groupassignment corporate finance topic vietnam milk joint stock companys financial analysis

1 0.5 The increasing trend in the liquidity ratio from 2019 to 2021 indicates a strengthening ability of Vinamilk to meet short-term financial obligations.. In summary, the decreasing tr

DA NANG UNIVERSITY UNIVERSITY OF ECONOMICS

AOD University of Economics

GROUP ASSIGNMENT

Corporate Finance Topic Vietnam Milk Joint Stock Company’s Financial Analysis

Lecturer : Do Khac Trung Class : 47K01.4 Group a) Members : Bui Thanh Tung

Ho Ngoc Vi Pham Thi Thuy Duong

Da Nang, December 10", 2023

Table of Contents LBUSINESS DESCRIPTION

1.Company SÍTAÍCV! co co ko Họ nọ TH TH 0 0001.918 004 01918 08 09 04 2.MacroeconomiC anAÌÏYSÏS: co 0 9 9H 4 4 h0 08 8 00

3.Indus(ry V€TVICW co nọ Họ TH họ HH Họ HH HT 4.CompetifV€ DOSIfÍOHITE cọ TT TT HH HH TH 4 0 019 804 0.4

E801) 5272777 -s-.1 i09 2¬ LL.FINANCIAL STATEMBENTTS cQ LQn nnHnHn HT TH TH ng TH nh kh khe

2 Income SŠfaf€ImHI - co 0 0005959595959909000000999993.955995595559699989 999099990859 9996888 9995 6 3.Cash Flow Statement sssssssssssssccsscsssssssssssssscsssccccccesssssssnnnsnscecesssssssssssnsescsceceeas

II V9) 07.900.097.356 s11 1.LQqUIÏy TAfÏOS - 0 0 họ nọ họ Họ Họ H HT HH TH ĐH TH

1.1 Current liquidity ratio occ 1.2 Quick ralo c2 0022111122111 112121 1112211111111 111101 51111111 1k nE 111k k2 1 k6 I9 e 1.4 Comparison between [DP and VinamIlk im 2022 - 2 2 222222 szvccszxs2

Nn Capital structure R1OS co 0 TH ng gà TT 0 0 0 9 H906 2.1 Total debt rato 2.2 Debf-equlIfy raHo c2 21212121112 11121112111 1118115015 1 1n T511 kệ 2.3 EquTty muÏtIpÏIer c2: 2212221112111 121 112111 1111511511511 111 128115101111 x key

2.5 Comparison between [DP and VinamIlk im 2022 - 2c 2222 22c szc+c+zxs2 3.Assef managemenf ((UTTOV€F) F4ÝÏOS «sọ HH mg hư

4.Profitability ÑafOS sọ họ HH họ họ hp TH ng 4 1 Return ơn Sales Ratio (ROS) Q L2 002112112 1n HH nà nườ 4.2 Return on assets (ROÀ) L2 10221122112 11101152211 11515 15g ngư

an » Market value ratios ccssssssscssssscccccesssssnnnnnnncccccesssecsesssssnnnnsccansnnssssscesesceceeacanaanes

5.2 Market-to-book TAfIO - 012111 112111211211 111 1111111111111 1110111111011 5.3 Comparison between IDP and Vinamilk m 2022 2 2 22 2 c2 +zcsxc+c+

an - Duponf ÁnNÏYySiS cóc sọ nọ H TH Họ Họ tt TH hp

IV.Recommendation - - c1 11122511111 155551 1111191111111 251k n n1 k kg kg 11 1k ket 1 Liquidify RÑafiOS Go < Ọọọìọ H Ọ HH HH tt HH nga 2 Capital Structure Ñ4fÏOS -s- nọ Họ Họ HH họ ngự 3 Profitabilify ÑafÍOS co cọ h TH HH KH .H “TA "sẻ uc Số 5 Market Value Ratios

XMÊ®9 ¡9009 22 ;{.ïìi2 7

Figure 1: Milk production volume in Vietnam [2] - -:- ¿5:22 3223321321222 xxes Figure 2: Sales of Milk and Yogurt in Vietnam [3] 0 0 c:cccccccccceseceecetecetseenseenteeetiees Figure 3: Vinamilk dBn dDu thE trFGng sHa nFle ViJt Nam [4] 2552525 ‡+ +5 + Figure 4: Vietnam Darry Products Joint Stock Company (Vmamnlk)[S] - -

I BUSINESS DESCRIPTION Vinamilk was established on August 20, 1976 It 1s officially known as Vietnam Dairy Products Joint Stock Company, is a company specialized in the production and distribution of dairy products and dairy-based derivatives, along with the associated machinery and equipment Vinamilk's main business products include various types of milk such as fresh milk, packaged milk, condensed milk, soy milk, yogurt, and more In addition, the company also offers a range of beverage products and other dairy-based formulations In Vietnam, Vinamilk holds a significant market share in dairy products, specifically accounting for 54.5% of the liquid milk market, 40.6% of the powdered milk market, and 33.9% of the condensed milk market 1.Company strategy:

Vinamilk's goal is to continue maintaining and leading the No | position in the entire dairy market in Vietnam At the same time, try to grow to be in the Top 30's of Largest Dairy Companies’ revenue To achieve those great goals, Vinamilk has set out three small goals as follows: (Annual Report of Vinamilk , 2019) [1]

¢ Focusing mainly on dairy such as industries and related products ¢ Continue to maintain the research and development of new products, diversify

to suit each needs and tastes of consumers At the same time, it helps customers to have more experience about the product Make the process of

understanding the customer easier ¢ Prioritize exploitation of the domestic market ¢ For urban areas: focus on promoting high-end product segments ¢ Entering and expanding market in rural areas with popular product segment ¢ Build and develop a nationwide distribution system to become more

widespread and stronger and increase market share ¢ Becoming the most valuable dairy company in the Southeast Asia ¢ Ready for M&A activities and expand cooperative relationships with partners ¢ Look for M&A opportunities with dairy companies around the world ¢ Continue to penetrate new export markets with the strategy of

converting, the traditional export model to other forms

2.Macroeconomic analysis: The role played by the economic environment in shaping market dynamics and brings to the forefront various critical economic factors that influence market trends is pivotal These factors encompass elements like the pace of economic growth, inflation rates, the distribution of income, income growth, shifts in consumer spending patterns, and the state of the economic infrastructure, including transportation and postal services, and other sectors

A significant highlight of the passage is the mention of Vietnam's per capita income as of November 2020, which reached $2,750, representing an increase of approximately $35.6 in comparison to the previous year However, this growth rate, while still

positive, was notably lower than the corresponding increase in 2019, which was approximately $144 This points to income diversification among the population, signifying the existence of differing consumer needs and preferences within the market

Additionally, the passage also brings to light the performance of Vietnam's Gross Domestic Product (GDP) in the third quarter of 2020 During this period, GDP exhibited a growth rate of 2.62% in comparison to the same quarter the previous year It's worth noting that this growth rate was recorded as the lowest for the third quarter within the 2011-2020 timeframe This lower growth rate could be attributed to the ongoing impact of the COVID-19 pandemic, which disrupted economic activities However, with the pandemic under control, the economy gradually returned to anew normal, contributing to a resurgence in GDP growth in the third quarter of 2020 In summary, the passage underscores the central role of the economic environment and income diversification in shaping market dynamics in Vietnam The data on per capita income and GDP growth serve as important indicators for understanding consumer behavior and market performance in the country

3 Industry Overview Milk production volume is on an upward trend Milk production volumes have grown steadily In 2017, it expanded to 1.21 billion liters, an increase of 9.6% from the previous year In 2018, it increased by 0.5% to 1.22 billion liters, in 2019, it increased by 8.7% to 1.32 billion kilolitres In 2020, it decreased by 0.5% to 1.32 billion liters, remaining at a similar level as the previous year even under the Covid vortex According to local reports, the total consumption volume of dairy products (sales amount basis) in Vietnam was not significantly affected by the COVID-19 pandemic Sales for 2020 were down about 6% from the previous year, but this was only a modest decline compared to other general consumer

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goods, which were down about 8% The increased demand for milk and yogurt to boost immunity against COVID-19 was a factor

Billion liters L8 Vietnam: Milk Production Volume

25%

10

15% 08

by 8% from the prior year to 135 trillion dong for the full year

Corporate Finance 47K01.4 Group 5

Billion US dolas 2.0 Vietnam: Sales of Milk and Yogurt 40%

man Milk mums Yogurt wm Milk growth rate ewe Yogurt growth rate

Figure 2: Sales of Milk and Yogurt in Vietnam [3] Government price control

The specific point of Vietnam is that the government also interferes with the economy Supportive activities from the government could raise the dairy industry to amore modem stage On the contrary, it would ruin the dairy very fast The main intervention of the government lies in price control and price stabilization On Oct 4 2013, the Ministry of Health brought out the decision number 30 about controlling the dairy products for the under-6-year-old children This decision aims to limit the recent increase in dairy products In late 2013 and early 2014, the price of dairy products in Vietnam varied lots increasing from 7- 10 % Vietnam has the highest dairy price in the world On April 30, 2014, the Ministry of Finance (MOF) had new regulations on dairy products for under-6-year-olds The ceiling price 1s given out with a view to control the dairy price This 1s considered a strong action of MOF in controlling dairy price and it also shows an inefficiency of MOF in controlling dairy price With this new regulation, the price of powder milk would decrease from 50,000 — 70,000 VND per 900 grams box and as a result, the milk

producers would suffer Moreover, the dairy farmer with their low voice would lose the most in this activity

4 Competitive positioning a.Positioning

According to Euromonitor, Vietnam's milk market will reach a value of VND 135,000 billion by 2020, an increase of more than 8% compared to 2019, thanks to the rapid growth of the yogurt and beverage milk segment The high-growth sectors included milk (+10%), yogurt (+12%), cheese (+11%), butter (+10%) and other dairy products, which increased by 8%, while powdered milk rose by only 4% in value Water milk is the largest value-contributing segment in the Vietnamese milk industry, including popular brands such as Vinamilk, Myeongzhu milk, TH True Milk, Dutch Lady, and Nutifood CTCP Vietnam Milk ( VNM ) is currently holding the largest market share with the familiar brand name “Vinamilk”’

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b.Competitive

Figure 4: Vietnam Dairy Products Joint Stock Company iVinamilku[5] Leading nutrition group in Vietnam: Vinamilk is proud to be a National Brand, in “World's Top 10 Most Valuable Dairy Brands and "World’s Top 36 Dairy Producers by Revenue"

The proud development history: Over 45 years of sustainable development, Vinamilk has been making great contributions to the development of Vietnam's dairy industry and successfully established its position globally

Global outreach: Vinamilk is present in nearly 60 countries and territories, and also the only representative of Southeast Asia in “World’s top 50 dairy producers” (36th position)

Products for humans: Pioneering in bringing optimal nutrition for the physical and intellectual health development of Vietnamese generations, Vinamilk currently offers more than 250 products of all kinds, meeting nearly all nutritional consumers’ needs

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Governance management: We believe that an efficient management process is fundamental to development It brings financial strength to the company, confidence to investors and efficiency to business activities

Sustainable development: A strong system of subordinate units: With 46 subordinate units including 14 dairy farms and 16 modern factories in Vietnam and foreign countries, Vinamilk proudly brings high-quality products to consumers in Vietnam and overseas

Titles and awards: Gain many achievements in both domestic and international aspects We can name some as Labor Medal Class I, Vietnam’s 50 Top Valuable Brand, National Brand, Asia’s Most community-centric Company 2021 or Top 10 World’s Most Valuable Dairy Brands

ILFINANCIAL STATEMENTS 1 Balance Sheet

Relationship in the balance sheet

2 Income Statement

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from sales and service provision Cost of 29,745,906, 112,117 | 31,967,662,837,839 | 34,640,863,353,839 36,059,015,690,711 goods

sold Profit 10,554,331,880,891 | 11,235,732,234,125 | 10,632,535,972,478 8,577,575,319,708

after corporate income tax

Due to the complicated situation of the Covid-19 epidemic, it has led to scarcity and hindered the circulation of raw materials supply chain, pushing up raw material prices, causing capital costs to increase over the years While revenue did not have too many breakthroughs, net profit tended to decrease

3.Cash Flow Statement Relationship between the balance sheet and the cash flow statement

The balance sheet

In addition, net cash flow from financial activities is also negative, meaning the unit has paid back loan principal and contributed capital, thereby reducing the unit's financial dependence on outsiders

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However, in general, Vinamilk in recent years has had a positive proportion of net cash flow from business activities and accounts for a major proportion of the total net cash flow of the enterprise This is a business that is considered to have sustainable financial strength [6]

Net cash flow from investing and financial activities in a certain period may be negative but not necessarily positive This means that businesses generate money mainly from business activities, not from investment and financial activities [7] IILFINANCIAL ANALYSIS

1 Liquidity ratios To assess the short-term debt-paying ability of the enterprise A business can only survive if it can meet its payment obligations when due

1.1 Current liquidity ratio Measured by the net value of current assets to the short-term debts payable, this indicator reflects the overall ability to convert assets into cash to settle short-term debts for the enterprise

Current assets Current ratio =

Current liabilities

Current assets | 24.721.565.37 | 29.665.725.805.058 | 36.109.910.649.785 | 31.560.382.174.2¢

6.552 Current 14.442.851.83 | 14.212.646.285.475 | 17.068.416.995.519 | 15.308.423.081.52

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Although it remains above 1, it suggests that the company's ability to pay off debts is also decreasing

1 0.5

The increasing trend in the liquidity ratio from 2019 to 2021 indicates a strengthening ability of Vinamilk to meet short-term financial obligations Vinamilk’s current assets increased significantly in 2021 due to the recovery i both domestic and international markets According to the company’s press release, its sales increased nearly 10% in Q4 2021, reaching VND 15,834 billion in total revenue and VND 2,213 billion in net profit after tax The slight decrease in 2022, while still maintaining a ratio above 1, prompts further investigation to determine the factors influencing this change and assess the overall financial health of the company

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In general, Vinamilk's current assets and short-term liabilities have experienced relatively consistent fluctuations For instance, in 2021, the sudden increase in the current ratio was attributed to both a significant rise in short-term liabilities and short- term assets However, in 2022, it decreased as both short-term assets and liabilities experienced a simultaneous decline

The financial situation continues to be assessed as favorable, with a low risk of bankruptcy for the company The short-term assets of the business are sufficient to cover both short-term debts and upcoming obligations that need to be settled >» FLEXIBLE (CONSERVATIVE) POLICY

1.2 Quick ratio Reflects the company's ability to pay debts with short-term assets that can be converted into cash as quickly as possible

Quick ratio = Current assets — Inventory

In summary, based on the quick ratios, Vinamilk appears to have maintained a reasonable level of liquidity from 2019 to 2022 The variations in the ratio are not drastic and indicate a generally stable ability to cover short-term liabilities with liquid assets

It can be observed that Vinamilk's short-term assets and inventory for the years 2021 and 2022 are both very high

This is because of expansion of production and the recovery in both domestic and international markets If Vinamilk expanded its production scale or entered new markets during that period, they might have increased inventory to meet the rising demand

The increase in current assets may be a measure to ensure financial stability The company may be holding a significant amount of inventory or assets that can be quickly converted into cash to cope with uncertainties in the industry or market

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Cash & Cash Equivalents

equivalents Short-term | 14.442.851.833.360 14.212.646.285.475 17.068.416.995.519 15.308.423

liabilities Cash ratio 0,18 0,15 2 0,14 0,15 2

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Cash ratio

0.2 0.18 0.18 0.16

0.12 0.08 0.06 0.04

To conclude whether the value of the quick ratio is favorable or unfavorable in a specific business, one must consider the nature of the business and its operating conditions However, if this ratio is too low, certain enterprises may face difficulties in debt repayment Therefore, it can be observed that Vinamilk may have limited capability to quickly settle short-term debts using cash and cash equivalents In summary, the decreasing trend in Vinamilk's cash ratio from 2019 to 2021 signals a potential reduction in the company's ability to meet short-term obligations using cash and cash equivalents The slight increase in 2022 is a positive note, but the overall level remains relatively low, indicating a need for careful monitoring of the company's liquidity position

This decision may also reflect the company's cash management strategy Some businesses choose to invest their cash in higher-yielding opportunities rather than holding cash at low-interest rates This can be a way to maximize returns from free capital

>» RESTRICTIVE (AGGRESSIVE) POLICY 1.4 Comparison between IDP and Vinamilk in 2022

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This could suggest effective management of current assets and liabilities, contributing to financial stability

The current ratio of 1.35 suggests that IDP has the ability to cover its short-term obligations with its current assets, although it's lower than Vinamilk's ratio [DP may need to manage its current assets and liabilities carefully to ensure it maintains liquidity and can meet its short-term financial obligations

>» Vinamilk has a higher current ratio compared to IDP, indicating a potentially stronger short-term financial position

» The difference in current ratios may be attributed to variations in the composition of current assets and liabilities, operational efficiency, or industry dynamics

Vinamilk's efficient management of liquid assets may contribute to its overall financial stability

IDP's quick ratio of 1.15 suggests an ability to cover short-term obligations with liquid assets, but it is lower than Vinamilk's quick ratio

While the quick ratio is above 1, indicating a capacity to cover short-term obligations, a ratio closer to 1.15 may imply a reliance on inventory for liquidity

> Based on the provided quick ratios, Vinamilk appears to have a stronger ability to cover short-term obligations with liquid assets (excluding inventory) compared to IDP

CASH RATIO: Vinamilk's cash ratio of 0.15 mdicates that it has the ability to cover 15% of its short- term liabilities with its cash and cash equivalents A higher cash ratio generally unplies a stronger ability to meet short-term obligations using readily available funds IDP's cash ratio of 0.04 suggests a lower ability to cover short-term liabilities with cash and cash equivalents compared to Vinamilk A cash ratio of 0.04 means that IDP can cover only 4% of its short-term obligations with its cash holdings

> Based on the provided cash ratios, Vinamilk appears to have a stronger ability to cover short-term liabilities with cash and cash equivalents compared to IDP

2 Capital structure Ratios 2.1 Total debt ratio

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Total debt ratio = Total assets — Total equity

the enterprise has strong capital and low borrowing, with approximately 30%- 50% of the company's total assets being funded by debts over the years Explanation: With its strong financial resources, Vinamilk is always seeking investment opportunities through mergers to expand its distribution system and boost its retail channel to optimize its capital efficiency and contribute to the growth of the Group Although COVID-19 appeared in 2020, Vinamilk is not much affected by the fact that it has a wide range of necessities, which are essential during the epidemic season

Debt-equity Ratio

0.52 0.50 0.48 0.46 0.44 0.42 0.40

Explanation: Vinamilk in 2021 has increased its investment in factories such as its new dairy factory in Hung Yen province with a total investment of 4600 billion [8] Another aspect is the R&D investment, which Vinamilk has developed customized products for the Asian, African, and Middle Eastern markets, including powdered milk for children with banana and date flavors, sweetened condensed milk with coconut cream, and fresh milk containing vitamin A and minerals to help address vitamin A deficiency in Africa Vinamilk has also introduced Vinamilk Green Farm fresh milk, Vinamilk 100% Organic fresh milk, and Vinamilk UHT fresh milk with bird’s nest [9] So the company has issued bonds up to 10,000 bonds, which has led to a sharp increase in the total debt of the company in 2021

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2.3 Equity multiplier

Total assets

1.40

Vinamilk's equity multiplier has fluctuated slightly from 2019 to 2022, but it has remained relatively stable overall This indicates that the company has been financing its assets with a mix of debt and equity in a consistent manner As in 2021, Vinamilk has issued more equity, its equity multiplier has increased significantly

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Explanation: Vinamilk in 2021 has increased its investment in factories such as its new dairy factory in Hung Yen province with a total investment of 4600 billion.Another aspect is the R&D investment, which Vinamilk has developed customized products for the Asian, African, and Middle Eastern markets, including powdered milk for children with banana and date flavors, sweetened condensed milk with coconut cream, and fresh milk contaming vitamin A and minerals to help address vitamin A deficiency in Africa Vinamilk has also introduced Vinamilk Green Farm fresh milk, Vinamilk 100% Organic fresh milk, and Vinamilk UHT fresh milk with bird’s nest So the company has issued bonds up to 10,000 bonds, which has led to a sharp increase in the total debt of the company in 2021 The rate of growth of total assets is greater than the share capital, so the multiplier tends to rise rapidly 2.4 Debt to gross cash flow

Interest - bearing debt Debt to gross cash flow = = —

Net profit after tax + depreciation + amortisation

Debt to gross cash flow

2.00

1.50 ® =® 1.00 —*

Explanation: Vinamilk in 2022 reduced profits after taxes due to High milk commodity prices, especially raw milk powder prices, which led to a rise in Vinamilk's sales capital price This comes from three main causes Because of the high prices of corn and soybeans, the price of milk shipping oil has risen and the post- COVID-19 milk scarcity Since milk reserves are still available in 2020 and 2021, but by 2022 stocks are gradually exhausted, Vinamilk's post-tax profits in 2022 have declined, resulting in a decrease in debt to gross cash flow

2.5 Comparison between IDP and Vinamilk m 2022

The debt-equity ratio of the IDP is higher than that of Vinamilk, suggesting that the larger IDP coefficient represents a larger percentage of debt to pay than the total capital [DP is going to have more financial difficulties than Vinamilk In 2022, the debt-equity ratio of the IDP is greater than one, 1.e the total debt exceeds the total share capital of the company, while Vinamilk remains stable The IDP needs to consider how to pay off the debt to avoid financial difficulties

The large equity multiplier (>1) indicates that the level of financial independence of the enterprise is low because most of the assets of the business are invested in debts Overall, [DP's financial independence is lower than Vinamilk's

Debt to gross cash flow is not necessarily bad, but it is important to consider the company's industry and overall financial health Additionally, a company with a strong track record of profitability and a healthy balance sheet may be able to manage a higher D/GFCF ratio than a company with weaker financials As Vinamilk has a higher debt to gross cash flow, it shows that its financial health is weaker than IDP However, both company shows a high ratio, which implies that they are may be at risk of defaulting on their debt obligations

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3 Asset management (turnover) ratios 3.1 Inventory turnover ratio:

Inventory turnover is a financial ratio showing how many times a company turned over its inventory relative to its cost of goods sold (COGS) in a given period

A relatively low inventory turnover ratio may be a sign of weak sales or excess inventory, while a higher ratio signals strong sales but may also indicate inadequate inventory stocking

Inventory turnover measures how often a company replaces inventory relative to its cost of sales Generally, the higher the ratio, the better [10]

Cost of goods sold Inventory turnover = Inventory ;

sold 0 | 31.967.662.837.839,00 | 34.640.863.353.839,00 11,00

tory 5.254.445.181.635,50 | 4.944.056.508.766,50 | 5.839.070.123.816,50 7,00 Inven

tory turno

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DSI is also known as the average age of inventory Indicating the liquidity of the inventory, the figure represents how many days a company’s current stock of inventory will last Generally, a lower DSI is preferred as it indicates a shorter duration to clear off the inventory, though the average DSI varies from one industry to another [11]

' 7 7 —

Days'sales in inventory = days 365 —