Financial report for decision making case study halong canfoco

Figure 1 Viemam Canned Food Industry in 2020 Total Canned Food Industry Revenue In 2020 ‘Mil Vnd 500,000,000 « Vissan » CP Group «Ci CauTre s Halong =Seaspimex s« Other Kifocan, Tuyen

UEH WESTERN SYDNEY

International School of Business W

FINANCIAL REPORT FOR DECISION

MAKING

Lecturer: Mr Ng Eng Wan Case Study HALONG CANFOCO

(2018 -2020)

Group members: Nguyen Thanh Danh - PSO 21000002

Nguyen Duy Tai - PSO 21000113 Doan Thi Thanh Van - M1112125031 Van Nguyet Thanh - PSO21000124 Pham Van Cong - PSO21000091 Truong Le Ngoc Giang - PSO21000125

Net Tangible Assets Per Share

Earnings Per Share

Dividend Payout Ratio

Price Earnings Ratio

1 Introduction

1.1 Industry

With a 97,58 million population including a large number of young adults, Vietnam is

a potential market for canned-food companies According to VTV Online News, Brands Vietnam Report (Chanh, 2019), these consumers tend to use canned foods more since they need less effort and time for meal preparation Recently, we saw a dynamic development of the processed-food industry, especially canned food which possesses more than 50% of the market share There are lots of companies in this industry, however, only a few major players have their products show up frequently in the market such as Vissan, CP Group, CJ Cau Tre, HaLong & Seaspimex, Saigon Food,.etc

Figure 1

Viemam Canned Food Industry in 2020

Total Canned Food Industry Revenue In 2020 (‘Mil Vnd)

500,000,000

« Vissan » CP Group «Ci CauTre s Halong =Seaspimex s« Other (Kifocan, Tuyen Ky, Pattaya Food,.etc }

(Vietnam Tax Department, 2020)

According to Datamoniter’s forecast (Khue, 2018), half of the breakfast’s meat in Vietnam will be processed food in 2025 which leads to the need of more than 2,5 million tons

of processed meat

1.2 Company Background

Halong Canned Food Joint Stock Corporation (Halong Canfoco) was the pioneer of the food processing industry of Vietnam The company has more than 800 workers with 2 factories which annually produce about two hundred thousand tons of processed food for both domestic and export markets More than 70% sales comes from General Trade, the rest comes from Modern Trade and Export Pork Liver Pate and Tuna In Ol, two of the

company’s core products, are exported to Europe (under EU Code DH203), Middle East and Asian countries

100

2019 547,850,553,587 478,751,500,243

2020 734,343,175,946 379,330,744,475

121 154 Seaspimex 100 87 69 COGS (VND)

Halong Canfoco 371,018,654.033 445 264,975,552 591,909,411,496 Seaspimex 478,432,973,938 402,427,184,788 319,636,810,259 Trend analysis

Halong Canfoco 100 120 160 Seaspimex 100 84 67 Figure 2

Trends in Sales revenue and COGS of Halong Canfoco and Seaspimex from 2018 to 2020

HaLong Canfoco shows an increasing trend compared to Seaspimex From the end of

2018, the company expanded the market segment to the South and Mekong Delta areas and led to an increase in sales volume The surge in sales revenue of the company as result of an increase in high demand of domestic and export markets in 2020

In 2019, Covid-19 pandemic had a strong effect on aquatic resources of Seaspimex which led to stop exporting products (Canned Sentinel Crab) to the US market, therefore the company lost revenue for this

2.2 Profit

Table 2

Gross profit and Net profit of Halong Canfoco and Seaspimex from 2018 to 2020

Absolute figures 2018 2019 2020 Gross profit (VND)

100

100 -2,421,459,105 20,196,571,319

123

107 12,586,866,487 8.203.989.036

142,433,764,450 59.693.934.216

135

84 18,116,410,835 8,532,837,297

Halong Canfoco 100 720 948 Seaspimex 100 41 42 Figure 3

Trends in Gross profit and Net profit of Halong Canfoco and Seaspimex from 2018 to 2020

Gross profit Net profit

For Halong Canfoco's gross profit increased due to, clearly, increasing sales revenue and controlling COGS strictly For net profit, Halong Canfoco was at a loss in 2018 since they expanded the market to the Southern areas which led to an unusual rise in expenses However, the increasing trend of net profit shows that the company controlled their expenses more effectively in the following years

Regarding Seaspimex, its gross profit rose slightly in 2019 then dropped noticeably

by 23% in the following year The Law on Fisheries No 18/2017/QH14 taking effect in 2019 prevented illegal fishing which also affected fishing activities In early 2020, severe drought and saltwater intrusion conditions also impacted on the aquaculture production volume in the Mekong Delta, where Seaspimex’s main source of raw materials from Between 2019 and

2020, although the gross profit of Seaspimex declined markedly, its net profit almost

remained unchanged because the administration expenses nearly halved

(VND) 2018 2019 2020 Halong Canfoco 8,109,171,957 13,681,388,435 13,573 ,889,382 Seaspimex 29,170,887,554 63,510,865,339 36,984,619,388 Trend analysis

Halong Canfoco 100 169 167 Seaspimex 100 218 127 Figure 4

Trends in Cash and cash equivalents of Halong Canfoce and Seaspimex from 2018 to 2020

With Seaspimex, it had a healthier cash position Cash inflow from operating activities fluctuated over the period surveyed This mainly depended on the fluctuation of the changes in account receivables due to the ability to collect from the debtors and increase cash holding Compared to Halong Canfoco, Seaspimex had less experience in controlling inventories wich caused the drop in increase 1n inventories The cash flow from investing activities was more stable while that from financing activities fell moderately because proceeds from borrowing were continually being larger than the repayment of borrowings 2.4 Trade Receivables

Table 4

Trade receivables of Halong Canfoco and Seaspimex from 2018 to 2020

Absolute figures

(VND) 2018 2019 2020 Halong Canfoco 15,242,009,571 36, 100,800,649 57,616,659,95 1 Seaspimex 97,356,814,091 54,516,163,183 39,609,297,829 Trend analysis

Halong Canfoco 100 237 378 Seaspimex 100 56 41

Regarding Halong Canfoco, there was a nearly four-fold increase in its trade

receivables over the period Due to market expansion and new sales channels development, there might be an increase in the number of new customers and sales According to the list of third parties with balances over 10% of total trade account receivables, the amount of largest debt belonging to a third party increased noticeably, for example, 3.4 billion VND of EB Services Co, Ltd in 2018; 4.0 billion VND of Henry Lamotte GMBH Company in 2019 & 8.7 billion VND of Branch of Pho Viet JSC in 2020

As for Seaspimex, the figure dropped gradually It might be explained by the decrease

in sales volumes and sale revenue

(VND) 2018 2019 2020 Halong Canfoco 41,856,383,746 49.943.512.339 111,855,968,099 Seaspimex 60.147.395.875 49.490.242.93 40.699.259.603 Trend analysis

Halong Canfoco 100 119 267 Seaspimex 100 82 68 Figure 6

Trends in Trade payables of Halong Canfoco and Seaspimex from 2018 to 2020

The graph shows a slight increase in the figure for trade payables of Halong Canfoco

in the first 2 years, followed by rapid growth to 267% in 2020, which indicates that there was

an increase in the need for purchasing materials in demand of increasing production volume and sales volume In 2020, the account payables for Halong Canfoco's main supplier, Halong Food Import ExportExport One-member Co., Ldt was 54 billion VND, which was as six times as that in 2019

10 Regarding Seaspimex, the decrease in production volume due to the decline in sales volume could result in the decrease in purchasing materials Therefore, trade payables dropped gradually over the period

(VND) 2018 2019 2020 Halong Canfoco 153,176,511,196 182,293 ,658,099 248,397,054,925 Seaspimex 87,407,563,505 108,186,621,989 123,698,523 ,082 Trend analysis

Halong Canfoco 100 119 162 Seaspimex 100 124 142 Figure 7

Trends in Inventory of Halong Canfoco and Seaspimex from 2018 to 2020

11 increased their demands for canned food From the end of 2016 onwards, owing to the negative effect from social magazines and newspapers about sterilised sausage, revenues from these products dropped significantly However in 2017 the company decided to

maintain production, leading to the expiration of them Therefore, in 2018, learning from the experience, Ha Long Canfoco made a decision to have a lower number of inventories In

2019, two branches in Ho Chi Minh city and Da Nang city were closed, resulting in only a moderate increase in this figure Over the following year, thanks to new online retailing channels and a boost in customers’ demand for canned food due to Covid 19, HaLong Canfoco's revenue jumped, leading the company to remarkably increase its inventories

significantly because in 2020, the company spent around 4.7 billion VND installing

machinery and equipment, and nearly 2 billion VND on constructing and renovating

kindergarten so the long-term assets in progress increased more than 147 times

Consequently, net tangible assets leapt throughout the period, leading to the net tangible assets per share also increasing, which indicates that the possibility of a takeover is

immensely low because the market price to acquire HaLong Canfoco 1s relatively higher than the value of its tangible asset after buying it Also, the company is likely to prosper in the near future from the perspective of investors

3.1.2 Earnings Per Share

Table 8

Earnings per share (VND) of Halong Canfoco and Seaspimex from 2018 to 2020

Year 2018 2019 2020 Halong Canfoco -484 2,517 3,623 Seaspimex 1,870 760 790

Figure 9

13 Trends of Earnings per share (VND) of Halong Canfoco and Seaspimex from 2018 to 2020

4,000

3,000

2,000

===Halong Canfoco 1,000 = Seaspimex

-1,000

2018 2019 2020

In 2018, due to the nearly expired batch of sterilised sausage in 2017, the company had to sell them off by increasing trade discounts approximately sixfold, leading to rocketing selling expenses of nearly 22 billion VND Besides, staff costs also leaped, including business trip expenses At the end of 2019 onwards, the enormous increase in customer demand for canned food led to a significant growth in revenues Besides, the board of managers learned from experience in 2018 and came up with several cost-control solutions such as establishing a new salary scheme, if the staff reaches planned profits, they will be paid the remaining 30% of the salary, otherwise it will not be claimed As a result, net profit improved remarkably, resulting in increasing Earnings per share By contrast, in 2019 Seaspimex’s net income slumped due to provisions for bad debts and account receivables increasing by around 14 billion VND, revenue reducing by 70 billion and tax penalty increasing by 2.5 billion The plunge in revenue was mainly because in 2019, Ba Tri subsidiary reduced export sales by around 55 billion VND due to European market’s yellow card imposition over the inspection of fishing materials’ origin In short, HaLong Canfoco’s profitability was much better than that of Seaspimex

Year 2018 2019 2020 Halong Canfoco -206.43 19.81 27.60 Figure 10

Trends of Dividend payout ratio (%) for Halong Canfoco from 2018 to 2020

15 further expansion), its net income also jumped (higher profitability), resulting in higher dividends paid, which means the company also paid attention to paying dividends to

shareholders at a reasonable rate

3.1.4 | Price Earnings Ratio

Table 10

Price earning ratio (Times) for Halong Canfoco and Seaspimex from 2018 to 2020

Year 2018 2019 2020 Halong Canfoco -46.67 9.28 7.73 Seaspimex 4.01 12.37 17.09 Figure 11

Trends of Price earning ratio (Times) for Halong Canfoco and Seaspimex from 2018 to 2020

16 (around 17 times), which means investors expected 2.5 times higher earnings growth in the future for Seaspimex compared to HaLong Canfoco

3.2 Profitability

Table 11

Profitability ratios for Halong Canfoco and Seaspimex from 2018 to 2020

Year 2018 2019 2020 Gross profit margin (%)

Halong Canfoco 22.04 22.36 9.29 Seaspimex 12.88 15.80 15.51 Net profit margin (%)

Halong Canfoco -0.51 2.17 2.45 Seaspimex 3.65 1.70 2.22 Cash flow to sales ratio (%)

Halong Canfoco -10.70 3.96 -0.95 Seaspimex -5.47 9.56 -0.12

During the 2018-2020 period, Halong canfoco’s management has used labor and supplies more efficiently in the production process than Seaspimex in order to get a higher gross profit margin rate However, when it comes to comparing the net profit margin between these two companies, we can see that the rates are not much different in 2019-2020

Especially in 2018, Halong canfoco even made a negative rate while Seaspimex made the highest rate for the 3 years period The reason for this difference is mostly because of a much higher selling expenses and administration expenses of Halong canfoco compared to

Seaspimex We could assume that Halong canfoco complied to spend more on selling

expenses and administration expenses in order to increase total sale revenue in the long term Their sales revenue has increased from 479,342,952,512 VND in 2018 to 738,565,184,915 VND in 2020 Therefore, although Halong canfoco has the net profit margin of 2.45% in

17

2020, which is not much different from 2.22% of Seaspimex’, their net profit is more than twice of Seaspimex', which are 18,116,410,835 VND and 8,532,837,297 VND respectively Halong Canfoco had a rapid increase in return on equity rate, from -2.17% in 2018 to 14.63% in 2020, while Seaspimex had a significant drop from 16.13% to 6.17% during the period This result could be the consequence of market saturation Since total demand of the market has not changed much, an increase in one entity’s sale revenue would lead to a decrease in the others’ sale revenue

3.3 Efficiency

Table 12

Efficiency ratios for Halong Canfoco and Seaspimex from 2018 to 2020

Year 2018 2019 2020 Assets turnover ratio (Times)

Halong Canfoco 2.06 2.15 2.13 Seaspimex 1.58 1.27 1.07 Days inventory (Days)

Halong Canfoco 116.70 137.50 132.96 Seaspimex 50.32 88.70 132.40 Day debtors (Days)

Halong Canfoco 11.02 16.30 23.29 Seaspimex 49.31 57.89 45.28

Overall, Halong canfoco is operating more efficiently than Seaspimex since their asset turnover ratio is significantly better More specifically, Halong canfoco’s total asset increased from 293,395,473,754 VND in 2019 to 397,408,545,218 VND in 2020 mostly contributed by increment in inventories and short-term receivables, other than fixed asset This means they have optimized their fixed assets in order to raise the sale revenue On the other hand, Seaspimex’s sale revenue has decreased significantly during the 3 years period while their