financial statement analysis of tuong an vegetable oil joint stock company

VIETNAM NATIONAL UNIVERSITY HO CHI MINH UNIVERSITY OF ECONOMICS AND LAW FINANCIAL STATEMENT ANALYSIS OF TUONG AN VEGETABLE OIL JOINT STOCK COMPANY SUBJECT: Financial Statement An

VIETNAM NATIONAL UNIVERSITY HO CHI MINH

UNIVERSITY OF ECONOMICS AND LAW

FINANCIAL STATEMENT ANALYSIS

OF TUONG AN VEGETABLE OIL JOINT

STOCK COMPANY

SUBJECT:

Financial Statement Analysis

Teacher: Mr Nguyen Vinh Khuong

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4 Corporate structure 6

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2 Competitive Strategy Analysis 3 Corporate Strategy Analysis 4 SWOT Analysis

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1 Identfying Key Accounting Policles - ó- 2c cà 2.2222 1212121111211221121122122 2 18 2 Assess Accounting Flexibility 6 21

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4 Evaluate Quality of Disclosure 23

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7 Analysis of the Statement of Financial Position/ Balance Sheet 25

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| TUONG AN OVERVIEW

1 General Information Charter capital (Equity): VND 338,796,480,000

Address: No 138-142 Hai Ba Trung Street,

Da Kao Ward, District 1, Ho Chi Minh, Vietnam

2 Establishment and development history

1977 Established in 1977, Tuong An has been a trademark associated with all generations of

Vietnamese families for the past 42 years

1986 After being empowered to self-supervise production and business activities, plus the completion of a new production facility, Tuong An quickly expanded its development between

1985 and the early 1990s

1990 In the late 1990s, Tuong An faced new challenges as the economy began to integrate with the world and fierce competition from imported brands of avocado and vegetable oil Tuong An has been flexible and creative in promoting and approaching consumers in order to raise awareness about nutritional cooking oil by launching many new products that are fortified with

micronutrients, using high quality raw materials, increasing production of bottled refined

cooking oil products to serve the domestic market

1991 In October 1991, "Cooking Oil - Tuong An Cooking Oil” - the most famous product of the Company until now has been officially introduced to the market and since then Tuong An brand

4

has been and has been leading market leader in edible oil production in Vietnam Currently, Tuong An cooking oil continues to lead the market share and Cooking Oil becomes Tuong An key product always trusted and used by consumers

2003 In December 2003, the Company conducted an experimental study to add micronutrients to edible oil products with products such as pure soybean oil for heart health; ViO oil supplements nutrients for children found in Gac fruit oil, helps brain development, good for the skin, eyes and heart

Today Tuong An will realize the corporation's goal of dominating the essential food market to bring nutritious, safe and quality products to millions of Vietnamese families’ meals Along with preserving the core values, developing sustainably with its valuable assets, Tuong An has deepened the hearts of the Vietnamese people for 42 years, becoming a "national brand” Always

focusing the happiness in every meal of every Vietnamese family, Tuong An still makes great efforts to offer consumers excellent products at reasonable prices

3 Organization and human resources

As at 31/12/2019, total number of employees was 1,407 persons With large and increasingly growing number of employees, Tuong An’s BOD and BOM always focus on human resource development as this is the key to the success and effectiveness of the company

Nguyen Thi Hanh Tran Le Nguyen

Le Thi My Van

Nguyen Thị Thanh Van

Nguyen Van Thuan

Cao Hoai Thu

4 Corporate structure

Tuong An is a key business unit of the packaged food channel system that contributes to building the distribution platform of KIDO Group In order to achieve the set goals, the management system of the member units must be closely connected, in order to provide the right products with the right specifications, in the right place and at the right time for consumers

Each company is guided by the Executive Management Committee (EMC), which oversees the implementation of the Group's strategic goals and promotes business performance at the unit

Tuong An is organized in a 3 Team structure and shares with its member companies a number of

support services The Group's goal is to create a balance between long-term and short-term goals

Team 1 Business activities

Team 2 Supply chain management Team 3 Support

Tuong An owns 2 large-scale factories: Phu My Oil Factory (80,000m2) and Dau Vinh Factory

(37,000m2)

S Vision & Mission

e Vision: The Vietnamese brand is the most popular of the delicious dishes that help nurture and unite the happiness of the Vietnamese family

® Mission: Tuong An is committed to bringing the best quality of delicious and healthy food to the community and every Vietnamese family with dedication, understanding and

Rivalry among existing firms:

It can be said that, in the national cooking oil market, there are currently two major brands that account for the majority of market share, Tuong An cooking oil and Neptune cooking oil Tuong An faces Neptune - a fairly heavy competitor in the market Neptune is produced by Cai Lan Vegetable Oil Company under the production line of KUOK OILs & GRAINS PTE Company, which has just entered Vietnam market (after

Tuong An) But Neptune's products are extremely rich, in addition to having a rich

financial source, Neptune constantly promotes its brand with television advertising

programs, cooking lessons on TV or manuals food on the newspaper In terms of price,

Neptune 1s not a high-priced product, so it is accepted by many consumers and that is a big barrier for Tuong An

In addition to the aforementioned Neptune, Tuong an has to share the market with many other vegetable oils Typically, Tan Binh, Vinadaco, Marvela, and foreign products such as Ship, Floria, Sun Flower, These products gradually gain a foothold in the Vietnamese cooking oil market, especially domestic products The quality of these products is also quite high and knows how to toward to low-income consumers As for imported products, beautiful designs, diverse products, although high prices but also attract many consumers Therefore, the competitiveness on Tuong An is not small, but it

only occupies a part of the Vietnamese market

Threat of new entrants:

Many cooking oil products originating from Malaysia, Singapore, Indonesia rushed into Vietnam But Tuong An cooking oil has become familiar and close to most Vietnamese consumers

Regarding monopoly of input: Tuong An still does not have this advantage because it has

Cc _

d)

About conversion costs (costs that customers want to convert their shopping to other

suppliers): easy to change without any cost

In particular, in the Vietnamese market, the psychology of preferring to use imported goods and the ASEAN tax preferential policy, the selling price 1s almost equal

The choice and replacement of products is not difficult so the threat of new entrants is not

small

Threat of substitute products:

Living conditions improved, so people look for more advanced products or products from abroad In contrast, low-income people: Find cheaper products when the same volume of bottle

Tuong An must share the market with many other products such as cheese butter or

sauces, etc For example: Instead of mixing salad with oil people will mix with cheese

In addition, to reduce the fat of the food, people use a versatile non-stick pan to fry or fry

without vegetable oil However, this option is only a temporary method It cannot use

long term during cooking

Therefore, Tuong An's products still retain their market value

Buyer’s power:

The food market in Vietnam is expected to continue to grow thanks to the increase in disposable income Thanks to the improved quality of life, Vietnamese consumers has paid much attention to health to have a better life, from which to pay more attention to substance food intake

In 2018, Vietnam's cooking oil market achieved the above revenue 25,000 billion VND,

the level of edible oil consumption in Vietnam remains lower than other countries in the

region The oil industry is expected to continue to grow within the next 5 years

Is one of the big manufacturing cooking oil companies Vietnamese, Tuong An is taking advantage of great opportunity to capture the potential of the industry

When income increases, people's living standards are improved and the demand for

cooking oil 1s required of the people will get bigger and bigger.

~—

2

In terms of competitive strategy, the decision of TAC 1s the combination of cost leadership and

The main input is raw vegetable oils produced from oil fruits and seeds, of which palm

and soy beans are the two most used nuts (about 60% and 30%)

For cooking oil industry, source of auxiliary production materials large dependence on imports from abroad, mainly from Malaysia and Indonesia (accounting for nearly 80%) The ability to negotiate with suppliers is very low

So far, Tuong An has not found the main oil-bearing tree to develop on a large scale, so it

is difficult to take the initiative in the source of raw materials

Competitive Strategy Analysis

differentiation Mission set out for this corporation is “Tuong An commits the community and every Vietnamese families bringing the best quality of delicious and healthy food with our

dedication, understandings and responsibilities to people and society.”

a) Eco-friendly factory

b =

Phu My factory is the biggest vegetable oil manufacturing firm of TAC This is evaluated

to be the one of the most environmentally friendly factories in Vietnam with green

coverage accounts for 40% of the total area

Existing for almost 40 years, TAC always attaches special importance to both the prices and quality All of their products have a reasonable price in comparison with the other types of cooking-oil even though the quality is appreciated by authorities For example of the Soybean-oil listing price of TAC is just aroung 36,000VND per 1 liter; whereas, over 40,000VND is the price of the same product of Simply This leads to the fact that all customers can purchase the TAC products with high quality

Focusing on high technology

Being a traditional Vietnamese brand, TAC always pioneers in improving the latest technology Specific evidences are presented by the modernity and the majesty of high

technological machines in TAC manufacturing company Vegetable oil refining lines

imported from Belgium are considered to be the most modern in the "territory" of oil

Cc _

automatically by PLC and Computer systems, ensuring the requirements of the best quality and keep maximum levels of Vitamin A, E naturally in oil

Human is an essential component

In addition, in TAC, apart from the most modem technological machines invested, talented human resources with long-term experience and business ethics are also secret factors accompanying with the mission of dedicating to company for all along the way Through the regular professional training courses organized, the staffs always update the latest trends in the market Therefore, they can create outstanding solutions, helping TAC

to maximize production and minimize costs at the same time along with product efficiently and effectively

The perfect combination of technology and human quintessence has made TAC have remarkable breakthrough in creating the best quality commodities with the best price to

meet the needs of customers, bring Vietnamese meals to reach a new level Diversifying and improving products through each period while maintaining prices as reasonable as

possible For those reasons mentioned, TAC has really conquered most of Vietnamese consumers’ hearts

3 Corporate Strategy Analysis

For Tuong An Company, its core business is cooking oil

Tuong An strengthens its cooperation with partners in order to diversify its product portfolio, focusing on providing quality, appropriate products, meeting food needs throughout the day and distributing to the hands of people consumption Tuong An is currently using two main approaches to accomplish this strategic goal: 1) Distributing branded products of strategic partners and 2) OEM products under the brand name of Kido Group The diversified and continuously researched product portfolio will allow Tuong An's products to gain consumers’ trust and occupy the position on the shelves at the selling points

Apart from cooking oil, the packaged food strategy has initially been realized Taking advantage

of the distribution system platform, Tuong An has launched new types of products quickly and cost-effectively New products include new foods and spices like refined sugar, snack noodles, instant noodles and sauces

4 SWOT Analysis

SWOT MATRIX

STRENGTHS (S) WEAKNESS (W)

Strong financial ability

Strong brand identity and good reputation

Good relationship with partners

Standard product quality

Diverse product Invest in R&D

Wide distribution networks Reasonable selling price Hold market shares a lot

Modern equipment

Strong production capacity

Qualifications of managers are

Poor advertising strategy

Materials are mostly imported from abroad

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Macroeconomic policies were

signed with trade agreements (WTO,

ATIGA VJEPA, AANZFTA)

expanding export markets

Economic growth

Inflation remained stable

Bank interest rates are reasonable

Gross national income increases

Government support: developing

domestic raw material areas

Buyers’ purchasing power is

Increasing

The market potential increases in the

future

Consumers’ tastes are running

towards good quality products for

activities, promotions, changing

packaging design to create a new

impression for the brand)

W1,5 + 06,7,8: Joint Ventures (looking for new supply) W1+01,7,8: strategy development strategy planning capabilities W5 + 04,6,7,8: Backward integration strategy (diversify

sources of input materials)

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11 Abundant labor source

The exchange rate tends to increase

Instability of the stock market

Competitive pressure from the

schedule of reducing cooking oil

import tax to 0%

Pressure of raw material supply

The current and potential strong

rivals: high level of competition

Increased energy costs

1 §1,2,3,4,8,11,12 + T3,5: Product development strategy (Focusing

on promoting a new premium

product line, outstanding quality for compete with rivals)

$3,4,11 + T1,3,4,5: Strategy of integration in horizontal lines-

acquisition (acquiring smaller companies in the same industry to

increase market share)

$3 + T1,3,4,5: Backward integration strategy (diversify and

develop its own material areas)

(merging powerful companies to increase their resilience to the

fiercely competitive market)

an easy product, can be replaced, the elasticity of demand at high prices, so just a little price fluctuation is enough to leading to a change in consumer behavior, so the competitive pressure in

this industry is very fierce

c) Social analysis

The increase in population and consumption trends of Vietnam is changing in the direction

favored product is good for health, moreover the demand for using cooking oil is increasing,

making the cooking oil industry more diverse

d) Technological analysis

The rapid development of science and technology plays an important role in improving labor productivity, contributing to increasing production efficiency

Besides, oil production technology is not too complicated, so the cost of production and the price

of oil is not too high

Hl ACCOUNTING ANALYSIS

1 Identifying Key Accounting Policies

The goal of accounting analysis is to identify key accounting policies that show and measure the success and risk factors that affect a firm with maximum accuracy TAOIL is an enterprise operating in the field of essential food Therefore the first key success factors will be planning materials, regulating the supply of raw materials for production, optimizing inventories, ensuring sufficient goods to meet essential needs for people with stable prices Besides, TAOIL has promoted the strategy of advancing and diversifying products, improving and developing products with high nutritional value in line with consumers! health protection needs It invests in research and development of products with high nutritional value for consumers, research and develop product lines supplementing with micronutrients to improve the health and immune system of Vietnamese consumers, to meet specialized health care needs for each customer

a) Inventories

e Inventories are stated at the lower of cost incurred in bringing the inventories to their location and condition at the time of initial recognition and net realizable value Net realizable value represents the estimated selling price of inventories in normal business

conditions less the estimated costs to complete and the estimated selling expenses

e The perpetual method 1s used to record inventories, which are valued as follows:

Oo

oO

oO

oO

Raw materials, consumables and goods for resale

Actual cost on a weighted average basis

Finished goods and work in process

Cost of direct materials and labor plus attributable overhead based on the normal level of activities

e Provision for obsolete inventories An inventory provision 1s created for the estimated loss arising due to the impairment (through diminution, damage, obsolescence, etc.) of raw materials, finished goods, and other inventories owned by the Group, based on appropriate evidence of impairment available at the balance sheet date Increases or

consolidated income statement

Cc _ Tangible fixed assets, Construction in progress

e Tangible fixed assets are stated at cost less accumulated depreciation The cost of a

tangible fixed asset comprises its purchase price and any directly attributable costs of

bringing the tangible fixed asset to working condition for its intended use Expenditures

for additions, and improvements are added to the carrying amount of the assets and expenditures for maintenance and repairs are charged to the consolidated income statement as incurred When tangible fixed assets are sold or retired, any gain or loss resulting from their disposal (the difference between the net disposal proceeds and the

carrying amount) is included in the consolidated income statement

e Construction in progress represents tangible fixed assets under construction and 1s stated

at cost This includes costs of construction of plant, installation of equipment and other

direct costs Construction in progress is not depreciated until such time as the relevant assets are completed and put into use

d — Depreciation and amortization

e Depreciation of tangible fixed assets and amortization of intangible fixed assets are

calculated on a straight-line basis over the estimated useful life of each asset as follows: Buildings and structures 10 years

except to the extent that they are capitalized as explained in the following paragraph Borrowing

costs that are directly attributable to the acquisition, construction or production of an asset that necessarily take a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset

f) Revenue recognition

e Revenue from sale of goods is recognized when all five following conditions are satisfied

(Referring to Article 79, Circular 200/2014 / TT-BTC) The Group insist that no revenue

is recognized if there are significant uncertainties regarding recovery of the consideration

due or the possible return of goods

e Under the circumstances, revenue is recognized based on principle of “substance over

form” and allocated to each sales obligation

e Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured Revenue is measured at the fair value of the consideration received or receivable, excluding trade discount, rebate

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and sales return The following specific recognition criteria must also be met before

revenue is recognized:

e Sale of goods: Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually upon the delivery of the goods

e Rendering of services: Revenue is recognized when service is rendered and completed

e Interest: Revenue is recognized as the interest accrues (taking into account the effective yield on the asset) unless collectability is in doubt

e Dividends: Income is recognized when the Group’s entitlement as an investor to receive

dividends is established

g) Segment information

A segment is a component determined separately by the Group which is engaged in providing products or related services (business segment) or providing products or services in a particular economic environment (geographical segment), that 1s subject to risks and returns that are different from those of other segments

2 Assess Accounting Flexibility

e To tangible fixed assets, TAC uses flexible estimate accounting for computing on a

straight-line over the estimated useful lives of tangible fixed assets as follows:

TAC CALOFIC Buildings and structures 10 years 6 - 50 years

Machinery and equipment 5 - 10 years 5 - 25 years

Means of transportation 6 — 10 years 6 — 12 years

Office equipment 3 — 5 years 3 — 5 years

Land use rights 46 years 10 —25 years Computer software 3 — 12 years 5 —8 years

e This illustrates that managers have possibility to perform the nature of their business by

the flexibility in their estimating Due to the same asset

therefore it correctly reflects the nature of the use of property

In terms of inventories, TAC applies the perpetual method and cost of inventory are determined on weighted average basis Perpetual inventory systems are common in many

modern businesses In addition, TAC is also manufacturing company so the application

of weighted average method is reasonable, because inventory is often stored or combined together, making it more difficult to distinguish between old and new materials Especially, accounting data has the potential to be provided with information that depends on how managers conduct this flexibility

It is necessary for managers to give the flexibility in revenue policies to help easily create success for the company by their judging ability

Some policies do not allow flexibility as: evaluating and recording R&D expenses have difficulties because following to VAS, R&D and marketing expenditures must be expensed However, software development can be capitalized Managers face some

troubles to assess economic benefits in the future so they can’t have enough information

to make decision effectively

Evaluate Accounting Strategy

It can be easily seen that the TAC’s main business activity is producing vegetable oil,

compared to its competitors in this industry, the accounting policies are quite similar Therefore, the relevant strategies are considered to be reasonable for recent years, for

instance of Marvela branch

Mrs Nguyen Thi Hanh concurrently holds the positions of deputy general director and

Chairman of the board of directors from 8th June, 2017 By the time of May 2020, she

has been holding 15,000 shares of TAC, equivalent to 0.4%, valuing 0.4 billion VND As

a results, she may run the company in the best way in order to meet the needs of both BOD and executive directors, avoiding the “agency cost” as much as possible TAC’s accounting policies have unchanged for years (at least 4 years from 2016) If there

were any changes, all of them were made in tandem with other branches in the vegetable oil industry In addition, there were not substantial adjustments to revenues or estimates

in any financial statements recent years Besides, there were not any evidence showing

significant manipulation in quarterly reports in efforts to artificially inflate revenues or

deflate expenses

Evaluate Quality of Disclosure

Transparent presentation of information in annual reports is especially important for

listed companies The quality of disclosure of TAC is seen to be superior in comparison with that of other competitors by clearly presenting occupations, business fields, geographical areas, orientations and objectives as well as all of production types by 2020 Besides, accounting policies are published distinctly, fully and reasonably

The corporation announced specific oriented targets at the beginning of each operating years Besides, TAC also published precise information about stocks and transactions

The corporation gave a brief introduction about itself, which were explained in footnotes

accounting policies, assumptions, and their logic Through the annual reports, TAC gave both internal and external stakeholders an adequate disclosure of business strategies, and from that they had an appropriate overview of the development and operation situation of

TAC

TAC disclosed the risks that the company will have been meeting in the future in tandem with finding solutions to limit them Thanks to this, investors have been being provided informative and detailed reports and then making their own decisions about investing in this manufacture

From many characteristics mentioned above, TAC's voluntary level of information disclosure is appreciated This is quite understandable because profit of the first quarter

of this year increased significantly compared to the same period last year Moreover, this

announcement of great performance can attract more investors, customers or suppliers,

etc

S Identify Potential Red Flags

Sales / Total Assets

Sales / Total Assets

—O— TAC —@— NAKYDACO

Generally, the total assets turnover is at a low level This ratio shows that the efficiency of using

inventory and production management of Tuong An is not good It can be seen that inventories account for a high proportion of total assets, so that possiblely Tuong An is having excess inventory, products that cannot be sold, or idle proporty This may affect the product quality, reduce product value and reduce the gross profit

Net Sales / Net Accounts Receivable

Net Sales / Net Accounts Receivable

10

—— TAC —@— NAKYDACO

Tuong An had a bad change in its receivables turnover in 2017 and 2018 The debt recovery rate

of 2018 was 6.62, a sharp decrease compared to 2017 The debt recovery rate is low, so the amount of money appropriated is increasing Enterprises are likely to be inadequate in cash and passive in financing working capital in production and may have to borrow to make up for this shortfall

& Undo Accounting Distortions

Based on evaluation and analysis of the Tuong An's audited financial statements, it shows that there is no accounting distortions The financial statement financial statements provide complete and accurate data, as well as reliable evidence, which makes it easier to analyze and evaluate

7 Analysis of the Statement of Financial Position/ Balance Sheet

a) Financial Structures of WC/WCN/NC

Tuong An Vegetable Oil Joint Stock Company (TAC)

LTC 709,444,772,196 642,633,449,869 621,570,929,215 498 575,736,916

wc 102,058,365,229 91,689,727,232 109,445,606,590 104,817,749,857 WCN 96,296,628,442 130,214,072,220 65,688,876,796 74,685,964, 704

b = Comparative analysis of TAC and NKDC

e TAC’s financial structures of WC/WCN/NC is case 2, which is a common structure of a manufacturing companies While NKDC, a competitor of TAC, is case 1 This means that

TAC has less risk of the costs of capital than NKDC

e TAC’s net cash of 4 latest year is less than 0, this means TAC use long-term sources to invest in short term activities

c) Statement of financial structure

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-254,220 -24,166 2,696 -275,690 -200,000

Unit:1,000,000VND

2017 336,500 -10,932

30 324,598 -353,000

2016 86,107 -10,069

0 76,038 -131,000

24,689 22,616

33,560 2,560,105 2,152,812 2,181,158 2,405,274 2,151,590 1,701,619 2,208,932 2,372,985

-2,652,500 -1,923,992 -2,211,119 -2,450,154 -80,902 -80,055 -53,330 -22,784

-500,910 -302,428

e Tuong An Company (TAC)’s excess cash flow in 2018 1s less than 0 while the 3 previous

years are all more than 0

e TAC’s available cash flow in the 4 latest year are all more than 0

e TAC’s free cash flow in the 4 latest year are all less than 0

e Mainly the company's cash generated from operating activities and not investment and financing activities

e In 2019, net cash flows from negative investment activities (income < expenditure) represent the investment scale of the expanding business Because this is the result of the

proceeds from the sale of fixed assets and the return on financial investment is less than

the amount spent to expand investment, purchase of fixed assets

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IV FINANCIAL ANALYSIS

Long-term investments 12.5% 0,00% 0,00%

Other long-term assets 20.5% 27.1% 18.1%

@ Short-term receivables

& Inventories

@ Other current assets

® Long-term receivables

Because TAC is a manufacturing firm, proportion of inventory and fixed assets is large Beside

that, because of the nature of a selling food company, which is customer usually pay for their

products unimmediately, so the proportion of short-term receivable is large

* Income statement:

Financial costs not significant not significant

Interest expenses not significant not significant