The leader is CP Vietnam, a subsidiary of Thai CP Group , with 10 feed mills nationwide However, after the market

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launch, MeatDeli became another notable name and captured about 2-3% market share after 2 years Meat Deli is currently the price-leading product in the branded pork segment,

among the top 10 producers in the pork and poultry value chain

To serving consumers with traceable, quality and affordable meat products by building a branded and productive Feed-Farm-Food (3F) platform – “From Farm to Dining Table” with the ultimate mission “MEATLife for a better life” to transform Vietnam’s animal protein industry and ultimately reach consumers with branded meat products This is MEATLife’s 2022 objectives:

- Own 10% nationwide market share of Vietnam’s $10.2 billion pork market

- Own the No 1 nationwide meat distribution network, the combination of owned Flagship Stores, modern trade and wet market channels

self $2 billion in revenue with a majority comprised of branded meats and profitability

The cooperation agreement between Masan MEATLife and De Heus ensures a stable, high-quality and standardized pig input for the company Thus, customers can have safer and more delicious pork at reasonable prices

Although the cooperation helped Masan MEATLife complete the transformation into a branded meat company, the business restructuring made the profit after CIT of the 6-month period only reached 33.39 billion VND, a decrease 254.93 billion VND, equivalent to a decrease of 88% compared to the same period last year However, the loss after CIT as of June 30, 2022 was 44.13 billion VND, lower 44.51 billion VND (-11.713%) compared to the profit of the same period in 2021

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In the third quarter of 2022, Masan MEATLife's revenue increased by 2.3% over the same period last year and 27.9% compared to the second quarter of 2022 Nearly 4,000 MEATDeli selling points are available across the country and the product has become the preferred choice of many consumers New product portfolios are constantly being launched into the market, becoming increasingly plentiful to suit more customers

Due to the Covid-19 pandemic, Vietnam's economic market in general and the food industry have suffered many impacts Because the epidemic situation became complicated, dangerous and threatening human life, consumers were more careful about their finances and health Hence, they chose foods which were not only reasonably priced but also healthy, convenient and long-lasting

However, in 2022, Vietnam is in a "new normal" to restore the economy From this year, citizens’ favorite products are fresh food that is strictly controlled They also prefer shopping at supermarkets and convenience stores because of its high safety Therefore, the frozen product processing industry according to international standards is gradually taking over

The market for businesses applying the 3F model like Masan MEATLife is becoming increasingly crowded with many strong competitors Besides the race among top enterprises in the industry, in 2022, there were the appearance of Bapi Food (owned by HAGL Group) and BaF Meat (owned by BaF Vietnam), and the coming of Nova Consumer

2 Inherrent risk and responsed audit procedures

After obtaining information about the company and its operating environment, it can be seen that the company's inherent risks can occur in several items, however, in this assignment, our team will only analyze the 3 most risky items including: inventory, selling, purchasing

2.1 Inherent risk for inventory

(1) On short-term holidays, consumers tend to celebrate parties and gather more than on weekdays, causing the demand for meat to increase rapidly If MeatLIFE sets the minimum inventory quantity at a low level, it may cause the business to be short of goods and not provide enough for customers On the contrary, during long holidays, the demand

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for meat in urban areas decreases because people go back to their hometowns, then bring food from their hometowns to the city, if company overestimate inventory levels, it will be costly and wasteful

• Audit procedures: Inquiry, Inspection, Analytic procedure

Inquiry: The auditors will interview the management and accounting department to see if the company relies on the statistics of meat sales in the same period of previous years

to determine the level of inventory for each specific area in this year

Inspection: Check the inventory estimate tables to see if the business really understands the meat consumption in the store at different regions as well as devise a plan

to store meat at a reasonable level

Analytical procedures: compare the interim, projected inventory levels with previous years' statistics to assess whether the business is relying on previous years' data

to determine inventory levels

(2) In the hot season, if the warehouse has electricity cut off but the company has not prepared a contingency plan, or the cooling equipment is damaged because the company does not maintain the machinery regularly, making the meat quality becomes worse, making the whole number of meat to be destroyed

• Audit procedures: Inquiry, Inspection

Inquiry: auditor will interview the board of directors, warehouse keeper, technical department to see if the company is prepared for any rare accidents or how often to maintain machinery

Inspection: the auditor checks whether there is a record of warehouse quality

inspection, a record of regular machinery maintenance,

2.2 Inherent risk for selling

Mearlife's revenue is based on farm, pork and animal feed In which, the enterprise deals in the main product of pork In December 2021, the Company transferred the animal feed business held through its investment in MNS Feed Joint Stock Company ("MNS Feed") and its subsidiaries to a third party In the meat business, customers are consumers

of all income levels, and counterfeit products are affordable and of high quality, with a

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large scale of users Products are distributed and sold mainly through supermarkets, convenience stores, in addition, the enterprise also provides other distributors with large quantities and exports

(1) Due to the high demand for meat from Meat Deli, businesses cannot avoid sending goods to be sold at agents to meet market demand However, the problem can be encountered when the agent does not preserve the goods well, causing the meat to quickly decrease in quality and quickly be destroyed, causing large inventory losses for businesses

• Audit procedures: Observation, Inquiry

Observation: how often he business send employees to check the goods sent outside

in agents for quality and quality

Inquiry: interview the employee responsible for this inspection to determine whether they have performed that working

(2) After Vietnam signed the EVFTA agreement, Meatlife took advantage of trade advantages to export pork abroad On the sales contracts to foreign units, there are often different provisions on the time when the risk of goods is transferred, in case the enterprise

is responsible for delivering the goods to the seller's warehouse, there may be a case of damaged goods in transit, shipwreck, however the company does not insure or make provision for such goods

2.3 Inherent risk for purchasing

(1) Specialized machines used in the care and processing of products often have to

be imported from abroad at high prices The Company can split the contract value and make payments into payment periods However, due to being purchased from abroad, exchange rate differences between foreign currencies and local currencies may occur in the

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payment periods at the year-end book time This may lead to misreporting of the asset's cost

• Audit Procedures:

Inspection: Check if the enterprise at the end of the year has revalued assets

according to the exchange rate at the payment periods

Recaculation: Recalculate the asset value according to the exchange rate offered by the bank and compare it with the results given by the enterprise

(2) The breed pig strain is feeded from a Danish enterprise, imported directly and supplied to Meatlife's farms This can be considered as a proprietary material, the company may not be able to anticipate the risks that occur with the breed pig strain In case having problem, it is difficult to find a new supplier within a short time that guarantees quality and reasonable price for replacement This causes serious damage to businesses when they have

to stop the production process

(3) The machines used are often expensive and purchased in large quantities, leading

to large import costs and long import times due to the transportation process The Company may not have carefully considered the terms of the purchase contract regarding contractual compensation in the event of damage to the machinery or inefficient use due to shipping errors or the manufacturer defects

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book errors related to time, delivery location, responsibilities of the parties involved in the transportation of goods

• Audit Procedures:

Inspection: Review the contract related to the terms of delivery date, date of receipt

of goods, and responsibilities of the parties in the transportation process

Confirmation: Submit a request to the bank for a third-party guarantee for large asset import contracts

3 Calculation of materiality for the whole financial statements

We decided to choose Profit before tax (5%) to the calculate materiality because:

- This is the criteria most users report interest in

- This is a production business operating for profit

- This is an indicator that is prone to errors or unusual factors

Unit: VND

4 Risk assessment from the company's accounting ratios:

2021, leading to the risk of uncovered debt until the maturity date

= 10,944,048,305,022

to generate less and less revenue

= 109.06

Inventory for too long may affect product quality

= 57.98

increase leading to reduced reputation for suppliers and may not be able to find new suppliers The company will lost a payment discount