SMC TRADING INVESTMENT JOINT STOCK COMPANY

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2 GENERAL INFORMATION ABOUT COMPANY Overall Formation and Development History Goods and Services Operation Network Organizational Structure CONTENT OPERATIONAL COVERING Chairman s Statement Honour Awards 2014 Financial Highlights Board of Director s Report Supervisory Board s Report EVOLUTIONARY INNOVATION Board of Management s Report 32 Introduction to Board of Management 32 Summary of Financial Statements in Assessments on key financial highlights in 2014 business operation and Performance years Breakthrough & Leap Forward CONNECTION and CONTRIBUTION Sustainable Growth Report Organization and Human Resources 2015 Financial Target and Business Strategy Corporate Governance Associations and Joint-ventures ACRONYMS SMC : SMC Trading Investment Joint Stock Company JSC : Joint Stock Company Co., Ltd : Limited Company IZ : Industrial zone AGM : Annual General Meeting Business : Manufacturing and trading IA GD DGD BOD IE RO VTU : Internal Audit : General Director : Deputy General Director : Board of Directors : Import and Export : Representative Office : Vietnamese Trade Union LEADING SERVICE STANDARD Report of the Board of Management Auditors Report Consolidated Balance Sheet Consolidated Income statement Consolidated Cash flow statement Notes to the consolidated financial statements

3 OVERALL FROM A SMALL STEEL SHOP, AFTER 26 YEARS OF DEVELOPMENT, ESPECIALLY AFTER EQUITIZATION, SMC HAS GROWN AND BECOME A LEADING STEEL TRADER IN VIETNAM. WITH THE ADVANTAGE OF AN EXPERIENCED STEEL SERVICES PROVIDER AND STEEL DISTRIBUTOR, SMC HAS NOT ONLY SUSTAINED ITS GROWTH, BUT ALSO ACHIEVED IMPRESSIVE RESULTS IN THE GLOOMY ECONOMY. Vietnamese name English name Trading name Abbreviation Head quarter CÔNG TY CỔ PHẦN ĐẦU TƯ THƯƠNG MẠI SMC SMC Investment Trading JSC Steel Materials Company SMC 396 Ung Van Khiem St., Ward 25, Binh Thanh District, HCMC Tel (84-08) Fax (84-08) Website Charter capital Ticker Face value Listed shares 295,183,610,000 VND SMC 10,000 VND 29,518,361 shares on the Ho Chi Minh Stock Exchange Production, trading, import and export of all kind of steels, metal goods, construction materials, interior decoration, construction equipment, mechanical equipment, warehouse framework, factory by steel, stainless steel, and aluminum. Construction and installation of civil, industrial, transport, irrigation, and interior design projects in accordance with the laws. Business Activities Preparation of construction investment projects, consulting, designing, and trading lodgement in accordance with the laws. Trading electrical products, groceries, consumer food and goods. Logistics and warehousing services for domestic and import export products. Trading real estate and land use rights of the owners or lessee. 4 SMC INVESTMENT TRADING JSC 5

4 FORMATION AND DEVELOPMENT HISTORY years Breakthrough & Leap Forward 2014 Achieving goals for 5-year business strategy from with total steel consumption volume of 867,000 tons Receiving First Class Labour Medal and establishing SMC Tan Tao One Member Co., Ltd. Establishing joint-venture SMC Summit between SMC and Sumitomo Group (Japan) Establishing SMC Ha Noi JSC Achieving goals for 5-year business strategy from with total steel consumption volume of 558,000 tons Establishing SMC Hiep Phuoc One Member Co., Ltd. and Steel Trading One Member Co., Ltd. Establishing SMC Binh Duong One Member Co., Ltd and SMC Mechanic Steel One Member Co., Ltd Receiving Second Class Labour Medal and establishing SMC Steel Co., Ltd at Ba Ria Vung Tau Listed on the Ho Chi Minh Stock Exchange with the stock code: SMC Equitization and changing into SMC Trading Investment JSC Registering trademark certification for SMC brand Receiving Third Class Labour Medal and officially introducing SMC Logo Official launch of SMC brand-name, which stands for Steel Materials Company Transformation into Manufacturing and Trading Construction Materials Enterprise No.1 Establishment of the Construction Materials Store No.15 belonged to Southern Retail and Wholesale Construction Materials Center 6 SMC INVESTMENT TRADING JSC 7

5 GOODS AND SERVICES SUPPLIED Wire rod Rebar Flat bar Construction steels including wire rod, rebar, round steel, and deformed steel. Hot rolled coil, cold rolled coil, welded wire mesh, flat bar, high tensile steel, purlin, steel pipe, section steel, galvanized steel plates, secondary steel 4 Coil Center systems throughout from the North to the South and located in such big city as Ha Noi, Ho Chi Minh, Ba Ria Vung Tau are well equipped with modern machineries and processing lines imported from Taiwan according to Germany technology. Scientific management technique according to ISO 9001:2000 allows the processing systems to professionally split and cut various sizes of cold and hot rolled coils, galvanized steel sheets, color coated steel sheet, and stainless steels with high quality and precision. Coil Center Coil Center System Capacity Unit CRC cutting line 116,000 Tons/year HRC cutting line 145,000 Tons/year CRC splitting line 108,000 Tons/year HRC splitting line 120,000 Tons/year Hot rolled steel Cold rolled steel Purlin Euro mesh welded mesh steel 8 SMC INVESTMENT TRADING JSC 9

6 Ha Noi Capital Myanmar Laos Đa Nang ROWING GOF SERVICES Thailand Paracel Islands Campuchia Ho Chi Minh City Binh Duong Ba Ria - Vung Tau Spratly Islands Malaysia Singapore Countries to which SMC exports its products. 10 SMC INVESTMENT TRADING JSC 11

7 ORGANIZATIONAL STRUCTURE GENERAL MEETING OF SHAREHOLDERS BOARD OF SUPERVISORS BOARD OF DIRECTORS CEO DEPUTY GENERAL DIRECTOR OF PRODUCTION DEPUTY GENERAL DIRECTOR OF BUSINESS DEPUTY GENERAL DIRECTOR OF FINANCE & ACCOUNTANCY DEPUTY GENERAL DIRECTOR OF ADMINISTRATION JOINT VENTURE SMC STEEL Co., LTD SMC HANOI JSC SMC TAN TAO ONE MEMBER Co., LTD SMC STEEL TRADING ONE MEMBER Co. LTD PROJECT BUSINESS DIVISION SMC HIEP PHUOC ONE MEMBER Co., LTD SMC BINH DUONG ONE MEMBER Co., LTD SMC DA NANG BRANCH FINANCIAL DEPARTMENT ACCOUNTING DEPARTMENT BOARD OF INTERNAL CONTROL PERSONNEL DIVISION ADMINISTRATIVE DIVISION MARKETING DIVISION SMC STEEL MECHAN- ICAL ONE MEMBER Co., LTD SMC- SUMMIT LIMITED LIABILITY COMPANY BOARD OF RISK CONTROL PROJECT DIVISION STORE No. 147 PROJECT BUSINESS DEPARTMENT STEEL BUSINESS DEPARTMENT STORAGE DEPARTMENT IMPORT-EXPORT DEPARTMENT PURCHASE DIVISION ERP DIVISION TECHNICAL DIVISION 12 SMC INVESTMENT TRADING JSC 13

8 VISION Being a prestigious and professional distributor AMBITION Speaking of steel, thinking of SMC - Mentioning SMC, thinking of steel MISSION SMC desires to focus its ability and knowhow for benefit and wining the trust of customers that will help the stable and sustainable future of Vietnam s steel industry. CORE VALUES: - Being professional in all activities - Fulfilling customer expectations - Striving toghether toward common goals - Honoring integrity - Being a prestigious brand - Striving to learn Chairman s Statement Honour Awards 2014 Financial Highlights Board of Director s Report Supervisory Board s Report

9 CHAIRMAN S STATEMENT WITH FOUR PROCESSING FACTORIES OF HRC, CRC, AND GALVANIZED STEEL PRODUCTS HAVING CAPACITY OF MORE THAN 300,000 TONS PER YEAR, COUPLED WITH THE STRONGEST CONSTRUCTION STEEL SALES TEAM NATIONWIDE, SMC HAS REACHED THE NEW CONSUMPTION RECORD OF OVER 860,000 TONS OF VARIOUS STEEL PRODUCTS BOTH IN DOMESTIC AND EXPORT MARKETS. Dear Honorable Shareholders, One more year has gone, SMC continues to mature as well as has more challenges and threats. No doubt this year operation is not completely successful but it is also not a failure. The difficulty continues wave after wave, despite that the company hold strong and firm there are stumbling and hardships. But the most courage of all is the confrontation and the will to find the ways for the whole group development. With four processing factories of HRC, CRC, and galvanized steel products having capacity of more than 300,000 tons per year, coupled with the strongest construction steel sales team nationwide, SMC has reached the new consumption record of over 860,000 tons of various steel products both in domestic and export markets. As so, in 2014 the system has consumed more than 150,000 tons compared to 2013, exceeding the 800,000 tons target set up to It also required strengthened in all aspects of operations including human resources, warehouse equipment and machinery, capital and financial resources, as well as corporate governance and administration. SMC is also proud to win significant contracts in 2014 to supply steels for famous global brands project that have invested in Vietnam such as, Formosa Ha Tinh, Samsung - VN and the first metro line in the Ho Chi Minh city, Metro line 1. We can say this is the right choice of foreign clients as well as the confirmation of SMC capability to meet the demanding service of market and foreign partners. However, 2014 also witnessed SMC s poor business performance, failing to complete the profit target, regardless of strong growths in sales volume and revenue. It is also a major obstacle for the capital accumulation for subsequent years development of the system, leading to strong correction and less attractive of SMC shares on the stock market. Entering 2015, as the world oil prices has plunged from Q4/2014 leading to an impairments of the mining industry including iron ore, steel prices continuously following downward trend is major challenge for the iron and steel enterprises with large inventories. The whole SMC system is facing and fend off the problem with the efficiency. This is also a challenge that SMC has encountered many times and got experiences. With a long history and the real strength of the brand and position in the marketplace, SMC believes it will surpass and enhance the system to develop and be stronger. Sincerely, Chairman, NGUYEN NGOC ANH 16 SMC INVESTMENT TRADING JSC 17

10 HONOUR AWARDS 2014 FINANCIAL HIGHLIGHTS 1,000,000 Total steel and cement consumption 1,008,829 Sales volume break-down by key steel product segments Total consumption Steel Cement & Clinker 820, % 500, , , ,083 Construction steel Flat Steel 38.7% 1.8% 1.1% Section steel Other steels First Class Labour Medal 2005, 2007, 2008, 2009, 2010, 2011, 2012 Vietnam Gold Star Award & Top 100 Vietnamese Brand NET REVENUE (VND bn) NET PROFIT AFTER TAX (VND bn) 2009, 2010 Vietnam Excellent Retail Distributor 2008, , 2008, , The Best Service Trade Award Vietnam Strong Brand Emulation Flag of Prime Minister The best distribution system development and organization award Vietnam Top 500 companies with the largest revenue Second Class Labour Medal 12,000 10,000 8,000 6,000 4,000 2,000 6,858 8,940 8,964 9,651 10, Third Class Labour Medal SMC INVESTMENT TRADING JSC 19

11 BOARD OF DIRECTORS REPORT BOARD OF DIRECTOR Mr. NGUYEN NGOC ANH Mrs. NGUYEN THI NGOC LOAN Mr. VO HOANG VU Mr. MA DUC TU Mr. TAIRA YOSHIYUKI Mrs. VU THI THANH HONG Chairman of SMC BOD/ Member of Thong Nhat Steel JSC BOD/ Member of Nam Khang Investment JSC BOD Vice Chairwoman of SMC BOD Member of SMC BOD Member of SMC BOD / Vice chairman of Thu Duc Import Export JSC BOD / Member of Real Estate No.9 JSC BOD Member of SMC BOD / CEO of Hanwa Vietnam Co., Ltd Member of SMC BOD / Chief Representative of Bao Viet Fund Management HCMC branch 20 SMC INVESTMENT TRADING JSC 21

12 BOARD OF DIRECTORS REPORT (continued) REPORT OF THE 2014 AGM IMPLEMENTATION THE BOARD MEETS ON QUARTERLY BASIS WITH THE SUPERVISORY BOARD, BOM, AND OTHER COMPANY S KEY OFFICERS TO ASSESS THE IMPLEMENTATION OF BOD S DIRECTIONS AND BUSINESS PERFORMANCE; TO DISCUSS AND AGREE ON POLICIES, MANAGEMENT SOLUTIONS, AND BUSINESS PLANS FOR NEXT QUARTER. GENERAL STATEMENT In October 2014, the Board of Director has appointed Mr. Truong Tuan Dung Hung officially served as Chief Financial Officer of the company since 9th October 2014 in replacement for Mr. Nguyen Binh Trong. The company s rules, regulations, and activities are all in compliance with the regulations on corporate governance law. However, the Board of Director has not allocated appropriate time to participate the required training courses on corporate governance in On quarterly basis, the Board of Director has organized meetings with Board of Supervisor, Board of Management, and key officers of the company for assessments on the implementation of BoD s guidelines, the financial performance and results, discussion and agreement on managing policies and solutions, and planning for next quarter business activities. In addition, the BoD also hold extraordinary meetings to timely consider and approve significant policies and strategies related to corporate governance activities of the BoM. In 2014, the BoD has arranged 09 meetings in total and issued 06 resolutions on important issues. EVALUATION ON THE BOM CORPORATE GOVERNANCE, BUSINESS MANAGEMENT, AND IMPLEMENTATION OF THE 2014 AGM RESOLUTIONS In 2014, the BoM has attempted to fulfill the consumption volume target, creating a favourable momentum for the company s operation activities, constantly and flexibly managing and developing new high margin products for more operational efficiency of the whole system, maintaining and improving SMC s brand-name and position on the market, sustaining and promoting strengths and advantages of the entire system, stabilizing organizational structure, courageously increasing training programmes for the staff inheritance group, ensuring financial resources for the operation of the whole system at low cost and effective cash flow management. However, this is the third consecutive year under the managing execution of the BoM that SMC failed to achieve the target net profit, mostly caused by both local and global difficulties, from the general economic situation to the steel industry problems, together with the company s subjective factors such as high-cost inventories stocked up and unexpected deeply decreasing steel price that SMC could not complete the target plan. Key items UNIT Target ACTUAL % Total steel consumption volume Tons 750, , Construction steels Tons 455, , Flat steels Tons 275, , Other steels Tons 20,000 24, Total cement and clinker consumption volume Tons 100, , Revenue VND bn 10,000 10, Net profit after tax VND bn 50,0 20, Cash dividend payment VND/share 1, Audit firm selection KEY FACTORS AFFECTING 2014 BUSINESS OPERATIONAL PERFORMANCE The management team and the entire system have been actively implementing all proposed business strategies, flexible in operational management, and dynamic in business and production activities in order to promptly respond to the complicated situations of the economy and market. The national economy and steel industry in 2014 recorded positive movements. The economic growth rate has been slightly recovered BoD has choosen DFK Vietnam Auditing Co. to audit the company s 2014 financial statements with higher than previous year GDP at 5.98%. The average CPI in 2014 only went up 4.09% from 2013, being the lowest inflation rate within the past 10 years. Liquidity of the commercial banking system considerably improved, foreign exchange rate stabilized, foreign reserves increased, and the interest rate adjusted down by 1-2% from last year. The real estate market also proved some signs of improvement thanks to more efficient subsidy regulations by the government and more direct foreign investment inflows. As a result, consumption of construction materials sector has been more active than before. Total cement consumption in 2014 increased 8.7%, in which export of cement and clinker went up 13% yoy. Total steel consumption in 2014 almost reached 13.9 million tons, increasing by 16.8% from last year, including nearly 5.4 million tons consumed by construction steel products, up 14.2% yoy, 1.2 million tons consumed by steel pipe segment, strongly up 51.9% yoy, and more than 3.5 million tons consumed by galvanized steel segment, up 34.6% yoy. 22 SMC INVESTMENT TRADING JSC 23

13 BOARD OF DIRECTORS REPORT (continued) Accompanying with the whole industry advance together with utilizing itself competitive advantages such as well-known brand name, various and diversified product portfolio, strong operation and distribution capability, modern Coil Center systems and warehouses, coupled with dedicated and experienced staffs and leaders, SMC has upholded the processing and distributing activities to push up the companys total steel and cement consumption in 2014 by 20.9% yoy and 36.6% yoy respectively. This is such an encouraging volume growth rate not only for its higher than the industry average but also as the efforts of the company under unfavourable and unexpected business surroundings. The business operation activites of most companies generally has been less difficult but not yet overcoming all problems due to internal and external economic and political instability. In particular, the tightening regulation on overload transportation pushed up rates and transport costs doubled while companies could not adjust selling price and share costs immediately to customers. Moreover, tension and instability caused by domestic violences in large industrial parks also seriously affected business operations of many foreign firms, hence directly negatively impacting the operational activities of SMC s related business. The year 2014 also witnessed the consecutive down trend in steel material prices worldwide, including the strongest falls in iron ore and scrap steel, followed by price adjustments in billet, HRC, and CRC. High-cost inventories due to continuously dropping input costs coupled with adjusted low selling price caused low operational efficiency. Meanwhile, the sudden drop and deep decline in oil and gas prices in the last months of the year pushed steel prices down further; the currency devaluations of such large steel producers and exporters as Russia and India created fiercer price competition, being a huge challenge to not only SMC but also other domestic steel players. STRATEGIC ORIENTATION FOR NEXT YEAR PLAN S IMPLEMENTATION Continue following the longterm development strategy, which is trading, processing and distributing different types of steel products, targeting total consumption volume of 1 million tons of steel per year; however, quality and efficiency will be more focused than quantity for the year 2015, based on stable platform for solid and long-term growth. Continue increasing the proportion of flat steel products in total consumption structure, ensuring the efficiency and high ultilization rate of processing lines, expanding and enhancing value added of processed steel products. Secure financial activities to well explore bank loans capital resources and tightly controlling working capitals needed for business operation activities at the possible lowest costs, descending toward finishing bad debts. Increase forecasting activities, updating and anticipating market trend domestically and globally. Continue improving and increasing the quality of employees to not only being able to overcome difficulties but also having appropriate human resources development in accordance with the growth of the company. Maintain and promote corporate culture in the spirit of general interests, for the benefit of customers and for sustainable long term development target. Establish and maintain clear competitive advantages with other companies. 24 SMC INVESTMENT TRADING JSC 25

14 BOARD OF DIRECTORS REPORT (continued) Besides the overall difficulties and objective factors, regulation risk, price volatility risk, and other unforeseen risks, SMC has also encountered many challenges caused by itself business operation nature and other subjective factors. Therefore, SMC always has the flexibility in its corporate governance and business management, establishing the risk management strategy and internal control system to ensure the effective risk management activities to minimize the impact of unfavourable factors on the company s operational performance. RISK ASSESSMENT and RISK MANAGEMENT ACTIVITIES Financial risk management Operational risk management Going along with the economic recovery and the industry consumption growth, SMC is self-equipped and well invested in new processing systems to catch up with the general growth rhythm to ensure the efficient growth of the business. Steel price moved in a negative direction has directly affected the company s performance, yet the management always focuses on flexible sales policies and strategies to balance between import-export activities and inventories, establishing executive committees closely and actively research and update steel price and steel market domestically and globally in order to minimize possible related risks. Moreover, the processing activities at Coil Center plants are also tightly controlled, checked, and maintained regularly to ensure that machineries and equipments always running safely and efficiently, providing the best quality products as requested by customers. Investments in Coil Center systems with total 04 high value processing plants continuously within the past 03 years required a large capital demand for working capital and investment and operational activities, meanwhile the equity market was not favourable for new capital issuance, leading to a large mobilization from bank loans, pushing up the debt to equity ratio so high in the past few years. With a high proportion of bank loans, SMC is easily and strongly affected by credit policy and foreign exchange rate fluctuations. As a result, new plants, increasing sales volume and revenue, corresponding increasing inventories, and dropping selling prices all together pulled down operational efficiency as well as pushed up provision for bad debts. Accordingly, SMC has always maintained a high credit standing with most major banks and financial institutions to ensure loans with high credit limits and low interest rates. At the same time, the company also has flexible solutions in debt collections, reviews on each client s prestige in trading and payment to have appropriate and efficient sales policy, debt limit and debt collection plans. Human resources and Subsidiary risk management With the constantly expansion of the company over the past few years, the size of the unit personnel and members of SMC growing more and more associated with the risks of internal competition, inefficient performance of subsidiary, and the ability to hold key personnel. Actually, SMC with a solid corporate culture expressing the unity and solidarity of all members and employees toward a common goal, all departments and subsidiaries have good interactions and mutual supports to enhance productivity and operational efficiency, together for the development of the whole system. In addition, SMC has also frequently and appropriately implemented training systems, and competition and promotion policies to ensure the motivation for the efforts of all employees and affiliates. 26 SMC INVESTMENT TRADING JSC 27

15 SUPERVISORY BOARD S REPORT INVESTMENT ACTIVITIES SMC has completed the investment plan for the periods following the strategy of enhancing added values to processing steel products, thereby increasing the competitive advantages over competitors. The Coil Center system including 02 plants for CRC processing activities and 02 plants for HRC processing activities have always steadily operated with increasing output over years. The proportion of flat steel product in the company s total volume consumption has significantly increased from 23% in 2011 to 30.1% in 2012, to 34.8% in 2013, and reached 38.7% in The operational efficiency of the coil center system has considerably contributed to the company s market share increase and more professional operating activities, creating and enhancing confidence of foreign partners, being the foundation for more corporation expansion in the coming time. FINANCING ACTIVITIES SMC has guaranteed well cash flow management and enough capital needed for processing and operating activities. Total short and long term loans significantly increased over years are necessary for the growth of the company following long term development strategy FINANCIAL PERFORMANCES Mrs. HO THI NGOC TUYET Mr. NGUYEN KINH LUAN Mrs. TRAN THUY BICH HAN Item Unit Actual Target Actual (%) Target (%) Volume Tons 717, , , Revenue VND bn 9,650 10,000 10, Net profit VND bn Chief Board EVALUATION ON BOARD OF DIRECTOR S DIRECTION OF OPERATING ACTIVITIES The BoD has critically executed all contents of the 2014 AGM resolutions, timely guided the whole system to overcome difficulties and challenges, created opportunities to enhace operating efficiency, and built up the entire system becoming more and more stable. The activities of the Board are all in compliance with its functions, responsibilities, duties, and powers under the Corporation Law and the Charter of the Company. All meetings of the BoD have the attendance Member of the Board of Supervisor; discussions and votings are done transparently in accordance with regulations. EVALUATION ON CEO S OPERATING MANAGEMENT ACTIVITIES The CEO has fully and timely implemented the 2014 AGM resolutions and BoD directions in accordance with the functions, duties, and powers given in the Charter of the Company. Although constantly facing many difficulties over the past year, the CEO has put all efforts in business operating managing activities for the sustainability of the company. The Board of Management Member also minded on activities of the company s unions, maintained policies on performances related to social responsibility, community sharing and charity for the poors, and ensuring regulations and policies for employee s welfare, salary and bonus. CONSOLIDATED FINANCIAL STATEMENTS The Board of Supervisor agrees with the opinion of the DFK Auditing Co. on the company s consolidated financial statements ended 31 December The financial reports were reasonably and honestly presented, in accordance with the Vietnam accounting standards and other current law regulations. The year 2014 recorded a positive growth in consumption with total sales volume of 867,378 tons of steel products, increasing 16% and 21% from the target and the same period last year respectively. SMC has basically completed the consumption strategic objective of 800,000 tons for the 5-year period from 2011 to RECOMMENDATION Maintaining internal control activities for timely adjustments, supplementations, and issuances of new procedure according to the actual operating performance, providing more professional presentation to be the guidance to the whole system. Enhancing organizational structure, strengthening management and supervision activities to meet the growth rate of the company, the domestic and foreign markets. Continuing the implementation of information sharing ans corporating mechanism amongs departments and subsidiaries to improve the quality of management reports on management, investment, and financing activities in order to generate conditions for the Company to achieve 2015 target plans, ensuring the highest benefits to the enterprise and shareholders. Continuing the risk management tightening policy in business and financing activities, especially in the areas of credit loans, foreign exchange rate, and imported inventories. Promoting the integrated system, enhancing consistant brand management activities throughout the whole system, accompanying with community related activities and contributing to the overall development of the country. 28 SMC INVESTMENT TRADING JSC 29

16 Board of Management s Report 32 Introduction to Board of Management 32 Summary of Financial Statement in Assessments on key financial highlights in business operation and Performance

17 BOARD OF MANAGEMENT S REPORT BOARD OF MANAGEMENT BOARD OF MANAGEMENT OF SMC HAS FIVE MEMBERS INCLUDING THREE MEMBERS REPRESENTING IN THE BOARD OF DIRECTOR. Mr. NGUYEN NGOC ANH Mrs. NGUYEN THI NGOC LOAN Mr. VO HOANG VU Mr. NGUYEN VAN TIEN Mr. NGUYEN BINH TRONG CEO Deputy General Manager/ Sales Executive Deputy General Manager/ Production Executive Deputy General Manager/ HR and Administration Executive Deputy General Manager/ Finance Executive 32 SMC INVESTMENT TRADING JSC 33

18 BOARD OF MANAGEMENT S REPORT (continued) SUMMARY OF FINANCIAL STATEMENTS IN 2014 Unit INCOME STATEMENT Net Revenues VND bn 8, , ,911.4 Cost of Goods Sold VND bn 8, , ,588.5 Gross Profit VND bn Profit from operating activities VND bn Profit before tax VND bn Net profit after tax VND bn Earnings per share (EPS) VND 2, BALANCE SHEET Current Assets VND bn 1, , ,571.5 Cash and cash equivalents VND bn Account Receivables VND bn 1, ,026.1 Inventories VND bn , ,159.8 Non-current Assets VND bn Fixed Assets VND bn Total Assets VND bn 2, , ,103.1 Short-term debts VND bn , ,671.5 Account payables VND bn , Long-term debts VND bn Total Liabilities VND bn 1, , ,536.2 Owner s Equity VND bn Charter Capital VND bn Retained earnings VND bn KEY FINANCIAL RATIOS Net revenue growth rate % Net profit growth rate % Gross margin % Net margin % Return on Assets (ROA) % Return on Equity (ROE) % Debt/Equity ratio % OVERALL EVALUATION ON 2013 FINANCIAL PERFORMANCE Along with the consumption recovery of the whole industry, SMC continues to ultilize its competitive advantages to gain market share and sales volume in the domestic market. With total steel consumption in 2014 reached 867,378 tons, up 20.9% yoy, achieving 116% whole year target, and total cement and clinker consumption was 141,451 tons, gained 36.6% yoy, finishing 141.5% target, the net revenue of the whole system went up to VND 10,911 billion, increasing 13.1% from the previous year and reaching 109.1% whole year target, regardless of any steel price adverse movements. Focusing on investments and expansions of the Coil Center systems in the previous years have brought positive results and being a significant foundation for SMC to continuously increase total sales volume as well as net revenue recently. At the end of 2014, SMC has well equipped with total 10 flat steel cutting and splitting systems contained by 04 Coil Center plants with total processing capacity of 300,00 tons per year, including 02 plants specializing for hot rolled steels and 02 plants speciliazing for cold rolled steels. In 2014, the company also developed new processing steel products for small size galvanized steel sheets and small size hot rolled coils, contributing to the diversification of processing product portfolio, thereby increasing productivity and efficiency for the whole system. Thus, the total consumption of flat steel products in 2014 reached 335,360 tons, equivalent to a high proportion of 38.7% of total consumption of the whole system, gradually changing the features of SMC from a purely commercial trading company to a large capability steel processing enterprise. Gross profit margin although was slightly improved, other high costs including depreciation cost, selling and transportation costs, and provision expenses caused 2014 profit after tax dropping to VND 19.9 billion, equivalent to only 39.8% year plan, one more time omitted with shareholders on the ability to accomplish the assigned target profit Actual 2014 Actual 2014/2013 Target /target Steel consumption volume (tons) 717, , % 750, % Cement consumption volume (tons) 103, , % 100, % Net revenue (VND bn) 9, , % 10, % NPAT (VND bn) % % Dividend (Dong/share) % 1, % 34 SMC INVESTMENT TRADING JSC 35

19 BOARD OF MANAGEMENT S REPORT (continued) ASSESSMENTS ON KEY FINANCIAL HIGHLIGHTS IN 2014 BUSINESS OPERATION AND PERFORMANCE CONSUMPTION VOLUME AND NET REVENUE Unit Total steel consumption volume Ton 601, , ,378 Steel consumption volume growth % Total cement and clinker consumption volume Ton 84, , ,451 Cement and clinker consumption volume growth % Total steel and cement consumption volume Ton 686, ,925 1,008,829 Total consumption volume growth % Net revenue VND bn 8,964 9,651 10,911 Net revenue growth % STEEL CONSUMPTION BREAKDOWN BY KEY SEGMENT Construction steel Flat steel Section steel Others 62.4% 33.1% 2.1% 2.4% 2014 Construction steel Flat steel Section steel Others 58.5% 38.7% 1.8% 1.1% OPERATIONAL PROFITABILITY AND EFFICIENCY Unit Gross Profit VND bn Net profit after tax and minority VND bn Net profit growth rate % Gross margin % Financial expenses / Net revenue % Interest expenses / Net revenue % General & Selling expenses / Net revenue % Administration expenses / Net revenue % Net margin % Return on Assets (ROA) % Return on Equity (ROE) % With the significant contribution from flat steel product segment, gross margin of SMC in 2014 gained 0.2% to 3.0% from the earlier year. However, rising costs in most operational activities all together pulled down net profit after tax following the downward trend in previous years. In particular, financial expenses, especially expenses for bad debt provisions, continued to increase more than VND 30 billion in The selling expenses and administration expenses over net revenue ratios also increased by 0.2% each in 2014, mainly affected by (1) strong increases in transporation costs due to the overload tightening control policy, and (2) expenses for sales team and sales channels related to higher consumption. As so, ending 2014, SMC s net profit after tax and minority interest only achieved VND 19.9 billion, down significantly 23.5% from last year. Net margin remained at very low level of only 0.2%. Total steel sales volume increased nearly 21% yoy in 2014 across all steel segments, in which the flat steel section showed the most impressive growth rate of 41.2% yoy from the previous year, accounting for 38.7% the whole company s total steel sales volume, which increasing the proportion by 5.6% from a year before. Construction steel segment also went up positively by 13.4% yoy to total consumption of 507,136 tons, accounting for 58.5% total steel sales volume in In addition, cement and clinker segment also expressed good competencies with 36.6% volume growth rate from last year. As a result, total sales volume including steel and cement of the whole group in 2014 reached over 1 million tons, noticeably up by 23% from the year Ending 2014, thanks to encouraging increasing in sales volume, especially leading by the flat steel segment, the company s net revenue is guaranteed for the continuous uptrend at higher growth rate of 13.1% yoy than previous years, pushing net revenue up to VND 10,911.4 billion for the whole year SMC INVESTMENT TRADING JSC 37

20 BOARD OF MANAGEMENT S REPORT (continued) ASSET AND CAPITAL STRUCTURES Unit Assets Total Assets growth rate % Current asset growth rate % Non-current asset growth rate % Liabilities Total bank loans VND bn , ,790.0 Total liabilities growth rate % Current liabilities growth rate % Non-current liabilities growh rate % Total bank loans growth rate % Owners Equity OE growth rate % Debt / Equity % Interest Coverage Times Current ratio Times Quick ratio Times Total assets in 2014 increased by 33.7% compared with the year 2013, mainly driven by cash and short term financial investments increases in current assets while non-current assets was slightly down. Along with total assets, liabilities of the company also went up significantly mostly from short term bank loans. Ending 2014, total short and long term loans reached up to VND 2,790 billion, strongly up by 123.7% from last year ending, making the debt to equity ratio surged to nearly 5 times, doubling the debt and equity capital structure in previous years. The operations of new Coil Center systems at the end of 2012 and 2013 together with increases in import-export activities, inventories arranged for large projects distribution, and total sales volume required SMC having an extensive working capitals serving for operational activities. Meanwhile, the company s owners equity had no significant moves as charter capital remained unchanged and retained earnings were low. This explains why the debt to equity ratio of SMC increasingly high. The large and rapid debt capital rising over recent years brought a higher risk to the company for the debt and interest expense payment ability. However, financial ratios showing the company s interest coverage payment, quick ratio and current ratio in 2014 all are still good enough to ensure the safety of the company in credit financing activities. IMPORT AND EXPORT ACTIVITIES Unit target +/- 14/13 % target Total export volume Tons 83,360 86,231 85, % % Total import volume Tons 399, , , % 91.2 % Export / Total vol consumption % % 87.6 % Importation and exportation played an active role supporting business operation, processing and distributing activities of the whole system. Total importexport volume in 2014 was 450,327 tons of steel products, reducing 6.7% from the previous year as guidance. In which import volume went down by 8.8% from the year 2013 as the supplies for HR, PO, CR, EG, and GI products were more actively sourced domestically. Importation activities besides the role of guaranteeing enough goods and raw materials for processing and distributing activities, was also well regulated and controlled under unfavourable adverse trend in steel price, balancing among consumption importation and domestically supply sources in order to diminish possible negative impacts on the whole system s operational efficiency. In addition, exportation activities continued to be well maintained in key export markets including Cambodia and neighbouring countries, bringing total export volume in 2014 up by 3.4% from the previous year. TOTAL IMPORT- EXPORT VOLUME IN 2014 WAS 450,327 TONS OF STEEL PRODUCTS, REDUCING 6.7% FROM THE PREVIOUS YEAR AS GUIDANCE. IN ADDITION, EXPORTATION ACTIVITIES CONTINUED TO BE WELL MAINTAINED IN KEY EXPORT MARKETS INCLUDING CAMBODIA AND NEIGHBOURING COUNTRIES, BRINGING TOTAL EXPORT VOLUME IN 2014 UP BY 3.4% FROM THE PREVIOUS YEAR. 38 SMC INVESTMENT TRADING JSC 39

21 Sustainable Growth Report Organization and Human Resources 2015 Financial Target and Business Strategy Corporate Governance Associations and Joint-ventures

22 SUSTAINABLE GROWTH REPORT Sustainable Growth Strategy Corporate Governance Model Overview SUSTAINABLE GROWTH STRATEGY Sustainable growth is the growth that satisfies needs of the present without compromising the ability of future generations in order to meet their own needs Related Entities Participation Sustainable Growth Organization and Human Resouces for sustainable growth strategy After nearly 27 years of operation, SMC has set the goal of sustainable growth as the core focus of the entire organizational operation and development orientations. After 6 years of heavy investment in the steel processing system, SMC now has 04 Coil center plants and clearly follows the operational objectives and targets for long term sustainable development that basically changes the company s nature of business and ensures future growth of the entire SMC, as well as guarantees all three aspects of sustainable growth including economy social and environment. SMC s sustainable growth strategy s implementing method is expressed through corporate governance activities in order to make sure the entire SMC system operating closely and consistently CORPORATE GOVERNANCE MODEL WITHIN 26 YEARS OF OPERATION, SMC HAS ALWAYS FOCUSED ON CONSTRUCTION AND IMPLEMENTATION OF SUSTAINABLE GROWTH STRATEGY, IN WHICH FOCUSSING ON THE GENERAL MEETING OF SHAREHOLDERS SUCCESSFUL COMPLETION OF LONG - TERM SOLID GROWTH OBJECTIVE IN COMBINATION WITH ACCOMPLISHMENT OF OTHER SOCIAL AND ENVIROMENTAL OBJECTIVES, ENSURING HARMONY OF INTERESTS OF RELATED ENTITIES. BOARD OF DIRECTOR BOARD OF SUPERVISOR Internal board of supervisor SCOPE OF REPORT SMC has performed an incorporated report between annual report and sustainable growth report, in which the sustainable growth report is executed on the basis of guideline documents for sustainable growth report issued by the State Securities Commission and the IFC (International Finance Corporation) CEO Risk management econtrol board Import - export directing board HRC trading directing board The financial datas in the content of the economic objectives are extracted from the company s consolidated financial statements. Other social and environmental activities summarizing main performances are carried out at the parent company and at all the subsidiaries. The report reflects all operational results in FUNCTIONAL DIRECTOR CONTACT The report is prepared by SMC, all comments please contact to: SUBSIDIARIES, JOINT - VENTURE FUNCTIONAL GROUP Ms. Hoang Thi Kieu Secretary Tel: or to: [email protected] Add: SMC Investment Trading JSC 396 Ung Van Khiem, Ward 25, Binh Thanh District, HCMC 100% OWNERSHIP >50% OWNERSHIP JOINT - VENTURE SMC STEEL CO., LTD SMC MECHANIC STEEL ONE MEMBER CO., LTD SMC HA NOI JOINT STOCK COMPANY SMC - SUMMIT JOINT - VENTURE SMC BINH DUONG ONE MEMBER CO., LTD SMC HIEP PHUOC ONE MEMBER CO., LTD SMC STEEL TRADING ONE MEMBER CO., LTD SMC TAN TAO ONE MEMBER CO., LTD 42 SMC INVESTMENT TRADING JSC 43

23 SUSTAINABLE GROWTH REPORT (continued) CORPORATE GOVERNANCE IN PARENT COMPANY (SMC) The corporate governance model of SMC s parent company includes: General assembly of shareholders, board of supervisor, board of director, CEO, and other directors. Their functions, duties, powers, work relations, and reporting and controlling mechanisms are detailed in the Charter of the Company and the governance regulations system promulgated first time in December Corporate Governance between parent company and affiliates The relationship between parent company (SMC) and all members is in compliance with regulations of Corporation Law, the Charter of the Company, and other related legislation regulations. By December 2014, SMC has total 6 affiliates with 100% equity ownership, 1 member with 80% ownership, and 1 joint-venture with 50% ownership. SMC completed its capital contributions and ownerships in accordance with the law and affiliate s charter regulations. To ensure solid management and efficient utilization of all resources, assets, and regulations of the entire system, to enhance the role of management and supervision of SMC in the affiliate system in performing assigned tasks and functions, SMC has issued regulations on system management for the first time in December 2011 and revised second time in December During 8 years of following the parent subsidiary corporate governance model, SMC has continuously reviewed and completed the governance model, clearly separated responsibilities among the parent company and subsidiaries in order to create initiatives and motivations for all members throughout all business operaion activities, while ensuring governance mechanism within the entire system to enhance the effectiveness of corporate governance, increase professionalism and productivity thereby improving the efficiency of business operation and performance for solid and sustainable growth. MEMBERS BOARD OF DIRECTOR Building long term development strategy, sustainable growth orientation for the whole system. CEO Directing execution and implementation of development strategy, building specific objectives for each financial period. Monitoring and evaluating results. DIRECTOR OF FUNTIONAL GROUP Transparency Accountability and With the orientation of sustainable growth, SMC always focuses on transparency aspect to help investors, suppliers, and customers clearly and fully understanding the company s specific business situation. As so, SMC always cares on the information disclosure activities on the operating performance, financial performance as well as other related issues generated during the business operations. Moreover, SMC always ensures the information disclosed in a transparent and clear way to fully provide all necessary and important information for investors, suppliers, and customers easily accessing and checking out. The company is also ready for performance explanation as requested at all time. All activities of SMC always comply with the provisions of law Establish and publish shortterm, medium-term, and longterm strategic objectives and performance, as well as evaluate the progress of implementation Carry out accounting and financing activities in accordance with accounting and auditing standards issued by authorized entities. Develop, implement, and maintain corporate culture, in which focusing on ethical issues in all aspect of business operations and activities. public media channels, and in accordance with the provisions of law, meanwhile interprete and explain all unclear or confused information to the users. Internal Control Board Control the processing information procedure: check the validity and completeness of the information and tightly control all documents and data books. Protect assets (control substances): periodically perform the comparison and checking between financial books and data with actual assets/ property. Analyze and review all the activities and performance by comparing actuall results with the sale period last year and with targets in order to detect any unusualy problem to be able to timely adjust strategic plans. Risk Management and Control Board Evaluate and analyze factors that might create risks to corporate operations, in which SMC has applied various risk management methods such as: forecasting system, data analysis, and regular check in order to estimate the magnitude of the risks that could affect the company s performance, consider the possibility of risks occurred and measures that can be used to deal with risks. Brand development and promotion SMC internal information channel: update all information related to products and services, and development orientations to all employees as they are direct traders, contactors and service/ product providers to customers this is the efficient message transmission channel of the company to customer. Information for public media and journals: maintains information publication activities on operations, products and services through television channels (HTV, VTV ), economic and financial magezines (Saigon Economic Times, Financial Investment, Connection Journal.), and most key economic sites (diendanhoptacdautu ) Information for partners, customers, shareholders and investors: throughout publications as annual report, capability profile, product catalogue and frequently and timely update related operational activities and results on the company website. Following targets, implementing and reporting Implementing specific tasks to accomplish target objectives Report business performance and results timely and transparently on various Maintain brand promotion scheme throughout 03 main channels: 44 SMC INVESTMENT TRADING JSC 45

24 SUSTAINABLE GROWTH REPORT (continued) Related participation entities Sustainable growth report is also based on the operations of the Company and other inside and outside related parties. Based on the consultation with investors, shareholders, employees, suppliers and customers, SMC identifies key aspects in this report as follows: Level of concern for related entities 2014 key reported indicators Community development Suppliers Work enviroment Products Investors Work safety Product: With the long term sustainable growth direction, from a purely steel commercial trading company (mainly distributing construction steels), SMC began to participate in the steel processing (coil center) field since 2006, and has become the corporation having the largest and most modern coil center system in Vietnam. Besides the expansion of flat steel processing activity, SMC has also frequently researched the local and global steel markets to take on new products for customer needs. Product portfolio that SMC currently supplies: Distributing Construction steel Wire rod Purlin Level of importance for the company Producer SMC Producing Flat steel Weld Mesh Product Development of new products for customers needs Processing HRC CRC Shareholders and investors Ensure safe and profitable investment Working safety Ensure safe working conditions and places in factories Working environment Green clean beautiful Community development Share achievements and help community Suppliers Supply qualified products to the market Shareholders and investors SMC is always active in investor relations activities and disclosure of all the information related to business operating performances on quarterly, semi-quarterly and yearly basis in a full, clear, and transparent manner. Other events and activities of the company are also updated frequently on the company website, on Hochiminh stock exchange website, and on most major economic and financial media reports and channels. In 2014, with the objective of deeper connection with shareholders for their understanding and updating on the companys operation, SMC has organized the 2014 annual general meeting with shareholders and investors at the company s factory in Phu My IZ BRVT, in which shareholders were able to visit 02 processing factories located there. In 2014, the company management board also frequently discussed and replied information to shareholders caring about the company performance through documents, , and telephone. As so, the management board of SMC would like to thanks to all contributions from shareholders to the operating management of the company SMC INVESTMENT TRADING JSC 47

25 SUSTAINABLE GROWTH REPORT (continued) Work environment Living environment is global concern. Environmental pollution and its harmful effects on lives are increasingly heavier. There are more extreme and unpredictable weather, erratic rainfall, storm and floods, land and water degradation, forest resource depletion, and a large scale environmental pollution. The climate is heating up in an unusually way and increasingly tougher resulted in natural disasters such as storms, tsunamis, landslides, mudslides, drought more and more frantic over around the world, leaving terrible effects on our lives and wealth. All business operating activities are affecting the environment. There would be certainly no business activities occurred if no environmental effects requested. For its activities, SMC is committed to continue pursuing positive solutions to diminish the effects of its operating activities on environment through efficient uses of natural and energy resources. SMC s factories located at Tan Tao IZ, Phu My IZ, Dong An IZ, and Quang Minh IZ are all far away from the civilization centers with the synchronous infrastructure invested following the IZ requests and standards. For operations of processing plants, the energy consumption, water waste, wastes, emissions, and noises are all at low level. Besides that, SMC always implements measures to minimize their impacts on the environment. Power consumption: the factories are equipped with shinny ceiling, and reasonable work shift arrangement to reduce power consumption Work Safety By end of 2014, SMC totally has 04 steel processing plants with 205 employees and workers working directly. Steel is a heavy industry that highly requires for the extreme safety in workplace. SMC has implemented the following substances to ensure safe working conditions: Investment in new, modern, consistent, and safe machineries and equipments made in Taiwan, despite of high cost for safety reason. Development of logical and scientific machinery installation system for safety reason Fully provide working protective equipments for workers, require workers and employees to strictly implement all health and safety instructions and regulations Development, implementation, and testing of 5S (sort clean ready) Regularly check the conditions of machineries, equipments, electrical systems, and cranes. Organize safety team members in each factory to identify risks of possible accidents to notice all employees and workers participating in the production. Gas waste and water waste: steel processing activities do not generate industrial gas and water wastes. Temperature: is generated from the machinery system and SMC has well equipped the cooling system to minimize the impact. Noise: arising from the machinery system and SMC has provided labour protective equipment and regular machinery maintenance to reduce the impact. Defects and scraps: are reusable for steel industry (for billet production) Community development SMC besides the core business operations always focuses on chartity activities to help improving the quality of local community living conditions where SMC s offices and factories located. Support people affected by natural disasters Funds for the poor at Binh Thanh District New rural construction project at Can Gio Province Vietnam Industry and Trade Union social charity fund Study encouragement fund for People Committee of ward 25, Binh Thanh district and fund for the poor of the National Front 48 SMC INVESTMENT TRADING JSC 49

26 SUSTAINABLE GROWTH REPORT (continued) Suppliers In the operation of SMC, suppliers play a very important role, as SMC does not produce steel products directly but distributes products of domestic and foreign steel producers as well as uses their products as input materials for its processing activities. Sustainable growth SMC deeply focuses on market share development, enhances capacity and productivity, increases export activities, develops oversea markets, especially promotes in-depth development of processing activites in order to shift product structure to follow the objectives of long term sustainable growth. VWith the core business focusing strategy, SMC has confirmed its position in the domestic market with remarkable results such as the commercial trading corporation having the largest steel consumption volume and the largest coil center system in Vietnam. With the continuous difficulties over many years, SMC continues to stand still and increasingly asserted its position in the market. The selection of suppliers is crucial to the operation of SMC, on the basis of product and service assessment and other requests related to environmental and social issues. The criteria for evaluating suppliers: MARKET SHARE GROWTH RATE EXPORT CONSUMPTION DEVELOPMENT Domestic consumption Origin of goods Sample test result 19.2% 20.9% 708, ,769 Export volume 7.1% 540,994 Product quality certification 60,675 83,360 86,231 Quality management system Goods warranty STEEL VOLUME CONSUMPTION BREAK-DOWN BY KEY PRODUCT SEGMENTS Construction steel Flat steel Other steels 4.2% 4.5% 2.8% 28.7% 33.1% 38.7% 67.1% 62.4% 58.5% SMC INVESTMENT TRADING JSC 51

27 SUSTAINABLE GROWTH REPORT (continued) Number of employees over years for the period Total employees of each subsidiary Organizational unions Commumist Union Leading communist members and social and political organizations to peform the tasks of bussiness and production Involved in the development and implementation of corporation s regulations rules, and charters Labor Union Educating political ideology Caring labour life Youth Union Gathering and educating the Youth Building the youth leading competitive movement, enthusiasm and commitment in business production and activity employee structure by category 2014 employee structure by working age Level Management Direct labours 16% 47% 20 Indirect labours 37% >48 Attitude Conduct Remuneration policy SMC Head office SMC Binh Duong Work enviroment SMC Phu My Promotion opportunity SMC Mechanic HUMAN RESOURCE EVALUATION MECHANISM SMC Trading SMC Tan Tao SMC Ha Noi Training plan and development strategy for effective use of human resources Human resources usage and development strategy to ensure the implementation of sustainable growth objectives Diversity in structure and reasonable allocation of labor force. Ensure the health and stable employment for workers SMC s human resource development strategy focuses on building and developing a team of qualified staff in key areas, establishing an attractive, professional and friendly working environment. SMC manages and evaluates employees on their productivity and efficiency, provides equal opportunity for all staffs, and creates conditions to promote their maximum capability. For fair and encouraging salary payment to employees as well as motivating their positive contribution to the company, SMC has developed and implemented the KPIs system for employees. The work efficiency evaluation results are measures for individuals and direct managers to determine the appropriateness of the objectives, conditions, and necessary support resources for individuals achieving goals, and are bench marks for decision making in human resources and welfare benefit activities and policies. To promote the role and responsibility of employees toward the company operation, SMC has proposed several measures to promote their democracy. Throughout direct and open discussion in conference programs and meetings, employees have the right to contribute their ideas and to build up company policies and regulations. Annual bonus Integration training and career development Salary Subsidies for difficult circumstances Benefit, welfare and remuneration policy Health insurances Welfare policy Reward according to financial performance Regular health check up Ensure the rights of employees 24/24 accident insurance Social insurances SMC INVESTMENT TRADING JSC 52 53

28 PERFORMANCE TARGETS AND OPERATING STRATEGIES IN 2015 Regarding accounting and financing activities: ensure the proper exploitation of credit loans and tightly manage working and operating capitals at the best possible costs. The use of the capital loans must be clearly responsible for the safety, efficiency, and at appropriate ratio, decreasing towards solvings all bad debts. In 2015, SMC will continue following the core chosen path way over the past many years, which is trading and processing various types of steel products, towarding the goal of 1 million tons of steel consumption per year; however quality and efficiency rather than quantity will be the key focuses in 2015 of the whole system for sustainable long term growth. Operating results following development orientation toward Target 2011 Actual 2012 Actual 2013 Actual 2014 Actual 2015 Target Sales volume (tons) 800, , , , , ,000 Flat steel / Total consumption % 40% 23% 30.1% 33.1% 38.7% 40% Revenue (VND billion) 10,000 8,940 8,964 9,650 10,911 10,500 Export / Total consumption % 10% 0% 10.2% 11.6% 9.9% 10.5% Gradually increase the proportion of flat steel products in total sales volume consumption; increase the proporation of flat steel products in 2015 to over 40% (equivalent to 340,000 tons of products), ensure high and effective capacity utilization, increasingly expand and enhance the added values of processing steel products key operating and financial targets Total steel consumption Items Unit 2015 plan Tons 850,000 Export steel volume Tons 90,000 Total cement consumption Tons 140,000 Construction steel segment might continue experience many difficulties in 2015 due to increasing new projects and competitiions, low profit margins, and high related expenses; hence, consumption volume growth is yet less focused than carrying and caring on main clients including large important FDI projects and assured capital projects; focus on understanding and relationships with manufacturers and suppliers having reasonable and acceptable sales policy to increase competitiveness and effectiveness. Regarding import-export activities, set priority for regular, timely and reasonable price importation activites to ensure the demand of processing and trading for the entire system, limit surplus inventories as well as shortage of goods. Relating to export, maintain existing markets and gradually expand new markets, new clients, focus on exportation of products that SMC have advantages with high efficiency. Regarding investment and development: focus on investment in new steel pipe plant with the target of total consumption volume of 20,000 tons in This is the jointventure with Hanwa Corp (Japan), in which SMC contributes most of the investment capital. Strive for the next 2-3 years to be in the top steel pipe producers and suppliers in Vietnam, being able to compete with others in the market place. Regarding the SMC TOAMI welded steel mesh factory, after transferring this segment to TOAMI for operating management, SMC is still very active in assisting the segments development, ensuring better performance than before the joint-venture. Always pay attention on training new employees who are young, enthusiastic, and wants to develop, towarding internal unity, problem sharing and overcoming challenges and obstacles. The board of management, department and subsidiary s directors always monitor targets and objectives to explore new solutions, being flexible and appropriate to have proper and accurate directions and solutions according to the actual market conditions, helping the company to be stable, competitive, and survival. Tighten discipline in the system; ensure the synergy strength of the whole system, and increase the position of SMC in the market. Revenue VND bn 10,500 Net profit after tax VND bn SMC INVESTMENT TRADING JSC 55

29 CORPORATE GOVERNANCE SHAREHOLDER RELATIONS SHAREHOLDER STRUCTURE AS OF 18 TH MARCH 2015 Ownership structure Unit: 1000 VND bn Domestic shareholders Foreign shareholders Total Value % Value % Value % Total charter capital 263,069, ,114, ,183, Founding shareholders (*) 86,208, ,208, Shareholders holding >= 5% ,760, ,760, Shareholders holding 1% - 5% 124,897, ,305, ,203, Shareholders holding < 1% 51,895, ,048, ,944, Treasury shares 67, , (*) Founding shareholders include 02 shareholders owning more than 5%, 01 shareholder owning 1-5%, and 01 shareholder owning below 1%. OWNERSHIP STRUCTURE Unit: share Ordinary shares Blocked shares Total shares % I. Special shareholders 8,712, ,712, Board of Director 8,143,439 8,143, In which: - Foreign Local 8,143,439 8,143, Board of Management 106, , Board of Supervisor 449, , Chief Accountant Financial Director 12,000 12, II. Treasury shares 6, , III. Other shareholders 20,799, ,799, Domestic 17,588, ,588, Individual 14,631,418 14,631, Instituations 2,956,627 2,956, In which: State owned Foreign 3,211, ,211, Individual 224, , Institutions 2,986,610 2,986, TOTAL 29,518, ,518, Unit: Share Number of Number of Ownership structure STRUCTURE % shares shareholder Institutions Individual Total number of outstanding shares 29,518, , ,926 1 Major shareholders >5% 9,511, KEY SHAREHOLDERS Local 2 Other shareholders 20,000, , ,924 3 Treasury shares 6, In which - State owned Foreign 3,211, SHAREHOLDERS HOLDING >=5% INDIVIDUAL BOD NAME NAME ADDRESS Ordinary shares Blocked shares No of shares Unit: Share 1 NGUYEN NGOC ANH 492 Xo Viet Nghe Tinh, BT, HCMC 5,356, NGUYEN THI NGOC LOAN 5B Phan Boi Chau, BT, HCMC 2,679, INSTITUTION 1 HANWA CO., LTD Fushimi-machi, Chuo-ku, Osaka, Japan 1,476, TOTAL 9,511, Unit: Share Total % 1 NGUYEN NGOC ANH 5,356, ,356, NGUYEN THI NGOC LOAN 2,679, ,679, MA DUC TU (*) 82, , VU THI THANH HONG (*) 660, , VO HOANG VU 105, , BOM 6 NGUYEN VAN TIEN 570, , NGUYEN BINH TRONG 106, , HO THI NGOC TUYET 6, , BOS 9 TRAN THUY BICH HAN 2, , NGUYEN HUU KINH LUAN 441, , C. Accountant 11 ĐO DOAN THANH CONG FINC Director 12 TRUONG TUAN DUNG HUNG 12, , Foreign 1 TAIRA YOSHIYUKI (*) 1,476, ,476, TOTAL 11,498, ,498, % Note: (*) Holding and repretative holders. List of shareholders having blocked shares: NO List of strategic shareholders having blocked shares: NO 56 SMC INVESTMENT TRADING JSC 57

30 CORPORATE GOVERNANCE (continued) RENUMERATION AND EXPENSES OF BOD AND BOS The total remuneration package for the BoD and BoS in 2014 approved by the AGM was 1.5% net profit after tax of the company. In 2014, the company has made total payment of VND 300,000,000 vnd, as follows: Name Title Remuneration (VND) Board of Director Nguyen Ngoc Anh Chairman 40,000,000 Nguyen Thi Ngoc Loan Vice Chairwoman 30,000,000 Vo Hoang Vu Member 30,000,000 Ma Duc Tu Member 30,000,000 Vu Thi Thanh Hong Member 30,000,000 Taira Yoshiyuki Member 30,000,000 Board of Supervisor Ho Thi Ngoc Tuyet Head 25,000,000 Nguyen Huu Kinh Luan Member 20,000,000 Tran Thuy Bich Han Member 20,000,000 VIETNAM STOCK MARKET AND SMC STOCK PERFORMANCE Vietnam stock market in 2014 underwent several major events and trading sessions, ending the year with 8.1% increase in VN- Index and 22.3% increase in HNX- Index from the previous year. The more active IPO processes and activities of many large GENERAL INFORMATION ABOUT SMC STOCK Ticker Listed exchange SOEs together with positive foreign investment inflows have significant supports the positive market. However, significant issues expected in 2014 such as increasing room to foreign ownership and the TPP agreement have not brought satisfactory results. Contrary to the general trend of the market, SMC stock price has experienced a quiet year with low trading liquidity and ending 2014 at VND 10,700 per share, down 8% compared to price at the beginning year. Charter Capital 295,183,610,000 Dong Outstanding shares 29,518,361 Shares Market capitalization (at share price on 31 Dec 2014) 315,846,462,700 Dong SMC HSX Earnings per share in Dong Total payments and expenses to the BoD and BoS in 2014 were 255,000,000 dong, the remaining amount of 45,000,000 dong was paid to other members assisting to the BoD. Book value per share in ,055 Dong P/E 2014 (at share price on 31 Dec 2014) 15.9 Times P/B 2014 (at share price on 31 Dec 2014) 0.6 Times DIVIDEND PAYMENT TO SHAREHOLDERS AND INVESTOR RELATIONS ACTIVITIES According to the approved 2014 AGM resolutions, SMC will have a cash dividend payment to shareholders at 10% par value, equivalent to 1,000 dong per share for the year 2014, which is divided into two installments. The dividend payout ratio for the first installment in 2014 was at 5% par value, equivalent to 500 dong per share, done on 19th November The total amount actually paid out to shareholders as dividend at that time was 14,759,180,500 dong, which is equal to 74.2% total net profit after tax for the year The company s BoD will be responsible for deciding time and appropriate proportion to the second dividend payment to shareholders in accordance with the approved AGM. 58 SMC INVESTMENT TRADING JSC 59

31 ASSOCIATIONS AND JOINT-VENTURES The companies having more than 50% of equity held by SMC: SMC STEEL CO., LTD. Head office Charter Capital VND bn 60 SMC ownership 100% Business activities Products & Services 1B Street - Phu My I Industrial Zone, Ba Ria Vung Tau Province Coil Center processing, cutting, and splitting flat steels Cold rolled coils, hot rolled coils, galvanized steel sheets, zinc coated steel sheets, colour coated steel sheets, stainless steels, section steels, weld mesh Financial items Unit / - % Net revenue VND bn 1, , Gross profit VND bn Profit before tax VND bn Net profit VND bn Total assets VND bn Total liabilities VND bn Owners Equity VND bn Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % SMC MECHANIC STEEL ONE MEMBER CO., LTD. Head office Charter Capital VND bn 100 SMC ownership 100% Business activities Products & Services Phu My I Industrial Zone, Phu My Town, Tan Thanh District, Ba Ria Vung Tau Province Coil Center processing, cutting, splitting hot rolled steels Hot rolled steels, secondary products, galvanized steel sheets Financial items Unit / - % Net revenue VND bn 2, , Gross profit VND bn Profit before tax VND bn n/a Net profit VND bn n/a Total assets VND bn Total liabilities VND bn Owners Equity VND bn Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % SMC INVESTMENT TRADING JSC 61

32 ASSOCIATIONS AND JOINT-VENTURES (continued) SMC BINH DUONG ONE MEMBER CO.. LTD. Head office Charter Capital VND bn 30 SMC ownership 100% Business activities Products & Services Road No.5, Dong An IZ, Binh Hoa Thuan An Town, Binh Duong Province Trading construction materials, distributing steel products for the south-east region market Reinforced concrete, irons and steels, section steels, wire rod, rebar, steel sheets Financial items Unit /- % Net revenue VND bn 1, , Gross profit VND bn Profit before tax VND bn ,400.0 Net profit VND bn ,100.0 Total assets VND bn Total liabilities VND bn Owners Equity VND bn Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % SMC STEEL TRADING ONE MEMBER CO., LTD. Head office Charter Capital 124 Ung Van Khiem Street, Ward 25, Binh Thanh District, Ho Chi Minh City VND 20 bn SMC ownership 100% Business activities Products & Services Trading construction materials, distributing steel products for the southern region including western provinces and near HCMC areas. Construction steels, cement, clinker Financial items Unit /- % Net revenue VND bn 1, , Gross profit VND bn Profit before tax VND bn Net profit VND bn Total assets VND bn Total liabilities VND bn Owners Equity VND bn Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % SMC INVESTMENT TRADING JSC 63

33 ASSOCIATIONS AND JOINT-VENTURES (continued) SMC TAN TAO ONE MEMBER CO., LTD. Head office Charter Capital Lot 33, Center Street, Tan Tao Industrial Zone, Tan Tao A Ward, Binh Tan District, Ho Chi Minh City VND 80 bn SMC ownership 100% Business activities Products & Services Coil Center processing and trading flat steels, providing warehouse services Hot rolled steels, secondary products, high tensile steel products Financial items Unit /- % Net revenue VND bn , ,507.4 Gross profit VND bn ,450.0 Profit before tax VND bn ,800.0 Net profit VND bn ,100.0 Total assets VND bn Total liabilities VND bn Owners Equity VND bn Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % (*) As SMC Tan Tao has just operated since mid-dec SMC HA NOI JOINT STOCK COMPANY Head office Charter Capital VND bn SMC ownership 82.11% Business activities Products & Services Lot No.47, Quang Minh Industrial Zone, Quang Minh Town, Me Linh District, Hanoi Coil Center processing flat steel products, distributing steel products for the Northern market Construction steels, flat steels, galvanized steel sheets, inox Financial items Unit /- % Net revenue VND bn Gross profit VND bn Profit before tax VND bn n/a Net profit VND bn n/a Total assets VND bn Total liabilities VND bn Owners Equity VND bn Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % SMC INVESTMENT TRADING JSC 65

34 ASSOCIATIONS AND JOINT-VENTURES (continued) SMC HIEP PHUOC ONE MEMBER CO., LTD. Head office Charter Capital Lot C5A, C Zone, Hiep Phuoc Industrial Zone, Nha Be District, HCMC 30 VND bn SMC ownership 100% Key business activities Products & Services Connecting SMC and port systems in HCMC, providing warehouse services for steel products trading in HCMC market Various type of steels JOINT-VENTURE COMPANY SMC SUMMIT JOINT-VENTURE Head office 1B Street, Phu My I Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Province Representative Office 396 Ung Van Khiem street, Ward 25th, Binh Thanh District, HCM City Charter Capital 4,000,000 USD SMC ownership 50% Key business activities Trading and distributing special and premium steel products. Products & Services Coupler, formed & bended steels... Financial items Unit /- % Net revenue VND bn Gross profit VND bn Profit before tax VND bn Net profit VND bn Total assets VND bn Total liabilities VND bn Owners Equity VND bn Financial items Unit /- % Net revenue VND bn , Gross profit VND bn Profit before tax VND bn Net profit VND bn Total assets VND bn Total liabilities VND bn Owners Equity VND bn Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % SMC INVESTMENT TRADING JSC 67

35 Report of the Board of Management Auditors Report Consolidated Balance Sheet Consolidated Income statement Consolidated Cash flow statement Notes to the consolidated financial statements

36 REPORT OF THE BOARD OF MANAGEMENT SMC TRADING INVESTMENT JOINT STOCK COMPANY AND ITS SUBSIDIARIES Report of the Board of Management Audited Consolidated Financial statements The Board of Management of SMC Trading Investment Join Stock Company presents its report together with the audited consolidated financial statements of the Company and its Subsidiaries ( the Group ) for the fiscal year ended 31 December Board of Management and Controlling board The Board of Management and Controlling board of the Company in office during the year and at the date of this report is: NAME Mr. Nguyen Ngoc Anh POSITION Chairman CONTENTS 1. REPORT OF THE BOARD OF MANAGEMENT Mrs. Nguyen Thi Ngoc Loan Mrs. Vu Thi Thanh Hong Mr. Ma Duc Tu Mr. Vo Hoang Vu Mr. Taira Yoshiyuki Mrs. Ho Thi Ngoc Tuyet Mrs. Tran Thuy Bich Han Mr. Nguyen Huu Kinh Luan 2. Board of Directors Vice Chairman Member Member Member Member Chief of Controlling board Member Member 2. AUDITORS REPORT The Board of Directors of the Company in office during the period and at the date of this report is: 3. CONSOLIDATED BALANCE SHEET 4. CONSOLIDATED INCOME STATEMENT 5. CONSOLIDATED CASH FLOW STATEMENT 6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NAME Mr. Nguyen Ngoc Anh Mrs. Nguyen Thi Ngoc Loan Mr. Vo Hoang Vu Mr. Nguyen Binh Trong Mr. Nguyen Van Tien POSITION General Director Vice Director Vice Director Vice Director Vice Director 70 ANNUAL REPORT

37 REPORT OF THE BOARD OF MANAGEMENT (CONTINUED) REPORT OF THE BOARD OF MANAGEMENT (CONTINUED) 3. Company s belonging with and subsidiaries 8. Unusual items NAME Da Nang Branch SMC Steel Co., Ltd SMC Binh Duong One Member Company Limited SMC Steel Trading Co., Ltd SMC Hiep Phuoc Co., Ltd SMC Steel Mechanical Co., Ltd SMC Tan Tao Co., Ltd SMC Ha Noi Joint Stock Company SMC SUMMIT Limited Liability Company Sao Viet Materials Trading Producing J.S.C 4. Principal activities ADDRESS Bach Dang, Hai Chau District, Da Nang City. 1B Street, Phu My I Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Province. Road No. 05, Dong An Industrial Zone, Thuan An District, Binh Duong Province. No. 124 Ung Van Khiem Street, Ward 25, Binh Thanh District, HCM City. Lot No. C5A, C Area, Hiep Phuoc Industrial Zone, Nha Be District, HCM City. Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Province. Lot No. 33, Tan Tao Industrial Zone, Tan Binh District, HCM City. Lot No. 47, Quang Minh Industrial Zone, Me Linh District, Ha Noi Capital. Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Province. No. 147/6 Ung Van Khiem Street, Binh Thanh District, HCM City. There are no unusual items that may render any amount stated in the financial statements misleading. 9. Auditors DFK Vietnam Auditing Company has been appointed as the Company s independent auditors for the fiscal year ended 31 December Statement of the Board of Directors responsibility in respect of the Financial Statements The Board of Directors is responsible for the consolidated financial statements of each fiscal year which give a true and fair view of the state of affairs of the Group and of its results and cash flow for the year. In preparing those financial statements, the Board of Directors is required to: Select suitable accounting policies and then apply them consistently; Make judgments and estimates that bare reasonable and prudent; State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Board of Directors confirms that the Group has complied with the above requirements in preparing the consolidated financial statements for the fiscal year ended 31 December The Board of Directors is responsible for ensuring that proper accounting records are kept which disclose, with reasonable accuracy at any time, the financial position of the Group, and to ensure that the accounting records comply with the applicable accounting system. It is also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 11. Approval of the Board of Management - Producing, trading, importing - exporting Iron and Steel, metal products, construction materials, interior decoration products, construction equipment, machines, house and storage frames made by aluminum, steel, stainless steel; - Forwarding service for local and export goods. 5. Results of the financial year The Group s financial position as at31 December2014 and the results of its operations, and cash flows for the year then ended set out in the financial statements on pages 74 to 113. We hereby approve the accompanying consolidated financial statements which comprise of the consolidated balance sheet, consolidated income statement and consolidated cash flow statement, together with the consolidated notes thereon. These Consolidated financial statements are drawn up so as to give a true and fair view of the state of affairs of the Group for the fiscal year ended 31 December On behalf of the Board of Management 6. Current assets At the date of this report, the Board of Management is not aware of any circumstances which would render the values attributed to current assets in the financial statements misleading. 7. Contingent liabilities At the date of this report, no contingent liabilities have arisen since the end of financial year against assets of the Group. Nguyen Ngoc Anh Chairman of BOM Date: 16 March ANNUAL REPORT

38 NO. 092C/BCKT INDEPENDENT AUDITORS REPORT CONSOLIDATED BALANCE SHEET As at 31 December 2014 Currency unit: VND To: The Board of Management and Directors SMC Trading Investment Joint Stock Company Audit Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of SMC Trading Investment Joint Stock Company ( the Company ) and its subsidiaries ( the Group ), which was prepared on 16 March 2015, as set out on page 74 to page 113, comprising the consolidated balance sheet as at 31 December 2014, the consolidated statement of income, the consolidated cash flow statement for the year then ended and the notes to the consolidated financial statements. Board of Directors responsibility for the financial statements Board of Directors of the Company is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Vietnamese Accounting Standards, Vietnamese Accounting System and applicable statutory requirements to the preparation and presentation of the consolidated financial statements and is responsible for the internal controls that the Board of Directors determines necessary to enable the preparation and presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Vietnamese Standards on Auditing. Those standards require that we comply with ethical requirement and plan and perform the audit in order to obtain reasonable assurance as to whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence supporting the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessment, the auditor considers internal control relevant to the Group s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying consolidated financial statements give a true and fair view in all material respects of the financial position of SMC Trading Investment Joint Stock Company and its subsidiaries as at 31 December 2014 and the results of its operations and its cash flows for the year then ended in accordance with Vietnamese Accounting Standards, Vietnamese Accounting System and applicable statutory requirements to the preparation and presentation of the consolidated financial statements. Ho Chi Minh City, 16 March 2015 For and on behalf of DFK Vietnam Auditing Company VICE DIRECTOR AUDITOR ASSETS Code Notes Closing balance Opening balance A. Current assets I. Cash and cash equivalents 110 V Cash Cash equivalents II. Short-term financial investments 120 V Short-term investments Provision for the diminution in value of short-term investments 129 ( ) ( ) III. Trade and other receivables 130 V Trade accounts receivable Prepayments to suppliers Other receivables Provision for doubtful debts 139 ( ) ( ) IV. Inventories 140 V Inventories Provision for devaluation in inventories 149 ( ) ( ) V. Other short-term assets 150 V Short-term prepaid expenses Value added tax deductibles Other receivables from the State budget Other short-term assets B. Non-current assets I. Long-term receivables II. Fixed assets Tangible fixed assets 221 V Cost Accumulated depreciation 223 ( ) ( ) 2. Finance lease assets 224 V Cost Accumulated amortization 226 ( ) ( ) NGUYEN VAN TUYEN Audit Practice Certificate No HO DAC HIEU Audit Practice Certificate No ANNUAL REPORT

39 CONSOLIDATED BALANCE SHEET (CONTINUED) As at 31 December 2014 Currency unit: VND CONSOLIDATED BALANCE SHEET (CONTINUED) As at 31 December 2014 Currency unit: VND ASSETS Code Notes Closing balance Opening balance 3. Intangible fixed assets 227 V Cost Accumulated amortization 229 ( ) ( ) 4. Construction in progress 230 V III. Investment properties IV. Long-term financial investments 250 V Investments in associates and joint-ventures Other long-term investments Provision for diminution in value of long-term financial investments. 259 ( ) ( ) V. Other non-current assets 260 V Long-term prepaid expenses Deferred tax assets Other non-current assets VI. Goodwill 269 V TOTAL ASSETS RESOURCES Code Notes Closing balance Opening balance A. Liabilities I. Current liabilities 310 V Short-term borrowings and liabilities Trade accounts payable Advance from customers Tax and amount payable to the State budget Payables to employees Accrued expenses Other current payables Bonus and welfare funds II. Long term liabilities 330 V Other long-term payables Long-term borrowings and debts Deferred tax liabilities Unrealized revenue B. Equity I. Owner's equity 410 V Chartered capital Share premium Owner's other capitals Treasury shares 414 ( ) ( ) 5. Investment and development funds Financial reserve funds Retained earnings II. Other resources and funds C. Minority interests 439 V TOTAL RESOURCES OFF BALANCE SHEET ITEMS Closing balance Opening balance 1. Bad debt written off Foreign currency - USD 715, ,384, The notes set out are an integral part of these financial statements Vo Thuy Oanh Do Doan Thanh Cong Nguyen Ngoc Anh Prepared by Chief Accountant General Director Date: 16 March ANNUAL REPORT

40 CONSOLIDATED INCOME STATEMENT Currency unit: VND ITEMS Codes Notes Current year Previous year 1. Gross sales Less deductions Net sales 10 VI Cost of sales 11 VI Gross profit from sales Financial income 21 VI Financial expenses 22 VI Including: interest expense Financial investment provision cost Selling expenses 24 VI General and administration expenses 25 VI Operating profit Other income 31 VI Other expenses 32 VI Profit from other activities Profit (loss) from investments in associates, joint-ventures Accounting profit before tax Current tax expense 51 VI Deferred tax expense 52 VI.10 ( ) Net profit after tax Net profit after tax attributable to: 19. Minority interests ( ) 20. Parent company's owners Earning per share 70 VI The notes set out are an integral part of these financial statements CONSOLIDATED CASH FLOW STATEMENT Currency unit: VND ITEMS Notes Current year Previous year CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustment for: Depreciation and amortization Provisions Unrealized exchange differences ( ) (Gain) loss from investing activities 05 ( ) ( ) Interest expense Operating profit before movements in working capital (Increase) decrease in receivables 09 ( ) (Increase) decrease in inventories 10 ( ) ( ) Increase (decrease) in accounts payable 11 ( ) (Increase) decrease in prepaid expenses ( ) Interest paid 13 ( ) ( ) Corporate income tax paid 14 ( ) Other cash inflows Other cash outflows 16 ( ) ( ) Net cash flows from (used in) operating activities 20 ( ) ( ) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of fixed assets and other long-term assets 21 ( ) ( ) Proceeds from sales of fixed assets and other long term assets Cash outflow for lending and buying debt instruments of other companies Cash recovered from lending and selling debt instruments of other companies 23 ( ) ( ) Investments in other entities 25 - ( ) Cash recovered from investments in other entities Dividend received Net cash flows from (used in) investing activities 30 ( ) ( ) Vo Thuy Oanh Do Doan Thanh Cong Nguyen Ngoc Anh Prepared by Chief Accountant General Director Date: 16 March 2015 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings Repayments of borrowings 34 ( ) ( ) Repayments of obligations under finance lease 35 ( ) ( ) 78 ANNUAL REPORT

41 CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) Currency unit: VND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ITEMS Notes Current year Previous year Dividends paid 36 ( ) ( ) Net cash flows from (used in) financial activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Effect of changes in foreign exchange rates Cash and cash equivalents at end of period The notes set out are an integral part of these financial statements. These notes are an integral part of and should be read in conjunction with the accompanying financial statements. I. General Information 1. Structure of ownership SMC Trading Investment Joint Stock Company ( the Company ) is established under the Business Registration Certificate No on 18 October 2004 and the 11th Amendment Business Registration Certificate No issued on 6 November 2012 by the Planning and Investment Department of Ho Chi Minh City. Shares of Company was officially traded at the Ho Chi Minh Stock Exchange with the code of SMC since 30 October 2006 under the License No. 62/UBCK-GPNY granted by the President of State Securities Commission dated 29 September Form of capital ownership: Share capital. The Company registered their legal capital under the Business Registration Certificate with the amount of 295,183,610,000 VND, which was divided into 29,518,361 shares with the face value of each share is 10,000 VND, and the Company s shares are entirely common shares. 2. Head office and branches Vo Thuy Oanh Do Doan Thanh Cong Nguyen Ngoc Anh Prepared by Chief Accountant General Director Date: 16 March The Company s head office is located at: No. 396 Ung Van Khiem Street, Ward 25, Binh Thanh District, HCM City. - The Company s branches: Da Nang branch. 3. Business sector: Manufacturing - trade - services - construction. 4. Principal activities Producing, trading, importing - exporting Iron and Steel, metal products, construction materials, interior decoration products, construction and mechanical equipment, house and storage frames made by aluminum, steel, inox mixes (not being produced at the head office). Constructing, installing of civil, industrial transportation, irrigational projects. Repairing of house, interior decoration products. Setting up the construction and investment projects. Trading of houses. Trading of machineries and equipments and foodstuff. Forwarding and storage services for the local and export goods. 5. Number of employees Number of employees of the Group up to 31/12/2014: 480 persons. 80 ANNUAL REPORT

42 6. List of subsidiaries and associates, joint-ventures II. Name Address Business line % share SMC Steel Co., Ltd SMC Binh Duong One Member Co., Ltd SMC Steel Mechanical Co., Ltd SMC Hiep Phuoc Co., Ltd SMC Steel Trading Co., Ltd SMC Tan Tao Co., Ltd SMC Ha Noi Joint Stock Company SMC - SUMMIT Limited Liability Company Sao Viet Materials Trading Producing Joint Stock Company 1B Street, Phu My 1 Industrial Zone, Ba Ria - Vung Tau Province Road No. 05, Dong An Industrial Zone, Thuan An, Binh Duong Province Phu My 1 Industrial Zone, Tan Thanh, Ba Ria - Vung Tau Province Lot No. C5A, C Area, Hiep Phuoc Industrial Zone, Nha Be, HCM City No. 124 Ung Van Khiem Street, Ward 25, Binh Thanh, HCM City Lot No. 33, Tan Tao Industrial Zone, Tan Binh, HCM City No. 47, Quang Minh Industrial Zone, Me Linh District, Ha Noi City Phu My 1 Industrial Zone, Tan Thanh, Ba Ria - Vung Tau Province No. 147/6 Ung Van Khiem Street, Ward 25, Binh Thanh District, HCM City Accounting period and accounting currency 1. Accounting period begins from 01/01 and ends on 31/12 annually. 2. Currency unit used in accounting is Vietnam dong (VND). Manufacturing, trading and service Manufacturing, trading service and construction Manufacturing, trading service and construction Manufacturing, trading service and construction Trading service and construction Trading service and construction Manufacturing, trading and service Manufacturing, trading and service Manufacturing, trading and service % voting rights % % % % % % % % % % % % 82.11% 82.11% 50.00% 50.00% 35.00% 35.00% Stock Company and its subsidiaries ( the Group ) as at 31 December yearly. The financial statements of the subsidiaries are prepared for the same year with the Company, using accounting policies consistent with the Company s accounting policies. Adjustments are made for any difference in accounting policies that may exist to ensure the consistency between the subsidiary and the Company. All inter-company balances and transactions, including unrealized profits arising from intra-group transactions, have been eliminated in full. Unrealized losses are eliminated unless costs cannot be recovered. Minority interests represent the portion of profit or loss and net assets not held by the Company s shareholders and are presented separately in the consolidated income statement and in the consolidated balance sheet. The subsidiaries are consolidated from the date on which the Company obtains control and cease to be consolidated from the date on which the Company ceases to control. Where there is a loss of control over the subsidiaries, the consolidated financial statements still include results for the period of the reporting year during which the Company has control. Except for subsidiaries acquired under common control which are accounted for under the pooling of interests method, other subsidiaries have been included in the consolidated financial statements using the purchase method of accounting that measures the subsidiaries assets and liabilities at their fair value at the acquisition date. 2. Investment in associates Investments in associates are accounted for using the equity method of accounting. An associate is an entity in which the Company has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, investments in associates are carried in the balance sheet at cost plus post acquisition changes in the Group s share of net assets of the associates. Goodwill relating to the associates is included in the carrying amount of the investments and is amortized over ten years. The consolidated income statement reflects the Group s share in the results of operations of the associate. Where there has a change recognized directly in the equity of the associate, the Group recognizes its share of any changes and discloses this, when applicable, in its equity. Unrealized profits and losses resulting from transactions between the Group and associates are eliminated to the extent of the interest in the associate. III. Accounting standards and regime The accompanying consolidated financial statements are prepared and represented in conformity with Vietnamese Standards on Accounting by the Ministry of Finance. The financial statements of the associates are prepared for the same accounting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of the Company. 3. Investment in joint venture IV. The accompanying consolidated balance sheet, consolidated income statement, consolidated cash flow statement and related notes are not intended to present the financial position and results of operations and cash flows of the Group in accordance with accounting principles and practices generally accepted in countries other than Vietnam. Principal accounting policies 1. Basis of consolidation Joint venture is the compromise by the contract of two or more partners proceeding the economy activity together, that is controlled by the partners of joint venture. The joint ventures are consolidated by the equity method. 4. Investments in securities and other investments Investments are stated at original cost. An investment provision is created as these economic organizations are in loss situation (excepts for case of planning loss had been determined in business planning before 82 ANNUAL REPORT 2013 The consolidated financial statements comprise the financial statements of SMC Trading Investment Joint 83

43 For the fiscal year ended 31 December Investments in securities and other investments (continued) investing) with rate of contributed capital. Securities provision is made for any securities when market price is lower than its book value. Non-listed securities are stated at original cost when there have no basis to determine the fair value on the market. Provision for long-term investment diminution Provision for long-term investment diminution is made for each listed security representing the lower of book value and the market value. - Listed securities: the market price will be the average trading price at the provision date of Hanoi Stock Exchange (HNX), and the closing price of Ho Chi Minh City Stock Exchange (HOSE) at the provision date. - Non-listed securities:the maket price will be calculated as follows: + Securities listed on Unlisted Public Company Market (UPCom), the market price will be the average trading price at provision date + Securities not to be listed on Unlisted Public Company Market (UPCom), the market price will be calculated based on the trading price provided by three (03) securities companies at the provision date. If non-listed securities not be certainly determined by their market price (fair value), provision for short-term investment diminution will not be recorded. Long-term investments: provision will be made in case of the invested company is in loss situation (except the loss situation determined in the initial investment plan). 5. Estimates The preparation of financial statements in conformity with Vietnamese Accounting Standards, Vietnamese Accounting System and prevailing accounting regulations in Vietnam requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting year (period). Actual results could differ from those estimates. 6. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash in banks and short-term, highly liquid investments with an original maturity of less than three months that are readily convertible into known amounts of cash and that are subject to an insignificant risk of change in value. 7. Foreign currency translation The accounting principles and methods in relation to foreign currency translation are applied under the Vietnamese Accounting Standard No Effects of Changes in Foreign Exchange Rates. Accordingly, transactions in currencies other than the Company s reporting currency are recorded at the actual exchange rates ruling at the date of the transaction. At year-end, monetary assets and liabilities denominated in foreign currencies are revalued at exchange rates ruling at the balance sheet date. All realised and unrealised foreign exchange differences are taken to the income statement. Beside, according to the Circular No. 179/2012/ TT-BTC issued on 24/10/2012 by the Ministry of Finance providing guidance for the treatment of foreign exchange differences as follows: - The settlement of foreign currency monetary items during period are recorded at the actual exchange rates ruling at the Commercial Bank where the Company has arisen the transactions. - At year-end, the foreign currency monetary items are revalued at the buying exchange rates ruling at the Commercial Bank where the Company has their bank account at the balance sheet date. 8. Prepaid expense These following expenses are accounted into prepaid expense to allocate in the operating result including: - Tools expense - Insurance expense - Project conducting expense - Infrastructure fee of industrial zone - Prepaid land rental - Other allocation expenses 9. Receivables Receivables are presented in the financial statements at the carrying amounts due from customers and other debtors, along with the provision for doubtful debts. The provision for doubtful debts represents the estimated loss due to non-payment arising on receivables that were outstanding at the balance sheet date. Increases and decreases to the provision balance are recorded as general and administrative expense in the income statement. 10. Inventories Inventories are stated at the lower of cost incurred in bringing each product to its present location and condition, and net realizable value. Net realizable value represents the estimated selling price less anticipated cost of disposal and after making allowance for damaged, obsolete and slow-moving items. The perpetual method is used to record inventories. In year 2014, the Company has changed the recording method of inventories value from FIFO to the weighted average basis. The changing of recording method of inventories value from FIFO to the weighted average basis makes Cost of goods sold be increased by the amount of 27.6 billion dongs and inventories value be decreased by the amount of 27.6 billion dongs. An inventories provision is created for the estimated loss arising due to the impairment (through diminution, damage, obsolescence...) of raw materials, finished goods, and other inventories owned by the Company, based on appropriate evidence of impairment available at the balance sheet date. Increases and decreases to the provision balance are recorded into the cost of goods sold account in the income statement. 11. Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation. The cost of an asset comprises of its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Expenditure for additions, improvements and renewals are capitalized and expenditure for maintenance and repairs are charged to the income statement. When assets are sold or retired, their cost and accumulated depreciation are removed from the balance sheet and any gain or loss resulting from their disposal is included in the income statement. 84 ANNUAL REPORT

44 Land use rights Land use rights are actual expenditures relating to land using, include: expenditure to obtain land use rights, compensation expenses, clearance expenses and registration fees. Accounting software and software license Accounting software and software license are all expenditures which the Company has paid up to the time they are in use. Depreciation Depreciation of fixed assets is calculated on a straight-line basis over the estimated useful life of each asset. The rate of depreciation is in accordance with the Circular No. 45/2013/TT-BTC on 25 April 2013 issued by the Ministry of Finance. 11. Fixed assets and depreciation (continued) Year 2013 Year 2014 Buildings years years Machinery and equipment years years Transportation years years Office equipment years years Software years years 12. Goodwill Goodwill incurred from investments in subsidiaries is amortized over ten years, and negative goodwill are recorded in the income in the consolidated financial statements. 13. Finance lease contract The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific assets and the arrangement covers a right to use the asset. Assets held under finance leases, in which substantially all the risks and rewards of ownership of the asset have passed to the Company, are capitalized in the balance sheet at the inception of the lease at the fair value of the leased asset or, if lower, at the net present value of the minimum lease payments. The principal amount included in future lease payments under finance leases are recorded as a liability. The interest amounts included in lease payments are charged to the income statement over the lease term to achieve a constant rate on interest on the remaining balance of the finance lease liability. Rentals under finance leases are charged to the income statement on a straight-line basis over the term of the lease. Machinery and equipment years 14. Salary, social insurance, health insurance and unemployment insurance Salary is accounted for the expense according to the labor contract signed. Accordingly, social insurance, health insurance and unemployment insurance are also accounted with the rate of 26%, 4.5% and 2% respectively based on the salary of laborer, of which 22% amount is accounted for expense and 10.5% amount is deducted from laborer s salary. 15. Accrued expenses payable Accrued expenses payable are recognized for amount to be paid in the future for goods and services received, whether or not billed to the Company. 16. Provision for payables Provisions payable are recorded as making sure a liability must be paid at the year ending. Provisions payable are recorded in accordance with the method of accrual or reversal of the differences between provision amount of the current year and provision amount of the prior year. Provision for unemployment allowances: Be recorded in accordance with the actual arising. 17. Interest expenses The interest expense is recorded as the expense is incurred in the period, unless it is capitalized. Interest expenses that are directly attributable to the acquisition, construction or production of a particular asset are capitalized as part of the cost of the asset. The interest expenses of other loans are recorded as the financial expense when incurred. 18. Recording of contributed capital Investments of owner are recorded according to the actual contributed capital of owner. Share premium reserve is recorded under the excess or diminution difference between the actual price and face value at the first issue, the subsequent issue or reissue of treasury shares. Owner s equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or loss is recognized in profit or loss upon purchase, sale, issue or cancellation of the Company s owner s equity instruments. 19. Profit distribution Profit after tax is divided to shareholders after being passed by the Annual Shareholder Meeting and the Company s funds established under the Company s regulations and the prevailing laws of Vietnam. 20. Revenue recognition Revenue from the sale of goods and finished goods shall be recognized when all the 05 following conditions have been satisfied: 86 ANNUAL REPORT

45 - The Company has transferred to the buyer the significant risks and rewards of ownership of the goods; - The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; - The amount of revenue can be measured reliably; - It is probable that the economic benefits associated with the transaction will flow to the Company; - The costs incurred or to be incurred in respect of the transaction can be measured reliably. Rendering of services Sale of services will be recognised if its benefits can be reliably measured. In case, rending of services relate to accounting periods, revenue will be referred to as the percentage of completion method at the balance sheet date. Rental income Rental income arising from operating leases is accounted for on a straight line basis over the lease terms. Income from securities trading, capital transfers Income from securities trading, capital transfers is defined as the diffidence between the selling price and the stock cost. This income is recorded on the date of transaction. On the other words, the assignment of contract is done. Bonus shares or dividend payment by shares No income is recognized when the rights to receive the bonus shares or stock dividends are released. However, the number of bonus shares or stock dividends received will be presented on the notes of the Financial Statements. 21. Recording of expense Expense is recorded according to actually arising and matching with revenue. 22. Taxation SMC Trading Investment Joint Stock Company and its Subsidiaries ( the Group ) is obliged to pay corporate income tax (CIT) at the rate of 22% of the taxable income. The charge for corporate income tax is based on the results of the current year and adjusted for items, which are non-deductible and losses carried forward, if any. The Group has preferential CIT as follows: - SMC Steel Mechanical Company is obliged to pay corporate income tax (CIT) at the rate of 15% for 12 years from the project SMC Steel Mechanical factory has been begun. The Company is entitled to corporate income tax exemption for three years from having the taxable income and a reduction of 50% for subsequent 7 years. The year 2014 is the second year that the Company is reduced of CIT. - SMC Steel Ltd., Co is obliged to pay corporate income tax (CIT) at the rate of 15% for 12 years from the project Investing and expanding the manufacturing, processing of steel product factory has been begun. The year 2014 is the eighth year SMC Steel Ltd., Co is obliged to pay CIT rated of 15% for the processing activity. - SMC Ha Noi Joint Stock Company is obliged to pay corporate income tax (CIT) at the rate of 15% for 12 years from the project has been begun. SMC Ha Noi Joint Stock Company is entitled to corporate income tax exemption for three years from having the taxable income and a reduction of 50% for subsequent 7 years. The year 2014 is the fourth year SMC Ha Noi J.S.C is reduced by 50% CIT. The land rental amount is exempted for 11 years since the project is started. Other taxes shall be paid in accordance with the prevailing laws of Vietnam. The tax payable is the amount that the Group estimated and shown in the accounting books. The tax payables will be adjusted as being finalized by the Tax office. Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted by the balance sheet date. Deferred tax Deferred tax is provided using the balance sheet liability method on temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amount for financial reporting purpose. Deferred tax assets are recognized for all deductible temporary differences, carried forward of unused tax credit and unused tax losses, to the extent that it is probable that taxable profits will be available against which deductible temporary differences, carried forward of unused tax credit and unused tax losses can be utilized. 23. Related party A party is related to the Company if it has the ability to control the Company or exercise significant influence over the Company in making financial and operating decisions. All material transactions in relation with related parties during the period will be noted in the Notes to the financial statements. 88 ANNUAL REPORT

46 For the fiscal year ended 31 December 2013 V. Additional information for the items on the Balance sheet 1. Cash and cash equivalents Closing balance Opening balance Cash on hand Cash in bank (*) Cash equivalents (term deposits from months) Total (*) Of which, including the cash in bank by foreign currency is 2,301, USD equivalents to VND. 2. Short-term investments Term deposits (from over 3 months to under 12 months with the interest rate from 6% to 7%/year) Closing balance Opening balance Loans (2.1) Short-term securities investments (2.2) Provision for the diminution in value (2.2) ( ) ( ) Total (2.1) Including: Closing balance Opening balance Kim Khang Steel Joint Stock Company (Interest rate of 9%/year) Nam Long Investment JSC (Interest rate of 12%/year) Mr. Le Ba Cong (Interest rate of 6.5%/year) Total (2.2) Details of short-term securities investments and the provision as at 31/12/2014 Listed companies Number of shares The value of investments Provision amount Net value of investments Pomina Steel JSC ( ) Non-listed companies Sai Gon Inlaco Company ( ) (*) Construction and Consulting JSC ( ) (*) Saigon Packaging JSC (*) Vietnam Ocean Shipping Agency Corporation ( ) Total ( ) (*) In the year 2014, the Company has received dividends from these companies by cash with the amount of VND. As at 31/12/2014, the Company could not determine the market value as well as the book value of unlisted securities, therefore the provision amount was temporarily recorded based on the Board of Directors judgment.. 3. Short-term receivables Closing balance Opening balance Trade receivable (3.1) Prepayment to suppliers Other receivables (3.2) Total Provision for doubtful debts (3.3) ( ) ( ) Total (3.1) Including: Closing balance Opening balance - Trade receivable (*) Receivables from related parties (Notes VII.1) Total (*) Of which, including trade receivables by foreign currency is 3,821, USD equivalents to VND. (3.2) Including: Closing balance Opening balance - Deposit and saving interest receivables Receivables from overdue interest Loan to employees Receivables from related parties (Notes VII.1) Receivable from HCMC People s Committee regarding of supported borrowing interest (*) Receivables related to the trade discounts earned Receivables from Kim To Service and Trading Co.,. Ltd Others Total ANNUAL REPORT

47 (*) Supported borrowing interest is in Demand Increasing Programme of HCMC according to the Decision No. 33/2011/QĐ-UBND dated 28/5/2011 and the Decision No. 852/QĐ-UBND HCMC People s Committee dated 26/02/2014 regarding of investment project in manufacturing of industrial mechanic products from steel, new automatic machinery controlled by the computer. Total borrowing capital supported by this programme was dongs in 05 years. (3.3) Fluctuation of provision for doubtful debts: Year 2014 Opening balance ( ) Increased by provision established ( ) Decreased by reversal Closing balance ( ) 4. Inventories Closing balance Opening balance Raw materials Tools Finished goods Merchandise inventories Provision for devaluation in inventories (*)( ) ( ) Total (*) Provision for decline in inventory: Year 2014 Opening balance ( ) Increased by provision established ( ) Decreased by reversal Closing balance ( ) 5. Other current assets Closing balance Opening balance Short-term prepaid expenses (mainly are tools) Value added tax deductibles Tax and receivables from the State (5.1) Other current assets (5.2) Total (5.1) Including: Closing balance Opening balance - Value added tax awaiting for refunding Corporate income tax overpaid Personal Income tax overpaid Value Added Tax for Imported Goods in advance Total (5.2) Including: Closing balance Opening balance - Advances Other deposits Deposit for goods purchasing - VND Deposit for goods purchasing (74, USD) Total Tangible fixed assets Plant, buildings Machinery and equipment Transportation Office equipment Cost Opening Increase Decrease Closing Accumulated depreciation Opening Increase Decrease Closing Net book value Opening Closing Fixed assets increased by new purchasing and finished construction. Fixed assets decreased by selling or liquidating. Total 92 ANNUAL REPORT

48 Cost of fixed assets has been fully depreciated but still in use with the value of VND. As at 31/12/2014, Tangible fixed assets is used for mortgaging at banks to ensure the Company s borrowings as noted at item V.13.1 and V.14*. 7. Finance lease assets (machinery, equipment and transportation) Opening balance Increase Decrease Closing balance Cost Accumulated depreciation Net book value Finance lease assets Land use rights Software Total Cost Opening Increase Decrease Closing (*) Accumulated amortization Opening Increase Decrease Closing Net book value Opening Closing (*) Land use rights include non-term land use rights at No. 396 Ung Van Khiem Street, ward 25, Binh Thanh District, HCMC with the value of VND. Land use rights has been mortgaged to secure the Company s outstanding borrowings. Intangible fixed assets increased by new installment, decreased by selling. Cost of software has been fully depreciated but still in use with the value of VND. 9. Construction in progress Closing balance Opening balance Purchasing fixed assets The value of 2 departments at Era Town Expenditures of constructing office and workshop at SMC Tan Tao Co., Ltd (*) Other projects Total Long-term financial investments Closing balance Opening balance Investments in Associates and Joint Venture (10.1) Other long-term investments (10.2) Provision for long-term investment devaluation (10.2) ( ) ( ) Total (10.1) Including: Non-listed companies The value of investments Profit (loss) of the Company at Associates and Joint Venture Total SMC - SUMMIT Limited Liability Company Sao Viet Materials Trading Producing J.S.C (*) ( ) Total (*) Sao Viet Materials Trading Producing J.S.C (associates) received the Confirmation No. 069/CT-TTDL dated 04/01/2012 about completing the tax obligation and ending tax code s validity. However, at the date of this report, the related parties have not reached to the compromise of reversal the invested value, therefore the Company has not recorded to decrease the investments yet as mentioned above. (10.2) Details of long-term investments and provision as at 31/12/2014 Listed companies Number of share The value of investments Provision amount Net value of investments Pomina Steel JSC ( ) UPCom companies Bien Hoa Steel JSC (*) ( ) Nha Be Steel JSC ( ) Non-listed companies Nam Khang Investment JSC (*) Thong Nhat Steel Corporation ( ) - Vietnam Steel Corporation ( ) Total ( ) ANNUAL REPORT

49 (*) In the year 2014, the Company has received dividends from this company by cash with the amount of VND. As at 31/12/2014, the Company could not determine the net book value of unlisted securities because the Company had not gathered the invested company s audit reports, therefore, the provision amount was recorded based on the Board of Directors judgment. 11. Other non-current assets Closing balance Opening balance Long-term prepaid expenses (11.1) 75,330,773,755 3,973,516,289 Deferred tax assets (11.2) 9,718,930,108 10,703,043,077 Other non-current assets (11.3) 3,932,492,903 3,001,477,643 (11.2) Deferred tax assets arising from deductible temporary differences of: Closing balance Opening balance - Expenses for provision for bad debts Expenses for provision for devaluation in inventories Expense for provision for financial investments Unused taxable losses Depreciation expense Total (11.3) Including: Total 88,982,196,766 17,678,037,009 Closing balance Opening balance (11.1) Including: Closing balance Opening balance - Prepaid infrastructure fee Prepaid land rental (*) Tools awaiting for allocation Phu My project expense awaiting for allocation Warehouse renewing expense awaiting for allocation Others Total (*) Including: Prepaid land rental with the term up to November 2046 at Dong An industrial Zone, Thuan An District, Binh Duong Province Prepaid land rental with the term up to 16 August 2050 at lot No Center Road, Tan Tao industrial Zone, Binh Tan, HCMC Prepaid land rental with the term up to 29 December 2048 at Hiep Phuoc Industrial Zone, Nha Be, HCMC Compensation expenses with the term up to July 2052 at Quang Minh Industrial Zone, Me Linh District, Vinh Phuc Province (at present is Ha Noi City) Closing balance Opening balance Total Deposits for Finance lease assets Other long - term deposits Total Goodwill Closing balance Opening balance (*) (*) Net book value of goodwill arising from investment into SMC Ha Noi Joint Stock Company, awaiting for allocation. 13. Current liabilities Closing balance Opening balance Short-term borrowings and liabilities (13.1) Payables to suppliers (13.2) Advances from customers Taxes and amount payables to the State budget (13.3) Payables to employees Accrued expenses payable (13.4) Other short-term payables (13.5) Bonus and welfare funds Total ANNUAL REPORT

50 (13.1) Including: Closing balance Opening balance - Vietinbank - HCM City branch (a) Vietinbank - Eastern Sai Gon branch (b) Vietinbank - Quang Minh branch (c) HSBC bank (Viet Nam) Ltd (d) Vietcombank - HCMC branch (e) TPBank - HCMC branch Standard Chartered bank (f) MBBank - HCM City branch (g) VPBank (h) Borrowings from individuals (i) Current portion of long-term borrowings (14) Total (a) Borrowings from Vietinbank Viet Nam - HCMC branch under the credit contracts as follows: - According to 5 credit contracts with the credit limit of 800,5 billion VND; borrowing duration: from months; the interest rate as at 31/12/2014: 2.43% - 5%/year (borrowings by VND) and 2.1% %/year (borrowings by USD). This borrowing is guaranteed by the assets formed from borrowing amount, land use rights and project ownership rights at No. 396 Ung Van Khiem street, ward 25, Binh Thanh district, HCM city with the mortgaged assets. The borrowing balance as at 31/12/2014 is VND including: VND and 13,347, USD equivalents to VND. - The credit contract No /2014-HDTDHM/NHCT900-THEP SMC dated 18/08/2014 with the credit limit of 300 billion VND; borrowing duration: months; the interest rate as at 31/12/2014: 5%/year (borrowings by VND), 2.5% %/year (borrowings by USD). The borrowing balance as at 31/12/2014 is VND, including: VND and 4,539, USD equivalents to VND. - The credit contract No /2014-HDTDHM/NHCT900-CO KHI SMC dated 30/09/2014 with the credit limit of 260 billion VND; borrowing duration: 04 months; the interest rate as at 31/12/2014: 2,53%/year. The borrowing balance as at 31/12/2014 is VND, including: VND and 3,584, USD equivalents to VND. (b) Borrowings from Vietinbank Viet Nam - Eastern Sai Gon branch under the credit contracts as follows: - The credit contracts No. 90/2014-HĐTDHM/NHCT946-SMC BD dated 02/6/2014 with the credit limit of 150 billion dongs, borrowing terrm: based on each debit note, interest rate as at 31/12/2014 from 2,42%- 2,53%/year. This borrowing is guaranteed by the assets under the contract No B/HĐTC dated 18/7/2012, the contract No. 01/2013-HĐTCHH/NHCT946-SMC BD dated 25/7/2013 and the contract No. 01/2013-HĐTCNT/NHCT946-SMC BD dated 25/7/2013. The borrowing balance as at 31/12/2014 was is VND. - The credit contract No. 111/2014-HDTDHM/NHCT946-KDT SMC dated 30/5/2013 with the credit limit of 100 billion VND; borrowing duration: 06 months; the interest rate as at 31/12/2014: 2.45%/year. This borrowing is guaranteed by SMC Trading Investment Joint Stock Company. The borrowing balance as at 31/12/2014 is VND. - The credit contract No. 275/2014-HDTDHM/NHC946-SMC TAN TAO dated 12/12/2014 with the credit limit of 300 billion VND. Purposing: to implement working capital for business production process, borrow period: depends on each specific bill of debt, it is not too 04 months maximum; the interest rate as at 31/12/2014: 2,53%. Collaral loans are land use rights and contruction attrached with them, machinary, steel chain breaker, rotatory goods, rotatory receivables, term deosit at An Binh bank and guarantee text of SMC trade Investment Stock Company. The borrowing balance as at 31/12/2014 is VND. (c) Borrowings from Vietinbank Viet Nam - Quang Minh branch under the credit contracts No /HDTDHM/SMCHN dated 10/04/2014 and No /2014-HDTD-SDDBS01/NHCT264- SMCHN dated 30/9/2014; borrowing term from months; the interest rate as at 31/12/2014: from 3,5%/year - 5%/year. This borrowing is guaranteed by the right contracts and inventories formed from this borrowing, the assets under the contract No /HĐTC dated 22/02/2013 and Appendixes, and guaranteed by SMC Trading Investment JSC. The borrowing balance as at 31/12/2014 is VND. (d) Borrowing from HSBC (Viet Nam) bank under the proposal letter No. VNM between SMC Trading Investment J.S.C, SMC Steel Mechanical Co., Ltd, SMC Steel Co., Ltd, SMC Ha Noi J.S.C and the Bank dated 23/7/2014 with the total credit limit is 213 billion VND; the borrowing duration: 02 months; the interest rate as at 31/12/2014: from 4,05%/year to 5,75%/year. This borrowing is guaranteed by goods of these companies with the mortgaged goods value estimated of 323 billion VND. The borrowing balance as at 31/12/2014 is VND. (e) Borrowings from Vietcombank - HCMC branch under the credit contract No. 0104/KH/13NH dated 26/4/2013 and Appendices with the credit limit of 300 billion VND; borrowing duration: months; the interest rate as at 31/12/2014: 5%/year (borrowings by VND) and 2,5%/year (borrowings by USD). This borrowing is guaranteed by the fixed assets of SMC Steel Co., Ltd with the guaranty value of VND. The balance up to 31/12/2014 is VND, including: VND and 6,176, USD equivalents to VND. (f) Borrowings from Standard Chartered Bank (Vietnam) Limited under the credit contracts as follows: - The credit contract No.SBFL/14-43 dated 13/5/2014 with the credit limited of USD, borrowing duration: Depends on each specific bill of debt and less than 03 months; the interest rate as at 31/12/2014: by VND from 4.8%/year-5.1%/year, by USD: 2.8%/year. This borrowing has no mortgage assets. The borrowing balance as at 31/12/2014 is VND, including VND and 2,618, USD equivalents to VND. - The credit contract No.BFL/13-30 dated 10/6/2013 and credit limit letter No.SBFL/12-42 dated 25/04/2014 with the credit limit is 5,000,000,00 USD; the borrowing duration: 03 months; the interest rate as at 31/12/2014: 2,8%/year. The borrowing balance as at 31/12/2014 is 2,433, USD equivalents to VND. 98 ANNUAL REPORT

51 (13.5) Including: (g) Borrowings from Military Commercial Joint Stock Bank under the credit contract No dated 10/7/2014 and modifiable contract dated 28/7/2014 with the credit limit of 200 billion VND; borrowing duration: 03 months; the interest rate as at 31/12/2014: 5%/year. This borrowing is guaranteed by existing goods, receivables formed from borrowing amount. The borrowing balance as at 31/12/2014 is VND. (h) Borrowings from Vietnam Joint Stock Commercial Bank For Private Enterprise under the cerdit contract No.214/2014/HDTD/CIB dated 10/11/2014 with credit limited of 50 billion VND; borrowing duration: 03 months; the interest rate as at 31/12/2014: 2,5%/year. This borrowing is guaranteed by term saving deposit contract with the guaranty value of 50 billion VND. The borrowing balance as at 31/12/2014 is 2,104, USD equivalents to VND. (i) Borrowings from individuals under every agrreement minutes; duration of 01 year; the interest rate of 7,2%/year; and borrowing interest amount shall be paid at the date of 25th of monthly. (13.2) Including: Closing balance Opening balance - Payables to related parties (noted at VII.1) Trade payables (*) Total (*) Of which, including the payables by foreign currency is 1,048, USD equivalents to VND. (13.3) Including: Closing balance Opening balance - Value added tax Corporation income tax Personal income tax Total (13.4) Including: Closing balance Opening balance - Interest expense payable Borrowing interest differences payable due to borrowed by VND with the interest rate by USD Other accured expenses payable Total Closing balance Opening balance - Union fee, and compulsory insurances payable Payables to related parties (noted at VII.1) Remuneration of Board of Management and Controlling board Other payables Total Long-term liabilities Closing balance Opening balance Other long-term payables (Deposits received for warehouse leasing) Long-term borrowings and liabilities (*) Deferred tax liability Unrealized revenue Total (*) Including: Closing balance Opening balance - Vietinbank - HCMC branch (a) Vietinbank - Eastern Sai Gon branch (b) Shinhan Bank VietNam (c) Indovina bank Limited (d) Long-term liabilities (e) Current portion of long-term liabilities ( ) ( ) Total Long-term borrowings (continued) (a) Borrowings from Vietinbank - HCMC branch under the contracts as follows: - The credit contract No /HDTD.TDH dated 30/7/2009 with the credit limit of 99,9 billion VND, borrowing duration of 7 years, and the interest rate: depends on each specific bill of debt. The purpose: to implement the investment project in SMC Steel Mechanical factory at Phu My 1, Tan Thanh, Ba Ria-Vung Tau. This borrowing is guaranteed by the assets formed from borrowing amount. The borrowing balance as at 31/12/2014 is VND, of which current portion of long-term liabilities is VND. 100 ANNUAL REPORT

52 - The credit contract No /HDTD.DH dated 12/12/2012 and Text amendments of credit contract No /HDTDBS dated 01/11/2014 with the credit limit of 20 billion VND, borrowing duration of 78 months, the grace period is 6 months, the interest rate as at 31/12/2014 is 9,5%/year. The purpose: to implement the investment project in Coil steel center at plot No. 47, Quang Minh industrial park, Quang Minh town, Me Linh district, Ha Noi city. This borrowing is guaranteed by the land use rights and assets on land at plot No. 47, Quang Minh industrial park, Quang Minh town, Me Linh district, Ha Noi city under the assets mortgage contract No HDTC.HTTTL dated 12/12/2012 with the mortgaged assets value of VND. Prepayment Schedule begins at 01/7/2013 every quarter and the prepayment amount is VND/quarter. The borrowing balance as at 31/12/2014 is VND, of which current portion of long-term liabilities is VND. (b) Borrowings from Vietinbank Viet Nam - Eastern Sai Gon branch according to the credit contracts No. 22/2013-HDTDDA/NHCT946-SMC TAN TAO dated 11/9/2013 and text amendments of credit contract No. 22/2013-HDTD-SDBS01/NHCT946-SMC TAN TAO with the credit limit of 82 billion VND. The purpose: to implement to investment into the project of steel processing center at Tan Tao industrial park; borrowing duration: 78 months; the interest rate as at 31/12/2014: 9,5%/year. This borrowing is guaranteed by the assets formed from borrowing amount. The borrowing balance as at 31/12/2014 is VND, of which current portion of long-term liabilitied is VND. (c) Borrowings from Shinhan Bank VietNam according to the credit contract No. SHBVN/2013/SMC/ HDTD01 dated 05/4/2013 with the credit limit of 3,645, USD. The purpose: machinery and equipment purchasing for manufacturing steel; borrowing duration: 05 years; the interest rate as at 31/12/2014: 9,5%/ year. This borrowing is guaranteed by the assets formed from borrowing amount. The borrowing balance as at 31/12/2014 is 612, USD equivalents to VND, of which current portion of longterm liabilities is 133, USD equivalents to VND. (d) Borrowings from Indochina bank Limited according to the Capital loans contract No.81/1014/ MTL/ dated 17/10/2014 with value 441, USD; borrowing duration: 60 months. Puposing: Mua máy xả băng SL and interest rate as at 31/12/2014: 4%/year. This borrowing is guaranteed by assets formed from capital loans with thế chấp tài sản contract No.81/1014/HDTCMM with estimate value of USD. The balance up to 31/12/2014 is 441, USD equivalents to VND, of which current portion of long-term liabilities is 88, USD equivalents to VND. (e) Including long-term liabilities regarding to finance lease contracts with Vietnam International Leasing Company Limited as follows: USD Equivalents to VND - The contract No dated 21/10/ , The contract No dated 04/11/ , The contract No dated 29/11/ , The contract No dated 23/7/ The contract No dated 23/7/ Total (**) , (**) Of which, including current portion of long-term liabilities is , including VND and 366, USD equivalents to VND. 15. Increase and decrease in owner s equity Opening balance Increase Decrease Closing balance (a) Chartered capital Share premium Owner's other capitals Treasury shares ( ) - - ( ) Business investment and development funds Financial reserve fund (b) Retained earnings Total (a) The legal capital under the Business Registration Certificate is VND equivalents to shares, face value of VND/share. Shares Closing balance Opening balance Authorized shares Issued and paid-up shares Common shares Preferred shares - - Treasury shares (6.718) (6.718) - Common shares (6.718) (6.718) - Preferred shares - - Outstanding shares Common shares Preferred shares - - (b) Retained earnings Opening balance Retained earning as at 01/01/ Profit after tax of the year Distribution to Bonus and welfare funds ( ) Dividends of the year 2013 (second time) (3%) ( ) Dividends of the year 2014 (first time) (5%) ( ) Remuneration of Board of Management ( ) Others ( ) Retained earnings as at 31/12/ ANNUAL REPORT

53 16. Minority interests Closing balance Opening balance Minority interests of SMC Ha Noi Joint Stock Company Total VI. Additional information for the items on the Income statements 1. Revenue Current year Previous year Sales of goods Sales from services rendered Sales returns ( ) ( ) Sales allowances ( ) ( ) Total Cost of sales Current year Previous year Cost of goods sold and services rendered Provision (reversal) for devaluation in inventories Total Financial income Current year Previous year Bank interest income Deposits loan interest income Bond interest income Payment discounts received Gains on foreign exchange differences Income from selling of securities Dividends received Others Financial expenses Current year Previous year Borrowing interest expense Borrowing interest differences due to borrowed by VND with the interest rate by USD Provision for financial investments Loss on selling of securities Loss on foreign exchange differences Other financial expenses Total Selling expenses Current year Previous year Staff expense Raw materials, tools expenses Depreciation expense Cost of hired services Other expenses paid by cash Total General and administration expenses Current year Previous year Staff expense Office tools expense Depreciation expense Cost of hired services Provision for bad debts Goodwill allocated Other expenses paid by cash Total Total ANNUAL REPORT

54 7. Other income Current year Previous year Income from fixed assets and sub-materials sold Income from tranferring of real estates Income from receiving the supports of guarantee fees Income from the compensation received Income from contract fine Income from overdue interest Treatment of physical counts Other income Total Other expenses Current year Previous year Expenses for fixed assets sold Expenses for tranferring of real estates Fines Treatment of physical counts Additional corporate income tax of the year Other expenses Total Deferred income tax expense Current year Previous year Deferred income tax expense arising from taxable temporary differences (deductible) as follows: - Expenses for provision for bad debts ( ) Expense for provision for financial investments ( ) Expenses for provision for devaluation in inventories ( ) Unused taxable losses ( ) - Foreign exchange differences ( ) Depreciation expense ( ) - Total ( ) Earnings per share Current year Previous year Profit after corporate income tax Increase/decrease in order to define profit or loss distributed to shareholders of common shares Adjustment of increase Adjustment of decrease - - Profit (loss) for common shares Current corporate income tax expense Current corporate income tax expenses arising from: Current year Previous year Outstanding common shares in the period Earnings per share SMC Trading Investment Joint Stock Company SMC Steel Co., Ltd SMC Steel Mechanical Co., Ltd SMC Steel Trading Co., Ltd SMC Tan Tao Co., Ltd SMC Hiep Phuoc Co.,. Ltd Current corporate income tax expense ANNUAL REPORT

55 VII. Other information 1. Transactions and balances with related parties At the date of balance sheet, the balance not paid for the related parties as follows: Related parties Relationship Balance SMC - SUMMIT Limited Liability Company Joint Venture Receivable / (payable) Receivables Other receivables Payables ( ) Sao Viet Materials Trading Producing J.S.C Associates Other payables ( ) Significant transactions with related parties during this financial year were as follows: Related parties Relationship Content Amount SMC - SUMMIT Limited Liability Company 2. Events after the balance sheet date Joint Venture Selling goods Service rendered Purchasing goods ( ) There have no significant events occurring after the balance sheet date which would require adjustments or disclosures to be made in the financial statements. 3. Segments report As at 31/12/2014, the Company reported their business segments by geographic area as follows: Ho Chi Minh Binh Duong Ba Ria - Vung Tau Ha Noi Net off Total Revenue from external customers Internal ( ) - Total net sales ( ) Operating results Gross profit ( ) Operating expenses ( ) ( ) ( ) ( ) ( ) Financial income ( ) Financial expenses ( ) ( ) ( ) ( ) ( ) Other profit/(loss) ( ) Income from investment into Associates and Joint Venture Profit before tax ( ) Corporate income tax ( ) ( ) - ( ) ( ) Profit after tax ( ) Assets and liabilities Assets ( ) Deferred tax assets ( ) Total assets ( ) Liabilities ( ) Fixed assets purchased ( ) Depreciation expense ANNUAL REPORT

56 For the fiscal year ended 31 December Financial risks management 4.1 Market risk a. Price risk The Group invested in non-listed companies and is exposed to risks of price fluctuations of these investments. The risk factors affecting the performance of these investments include business performance and financial position of invested companies and market conditions. The Board of Directors manages risks regarding of business performance and financial position of invested companies by selecting industries and legal entities to invest in. The risk factor regarding of market conditions is itself affected by general economic conditions in Viet Nam and behaviors of investors, which are all out of the Board s control. These factors have caused market conditions to be changed in the previous years. b. Foreign currencies risk The Group is exposed to foreign exchange risk on sales and purchases that are denominated in currencies other than VND. This foreign currency risk mainly is United State Dollar ( USD ). The Group ensures that the net currency risk level is kept to an acceptable level by buying or selling foreign currencies at spot rates where necessary to reduce the short-term imbalances. The Board has not used risk preventing transactions since they considers that the cost for using such instruments may exceeding the potential risk of exchange rate fluctuations. The Group s currency exposure to the USD is as follows: Financial assets USD Equivalents to VND - Cash in bank , Trade receivables , Total , Financial liabilities - Short-term borrowings and liabilities , Trade payables , Long-term borrowings and liabilities , Total , Foreign currencies risk ( ,07) ( ) As at 31/12/2014, if US dollar had strengthened/(weakened) by 5% against Vietnam dong with all other variables (including interest rate) being held constant, the profit before tax of the Group for the fiscal year ended 31/12/2014 would have been ( ) VND (lower)/highter because of (loss)/gain from foreign exchange difference on the remaining USD denominated financial instruments balance. c. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the financial instrument will fluctuate because of changes in the market interest rate. The Group s exposure to market risk for changes in interest rate relates primarily to the Group s cash, short-term deposits, and borrowings. The Group manages interest rate risk by looking at the competitive structure of the market to obtain rates which are favourable for its purposes within its risk managment limits. 2-percent increasing/(decreasing) of interest rate: Assets 31/12/2013 Interest rate fluctuation 2% - Long-term deposits Short-term loans Deposits Total Liabilities 31/12/2014 Movement by 2% - Borrowings and liabilities Total Differences ( ) (*) Interest rate fluctuation 2% = Total assets balances pay the interest or Total liabilities balances pay the interest x 2%. Effect of gains/(losses) on the Group s profit before tax by interest rate fluctuation (with supposed movement of 2%) was ( VND). 4.2 Liquidity risk Liquidity risk is the risk that the Group will come up against difficulties and can not conduct the related obligations to financial liabilities. The Group s policy is to do regularly monitoring the current and expected liquidity requirements to ensure that the Group maintains sufficient reserves of cash in order to meet its liquidity requirements in the short and medium term. The Group s holdings of cash, together with net cash flows from operations, are expected to be sufficient to cover the Group s liabilities in due in the next financial year. The table below analyses the Group s non-derivative financial liabilities in related maturity groups based on the remaining term from the balance sheet date to the contractual maturity date. The amounts disclosed in this table are contractual undiscounted cash flows. At as 31/12/2013 Less than 01 year From 01 to 05 years Total - Borrowings and liabilities Trade payables Taxes payables Payables to employees Other payables and accrued expenses Total ANNUAL REPORT

57 4. Financial risks management (continued) 4.2 Liquidity risk (continued) The Group stated that the concentration of risk against debt payment is rather high. The Group believes to able to reach the necessary capital resources. Guaranteed Assets The Group s tangible and intangible assets are mortgaged for the Group s borrowings (Notes at item No and 14* - Notes to the financial statements). Fair value measurements The book value of trade receivables, cash in bank, trade and other payables be estimated to their fair values. Belows are the fair values of the Group s short-term and long-term investments: Comparison between net realized value and book value Unit: thousand dongs Book value Increase Decrease Fair value Provision Short-term investments Listed securities ( ) ( ) Non-listed securities ( ) ( ) Term deposits Loans Long-term investments Listed securities ( ) ( ) Equity securities traded on UPCOM floor ( ) ( ) Unlisted securities (*) ( ) ( ) Total ( ) ( ) (*) Including investments in the associates, joint ventures and other long-term investments. As at 31/12/2014, the Group could not determine the market value as well as the net book value of unlisted securities, therefore, the provision amount was recorded at the original cost or based on the Board of Directors judgment. The Board has established the credit policies, accordingly, each new customer must be analysed about their creditworthiness before the Group offers conditions and delivery terms. Purchasing limits are established for each customer, which represents the maximum amount that the customer can buy without approval from the Board. Customers that fail to meet the Group s creditworthiness requirement may trade with the Group only on a prepayment basis. The Group will make the provision to reduce the value in order to reflect the estimated impairment level for trade and other receivables and investments. The main components of this provision are the specific losses regarding of the specific impairment level for each customer and general impairment level of similar financial assets, and be determined as these risks may happened but not yet identified. The general impairment levels are determined based on statistic databases about liquidity in the past of similar financial assets. Bank deposits The Group has cash balance in local credit organization. The Board stated that there is not any impairments to the operating results of these credit organizations. The maximum credit risk level of each financial assets group is the book value of that financial instrument presented on the balance sheet. The Group s major groups of financial assets are cash in bank, trade and other receivables and investments. Financial assets that are neither overdue nor impaired Cash in bank is the cash deposit in the banks which have high credit-rating in Viet Nam. Trade and other receivables that are neither overdue nor impaired are mainly from companies which have good settlement process to the Group. The Group s trade and other receivables and prepayments to suppliers are neither past due nor impaired with the amount of VND. Financial assets that are overdue and/or impaired The book value of trade and other receivables are determined to be impaired and the movement of the provision as follows: Book value 31/12/2014 Gross amount Less impairment ( ) Net value Provision for impairment Opening balance ( ) 4.3. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty of the financial instruments fail to meet its contractual obligations and this risk will be mainly incurred from the Group s receivables from customers. Trade receivables and other receivables 112 ANNUAL REPORT 2013 The Group s credit risk levels are influenced mainly by private characteristics of each customer. Nguyen Thi Hong Phuc Do Doan Thanh Cong Nguyen Ngoc Anh Prepared by Chief Accountant General Director Date: 16 March

58 Design Team: 1. Nguyen Binh Trong 2. Nguyen Ngoc Y Nhi 3. Hoang Thi Kieu 4. Mai Huu Tho 396 Ung Van Khiem Street, Ward 25, Binh Thanh District, HCMC, Vietnam Tel: (84-8) Fax: (84-8)