kdc ar 2014 by Hoa Nguyen

ACCELERATING

GROWTH

ANNUAL REPORT

2014

01 Introduction

7:30 AM

10:30 AM

4,953 4,561

4,286 4,247

Group Sales

2011

2012

2013

2014

5 (Unit: Billion VND)

A leader of in the confectionary industry, Kinh Do is a family brand well known to consumers.

9:00 PM Do has always strived to be fair and deal with 7:00 PM Kinh integrity with all stakeholders

Establishing

Contents

foundation

Innovative

04-25

transition

26-51

INTRODUCTION

STRATEGY

06 2014 in Brief 08 Performance Highlights 10 Vision - Mission 12 Our Leadership Board of Directors 17 Executive Management Committee 20 Supervisory Board 22 Related Transactions 24 List of Subsidiaries and Related Parties

28 32 36 38 40 44

Chairman’s Message CEO’s Message Key Performance Indicators Business Model Strategic Orientation Corporate Strategy

In 201 to expand it’s through

Business Review

Governance

M&A

80 % LEADING POSITION

21 years

in confectionery industry

Leveraging the strength of our distribution network, Kinh Do has targeted the entry into new categories including instant noodles, cooking oils, condiments, ice cream and milk. The goal is to meet daily needs of the Vietnamese consumers.

Diversify

categories

Creating

52-61

Kinh Do is a company with a long history and development. To sustain the future growth and expansion, we have targeted to operate with a clear corporate governance structure that facilitates transparency and accountability.

brands

Expanding

62-79

reach

80-133

BUSINESS REVIEW

GOVERNANCE

AUDITED REPORT

54 56 57 60

64 72 74 76

85 87 88 90 92 93 95

Financial Highlights Market Overview Group Results KDC Share Price & Statistics

Corporate Governance Structure Risk Management Key Risk Factors Corporate Social Responsibility

through p of ha

General Information Report of Management Independent Auditorsâ&#x20AC;&#x2122; Report Consolidated Balance Sheet Consolidated Income Statement Consolidated Cash flow Statement Notes to The Consolidated Financial Statements

Establishing

foundation

01 Introduction

4,953 4,561

4,286 4,247

Group Sales

2011

2012

2013

2014

(Unit: Billion VND)

A leader of in the confectionery industry, Kinh Do is a family brand well known to consumers. Kinh Do has always strived to be fair and deal with integrity with all stakeholders

2014 IN BRIEF

SHAREHOLDING Type

% Ownership

% Voting Shares

Local Individuals

72,232,653

28.1%

30.72%

Local Institutions

94,134,279

36.7%

40.03%

Foreign Individuals

3,808,328

1.5%

1.62%

Foreign Institutions

64,985,881

25.3%

27.63%

Treasury Shares

21,492,256

8.4%

256,653,397

100.00%

Total

100.00%

% OWNERSHIP

8.4% â&#x20AC;&#x2020;

28.1% Local Individuals

25.3%

Local Institutions Foreign Individuals Foreign Institutions

1.5%

Treasury Shares 36.7%

ANNUAL REPORT 2014

SHARE OWNERSHIP Board of Directors

Share Ownership %

Board of Management

Share Ownership %

Tran Kim Thanh

0.12%

Tran Le Nguyen

7.19%

Tran Le Nguyen

7.19%

Vuong Buu Linh

0.00%

Wang Ching Hua

0.47%

Vuong Ngoc Xiem

2.98%

Vuong Buu Linh

0.00%

Wang Ching Hua

0.47%

Vuong Ngoc Xiem

2.98%

Nguyen Xuan Luan

0.08%

Tran Quoc Nguyen

0.39%

Mai Xuan Tram

0.02%

Nguyen Van Thuan

0.02%

Bui Thanh Tung

0.00%

Nguyen Duc Tri

0.00%

Ma Thanh Danh

0.03%

Nguyen Gia Huy Chuong

0.01%

Tran Quoc Nguyen

0.39%

Tran Quoc Viet

0.01%

Tran Tien Hoang

0.05%

Kelly Yin Hon Wong

0.04%

Nguyen Thi Xuan Lieu

0.02%

Supervisory Board

Share Ownership %

Le Cao Thuan

0.01%

Vo Long Nguyen

0.00%

Luong My Duyen

0.00%

CORPORATE ACTION 2014 Date

Type

Action

11/09/2014

Share bonus

Share bonus, pro rate 5:1

17/07/2014

Dividend payment

Cash dividend payment at the rate 10% on par

16/05/2014

Share issuance

Issue an addition of 40,000,000 shares

28/04/2014

ESOP

Issue 6,500,000 shares for employees

24/03/2014

Dividend payment

Cash dividend payment at the rate 10% on par

Introduction

PERFORMANCE HIGHLIGHTS

4,561 4,953

8.60%

8.59%

2014

2013

GROSS PROFIT

GROUP SALES

(VND billion)

GROUP SALES IN 2014

7.17%

2014

2013

619 663

1,976 2,146

2014

2013

PROFIT BEFORE TAX (VND billion)

4,953

VND

10.09 8.54

billion

7.73 6.82

-155

basis points

2014

2013

RETURN ON EQUITY (%)

ANNUAL REPORT 2014

43.33 43.33 basis points

2014

2013

RETURN ON ASSETS (%)

2014

2013

GROSS PROFIT MARGIN (%)

318

379

2,542 2,296

19.2%

9.67%

2014

2013

GROSS PROFIT IN 2014

2014

EARNINGS PER SHARE

(VND billion)

54.89%

2013

DIVIDENDS

1,129 509

(VND)

2013

2014

FREE CASH FLOWS (VND billion)

2,146

VND

0.31 0.25

billion

2.54 2.82

1,958 2,467

26%

2013

2014

DEBT EQUITY RATIO (x)

2013

2014

CURRENT RATIO (x)

2013

2014

NET CASH (VND billion)

Introduction

VISION - MISSION

VISION

FLAVOR YOUR LIFE Kinh Do creates life’s flavor through wholesome, healthy, nutritious and convenient foods.

8:00 am

8:30 pm

10:30 am

6:30 pm

ANNUAL REPORT 2014

1:30 pm

MISSION OUR CONSUMER MISSION Is to identify and produce affordable staple and packaged foods, snacks, bakery products, beverages and juices, confectioneries and condiments, instant foods, processed meats and health supplements that are appealing. Our products are pioneering market-leading, hygienic, healthy, satisfying and conveniently available to all consumers. OUR SHAREHOLDER MISSION Is to maximize investment returns over the long-term and to manage risks in order to give certainty and confidence that investments in our business can achieve our shareholderâ&#x20AC;&#x2122;s goals. OUR PARTNER MISSION Is to create sustainable value for supply chain partners through the creation of innovative food products, which address consumer demand trends and satisfy or exceed consumer expectations; and provide equitable returns for all. OUR PEOPLE MISSION Is to nurture and develop the skills and abilities of our people to meet the professional demands of their work and satisfy their personal needs. The aim is to create a dynamic, creative, innovative and dependable community within the company. OUR COMMUNITY MISSION Is to contribute to the communities in which we operate through sponsorship programs.

Introduction

ANNUAL REPORT 2014

OUR LEADERSHIP

BOARD OF DIRECTORS

Mr. TRAN KIM THANH Founder, Chairman of the Board of Directors of Kinh Do Group

Mr. TRAN LE NGUYEN Co-Founder, Vice Chairman of the Board of Directors, CEO of Kinh Do Group

A veteran entrepreneur with a lifetime of experience in management and business, he is the right combination of boldness in driving the company and caution in managing risk. Under his leadership, Kinh Do has grown from a small family business to become Vietnam’s number one Confectionery company. His acute business sense led to the successful turnaround of Wall’s ice-cream business to become the country’s number one single serve ice cream company. Mr. Thanh’s leadership strategy for Kinh Do Corporation is to create the best company, consisting of the best people built around the best processes. Mr. Thanh is currently the Chairman of the Board for Kinh Do Corporation and sits on various boards of other large Vietnamese corporations; helping to contribute to the growth and development of the country. He is a Member of the Central Committee of the Vietnam Homeland Front. He has received several awards and accolades from both the central and local Government of Vietnam for his significant contributions to the socio-economic developments of the country. Mr. Thanh is the founder of Kinh Do Corporation.

An experienced entrepreneur with a track record of building large and profitable businesses over the last few decades, Mr. Nguyen has been instrumental in the development of Kinh Do Corporation. Under his management, Kinh Do has emerged as one of the most well-known brands in Vietnam in addition to a broad portfolio of market dominating products that are the best in their categories. Mr. Nguyen successfully initiated and engineered the acquisition of the Wall’s ice cream factory and who spear-headed the development of the market for ice cream and built the business as it is today. Mr. Nguyen serves concurrently as both the Vice-Chairman of the Board and the CEO of Kinh Do Corporation. He is an active member of the board of directors for the Vietnam Chamber Commerce and Industry (VCCI) and participates on the Board of several prominent companies in Vietnam. Mr. Nguyen is a co-founder of Kinh Do Corporation.

Introduction

OUR LEADERSHIP

BOARD OF DIRECTORS

Mrs. VUONG BUU LINH Co-Founder, Member of the Board of Directors Vice President Kinh Do Group

Mrs. VUONG NGOC XIEM Co-Founder, Member of the Board of Directors Vice President Kinh Do Group

Mrs. Linh co-founded Kinh Do Corporation and has been active in the development and growth of the company since. She is experienced in business and supply chain management and contributed greatly to the development of both for Kinh Do Corporation and all its subsidiaries. Under her guidance, Kinh Do implemented the ERP system by SAP, effectively increasing the companyâ&#x20AC;&#x2122;s capability in making timely and accurate decisions with the right information.

Mrs. Xiem co-founded Kinh Do Corporation and has been actively participating in the management of the company since. She has many years of experience in managing operations and particularly in retailing. With her experience and hands-on approach, she has been a key part of the management team since the founding of the company and also contributed largely to the growth of the company.

Currently, Mrs. Linh is both a member of the Board of Directors and a Vice President at Kinh Do Corporation.

ANNUAL REPORT 2014

Ms. Xiem is currently a member of the Board of Directors and a Vice President at Kinh Do Corporation.

â&#x20AC;&#x2020;

Mr. WANG CHING HUA Co-Founder, Member of the Board of Directors Vice President Kinh Do Group

Mr. TRAN QUOC NGUYEN Member of the Board of Directors of Kinh Do Group General Director of KIDO Corporation

Mr. Wang has over 21 years of experience in the food manufacturing and processing industry and was one of the original founders that helped to set up Kinh Do Corporationâ&#x20AC;&#x2122;s manufacturing operations.

Mr. Nguyen has over 18 years of experience managing various member companies within Kinh Do Corporation. He has held several key senior management positions including General Manager, Board Member and Vice President at both the group and subsidiary level.

He has since been instrumental in helping to develop and scale Kinh Do Corporationâ&#x20AC;&#x2122;s manufacturing foot print in Vietnam. He is a member of the Board of Directors and a Vice President at Kinh Do Corporation.

He is currently a member of the Board of Directors at Kinh Do, Vice President of Kinh Do Corporation and the General Manager of the KIDO Ice Cream Company.

Introduction

OUR LEADERSHIP

BOARD OF DIRECTORS

Mr. NGUYEN VAN THUAN Member of the Board of Directors of Kinh Do Group

Mr. NGUYEN GIA HUY CHUONG Member of the Board of Directors of Kinh Do Group

Mr. NGUYEN DUC TRI Member of the Board of Directors of Kinh Do Group

Mr. Thuan is a Member of the Board of Directors of Kinh Do Corporation. He has a Doctorate in Economics, and is currently the Dean of Finance – Banking Department at Ho Chi Minh City Open University. He has over 30 years of experience as a lecturer in the field of banking and finance.

Mr. Chuong was voted into the Board of Directors of Kinh Do since 2013. He holds a Master of Law at Law University of Bristol (UK), specialized in International Commercial Law.

Mr Tri was voted into the Board of Directors of Kinh Do since 2013. He holds a Phd in Business Management at Nanyang Technological University – Singapore.

He is currently the consultant lawyer at Luat Viet lawyer office and a General Director/Managing Lawyer of Phuoc & Co. Office.

He has been working for a sugar company under Agricultural Ministry and teach at Trident University (California, US), Faculty of Economics – Risho University (Tokyo, Japan), Ho Chi Minh Economic University and other joint programs in Vietnam.

Besides his academic works at Ho Chi Minh Open University, he is also a financial consultant and advisor for many companies and foreign organizations operating in Vietnam.

ANNUAL REPORT 2014

OUR LEADERSHIP

EXECUTIVE MANAGEMENT COMMITTEE

Mr. KELLY WONG CFO Kinh Do Group

Mr. NGUYEN XUAN LUAN Vice President of Kinh Do Group, Chairman of Executive Management Committee at South

Mr. TRAN QUOC VIET Vice President of Kinh Do Group, General Director of North Kinh Do, Co-Head of Executive Management Committee

Mr. Kelly Wong has lived and worked in Vietnam for the last ten years, joining Kinh Do in 2011. He is responsible for managing the Group finance, accounting, and investment activities.

Mr. Luan has 20 years working for Kinh Do. He held many top positions such as Chairman of the Board of Directors, CEO, and Vice President at Kinh Doâ&#x20AC;&#x2122;s subsidiaries.

Mr. Viet has over 18 years of experience in managing companies in the FMCG industry. As General Director of North Kinh Do, he has led the company to achieve remarkable growth over the last 10 years.

Mr. Wong holds a Bachelor of Commerce from the University of British Columbia in Vancouver, Canada and a Diploma in Asia Pacific Management from the McRae Institute of Management at Capilano University.

Mr. Luan is in charge of building the Corporate Business Operation Systems, the Decision Making Systems of Kinh Do and currently Mr Luan hold the position of Chairman of Executive Management Committee at South.

He is also Vice Chairman of Vietnam Marketing Association (VMA), Director of Institute for Business management Studies and Applications (IBS), Member of Executive Committee Vietnam Food Safety Association (VINAFOSA) and an expert in analyzing and consulting business strategy. Mr. Viet is a doctor in Business and Management.

Introduction

OUR LEADERSHIP

EXECUTIVE MANAGEMENT COMMITTEE

Mr. BUI THANH TUNG Director of Kinh Do Group

Mr. MAI XUAN TRAM Director of Kinh Do Group

Mr. TRAN TIEN HOANG Director of Kinh Do Group

Mr. Tung has over 17 years experience in manufacturing management and with in-depth knowledge on the SBU operating model. He is currently a SBU Director and Head of the Labor Union for Kinh Do Corporation.

Mr. Tram was among the first of the management team to help lay the foundation of the current group distribution system. He has been with Kinh Do since the early days and has developed a deep understanding of the company, its competitive environment and the Vietnamese market.

Mr. Hoang has over 18 years of experience in procurement management in the FMCG industry. He was appointed to Director of Supply Chain at Kinh Do Corporation in 2011. He currently leads the companyâ&#x20AC;&#x2122;s COST TEAM and plays a significant role in developing the order management strategy for the entire Group.

He holds an MBA from California Miramar University in the US.

He holds a Bachelor of Economics from the University of Economics and Higher Leadership Skill Certificate from UCLA Anderson (Los Angeles, USA).

He holds a degree from the University of Economics with a specialization in Business Administration.

ANNUAL REPORT 2014

â&#x20AC;&#x2020;

Mr. MA THANH DANH Director of Kinh Do Group

Mrs. NGUYEN THI XUAN LIEU Director of Kinh Do Group

Mr. Danh holds a Bachelorâ&#x20AC;&#x2122;s of Science (B.Sc) in Electrical Engineering, Degree in Business Administration from the University of Economics and a Masters of Business Administration with a focus in International Business Strategy and Brand Management from Belgium.

Mrs. Nguyen Thi Xuan Lieu graduated with honors from Ho Chi Minh City University of Economics in 1981. She has over 30 years of working experience in the finance and banking sector, with almost 20 years holding key positions in credit management, banking, and finance in one of the most prestigious banks of Vietnam - Vietnam Bank for Industry and Trade.

He has over ten years of experience in financial management, business strategy and brand management consultancy and advisory in mergers and acquisitions. He is now in charge of the Internal Control department of the whole Group.

She has successfully completed the PhD thesis at Ho Chi Minh City University of Economics and was honored with the Certificate of Merit from the Prime Minister in 2010, 3rd rank Labour Medal of Merit in 2012 and many others. She will focus on post-investment integration and value creation of KDCâ&#x20AC;&#x2122;s strategic investments.

Introduction

OUR LEADERSHIP

SUPERVISORY BOARD

Mr. LE CAO THUAN Head of the Supervisory Board

Mr. VO LONG NGUYEN Member of the Supervisory Board

Mrs. LUONG MY DUYEN Member of the Supervisory Board

Mr. Thuan was one of the first pioneers who helped to successfully establish North Kinh Do Company and played an important role in building the company to what it is today.

Mr. Nguyen holds a Bachelor of Economics with a specialization in Business Administration. He is a certified Fund Manager with a certificate issued by the State Securities Commission of Vietnam.

Ms. Duyen has been working for Kinh Do since 1993 and has held several key positions, including Accountant, Deputy Manager of the Accounting Department at Kinh Do and Chief Accountant Kinh Do. Since 2006, Mrs. Duyen has been the Chief Accountant at Kinh Do Real Estate Joint Stock Company.

Mr. Thuan graduated with an MBA and as the valedictorian at Benedictine University - USA, he also holds a Bachelor of Accounting and Audit from the University of Economics and a Bachelor of Computer and Mathematics Applications from Polytechnic University. Currently, he is the Finance Director of North Kinh Do and Head of the Supervisory Board at Kinh Do Corporation.

ANNUAL REPORT 2014

He was one of first brokers of the OTC market Vietnam and has over 11 years of investment experience.

She holds a degree in Finance and Accounting and has spent her career at Kinh Do Corporation.

â&#x20AC;&#x2020;

Introduction

RELATED TRANSACTIONS TRANSACTION OF INSIDERS No.

Name

Relationship

Shares Owned at Beginning Amount

Ezaki Glico

Shares Owned at Ending

Amount

Action Structure investment portfolio Structure investment portfolio Structure investment portfolio

Strategic Shareholder

16,800,000

10.1%

8,400,000

5.1%

Viet Nam Investment Property Holding LTD

Major Shareholder

7,625,921

4.6%

5,378,226

2.1%

Windstar Resouces Limited

Major Shareholder

238,410

0.1%

0.0%

Tran Kim Thanh

Internal Shareholder

130,000

0.1%

276,000

0.1%

Buy + share bonus

Vuong Buu Linh

Major Shareholder

80,000

0.0%

168,000

0.1%

Buy + share bonus

Tran Le Nguyen

Major Shareholder

13,888,748

6.7%

16,906,497

7.19%

Buy + share bonus

Vuong Ngoc Xiem

Major Shareholder

5,777,003

2.8%

7,004,403

2.7%

Buy + share bonus

Tran Quoc Nguyen

Major Shareholder

565,366

0.3%

913,207

0.4%

Buy + share bonus

Wang Ching Hua

Major Shareholder

862,611

0.4%

1,107,133

0.4%

Buy + share bonus

Nguyen Gia Huy Chuong

Major Shareholder

0.0%

10,000

0.0%

Buy + share bonus

Nguyen Duc Tri

Major Shareholder

0.0%

10,000

0.0%

Buy + share bonus

Nguyen Van Thuan

Major Shareholder

20,683

0.0%

35,683

0.0%

Buy + share bonus

Nguyen Xuan Luan

Major Shareholder

135,000

0.1%

192,000

0.1%

Bui Thanh Tung

Major Shareholder

73,000

0.0%

45,000

0.0%

Mai Xuan Tram

Major Shareholder

72,506

0.0%

45,007

0.0%

Tran Quoc Viet

Major Shareholder

50,273

0.0%

80,327

0.0%

Tran Tien Hoang

Major Shareholder

150,000

0.1%

114,000

0.0%

Buy + share bonus

Ma Thanh Danh

Major Shareholder

8,159

0.0%

63,790

0.0%

Buy + share bonus

Kelly Yin Hon Wong

Major Shareholder

30,000

0.0%

87,480

0.0%

Buy +Sell + Share Bonus

Le Cao Thuan

Major Shareholder

3,505

0.0%

28,206

0.0%

Buy + share bonus

Luong My Duyen

Major Shareholder

6,009

0.0%

12,010

0.0%

Buy +Sell + Share Bonus

Vo Long Nguyen

Major Shareholder

7,750

0.0%

21,300

0.0%

Buy + share bonus

Nguyen Thi Oanh

Major Shareholder

50,000

0.0%

84,000

0.0%

Buy + share bonus

ANNUAL REPORT 2014

Buy +Sell + Share Bonus Buy +Sell + Share Bonus Buy +Sell + Share Bonus Buy +Sell + Share Bonus

â&#x20AC;&#x2020;

TRANSACTION OF RELATED PARTIES No.

Name

Relationship

Shares Owned at Beginning

Shares Owned at Ending

Amount

Action

Tran Vinh Nguyen

Tran Kim Thanh

458,941

0.2%

604,729

0.2%

Buy + share bonus

Vuong Quoc Tru

Vuong Buu Linh

3,643,572

1.7%

4,456,286

1.7%

Buy + share bonus

Vuong Buu Ngoc

Vuong Buu Linh

309,557

0.1%

383,468

0.2%

Buy + share bonus

Vuong Ngan Hao

Vuong Ngoc Xiem

6,000

0.0%

12,000

0.0%

Buy + share bonus

Mai Thi Kim Phuong

0.0%

Sell

Vuong Thu Binh

Vuong Ngoc Xiem

12,500

0.0%

24,000

0.0%

Buy +Sell + Share Bonus

Vuong Thu Le

Vuong Ngoc Xiem

12,007

0.0%

11,008

0.0%

Buy +Sell + Share Bonus

Vuong Buu Dinh

Ma Thanh Danh

205,936

0.1%

271,123

0.1%

Buy +Sell + Share Bonus

Ngo Phan Anh Dao

Tran Tien Hoang

69,334

0.0%

19,204

0.0%

Buy +Sell + Share Bonus

Nguyen Thi Hong Hanh

Le Cao Thuan

3,501

0.0%

30,601

0.0%

Buy + share bonus

Le Cao Tu

Le Cao Thuan

0.0%

1,800

0.0%

Buy + share bonus

Mai Xuan Tram

549

Introduction

LIST OF

SUBSIDIARIES AND RELATED PARTIES

KINH DO BINH DUONG CORPORATION Address: Singapore Industrial Park, Thuan An District, Binh Duong Province, Vietnam. Business Line: Process agricultural products and foods; produce confectionery, purified water, and fruit juice; and sell and purchase agricultural products and foods, industrial products, and fabric.

99.92

% PERCENTAGE OWNERSHIP

NORTH KINH DO FOOD JOINT STOCK COMPANY

100

% PERCENTAGE OWNERSHIP Address: Ban Yen Nhan Town, My Hao District, Hung Yen Province, Vietnam. Business Line: Produce and process food stuffs, including various ranges of high-grade cookies, to trade food and food stuffs, various type of beverages and liquors as well as cigarettes produced in Vietnam, and to lease a factory.

ANNUAL REPORT 2014

KIDO CORPORATION

100

% PERCENTAGE OWNERSHIP Address: Cu Chi Northwest Industrial Park, Cay Sop Village, Tan An Hoi Ward, Cu Chi District, Ho Chi Minh City, Vietnam. Business Line: Produce and trade all kinds of food and drink products such as ice cream, milk and other dairy products.

â&#x20AC;&#x2020;

VINABICO CONFECTIONERY JOINT STOCK COMPANY

100

TAN AN PHUOC COMPANY LIMITED

% PERCENTAGE OWNERSHIP

Address: 436 No Trang Long Street, Ward 13, Binh Thanh District, Ho Chi Minh City, Vietnam.

Address: 6/134 National Road No. 13, Hiep Binh Phuoc Ward, Thu Duc District, Ho Chi Minh City, Vietnam.

Business Line: Produce and sell confectionery and purified water.

Business Line: Operate in real estate industry.

LAVENUE INVESTMENT CORPORATION

% PERCENTAGE OWNERSHIP Address: 3rd floor, May Flower Tower, 12 Le Thanh Ton Street, District 1, Ho Chi Minh City, Vietnam. Business Line: Operate in real estate industry.

Introduction

7:30 AM

10:30 AM

9:00 PM

7:00 PM

Innovative

transition

02 Strategy

million customers

In 2014, Kinh Do refocused its commitment to expand itâ&#x20AC;&#x2122;s addressable market to 50 million consumers through diversification of our product portfolio.

CHAIRMAN’S MESSAGE

ANNUAL REPORT 2014

VND

4,953

Billion

NET SALES IN 2014

VND

2,146

Billion

GROSS PROFIT IN 2014

Dear Shareholders, The year 2014 marked the beginning of a new chapter of KDC after 20 years of successes. We have been able to establish ourselves as the dominant player in the Snack & Confectionery segment. With the effort of our team, the support of the consumers, and the trust of our shareholders, the past 20 years of Kinh Do has been filled with remarkable achievements. KDC has been able to build an outstanding portfolio with many brands such as Solite, Cosy, Trang Vang mooncake being the number 1 in their respective categories. Kinh Do itself has become a national brand, number one brand in the Snack & Confectionery industry, and consistently one of top 10 most prestigious brands in Vietnam. We have grown at a remarkable annual growth rate and is considered to be one of the most efficient

companies in the Snack & Confectionery industry in Vietnam. During this period, we have successfully built a modern and unified operational platform. This platform has become one of the core competitive advantages that will drive the growth sustainability of the company in the coming years. KDC also has developed and recruited a strong group of managers that are well equipped with both professional capability and experiences to guide the company forward. The company is now operating as SBUs (Strategic Business Units) under the management of an Executive Management Committee (EMC) which will help each subsidiary operate efficiently while allowing us to accelerate our growth.

DURING THIS PERIOD, WE HAVE SUCCESSFULLY BUILT A MODERN AND UNIFIED OPERATIONAL PLATFORM. THIS PLATFORM HAS BECOME ONE OF THE CORE COMPETITIVE ADVANTAGES THAT WILL DRIVE THE GROWTH SUSTAINABILITY OF THE COMPANY IN THE COMING YEARS.

Introduction

CHAIRMAN’S MESSAGE

These factors together will help establish a firm foundation for the next growth phase of KDC. As Vietnam is participating further into the globalization process, the country is being integrated further into the ASEAN economic group and by the end of this year it will also start to join the free trade pact with the EU. Within this context, KDC needs a breakthrough strategy in order to continue its success. KDC has been in the Snack & Confectionery industry for the past two decades and been considered as one of the pioneers in Vietnam. During this period, KDC has successfully built its reputation as the most renowned name in this industry. However, continued success required KDC to seek growth beyond just the Confectionery space. There was a growing need for the company to find a new direction and a new area with a much larger playing field. Hence, a strategy was derived to extract the potentials from the Value Creation process and to re-direct the focus and resources into more larger segments. Make no mistake, KDC will continue to pursue the Food & Flavor strategy but looking at much larger categories and a much bigger space.. We will bring forward a new product portfolio that aims to increase (1) the number of potential consumers, (2) the consumption frequency of each consumer, and (3) reach towards overseas markets. In order for us to concentrate and redirect our scarce resources to enter into a larger Food and Flavor space, in 2014, KDC made a landmark transaction to transfer a portion of the Snack & Confectionery business to a strategic partner, Mondelēz International. This cooperation will help to accelerate the development of

ANNUAL REPORT 2014

Snack & Confectionery segment in the future by placing it in the hands of the world’s number one Confectionery company and allows us to focus on developing our presence in the much larger Food and Flavor space. With the strategic orientation of moving toward being a food conglomerate, KDC has undergone a prolonged Transformative Change with our focus being shifted from Value Conversion to Value Creation. This means the consumer is placed at the heart of our entire operational focus. For the next phase, KDC will focus on two strategic goals: (1) developing KDC to become a leading food conglomerate with specialized distribution channels; (2) develop and upgrading our Value Creation process. As the economy continues to develop, the Vietnamese consumers have increasingly more access to a variety of options, and information about products. Hence, in order to succeed, company needs to understand its consumer behavior, it’s changing dynamics and bring appropriate products to meet the specific needs of individual consumer. Recognizing the growing importance of consumer’s behavior in the growth of our company, KDC has set our goals to align our entire operations to ensure that we are able to meet the needs of individual consumers. For the next chapter of growth, our strategy will be centered on 4C’s (Consumer, Category, Country, Channel). The 4C’s is the new corporate strategy, which will help guide us for the coming years. It’s also designed to help us focus on the delivery of product to consumers and dictates the way in which we interact with them. This as we mentioned already is the core element of KDC’s focus during the next phase of development.

KDC HAS UNDERGONE 21 YEARS OF DEVELOPMENT WITH TREMENDOUS SUCCESSES. NOW, WE ARE ONCE AGAIN AT THE BEGINNING OF A NEW CHAPTER OF GROWTH, BACKED BY YEARS OF PREPARATION AND EXPERIENCE. I TRULY BELIEVE THAT KDC WILL CONTINUE ITS SUCCESS. In addition to the new strategic orientation for the Group, I am pleased to announce that our business has continued to achieve outstanding results. Our business has grown steadily with improved profitability despite a difficult external environment and moderate consumer demand. In addition, KDC has successfully launched the instant noodle product under the “Dai Gia Dinh” brand, marking our first entry into the daily essential space. In the upcoming months, our portfolio will further expand to include cooking oil and condiments. They will serve as the basis to develop and execute the new strategy. KDC has undergone 21 years of development with tremendous successes. Now, we are once again at the beginning of a new chapter of growth, backed by years of preparation and experience. I truly believe that KDC will continue its success. Looking back at our journey, we would like to thank the commitment, support and cooperation of our shareholders, investors, employees, partners, suppliers, and distributors. We truly could not have enjoyed these successes without all of you. I would like to wish you all great health and success in the upcoming year. TRAN KIM THANH Chairman Kinh Do Group

Introduction

CEO’S MESSAGE

OVERALL, EFFICIENCY IN OUR OPERATION PROVIDED US A STRONG MOMENTUM DESPITE UNFAVORABLE MACRO ENVIRONMENT AND MODERATE MARKET DEMAND.

ANNUAL REPORT 2014

VND

379

Billion +19.2%

DIVIDENDS IN 2014

VND

663

Billion +7.3%

PROFIT BEFORE TAX IN 2014

Dear Shareholders, Last year, though we have seen economic recovery signals and a more stable GDP growth rate, the overall market was still hindered by moderate demand. However, KDC still achieved an impressive growth rate by concentrating on core business, shifting our operation toward the market, and improving our services to satisfy complex market demand. The year of 2014 also marked a turning point in the execution of our strategic plan. The year of 2014 was the year KDC continues to dedicate its efforts to Stage 4 of the Transformative Change: Profitable Growth which aimed at achieving profit from sustainable resources. I am glad to announce that KDC has reached the revenue of VND4,953 bn, equivalent to the growth of 8.6% YoY, net profit before tax of VND663bn, increasing by 7.1%YoY. Though operating profit margin remained stable compared to 2013, profit before tax still grew by 7.2% YoY. Net profit after tax also increased by 9.00%, reaching VND537 bn. Return on Equity this year decreased to 8.5% lower than last year level of 10.09%. However, if excluding the equity increased of VND 1,404 bn due to the private share issuance, this year ROE reached 11.0% in line with our commitment to the shareholders. Overall, efficiency in our operation provided us a strong momentum despite unfavorable macro environment and moderate market demand. To accomplish such outstanding result, I would like to express my gratitude to the commitment, support, and discipline of the entire KDC’s team. I also would like to thank our shareholders, investors, and partners including our suppliers, distributors for your support, and finally and dearly the consumer for the trust and belief in our company and our products.

Last year, the management structure under: Functions working directly with each Strategic Business Units under the monitor and guidance of the Executive Management Committee continues to show its effectiveness in managing an increasingly complex company. Timely management decisions made by EMC in the past year have helped the firm to maximize opportunities while control risks at acceptable level. In addition, KDC’s distribution platform was further strengthened becoming the foundation for our company to enter the daily essential space in the coming period. With over 200 distributors, 160,000 POS and 30,000 cold chains across the country, KDC has become one the best distribution platform in the domestic market. Aside from its scale, the highlight of the platform is the successful implementation of the Distribution Management System (DMS). This system allow us to monitor sales at retail level through mobile devices and set up automatic orders for the distributor. This, in turn, has accelerate our business cycle, the selling and delivery speed while improve the level of our customer services. Besides, understanding the importance of building and developing brand, we continuously launched a variety of campaigns that aims to increase brand recognition, consumer loyalty, and customer satisfaction. In the year 2014, KDC launched and re-launched a variety of core brands, for instance, Kinh Do Fresh Bun, AFC, Cosy Wafer, Snack, Cookies, Ice-cream and Yoghurt to satisfy the increasingly complex consumers’ demand. Trade marketing activities for core products, especially seasonal product lines like Mid-Autumn and Tet… were also enhanced. Remarkably, in additional to our premium offering, we recently launched many new product lines that dedicated to the health of consumers while remained affordable.

Strategy

CEO’S MESSAGE

The year 2014 also earmarked our expansion toward Food & Flavor space. This includes products that are consumed daily including meal compliments and meal replacements and can be used multiple times throughout the day. Due to its nature, this space has high coverage and much higher penetration that promises a great potential for revenue and profit growth. 2015 economic outlook remains fairly moderate which will pose challenges to our business. However, there are signs of recovery from the real estate market while CPI index is forecasted to be quite stable. As such, following the 2015 strategic goals of our Chairman, KDC has outlined an execution plan in detail to pursue the strategy, accelerate our company growth rate and create more value to the Shareholders.

FOR THE UPCOMING CHAPTER, WE WISH THAT THE SHAREHOLDERS, INVESTORS AND PARTNERS INCLUDING OUR SUPPLIERS, DISTRIBUTORS WILL CONTINUE TO COMMIT AND SUPPORT US.

ANNUAL REPORT 2014

In the upcoming years, one of the key success factors for us is the development and efficiency improvements of our distribution channels. The success of the entire organization will depend on our ability to drive the efficiency of individual channel as well as cross channel synergy. Moving forwards, KDC will reorganized into a Food Conglomerate with each subsidiary specializing on one of the following channels: packaged, frozen, retail and export. Currently, KDC has already possessed a strong distribution platform, experienced sales force and high market coverage across the country. Post the transformation, KDC will look to enhance the synergy cross channels to increase overall efficiency. In the longer term, KDC will seek additional opportunities to enter into the regional and global market. In additional to leveraging our low cost base to enter global playground, we will look for opportunities to leverage regional resources to improve our Value Creation process. Furthermore, the entire category strategy of KDC will be consumer centric. Previously, serving opportunity of our product portfolio was limited within breakfast, afternoon tea, and dessert while missing two important periods: lunch and dinner. In addition, our consumer target age group was limited within 20 to 45 years old. Hence, in the future, we aim to diversify our product portfolio to serve the entire consumer base from urban to rural areas in different age group covering the entire consumerâ&#x20AC;&#x2122;s daily live. To be specific, after the launch of instant noodles at the end of 2014, we will look to launch premium instant noodles, cooking oil, condiments, and other products in Food & Flavor space. We have also build a system and process to collect and analyze consumer feedbacks. As such, KDC could understand what products that its customers need, where they want to buy, at which time to use and in turn driving the entire operation base on such information. Hence, we look to develop the Dai Gia Dinh brand to become a brand that is well connected

with Vietnamese families. Endorsed by this brand, more products will be launched to satisfy the needs of different type of consumers in different age group throughout the day. Even though Food & Flavor is an attractive space, it is also a field with large and experienced players. Thus, in order to prepare our entry, KDC needs a strong foundation that can sustain over the long term. As a result, KDC has restructured its Snack & Confectionery business by entering into a strategic partnership with MondelÄ&#x201C;z International. This agreement will accelerate the development of Snack & Confectionery in the future and allow us to focus our resources to enter into Food & Flavor. Together with establishing a strategic plan and a details execution plan, we have also set up a proactive risk management process. The process will carefully monitor and actively manage potential external and internal risks to assure the execution of business targets each year. To be specific, risks may come from the industry, suppliers, customers, business partner, entrance into new market and consumersâ&#x20AC;&#x2122; demand. For the upcoming chapter, we wish that the shareholders, investors, and partners including our suppliers, distributors will continue to commit and support us. Your trust will become our strength and motivation throughout our journey to accomplish our strategic goals and operating targets. Finally, I would like to wish you all great health and success in the upcoming year. TRAN LE NGUYEN Chief Executive Officer Kinh Do Group

Strategy

KEY PERFORMANCE INDICATORS

WHAT WE MEASURE

WHY WE MEASURE

Financial goals

HOW WE PERFORMED

2014

2013

Revenue growth

Monitor the growth of our company against the broader food & beverage industry and identify opportunities or gaps.

8.6%

6.4%

Net profit margins

Determine the effectiveness of our management process.

10.8%

Return on equity

Monitor the effectiveness of our capital allocation and usage.

8.5%

10.1%

Total shareholder return

Monitor the value created for our shareholders over the longer term relative to alternative investments in Vietnam.

21.5%

32.6%

Free cash flow

Track our cash generated to pay down debt, return to shareholders and invest in the business.

VND 509 bn

VND 1,129 bn

2014

2013

Commercial goals

Transparency in our supply chain management process

Monitor the efficiency of our cost and quality management process.

Inventory Days 41 days

Inventory Days 43 days

Consistency and efficiency in our production management processes

Monitor the quality of our products and effectiveness of our production management systems.

COGS growth equal Net Sales growth and equal 8.6%

COGS growth vs. Net Sales growth 6.9% vs 6.4%

Efficiency in our management systems and processes

Measure the impact of the overall value creation/conversion process.

EBIT/EBITDA 71.8%

EBIT/EBITDA 81.0%

ANNUAL REPORT 2014

â&#x20AC;&#x2020;

Strategy

VALUE CONVERSION

BUSINESS MODEL

SUPPLIERS

MANUFACTURING

VALUE CREATION

MARKETING

CONSUMERS

RETAILERS

SALES FORCE

DISTRIBUTORS

â&#x20AC;&#x2020; Suppliers - Kinh Do is working with over 200 suppliers worldwide to ensure that the best quality materials are sourced for the best price with the objective of having a consistent balance between quality and profitability. Employees - Kinh Do is working with over 8,000 employees including 4,800 in manufacturing, 1,650 in the distribution system and 1,550 in the growth platform to convert raw materials to product and create value through delivery of products that leverage our marketing and sales knowledge. Distributors - Reaching through 3 channels to access 161,000 point of sales to deliver products. Connected through our Distributor Management System which allows us to access on a daily basis the inventory and sales volume throughout our channels. Retailers - Serving over 161,000 point of sales and connected to our platform through our mobility platform to manage the sales execution process at a retailer level. Consumers - Targeting over 50 million consumers with our range of products through 3 channels in Vietnam.

ANNUAL REPORT 2014

IMPACTING THE DAILY LIVES OF

MILLION CONSUMERS

AS THE COUNTRY DEVELOPS, VIETNAMESE CONSUMERS HAVE ALSO EVOLVED WITH INCREASING DEMANDS IN TERM OF PRODUCT QUALITY AND COMPLEXITY. THIS RESULTING CHANGE IN CONSUMER BEHAVIOR HAS CHANGED KDC’S BUSINESS MODEL FROM A PUSH TO A PULL MODEL CONNECTING US CLOSER TO THE CONSUMER.

Our business process is separated into two primary areas, including “Value Conversion” and “Value Creation”. The two distinct parts reflects the primary construct of KDC’s current business and the evolution of our business model over the last 21 years. The traditional process of Value Conversion which KDC was founded upon, relied heavily on pricing power and scale. Competitive advantages were defined by the ability to negotiate large discounts for volume and manufacturing in large enough scale to create price competitiveness. The types of products were not highly differentiated and growth required adding new categories or extension of existing products to expand. The market context was that consumers were not overly concerned with variety and choice but relied heavily on the availability of products to satisfy their needs. KDC extended business model to include Value Creation fairly early on, which is defined by investing in the process of branding, marketing, selling and distribution. This Value Creation process is much less tangible than Value Conversion (plant and equipment) and has taken a much larger investment in time and money to build. The Value Creation process includes investment in knowledge capital (system and processes), human capital (highly skilled professional managers) and intellectual capital (product brands and reputation). It is also a much more fluid investment which requires a different type of approach in management and is heavily reliant on knowledge capital to keep everything organized. While more complex, Value Creation can be leveraged to create much better returns and accelerate growth; as a result large improvements in our profitability profile. As the country develops, Vietnamese consumers have also evolved with increasing demands in term of product quality and complexity. This resulting change in consumer behavior has changed KDC’s business model from a push to a pull model connecting us closer to the consumer. This means that the flow of products and information has essentially formed a feedback loop that puts consumers at a critical juncture by giving them the ability to tell us what they want (pulling product). The consumers provide us insight into not only what type of products they like but also, where they would buy it, why they like it, when they eat it and who it’s meant for. This is in contrast to the traditional model where KDC dictated what products were available (push) and consumers readily accepted it since they were much less discerning given fewer choices. Thus, our ability to collect and analyze consumer insight is critical for future success and improves our capability to adapt and evolve as an organization to meet the changes of the consumer base.

Strategy

STRATEGIC ORIENTATION

OUR STRATEGIC FOCUS HAS SHIFTED IN THE LAST YEAR AS WE COME TO THE COMPLETION OF OUR TRANSFORMATIVE CHANGE WHICH WE UNDERTOOK BETWEEN 2009 TO 2014. THIS STRATEGY INCLUDED FOUR KEY STAGES:

Preparation

Profitability through Efficiencies

The period was categorized by the merger of KDC, NKD, BKD and KIDO under a single entity. During this phase we established an operational framework to operate under an unified group structure in order to prepare for accelerated growth across categories.

Having established a strong foundation, we focused on bridging the gaps throughout the KDC Platform in order to synchronize the growth mindset and profitability culture. The methodology to “Bridge the Gap” was implemented to continuously seek additional operational efficiencies, improved cost management and as a result better quality profitability.

2009 - 2010

2012

2011

Foundation The purpose here was to drive growth and enhance the economies of scale around the combined business. Having reached record sales growth, we begun the process of rationalizing processes and seeking efficiencies throughout our operations.

ANNUAL REPORT 2014

2013 to 2014

Profitable Growth The focus during this final stage of transition was not only to grow at any expense but to achieve a profitable and managed level of growth. The ethos here was to rationalize growth while not sacrificing profitability to achieve it. The aim was to build better quality earnings from sustainable sources. This meant a push towards asset efficiency, rationalizing quality of investments (brands and equipment) and growing revenue by improving product diversity and quality.

In order to complete the Transformational Change, we needed to maintain our focus in order to achieve our strategic goals. As such, we narrowed down our strategic focus by featuring 3P’s that we believe were pivotal in our success:

AMONG THE 3P’S FOCUS, THE MOST ADAPTIVE ELEMENT IS THE PRODUCT STRATEGY.

PLATFORM The organization and operational platform to execute the strategy of rapid growth and profitability.

PEOPLE Strengthening the combined resources across the group to optimize value for the organization.

PRODUCT The development of

products that are adaptive to consumer tastes and demand. The “Value Creation” process leading to better customer loyalty and as a result stronger brands.

Among the 3P’s focus, the most adaptive element is the product strategy. We have previously identified our product strategy to be based on the Snack &

Confectionery category with an extension into Food & Flavor based on the same platform to leverage further efficiencies and growth.

Strategy

STRATEGIC ORIENTATION

CATEGORY POSITION MAP Penetration

High

FOOD & FLAVOR

Coverage Low

High

SNACK & CONFECTIONERY

Low Historically, the growth of KDC has been based on the strong performance and dominant position of the company in the Snack & Confectionery space. This served as the foundation of the product strategy and despite our dominant position, became a limiting factor in our growth due to the market size. To counter the seasonal nature and small market size of the Snack & Confectionery, KDC extended its product strategy to include Food & Flavor. The products here

ANNUAL REPORT 2014

include meal compliments and replacements which are characterized by items and products that are used by consumers on a daily basis, and can be used during a much higher number instances during the day. In 2014, as part of this strategy, KDC successfully launched instant noodles under the brand “Dai Gia Dinh” and is preparing an oil product and a seasoning product as a brand extension. The idea is to expand our product offering to continue to improve the penetration of products into the daily lives of consumers.

DAIRY ICE - CREAM BEVERAGE SAUCES NOODLES COFFEE COOKING OIL CONFECTIONERY Breakfast 8AM - 10AM

Lunch 12PM - 2PM

Snack

Tea 4PM - 6PM

Dinner 8PM - 10PM

Dessert

CONSUMERS

A STRATEGIC DECISION WAS MADE TO EXPLORE THE POTENTIAL TO UNLOCK SOME OF THE VALUE IN KDC THAT RESIDED IN THE VALUE CONVERSION PART OF THE BUSINESS AND TO REFOCUS THE COMPANY AGAINST HIGHER GROWTH AREAS WITH BROADER POTENTIAL.

As we began to review the completion of the Transformative Change, the Board of Directors began a strategic review into the future of the KDC business. They looked at the construct of the existing business model, which is defined by a combination of Value Conversion and Value Creation in order to determine where we can derive the most future value for shareholders. A strategic decision was made to explore the potential to unlock some of the value in KDC that resided in the Value Conversion part of the business and to refocus the company against higher growth areas with broader potential. This naturally led us to review and rationalize the Value Conversion part of our business under Snack & Confectionery. The resulting decision, thus, was to seek a compatible partner in the Snack & Confectionery space to provide the leverage to accelerate our entry into the Food & Flavor category which was deemed to be a much larger and robust market. This resulted in the signing of an agreement with Mondelēz International to bring forward the future value of the Snack & Confectionery business and to effectively hand over the Value Creation process for the Snack & Confectionery business to them. While it would seem like a large transition due to the reduction of our stake in that part of the business, it is necessary to note that KDC’s core business is the Food & Beverage business. The Snack & Confectionery business is a small portion of that which we believe has much lower growth potential than the overall Food & Flavor space. The proposed deal also created a unique opportunity from a Value Creation process perspective since it allows KDC to focus purely on the Value Creation process rather than juggling between the labor intensive aspect of Value Conversion and Value Creation.

Strategy

CORPORATE STRATEGY

THE VALUE CREATION PROCESS IS DRIVEN BY A REVISED CORPORATE STRATEGY WHICH WILL REPLACE THE TRANSFORMATIVE CHANGE STRATEGY. OUR REVISED CORPORATE STRATEGY WILL BE DIVIDED INTO A FOUR PART EXECUTION PLAN WHICH INCLUDES 1) CONSUMER 2) CATEGORY 3) COUNTRY 4) CHANNEL. THESE 4C’S (CONSUMER, CATEGORY, COUNTRY, CHANNEL) WILL DEFINE OUR EXECUTION PLAN FOR THE NEXT FEW YEARS AND IS INTENDED TO SERVE AS A MAP UPON WHICH KDC CAN EXTEND ITS VALUE CREATION PROCESS IN AN ACCELERATED FASHION AND AS A RESULT DELIVER HIGHER SHAREHOLDER RETURNS AND PROFITS.

ANNUAL REPORT 2014

CONSUMER

CHANNEL

categories

03 Business Review

LEADING POSITION

years

in confectionery industry

FINANCIAL HIGHLIGHTS

(VND’bil)

2013

2014

Change

% Change

Sales

4,561

4,953

+392

+8.6%

Gross Profit

1,976

2,146

+169

+8.6%

Operating Expenses

1,393

1,632

+239

+17.2%

EBIT

584

514

-70

-11.9%

PBT

619

663

+44

+7.2%

NPAT

493

537

+44

+9.0%

20.3%

19.0%

-1.3%

-136 basis points

Effective Tax Rate

2,146

VND

GROSS PROFIT

2014

VND 2,146billion

2013

VND 1,976billion

1,632

VND

OPERATING EXPENSES

ANNUAL REPORT 2014

Billion | +8.6%

Billion | +17.2%

2014

VND 1,632billion

2013

VND 1,393billion

4,953

SALES 2014

VND

Billion

392 Billion +8.6%

GROWTH +

514

VND

Billion | -11.9%

2014

VND 514billion

2013

VND 584billion

663

VND

Billion | +7.2%

2014

VND 663billion

2013

VND 619billion

537

VND

EBIT

PBT

Billion | +9.0%

2014

VND 537billion

2013

VND 493billion

NPAT

Business Review

MARKET OVERVIEW

OUR INDUSTRY HAS CONTINUED TO SEE FAVORABLE AND ACCOMMODATIVE POLICIES ON THE SUPPLY SIDE FOR PRODUCTION, INCLUDING BOTH INPUTS AND FINANCING COSTS. IN CONTRAST, WE SAW VERY LITTLE CATALYST ON THE DEMAND SIDE TO DRIVE GROWTH AND EXPANSION.

NET PROFIT AFTER TAX

537 VND BILLION

ANNUAL REPORT 2014

Macro Environment Against a backdrop of relatively benign growth and low inflation, the overall economy has undergone a well managed recovery from 2011 till today. The prevailing stable conditions in 2014 have been an extension of the policies from 2013 and continues to be resilient against both major external and internal macro economic shocks. The stability created a unique environment which includes the lowest CPI in over a decade caused by falling food prices and fuel prices and a more stable GDP growth. However, even at these depressed pricing levels, consumer demand is muted with confidence levels at an all time low. Hence, the slow expansion can be largely attributed to low demand and ample supply. To understand last year’s market dynamics, we need to look at different factors affecting supply and demand. On the supply side, we saw overall credit growth decelerate sharply since 2011, averaging well under 20% for the last 3 years, which reinforces the fact of underinvestment and low GDP growth. Despite such a decrease, money supply continued to expand and therefore created strong liquidity in the domestic market. With low credit growth, strong liquidity, and low CPI, the only asset class that was able to absorb that amount of excess funds was government bonds. Looking more into the liquidity situation, created a low interest rate environment yet the markets continued to be risk adverse. Low interest rates are a result of falling yields caused by strong liquidity chasing government bonds. The government issued significant amount of bonds to absorb this liquidity resulting in the strong expansion of the public sector balance sheet. The continued expansion of the public sector balance sheet had been aimed at financing the structural reform of the banking sector rather than other productive areas (i.e. investment or growth). Therefore, we had a unique situation of risk adversity with strong liquidity, coupled with low inflation, low interest rates and low GDP growth. Against this macroeconomic backdrop, our industry has continued to see favorable and accommodative policies on the supply side for production, including both inputs and financing costs. In contrast, we saw very little catalyst on the demand side to drive growth and expansion. This has been characterized by low disposable incomes, low wealth creation and also a lack of real growth, which has affected the overall consumer sentiment. The contradicting situation primarily related to the fact that the flow of funds in accommodative supply policies had been ultimately used to clean up the banking sector NPL’s. This left the larger economy underinvested and without a clear catalyst or fuel for growth. Specifically, the consumers and our target markets have been left nominally the same as when we started the crisis, indicating no sign of growth while sentiment continues to be poor, and outlook negative...

GROUP RESULTS

Performance The fiscal year 2014 was an extension of the previous year strategy where we continued to focus our efforts on Stage 4 of our Transformative Change Strategy: Profitable Growth. The strategy proved to be resilient against the benign economic conditions and poor consumer sentiment. To be specific, the favorable supply conditions allowed us to continue monitizing on the restructuring of our value chain which we have divided into value conversion and value creation. This delineation has supported to focus and target our efforts to extract value and efficiency. Moreover, internal initiatives prevailed over implementing external ones such as advertising and promotions as poor consumer demand limited the effectiveness of external investments in the market. Despite the lack of strong interest and demand and supply imbalances, we were able to increase net sales by 8.6% reaching VND4,953bn. Gross profit margins were on target at 43.0% with input prices remaining relatively stable across the board. Global commodity prices continued to be stable throughout 2014, which allowed for a significant decline in raw material price risk versus 2013. The primary cost increases were domestically driven, including labor, electricity and manufacturing overhead, which combined accounted for less than 15% of our total cost of goods sold;

limiting the impact of its increase. The sharp decline in oil prices in the last part of 2014 have yet to impact our raw material input costs, however this should positively impact our profitability by the 2nd or 3rd quarter of 2015 as the flow through from oil price declines begin to reach our suppliers of key commodities. Selling and general administrative costs were in line with revenue growth but itâ&#x20AC;&#x2122;s important to note that the construct of these costs have altered slightly. During the course of 2014, we continued to rationalize and realign our process to create better quality earnings. Overall operating costs compared to 2013 has actually declined, and the actual increase of 17.2% was based on infrastructure investment that was designed for future capacity and capability, including the relocation of our corporate offices, building of additional warehouse capacity in the north, and investing in additional cold chain capacity. Sales and marketing costs increased by 21.8% year on year. The breakdown between variable and fixed costs are now approximately 48% vs. 52%. Variable costs consisting of advertising and promotion expenses, and fixed costs consisting of infrastructure costs. Advertising and promotional spending was well managed and reduced by VND70bn. Trade marketing activities increased by VND59bn and has been targeted at our core products to drive sales volume growth.

Business Review

GROUP RESULTS

FREE CASH FLOW

509 VND BILLION

Overall, 2014 spending was well managed with variables directly in line with our growth and fixed at a managed rate that balanced the immediate impact and future growth. Sales infrastructure costs increased by 46.6%, within which the primarily is due to the regulated rise in salaries and wages as set out by the government in the early part of 2014. The additional increase was the result of sales incentives, which were paid out for successful achievement of volume targets. Net operating profit was flat against 2013 and the difference primarily being a proactive approach to investing in infrastructure for future growth. This was balanced with an overall increase in profits before tax of VND 663bn, which was 7.2% better year-on-year. The savings from financing costs and reductions in debt were used to finance last year structural investment which helped to bring profits growth back in line with overall growth. Profit after taxes were 9.0% better reaching VND537bn, which was a direct result of active management over tax strategies, which helped to save approximately VND12bn in taxes paid against a higher pre-tax profit. Overall, while there continued to be a lack of a strong catalyst to drive growth combined with strong headwinds in our industry, we maintained our performance with a defensive strategy. In a meantime, some of these challenges while manageable are believed to be structural across the entire Confectionery industry. Therefore, a strategic review was undertaken to address longer term growth issues, resulting in strong shift in strategy â&#x20AC;&#x2020; that will see us expanding beyond snack & Confectionery. Assets Financial liquidity positions continued to be strong, with cash positions increasing from 2013 through a private placement in 2014, which was earmarked for several M&A projects. We are now becoming more aggressive in deployment as we believe that the current economic cycle is prime for investment entry as the market continues to be liquid but risk adverse. Since our first investment in Vinabico, we have continued this process with a strategic investment of 24% in Vocarimex, Vietnamâ&#x20AC;&#x2122;s largest edible oil company. Regarding this

ANNUAL REPORT 2014

GROSS PROFIT

2,146 VND BILLION

investment, we have earmarked an addition VND700bn to increase our stake beyond 51%, which should be concluded by the end of 2015. Other investments relating to PP&E were kept minimal in 2014 as we continued to digest the CAPEX made during 2013. Liabilities Our debt ratios remain fairly consistent with 2013â&#x20AC;&#x2122;s debt-equity ratio of 0.25 times and an external gearing of 0.09 times. Taking advantage of the domestic liquidity and also as part of the cost reduction strategy, we fully repaid the more expensive long-term loans taken out in early 2014 with lower cost financing. This helped us to reduce average borrowing costs from 6.5% in 2013 to 4.1% in 2014. Even though we do not believe that our cost of borrowing can be reduced further, we continue to be bullish on the domestic liquidity and the current rate levels. Therefore, we continue to maintain shorter duration debt and do not foresee the need to swap funding further. We continue to actively monitor potential funding issues which could negatively impact these funding positions. Working Capital We continue to find efficiencies in our working capital management with a further reduction in our business cycle from 32.96 days to 31.93 days. The reduction was contributed primarily by reduction in inventory, which continued to be well managed and significantly improved by our Distributor Management System, which supported us to manage inventory levels throughout our supply chain. Return on Equity & Total Shareholder Return Return on equity was 8.6% vs. last yearâ&#x20AC;&#x2122;s 10.09% but against a net increase of equity of approximately VND1,404bn due to the private placement. Excluding such impact, Return on Equity would have been 11.0%, which is close to where our commitment to shareholders has been. Regarding the positive financial highlights, it has been proven that we continued to be strongly committed to growth, profitability and returns and believed in maintain a relatively strong payout to shareholders.

Business Review

KDC SHARE PRICE & STATISTICS

KINH DO CORPORATION IS LISTED ON THE HO CHI MINH CITY STOCK EXCHANGE (HSX) UNDER THE TICKER KDC AND IS PART OF THE VNINDEX AND THE VN30 TOP 30 LARGE CAP COMPANIES INDEX. THE SHARE PRICE HAS APPRECIATED BY 21.5 % IN 2014 AGAINST AN OVERALL VN - INDEX OF 11.9%.

Share Price & Volume Information

Share Price vs VN - INDEX Price

Volume

70,000

8,000,000

60,000

7,000,000 6,000,000

50,000

5,000,000

40,000

4,000,000 30,000

3,000,000

20,000

2,000,000

10,000

1,000,000 Jan - 09

Jan - 10

Jan - 11

VOLUME

Jan - 12

Jan - 13

Jan - 14

Jan - 15

PX_LAST KD

Price index vs. VNIndex

KDC Share Price vs VN - INDEX

80,000 70,000 60,000 50,000 40,000

+21,5%

30,000 20,000 10,000

+11,9% Jan - 09

Jan - 10 VN Index

ANNUAL REPORT 2014

Jan - 11

Jan - 12

Jan - 13

Adjusted KDC’s Price

Jan - 14

Jan - 15

Index KDC’s return over last 5 years broken down by Transformational Change

Share Price Appreciation

80,000 From

70,000

zed ionali

Rat

60,000 Merged into one corporation, unified framework and leveraging larger scale.

50,000 40,000

ss To Proce

ty O

Quali

roved

s Imp

ing f Earn

Rationalized process to prepare for successive growth.

Cost management & efficiency achieved. Improved the quality of earnings.

FOUNDATION

EFFICIENCIES

Profitability culture, built platform from previous stages. Sustained the profit growth and expand potentials for expansion in the future.

30,000 20,000 10,000 PREPARATION

Jan - 09

Jan - 10

Jan - 11

Jan - 12

PROFITABLE GROWTH

Jan - 13

Jan - 14

Jan - 15

Adjusted KDC’s Price

Research Coverage

Domestic Foreign Ticker Date of Report

: SSI, HSC, VCSC, Vinasec, BVSC : Maybank KimEng, Seamico, JPMorgan : KDC : 31/12/2014

Key figures Market Cap.

(USD mn)

495

Market Cap.

(VND bn)

10,582

Outstanding shares

(mn)

235

52-week high

(000s, VND)

65.5

52-week low

(000s, VND)

43.3

Average 3M volume

(share)

826,967

Average 3M value

(USD mn)

1.83

Average 3M value

(VND bn)

39.11

Foreign ownership

(%)

28.84

Business Review

M&A

80 %

Creating

brands

04 Governance

CORPORATE

GOVERNANCE STRUCTURE

GENERAL MEETING OF SHAREHOLDERS

Propose/ Report

SUPERVISORY BOARD

Propose/ Report Audit

Elect/Dismiss

BOARD OF DIRECTORS

Appoint/Dismiss/ Supervise

Deliberate/Report

Cooperate

INDEPENDENT AUDITOR

EXECUTIVE MANAGEMENT COMMITTEE

Deliberate/Report

Audit

STRATEGIC BUSINESS DIRECTORS

Deliberate/Report

INTERNAL CONTROL

Internal Audit

Delegate /Execute

CORPORATE COMPANIES (BUSINESS UNITS)

INTERNAL REGULATIONS AND POLICIES

ANNUAL REPORT 2014

Deliberate/Report

SUB-COMMITTEE 1. CORPORATE STRATEGY 2. RISK MANAGEMENT 3. DISCLOSURE

TO ENSURE THAT OUR CORPORATE ACTIVITIES AND INITIATIVES MEET THE EXPECTATION OF DIFFERENT GROUPS OF STAKEHOLDERS AND TO ENABLE US TO MEET THE DYNAMICS OF A CONSTANTLY CHANGING BUSINESS ENVIRONMENT, WE PRIORITIZE THE NEED TO ENHANCE THE CORPORATE GOVERNANCE STRUCTURE AND AS A RESULT OUR MANAGEMENT CAPABILITY. THIS WILL ENABLE US TO BUILD TRUST THROUGH TRANSPARENCY AND SOCIAL RESPONSIBILITY WITH OUR STAKEHOLDERS.

Governance

CORPORATE

GOVERNANCE STRUCTURE POLICY FOUNDATION KDC views each stakeholder as a customer, including consumers of our products, suppliers to our business, distributors, retailers, investors and employees. We recognize that each group of stakeholders are not mutually exclusive and, therefore, it is critical for us to be consistent in our communication to them to ensure that all parties understand our strategic orientation and direction.

To ensure that our corporate activities and initiatives meet the expectation of different groups of stakeholders and to enable us to meet the dynamics of a constantly changing business environment, we prioritize the need to enhance the corporate governance structure and as a result our management capability. This will enable us to build trust through transparency and social responsibility with our stakeholders.

FEATURES OF OUR CORPORATE GOVERNANCE STRUCTURE KDC has undergone a significant transformation over the last five years and throughout the process our goal has been to create a strong foundation of systems and processes to execute and deliver sustainable business results. Thus, we have put foremost the mission to simplify our corporate structure to improve corporate transparency and enable efficiency enhancements across all activities.

We have also adopted a cross functional Executive Management Committee (EMC) structure that has helped to improve communication across the group and facilitate fast and timely decision making. This cross-functional structure relies on transparency between functions and throughout the group to facilitate discussion and decision making that enhance efficiency.

â&#x20AC;&#x2020;

ANNUAL REPORT 2014

We have already introduced Strategic Business Units operational model for some time to manage the commercial aspects of our business. However, after the most recent restructure, now SBUâ&#x20AC;&#x2122;s report directly to the EMC and we have also aligned the SBUâ&#x20AC;&#x2122;s within the Corporate Companies (Business Units) to better align responsibility with accountability. HOLDING COMPANY STRUCTURE KDC implemented a holding company structure through the proposed restructuring approved at the 2014 Annual General Meeting. The restructuring was completed and the holding structure started operating on January 1st, 2015. The move to a holding company structure really aimed at creating scale and focused at the operating level, while allowing resources and experience to be leveraged at the group level and subsequently deployed across both the SBU and the BU level. The goal of the restructuring is to ensure that we specialize areas that are scale focused and combine

resources in areas that are skill focused. The objective is to enhance our ability to respond to a constantly changing business environment in a timely manner and capitalize on opportunities more effectively. BOARD OF DIRECTORS The Board of Directors consists of 9 directors including 3 independent members. Independent directors are chosen from a pool of candidates that are screened based on their career experience and background. The selection process is a robust process where each candidate is filtered based on the diversity of their skillset that we hope will add value to the group across a broad number of disciplines. Our independent directors have a diverse background with a member serving as an international lawyer, another is a long time researcher and financial markets educator and the last as a supply chain expert. The depth of their knowledge and keen insight has helped to increase the transparency and diversity that we need to make strategic decisions and set the company direction.

Governance

CORPORATE

GOVERNANCE STRUCTURE

In 2014, our Board of Directors held 11 meetings. No

Member

Position

Meeting Attended

Tran Kim Thanh

Chairman

11/11

100%

Tran Le Nguyen

Vice Chairman

11/11

100%

Wang Ching Hua

Member

11/11

100%

Vuong Buu Linh

Member

11/11

100%

Nguyen Gia Huy Chương

Member

11/11

100%

Vuong Ngoc Xiem

Member

11/11

100%

Tran Quoc Nguyen

Member

11/11

100%

Nguyen Van Thuan

Member

11/11

100%

Nguyen Duc Tri

Member

11/11

100%

Note

BOARD OF DIRECTORS MEETING CONTENTS • 05/03/2014 Meeting:

Approve the first dividend payment in 2014

• 13/03/2014 Meeting:

Approve corporate filings for bonus share issuance for ESOP

• 15/05/2014 Meeting:

Approve private placement for strategic partners

• 15/05/2014 Meeting:

Approve the liquidation of associate.

• 27/05/2014 Meeting:

Approve the results of private placement for strategic partners

• 03/06/2014 Meeting:

Approve the period of the limitation on transfer right of strategic shareholders

• 30/06/2014 Meeting:

Approve the second dividend payment in 2014 Approve the selection of auditing firm, adjustment in corporate policy and employee benefit & bonus fund Invitation for extraordinary shareholders’ meeting in 2014 Approve the investment in Vocarimex and the selection of strategic partner in Confectionery segment and proxy for EGM Approve the purchase of treasury shares

• 30/07/2014 Meeting: • 20/10/2014 Meeting: • 10/11/2014 Meeting: • 18/11/2014 Meeting:

ANNUAL REPORT 2014

RESOLUTION OF BOARD OF DIRECTORS No

Resolution No.

Date

Contents

01/2014/NQ-HĐQT

5/3/2014

First dividend payment in 2014

02/2014/NQ-HĐQT

13/3/2014

Bonus share issuance for ESOP

04/2014/NQ-HĐQT

15/5/2014

Private placement for strategic partners

05/2014/NQ-HĐQT

15/5/2014

Liquidation of associate

07/2014/NQ-HĐQT

27/05/2014

Results of private placement for strategic partners

0306/2014/NQ-HĐQT

03/06/2014

Period of the limitation in transfer right of strategic shareholders

3006/2014/NQ-HĐQT

30/06/2014

The second dividend payment in 2014

0108/2014/ NQ-HĐQT

01/08/2014

Employee benefit & bonus fund

2010/2014/ NQ-HĐQT

20/10/2014

Invitation for extraordinary shareholders’ meeting in 2014

10.

08/2014/NQ-HĐQT

10/11/2014

Investment in Vocarimex

11.

09/2014/NQ-HĐQT

10/11/2014

The selection of strategic partner in Confectionery segment and proxy for EGM

12.

10/2014/NQ-HĐQT

18/11/2014

Approve the purchase of treasury shares

13.

11/2014/NQ-HĐQT

24/11/2014

Adjustment on the purchase of treasury shares

BOARD OF DIRECTORS’ ACTIVITIES TOWARD BOARD OF MANAGEMENT Supervised through quarterly report of Board of Management in quarterly meeting. Because six (6) members of Board of Director are in Board of Management, Board of Directors can fully comprehend and efficiently supervise the activities of the Board of Management

BOARD OF DIRECTOR’S COMMITTEES ACTIVITIES Until the end of 2014, Kinh Do Corporation has not formed any committee.

Introduction

CORPORATE

GOVERNANCE STRUCTURE

THE EMC LEVERAGE THEIR DIVERSE BACKGROUNDS AND EXPERIENCE TO DISCUSS AND DELIBERATE ON ISSUES THAT ARE AFFECTING THE ENTIRE COMPANY AND MAKE TIMELY DECISIONS TO EXECUTE OPERATIONS.

ANNUAL REPORT 2014

EXECUTIVE MANAGEMENT COMMITTEE Last year, KDC introduced the Executive Management Committee (EMC) to implement the group’s strategic directives as set by the Board of Directors. The EMC is granted with the authority to manage and execute operational decisions and are responsible for timely execution of operations. The EMC consists of a cross functional group of individuals including those from sales, marketing, supply chain, manufacturing, general management and finance. Each EMC member is given a functional responsibility over a portfolio of functions that are directly related to their operations, interactions and efficiencies. They collective group leverage their diverse backgrounds and experience to discuss and deliberate on issues that are affecting the entire company and make timely decisions to execute operations. The EMC meets on a weekly basis and provides the board with monthly updates on performance and any pending issues.

STRATEGIC BUSINESS UNITS/BUSINESS UNITS The introduction of SBU’s and BU’s has been part of the Transformative Change initiative introduced in 2009. The recent restructuring saw the realignment of the SBU’s and BU’s and gave priority over commercial decision making back to the SBU’s and allowed the BU’s to play a broader supporting function. The SBU’s take sole responsibility for business results but coordinate closely with the BU’s for their execution. The SBU’s are also accountable and responsible for reporting back to the EMC and implementing group initiatives within their respective businesses lines. For the most part, SBU’s in conjunction with the BU’s have full independence on executing operational decisions.

SUB-COMMITTEES There are three primary Sub-Committees including Corporate Strategy, Risk Management and Disclosure. Each Sub-Committee meets regularly to deliberate and review prevailing issues. Each meeting is reported back to the EMC who reviews and determines if any issue warrants further action at the operational level.

CHANGES IN KEY BOARD OF MANAGEMENT Mrs. Nguyen Thi Xuan Lieu - Director, appointed on 12 December 2014.

Governance

RISK MANAGEMENT

Risk Assessment (Identify, Monitor)

Action (Revise/Amend)

EMC Report (Evaluate/Deliberate) INFORMATION & COMMUNICATION

Follow Up (Implementation, Audit)

Control Activity (Handling)

RISK MANAGEMENT/ INTERNAL CONTROL PROCESS The SBU’s and BU’s conduct ongoing risk identification which are then consolidated at the Risk Management Sub-Committee to monitor risks across the group. These reports are presented to the EMC who discusses and deliberates on the potential impact and probability in order to determine which ones need to be addressed. Risk factors are categorized through a grading system from Unlikely to Highly Probably and scored against potential impact that ranges from Marginal to Major with potential monetary values assigned. If a potential risk factor is identified to have the likelihood of “Probable” and with a potential impact of Significant, it is sent to the Risk Management Sub-Committee to work with Internal Control to come up with a control activity to monitor and mitigate the risk. For all risk and impact levels that have control activities created around them, they are returned

ANNUAL REPORT 2014

to the SBU’s and BU’s to continue to monitor the situation to ensure that any increase or change is promptly reported to the Sub-Committee. These policies and procedures are updated into our management system and made available on the company intranet. Internal Control will follow up to audit the process and review its implementation on a regular basis. On an annual basis, controls and risk management monitoring systems are audited by internal control and any changes needed are implemented following the audit. Post reviews, new policies are adopted and implemented and the cycle starts again to ensure that risk management is active vs. passive in nature which is more suitable for a dynamic business environment like Vietnam.

ON AN ANNUAL BASIS, CONTROLS AND RISK MANAGEMENT MONITORING SYSTEMS ARE AUDITED BY INTERNAL CONTROL AND ANY CHANGES NEEDED ARE IMPLEMENTED FOLLOWING THE AUDIT. POST REVIEWS, NEW POLICIES ARE ADOPTED AND IMPLEMENTED AND THE CYCLE STARTS AGAIN TO ENSURE THAT RISK MANAGEMENT IS ACTIVE VS PASSIVE IN NATURE WHICH IS MORE SUITABLE FOR A DYNAMIC BUSINESS ENVIRONMENT LIKE VIETNAM.

SCORING CHART Likelihood

In %

Potential Impact

Unlikely

<15%

Marginal

Possible

15%-30%

Minor

Likely

30%-50%

Moderate

Probable

50%-85%

Significant

Highly Probable

>85%

Major

Governance

KEY RISK FACTORS

Corporate Risk Overview

STRATEGIC RISKS

Macro-economic, socio-political and regulatory Risks

Growth in the consumer goods space (particularly in the food and beverage category) is highly dependent on consumer spending, sentiment and confidence. Economic downturns and socio-political issues negatively impact consumer spending as individuals reduce discretionary spending. KDC monitors the regional economic and socio-political environment closes to anticipate changes in consumer sentiment. We also maintain conservative policies in product purchasing, working capital management and cost controls to ensure sensitivity to demand changes are minimized.

Dependency Risk

Risk associated with a dependence on a particular supplier, customer, business partner or product. An over reliance on a particular supplier, customer or product makes KDC vulnerable to sales reductions and margin pressures. To mitigate this risk, KDC works with a broad network of suppliers both domestically and internationally to ensure not only stability in the supply chain but also the best quality. KDC manages the distribution network in the same manner, ensuring that no one customer in any geography is over 10% of our total sales volume.

Execution Risk

The recent shift of KDCâ&#x20AC;&#x2122;s strategic direction has the potential to increase execution risk as we add new products and also processes to deliver those products to market. The mitigation here is that we have created a robust platform that we believe has the ability to plug and play. In addition, the strength and loyalty of our networks has given us the ability to minimize the execution risk in and around new product/category launches.

Consumer Demand Risk

Being able to anticipate changes in consumer sentiment and demand is a critical success factor and failure to do so represents a significant risk to KDC. In order to mitigate this, KDC leverages its Value Creation process in order to proactively manage the feedback process in order to minimize the risk of consumer demand risk.

â&#x20AC;&#x2020;

ANNUAL REPORT 2014

OPERATIONAL RISKS

Customer Relationship Risk

Having strong retailer and distributor relationships is a critical success factor for ensuring product reach, penetration and sales growth. Failure to maintain these relationships represents a potential risk factor to KDC and in order to mitigate this, we are committed to delivering outstanding customer service which is supported by our technological infrastructure that enables us to connect closer to our value chain downstream. This includes the ability to monitor inventory levels, sales process, and also consumer feedback; creating a robust system that enhances customer relationships.

Volatility of Raw Material Prices

Changes in raw material prices pose a significant risk to our profitability and margins. In order to mitigate this risk, we share the responsibility of managing this risk with our suppliers. We provide them with a clear forward looking materials demand plan and secure fixed pricing for a period of time in order to have stability and certainty in our production costs.

COMMODITY PRICE RISK FINANCIAL RISK

Currency Risks

Currency risks are a direct result of our foreign exchange inflows and also foreign exchange denominated borrowing. To the extent possible, we ensure a natural hedge to ensure that the inflows are sufficient to cover the outflows of US dollar in order to mitigate the currency risks.

Financing and Liquidity Risks

Changes in the global and regional financial markets may have a significant impact on interest rates, which may lead to risks associated to profitability, liquidity and financing. In order to mitigate this risk, we actively monitor the markets and also the duration of our debt positions to ensure that we have enough cash flows and cash balances to meet our obligations. In the event that markets contract and liquidity is scarce, causing rates to rise, we reduce our debt positions using our cash balances and supplement working capital financing with cash on hand.

Governance

CORPORATE

SOCIAL RESPONSIBILITY

ANNUAL REPORT 2014

WE MEASURE THE VALUE OF THESE ACTIVITIES IN TERMS OF SOCIAL VALUE, AND BELIEVE THAT THE CONTRIBUTION OF KDC PLUS THOSE OF OUR STAKEHOLDERS SHOULD CREATE A POSITIVE EXAMPLE FOR OTHERS TO FOLLOW WHICH WOULD RESULT IN THE SURPLUS OF SOCIAL VALUE BEING CREATED.

At Kinh Do, we seek to contribute positively and sustainably to all communities we operate in. Not only do we comply with applicable laws and regulations but we are proactive in creating a positive impact through both direct and indirect activities with all our key stakeholders, including suppliers, employees, distributors, retailers and consumers. The goal of creating a positive impact is to incentivize the communities (defined by stakeholder groups) to also contribute positively individually for the greater good and as a result creating a surplus for the entire community. We measure the value of these activities in terms of social value, and believe that the contribution of KDC plus those of our stakeholders should create a positive example for others to follow which would result in the surplus of social value being created.

Governance

CORPORATE

SOCIAL RESPONSIBILITY

SOCIAL VALUE

COMMUNITY

EMPLOYEES

ANNUAL REPORT 2014

• Aggregate of direct and indirect initiatives on society overall that create value. • Surplus of value created by initiatives and projects undertaken by the larger community that create social value.

• Initiatives and projects aimed at our external stakeholders that indirectly create social value.

• Direct initiatives targeted at employees that have a positive impact on our internal community by creating social value.

FOOD & HEALTH SAFETY

• Enrich the lives of our stakeholders through quality and variety. • Maintain high standards of quality and variety in product for consumers. • Ensure food safety & security through best management practices.

• Preserve natural environment by minimizing our environmental foot print.

ENVIRONMENT

• Commit to a clean, green and environmentally conscious production processes. • Minimize waste and discharge to reduce external impact.

PEOPLE & SOCIETY

• Enrich the lives of our stakeholders by creating social value. • Contribute positively to the communities and society. • Motivate positive changes and impacts.

Governance

CORPORATE

SOCIAL RESPONSIBILITY

ANNUAL REPORT 2014

Governance

Expanding

reach

05 Audited Report

35 countries Kinh Do's export markets

Increasing our target markets through partnerships and alliances with the goal of having our products reach the world.

KINH DO CORPORATION CONSOLIDATED FINANCIAL STATEMENTS 31 December 2014

CONTENTS

ANNUAL REPORT 2014

Pages

General information

Report of the management

Independent auditors’ report

Consolidated balance sheet

Consolidated income statement

Consolidated cash flow statement

Notes to the consolidated financial statements

GENERAL INFORMATION

THE COMPANY Kinh Do Corporation (“the Company”) is a shareholding company incorporated under the Law on Enterprise of Vietnam pursuant to the Business Registration Certificate (“BRC”) No. 4103001184 issued by the Department of Planning and Investment (“DPI”) of Ho Chi Minh City on 6 September 2002 and the following amended BRC: Amended BRC: No. 4103001184 The first amendment The second amendment The third amendment The fourth amendment The fifth amendment The sixth amendment The seventh amendment The eighth amendment The ninth amendment The tenth amendment No. 0302705302 The eleventh amendment The twelfth amendment The thirteenth amendment The fourteenth amendment The fifteenth amendment The sixteenth amendment The seventeenth amendment The eighteenth amendment The nineteenth amendment

Date: 26 November 2002 22 September 2003 11 December 2003 3 August 2004 7 October 2004 11 May 2005 18 May 2006 6 July 2006 6 November 2007 10 October 2008 21 January 2010 1 November 2010 26 March 2011 2 March 2012 23 November 2012 21 March 2013 2 April 2013 18 November 2013 26 February 2015

The Company’s shares were listed on the Ho Chi Minh Stock Exchange in accordance with the License No. 39/UBCKGPNY issued by the State Securities Commission on 18 November 2005. The principal activities of the Company are to process agricultural products and foods; produce confectionery, purified water, and fruit juice; and sell and purchase agricultural products and foods, industrial products, and fabric; to produce and trade all kinds of food and drink products such as ice, ice cream, milk and other dairy products; to operate in real estate industry. The registered head office of the Company is located at 138 - 142 Hai Ba Trung, Da Kao Ward, District 1, Ho Chi Minh City, Vietnam. BOARD OF DIRECTORS Members of the Board of Directors during the year and at the date of this report are: Mr Tran Kim Thanh

Chairman

Mr Tran Le Nguyen

Vice Chairman

Mr Wang Ching Hua

Member

Ms Vuong Buu Linh

Member

Ms Vuong Ngoc Xiem

Member

Mr Tran Quoc Nguyen

Member

Mr Nguyen Van Thuan

Member

Mr Nguyen Gia Huy Chuong

Member

Mr Nguyen Duc Tri

Member Audited Report

GENERAL INFORMATION (continued)

BOARD OF SUPERVISION Members of the Board of Supervision during the year and at the date of this report are: Mr Le Cao Thuan

Head

Ms Luong My Duyen

Member

Mr Vo Long Nguyen

Member

MANAGEMENT Members of the management during the year and at the date of this report are: Mr Tran Le Nguyen

General Director

Ms Vuong Buu Linh

Deputy General Director

Ms Vuong Ngoc Xiem

Deputy General Director

Mr Wang Ching Hua

Deputy General Director

Mr Nguyen Xuan Luan

Deputy General Director

Mr Mai Xuan Tram

Deputy General Director

Mr Bui Thanh Tung

Deputy General Director

Mr Tran Quoc Nguyen

Deputy General Director

Mr Tran Quoc Viet

Deputy General Director

Mr Tran Tien Hoang

Deputy General Director

Mr Kelly Yin Hon Wong

Deputy General Director

Mr Ma Thanh Danh

Deputy General Director

Ms Nguyen Thi Xuan Lieu

Deputy General Director

appointed on 12 December 2014

LEGAL REPRESENTATIVE The legal representative of the Company during the year and at the date of this report is Mr Tran Kim Thanh. Mr Tran Le Nguyen is authorized by Mr Tran Kim Thanh to sign the consolidated financial statements for the year ended 31 December 2014. AUDITORS The auditor of the Company is Ernst & Young Vietnam Limited.

ANNUAL REPORT 2014

â&#x20AC;&#x2020;

REPORT OF MANAGEMENT

Management of Kinh Do Corporation (“the Company”) is pleased to present its report and the consolidated financial statements of the Company and its subsidiaries (“the Group”) for the year ended 31 December 2014. MANAGEMENT’S RESPONSIBILITY IN RESPECT OF THE CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the consolidated financial statements of each financial year which give a true and fair view of the consolidated financial position of the Group and of the consolidated results of its operations and its consolidated cash flows for the year. In preparing those consolidated financial statements, management is required to: »» »» »» »»

select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the consolidated financial statements; and prepare the consolidated financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue its business.

Management is responsible for ensuring that proper accounting records are kept which disclose, with reasonable accuracy at any time, the consolidated financial position of the Group and to ensure that the accounting records comply with the applied 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. Management confirmed that it has complied with the above requirements in preparing the accompanying consolidated financial statements. STATEMENT BY MANAGEMENT Management does hereby state that, in its opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2014, and of the consolidated results of its operations and its consolidated cash flows for the year then ended in accordance with Vietnamese Accounting Standards, Vietnamese Enterprise Accounting System and the statutory requirements relevant to preparation and presentation of consolidated financial statements. For and on behalf of management:

Tran Le Nguyen General Director 26 March 2015

Audited Report

INDEPENDENT AUDITORS’ REPORT

Reference: 60752643/16998143-HN

To:

The Shareholders of Kinh Do Corporation

We have audited the accompanying consolidated financial statements of Kinh Do Corporation and its subsidiaries (collectively referred to as “the Group”) as prepared on 26 March 2015 and set out on pages 90 to 135 which comprise the consolidated balance sheet as at 31 December 2014, the consolidated income statement and consolidated cash flow statement for the year then ended and the consolidated notes thereto. Management’s responsibility Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Vietnamese Accounting Standards, Vietnamese Enterprise Accounting System and the statutory requirements relevant to preparation and presentation of consolidated financial statements, and for such internal control as management determines is necessary to enable the preparation and presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ 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 requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about 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 consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, 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.

ANNUAL REPORT 2014

Opinion In our opinion, the consolidated financial statements give a true and fair view, in all material respects, of the consolidated financial position of the Group as at 31 December 2014, and of the consolidated results of its operations and its consolidated cash flows for the year then ended in accordance with Vietnamese Accounting Standards, Vietnamese Enterprise Accounting System and the statutory requirements relevant to preparation and presentation of consolidated financial statements. Ernst & Young Vietnam Limited

Ernest Yoong Chin Kang Deputy General Director Audit Practicing Registration Certificate No. 1891-2013-004-1

Doan Thi Thu Thuy Auditor Audit Practicing Registration Certificate No. 1070-2013-004-1

Ho Chi Minh City, Vietnam 26 March 2015

Audited Report

CONSOLIDATED BALANCE SHEET as at 31 December 2014

BB01 01 â&#x20AC;&#x201C; DN/HN

VND Code ASSETS 100 110

A. I.

CURRENT ASSETS Cash and cash equivalents

111

1. Cash

112

120

II.

121

3,208,951,948,303 1,958,064,548,124

621,395,548,607

287,064,548,124

1,845,782,000,000

1,671,000,000,000

700,100,705,600

39,479,723,350

708,106,299,143

48,576,276,394

(8,005,593,543)

(9,096,553,044)

784,031,063,903

859,893,313,934

179,621,469,269

188,931,745,641

69,329,681,247

70,757,652,186

538,297,499,600

603,491,045,600

13.2

Short-term investments

III.

Provision for diminution in value of short-term investments Current accounts receivable

131

Trade receivables

132

Advances to suppliers

135

Other receivables

Provision for doubtful debts

139 140

Beginning balance

129 130

Ending balance 4,324,131,530,361 2,467,177,548,607

Cash equivalents

Short-term investments 1.

Notes

IV. Inventories

(3,217,586,213)

(3,287,129,493)

333,740,449,970

303,697,604,128

141

1. Inventories

345,171,757,188

317,614,040,657

149

(11,431,307,218)

(13,916,436,529)

150

Provision for obsolete inventories

Other current assets

39,081,762,281

47,816,758,767

151

Short-term prepaid expenses

19,009,034,891

14,434,824,512

152

Value-added tax deductible

154

Tax and other receivables from the State

Other current assets

158 200 220

B. I.

NON-CURRENT ASSETS Fixed assets

17,515,321,638

4,913,881,282

10,186,966,883

3,551,744,980,102 1,613,382,983,672

3,169,293,630,695 1,371,191,674,104

943,619,841,486

919,281,789,101

222

Cost

1,903,912,064,965

1,755,145,801,018

223

Accumulated depreciation

(960,292,223,479)

(835,864,011,917)

227

Intangible assets

646,884,983,783

326,200,228,842

228

Cost

229

Accumulated amortization

Construction in progress

230 II.

Investment property

241

1. Cost

242

250

III.

252 258 260

IV.

5,679,645,734

1,941,177,932

221

240

Tangible fixed assets

13,217,668,176

778,091,532,845

429,548,357,289

(131,206,549,062)

(103,348,128,447)

22,878,158,403

125,709,656,161

18,871,519,542

21,444,908,571

Accumulated depreciation

Long-term investments 1.

Investments in associates and jointly controlled entity

13.1

Other long-term investments

13.3

Long-term prepaid expenses

262

Deferred tax assets

268

Other long-term assets

269

V. Goodwill

270

TOTAL ASSETS

ANNUAL REPORT 2014

34,524,970,816 (13,080,062,245)

1,480,145,599,984

1,272,100,000,000

1,471,505,599,984

1,257,100,000,000

8,640,000,000

15,000,000,000

158,718,282,339

178,234,881,999

109,761,473,819

124,374,000,279

28.3

35,823,601,560

40,647,012,600

13,133,206,960

13,213,869,120

Other long-term assets

261

34,524,970,816 (15,653,451,274)

280,626,594,565

326,322,166,021

7,875,876,510,463

6,378,245,578,998

â&#x20AC;&#x2020;

VND Code RESOURCES 300 310

Notes

A. LIABILITIES I. Current liabilities

Ending balance

Beginning balance

1,588,185,320,865 1,535,881,366,903

1,495,030,377,728 1,265,590,486,146

311

Short-term loans

553,318,491,711

400,939,212,302

312

Trade payables

278,038,773,915

283,772,381,108

313

Advances from customers

37,066,122,475

34,950,728,208

314

Statutory obligations

50,654,459,117

81,827,122,663

315

Payables to employees

72,187,442,899

58,642,156,537

316

Accrued expenses

309,731,144,714

230,109,039,925

319

Other payables

186,263,372,486

122,357,506,054

323

Bonus and welfare fund

48,621,559,586

52,992,339,349

330

II.

333 334 400 410

Non-current liabilities

52,303,953,962

229,439,891,582

Other long-term liabilities

52,303,953,962

60,554,121,882

Long-term loans

B. OWNERS’ EQUITY I. Capital

168,885,769,700

6,186,607,961,632 6,186,607,961,632

4,881,643,588,931 4,881,643,588,931

411

Issued share capital

2,566,533,970,000

1,676,282,700,000

412

Share premium

3,274,294,092,589

2,344,308,719,177

414

Treasury shares

(805,826,191,900)

(152,626,203,900)

417

Investment and development fund

25,370,280,515

418

Financial reserve fund

25,792,635,752

419

Other funds belonging to owners’ equity

15,909,752,661

Undistributed earnings

1,084,533,422,015

946,605,704,726

101,083,227,966

1,571,612,339

7,875,876,510,463

6,378,245,578,998

Ending balance

Beginning balance

2,762,321

1,389,939

103

110

420 439

MINORITY INTERESTS

440

TOTAL LIABILITIES AND OWNERS’ EQUITY

OFF BALANCE SHEET ITEM

ITEM Foreign currencies: –

United States dollar (USD)

–

Euro (EUR)

Tran Minh Nguyet Preparer

Nguyen Thi Oanh Chief Accountant

Tran Le Nguyen General Director

26 March 2015 Audited Report

CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2014

B 02 - DN/HN

VND Code ITEMS

Notes

Previous year

23.1

5,125,718,821,077

4,674,796,415,910

2. Deductions

23.1

(173,055,897,638)

(114,198,130,572)

23.1

4,952,662,923,439

4,560,598,285,338

4. Cost of goods sold and services rendered

(2,806,830,526,554)

(2,584,484,709,244)

2,145,832,396,885

1,976,113,576,094

6. Finance income

23.2

144,327,090,430

113,135,293,907

7. Finance expenses

(26,185,496,926)

(73,516,940,227)

(20,731,742,626)

(43,391,810,398)

8. Selling expenses

(1,214,612,633,132)

(996,843,091,578)

9. General and administration expenses

(417,538,749,182)

(395,953,432,450)

10. Operating profit

631,822,608,075

622,935,405,746

11. Other income

63,331,885,612

30,372,643,049

12. Other expenses

(32,196,031,460)

(34,690,086,601)

13. Other profit (loss)

31,135,854,152

(4,317,443,552)

14. Profit before tax

662,958,462,227

618,617,962,194

15. Current income tax expense

28.2

(121,010,750,584)

(118,676,164,588)

16. Deferred tax expense

28.3

(4,823,411,040)

(7,148,912,968)

17. Net profit after tax

537,124,300,603

492,792,884,638

678,661,494

(1,076,667,504)

536,445,639,109

493,869,552,142

2,296

2,542

Revenue from sale of goods and rendering of services

Current year

Net revenue from sale of goods and rendering of services

Gross profit from sale of goods and rendering of services

In which: Interest expense

Attributable to:

17.1 Minority interests

17.2 The Companyâ&#x20AC;&#x2122;s shareholders

18. Basic earnings per share and diluted earnings per share

Tran Minh Nguyet Preparer 26 March 2015 ANNUAL REPORT 2014

Nguyen Thi Oanh Chief Accountant

22.5

Tran Le Nguyen General Director

â&#x20AC;&#x2020;

CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2014

B 03 - DN/HN

VND Code ITEMS I. 01

Notes

Current year

Previous year

662,958,462,227

618,617,962,194

228,177,812,126

230,052,975,960

(3,645,632,092)

(7,383,394,361)

1,088,936,313

2,258,288,851

(164,123,838,658)

(103,152,864,326)

20,731,742,626

43,391,810,398

745,187,482,542

783,784,778,716

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax Adjustments for:

Depreciation and amortization

Provisions

Unrealized foreign exchange losses

Profits from investing activities

Interest expense

4, 9 10, 12

Operating profit before changes in working capital

Decrease in receivables

256,736,002,655

70,706,973,679

(Increase) decrease in inventories

(27,541,874,716)

6,331,711,241

Increase in payables

223,307,678,845

51,056,516,330

Decrease in prepaid expenses

4,101,698,273

21,822,216,240

Interest paid

(21,282,447,042)

(44,439,725,376)

Corporate income tax paid

(133,990,327,246)

(181,490,308,355)

Other cash inflows from operating activities

2,141,984,214

6,232,230,468

Other cash outflows for operating activities

(26,596,945,646)

(39,495,349,366)

1,022,063,251,879

674,509,043,577

(68,551,321,859)

(179,465,405,244)

34,756,383,243

7,167,957,959

(286,000,000,000)

(2,410,500,000,000)

321,700,000,000

2,592,419,036,288

Net cash flows from operating activities II.

28.2

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase and construction of fixed assets

Proceeds from disposals of fixed assets

Loans to other entities

Collections from borrowers

Cash used for term bank deposit and payments for investments in other entities

(1,588,517,220,554)

(1,000,000,000)

Proceeds from sale of investments in other entities

13,803,141,557

32,504,017,702

Dividends and interest received

490,438,131,635

48,790,143,022

(1,082,370,885,978)

89,915,749,727

Net cash flows (used in) from investing activities

Audited Report

CONSOLIDATED CASH FLOW STATEMENT (continued) for the year ended 31 December 2014

B 03 - DN/HN

VND Code ITEMS

Notes

Current year

Previous year

III. CASH FLOWS FROM FINANCING ACTIVITIES 31

Issuance of shares

1,820,236,643,412

696,877,189,600

Capital redemption

(483,843,631,000)

Borrowings received

1,091,009,194,315

1,603,649,310,611

Borrowings repaid

(1,479,176,474,561)

(1,618,068,675,638)

Dividends paid to equity holder of the parent

(378,105,677,007)

(317,070,140,579)

Dividends paid to minority interests

(920,240,481)

(1,188,717,337)

Net cash flows from financing activities

569,199,814,678

364,198,966,657

Net increase in cash and cash equivalents

508,892,180,579

1,128,623,759,961

Cash and cash equivalents at beginning of year

1,958,064,548,124

829,459,259,294

Impact of exchange rate fluctuation

220,819,904

(18,471,131)

Cash and cash equivalents at end of year

2,467,177,548,607

1,958,064,548,124

â&#x20AC;&#x2020; Tran Minh Nguyet Preparer 26 March 2015

ANNUAL REPORT 2014

Nguyen Thi Oanh Chief Accountant

Tran Le Nguyen General Director

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

as at and for the year ended 31 December 2014

B 09 - DN/HN

CORPORATE INFORMATION The Group consists of Kinh Do Corporation (“KDC” or “the Company”) and its subsidiaries, associates and a jointly controlled entity as follows: Company The Company is a shareholding company incorporated under the Law on Enterprise of Vietnam pursuant to the Business Registration Certificate (“BRC”) No. 4103001184 issued by the Department of Planning and Investment (“DPI”) of Ho Chi Minh City on 6 September 2002 and the following amended BRC: Amended BRC: No. 4103001184 The first amendment The second amendment The third amendment The fourth amendment The fifth amendment The sixth amendment The seventh amendment The eighth amendment The ninth amendment The tenth amendment No. 0302705302 The eleventh amendment The twelfth amendment The thirteenth amendment The fourteenth amendment The fifteenth amendment The sixteenth amendment The seventeenth amendment The eighteenth amendment The nineteenth amendment

The registered head office of the Company is located at 138 - 142 Hai Ba Trung, Da Kao Ward, District 1, Ho Chi Minh City, Vietnam. The Company’s shares were listed on the Ho Chi Minh Stock Exchange in accordance with the License No. 39/UBCKGPNY issued by the State Securities Commission on 18 November 2005. The consolidated financial statements of the Group for the year ended 31 December 2014 were authorised for issue. The principal activities of the Group are to process agricultural products and foods; produce confectionery, purified water, and fruit juice; sell and purchase agricultural products and foods, industrial products, and fabric; to produce and trade all kinds of food and drink products such as ice, ice cream, milk and other dairy products; and to operate in real estate industry. The number of the Group’s employees as at 31 December 2014 was 7,318 (31 December 2013: 7,069). Subsidiaries Kinh Do Binh Duong Corporation (“KDBD”) KDC holds a 99.92% equity interest in KDBD, a shareholding company incorporated under the Law on Enterprise of Vietnam pursuant to the BRC No. 4603000129 issued by the DPI of Binh Duong Province on 13 October 2004 and the subsequent amended BRC. The registered head office and factory of KDBD are located at VSIP, Vietnam – Singapore Industrial Park, Thuan An District, Binh Duong Province, Vietnam. Audited Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

B 09 - DN/HN

CORPORATE INFORMATION (continued) Subsidiaries (continued) Vinabico Corporation (“Vinabico”) The Company holds a 100% equity interest in Vinabico, a company incorporated under the Law on Enterprise of Vietnam pursuant to the BRC No. 4103001904 issued by the DPI of Ho Chi Minh City on 3 November 2003 and the subsequent amended BRC. The registered head office and factory of Vinabico are located at 436 No Trang Long Street, Ward 13, Binh Thanh District, Ho Chi Minh City, Vietnam. As at the date of this consolidated financial statements, Vinabico has been ceased as a legal entity and its operations have been merged as an independent branch of the Group. This restructuring plan was approved by the DPI of Ho Chi Minh City through the issuance of the nineteenth amended BRC dated 26 February 2015. Kido Company Limited (“KIDO”) The Company holds a 100% equity interest in KIDO, a one member limited liability company incorporated under the Law on Enterprise of Vietnam pursuant to the BRC No. 4103001557 issued by the DPI of Ho Chi Minh City on 14 April 2003 and the subsequent amended BRC. The registered head office and factory of KIDO are located at Cu Chi Northwest Industrial Park, Cay Sop Village, Tan An Hoi Ward, Cu Chi District, Ho Chi Minh City, Vietnam. North Kinh Do One Member Company Limited (“NKD”) The Company holds a 100% equity interest in NKD, a one member limited liability company incorporated under the Law on Enterprise of Vietnam pursuant to the BRC No. 0900178525 issued by the DPI of Hung Yen Province on 25 January 2011, as amended. The registered head office of NKD is located at Ban Yen Nhan Town, My Hao District, Hung Yen Province, Vietnam. Tan An Phuoc Company Limited (“TAP”) The Company holds a 80% equity interest in TAP, a limited liability company with two and more members incorporated under the Law on Enterprise of Vietnam pursuant to the BRC No. 0309403269 issued by the DPI of Ho Chi Minh City on 24 September 2009. The registered office of TAP is located at 6/134 National Road No. 13, Hiep Binh Phuoc Ward, Thu Duc District, Ho Chi Minh City, Vietnam. Kido Food Company Limited (“KDF”) The Company holds indirectly a 100% equity interest in KDF, a subsidiary wholly-owned by KIDO incorporated under the Law on Enterprise of Vietnam pursuant to the BRC No. 0106681285 issued by the DPI of Hanoi City on 3 November 2014 and the subsequent amended BRC. The registered head office of KDF is located at 10th Floor, Vinaconex Tower, 34 Lang Ha, Lang Ha Ward, Dong Da District, Hanoi, Vietnam. Associate and jointly controlled entity Vietnam Vegetable Oils Industry Corporation (“Vocarimex”) The Company holds a 24% equity interest in Vocarimex, currently a shareholding company incorporated under the Law on Enterprise of Vietnam pursuant to the BRC No. 0300585984 issued by the DPI of Ho Chi Minh City on 31 December 2014. The registered head office of Vocarimex is located at 58 Nguyen Binh Khiem Street, Dakao Ward, District 1, Ho Chi Minh City, Vietnam. Lavenue Investment Corporation (“Lavenue”) The Company holds a 50% equity interest in Lavenue, a shareholding company incorporated under the Law on Enterprise of Vietnam pursuant to the BRC No. 0310306044 issued by the DPI of Ho Chi Minh City on 10 September 2010. The registered office of Lavenue is located at 3rd Floor, May Flower Tower, 12 Le Thanh Ton, District 1, Ho Chi Minh City, Vietnam.

ANNUAL REPORT 2014

BASIS OF PREPARATION

2.1

Accounting standards and system The consolidated financial statements of the Group, expressed in Vietnam dong (“VND”), are prepared in accordance with Vietnamese Enterprise Accounting System and Vietnamese Accounting Standards issued by the Ministry of Finance as per the: »»

Decision No. 149/2001/QD-BTC dated 31 December 2001 on the Issuance and Promulgation of Four Vietnamese Accounting Standards (Series 1);

»»

Decision No. 165/2002/QD-BTC dated 31 December 2002 on the Issuance and Promulgation of Six Vietnamese Accounting Standards (Series 2);

»»

Decision No. 234/2003/QD-BTC dated 30 December 2003 on the Issuance and Promulgation of Six Vietnamese Accounting Standards (Series 3);

»»

Decision No. 12/2005/QD-BTC dated 15 February 2005 on the Issuance and Promulgation of Six Vietnamese Accounting Standards (Series 4); and

»»

Decision No. 100/2005/QD-BTC dated 28 December 2005 on the Issuance and Promulgation of Four Vietnamese Accounting Standards (Series 5).

Accordingly, the accompanying consolidated balance sheet, consolidated income statement, consolidated cash flow statement and related notes, including their utilisation are not designed for those who are not informed about Vietnam’s accounting principles, procedures and practices and furthermore are not intended to present the consolidated financial position and consolidated results of operations and consolidated cash flows in accordance with accounting principles and practices generally accepted in countries other than Vietnam. 2.2

Applied accounting documentation system The Group’s applied accounting documentation system is the General Journal system.

2.3

Fiscal year The Group’s fiscal year applicable for the preparation of its consolidated financial statements starts on 1 January and ends on 31 December.

2.4

Accounting currency The consolidated financial statements are prepared in VND which is also the Group’s accounting currency.

2.5

Basis of consolidation The Group’s consolidated financial statements comprise the financial statements of the Company (“the parent company”) and the financial statements of its subsidiaries for the year ended 31 December 2014. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continues to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All intra-company balances, income and expenses and unrealized gains or losses result from intra-company transactions are eliminated in full. Non-controlling interests represent the portion of profit or loss and net assets that is not held by the Group’s shareholders and are presented separately in the consolidated income statement and consolidated balance sheet. Acquisitions of minority interests are accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired is recognised in goodwill.

Audited Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1

Cash and cash equivalents

B 09 - DN/HN

Cash and cash equivalents comprise cash on hand, cash in banks, cash in transit 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. 3.2 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 in the ordinary course of business less the estimated costs to complete and the estimated costs necessary to make the sale. The perpetual method is used to record inventories, which are valued as follows: Raw materials, consumables and - actual cost on a weighted average basis. goods for resale. Finished goods and work in process. - cost of direct materials and labour plus attributable overhead based on the normal level of activities. Provision for obsolete inventories An inventory provision is created for the estimated loss arising due to the impairment (through diminution, damage, obsolescence, etc.) of raw materials, finished goods, and other inventories owned by the Group, based on appropriate evidence of impairment available at the balance sheet date. Increases and decreases to the provision balance are recorded into the cost of goods sold account in the consolidated income statement. 3.3 Receivables Receivables are presented in the consolidated financial statements at the carrying amounts due from customers and other debtors, after provision for doubtful debts. The provision for doubtful debts represents amounts of outstanding receivables at the balance sheet date which are doubtful of being recovered. Increases and decreases to the provision balance are recorded as general and administration expense in the consolidated income statement. 3.4

Tangible fixed assets Tangible fixed assets are stated at cost less accumulated depreciation. The cost of a tangible fixed asset comprises its purchase price and any directly attributable costs of bringing the tangible fixed asset to working condition for its intended use. Expenditures for additions, improvements and renewals are added to the carrying amount of the assets and expenditures for maintenance and repairs are charged to the consolidated income statement as incurred. When tangible fixed assets are sold or retired, their cost and accumulated depreciation are removed from the consolidated balance sheet and any gain or loss resulting from their disposal is included in the consolidated income statement.

ANNUAL REPORT 2014

â&#x20AC;&#x2020;

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3.5

Leased assets The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset. A lease is classified as a finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the asset to the lessee. All other leases are classified as operating leases. Where the Group is the lessee Rentals under operating leases are charged to the consolidated income statement on a straight-line basis over the term of the lease term. Where the Group is the lessor Assets subject to operating leases are included as the Groupâ&#x20AC;&#x2122;s fixed assets in the consolidated balance sheet. Initial direct costs incurred in negotiating an operating lease are recognised in the consolidated income statement as incurred. Lease income is recognised in the consolidated income statement on a straight-line basis over the lease term.

3.6

Intangible assets Intangible assets are stated at cost less accumulated amortization. The cost of an intangible asset comprises its purchase price and any directly attributable costs of preparing the intangible asset for its intended use. Expenditures for additions, improvements are added to the carrying amount of the assets and other expenditures are charged to the consolidated income statement as incurred. When intangible assets are sold or retired, their costs and accumulated amortization are removed from the consolidated balance sheet and any gain or loss resulting from their disposal is included in the consolidated income statement. Land use rights Land use rights are recorded as intangible assets representing the value of the right to use the lands acquired or leased by the Group. The useful lives of land use rights are assessed as either finite or indefinite. Accordingly, land use right with finite lives representing the land lease are amortized over the term of lease while the land use right with indefinite useful lives are not amortized. The advance payment for land rental, of which the land lease contracts have effectiveness prior to 2003 and land use right certificate being issued, are recorded as intangible asset according to Circular No. 45/2013/TT-BTC issued by the Ministry of Finance on 25 April 2013 guiding the management, use and depreciation of fixed assets (â&#x20AC;&#x153;Circular 45â&#x20AC;?).

3.7

Depreciation and amortization Depreciation of tangible fixed assets and amortization of intangible assets are calculated on a straight-line basis over the estimated useful life of each asset as follows: Buildings and structures Machinery and equipment Means of transportation Office equipment Land use rights Brand name Computer software Land lease advantage Customer relationships Others

10 years 5 - 10 years 6 - 10 years 3 - 5 years 46 years 10 - 20 years 3 years 20 - 55 years 16 years 8 years Audited Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3.7

Depreciation and amortization (continued)

B 09 - DN/HN

The useful life of the fixed assets and depreciation and amortization rates are reviewed periodically to ensure that the method and the period of the depreciation and amortization are consistent with the expected pattern of economic benefits that will be derived from the use of the fixed assets. 3.8

Investment properties Investment properties are stated at cost including transaction costs less accumulated depreciation. Subsequent expenditure relating to an investment property that has already been recognized is added to the net book value of the investment property when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing investment property, will flow to the Group. Depreciation of investment properties is calculated on a straight-line basis over the estimated useful life of each asset as follows: Plant

13.5 years

Investment properties are derecognised when either they have been disposed of or when the investment properties are permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the assets is recognised in the consolidated income statement in the period of retirement or disposal. Transfers are made to investment properties when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment properties when, and only when, there is change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale. The transfer from investment property to owner-occupied property or inventories does not change the cost or the carrying value of the property for subsequent accounting at the date of change in use. 3.9

Construction in progress Construction in progress represents tangible fixed assets under construction and is stated at cost. This includes costs of construction of plant, installation of equipment and other direct costs. Construction in progress is not depreciated until such time as the relevant assets are completed and put into operation.

3.10 Borrowing costs Borrowing costs consist of interest and other costs that the Group incurs in connection with the borrowing of funds and are recorded as expense during the year in which they are incurred. 3.11 Prepaid expenses Prepaid expenses are reported as short-term prepaid expenses or long-term prepaid expenses on the consolidated balance sheet and amortized over the period for which the amounts are paid or the period in which economic benefits are generated in relation to these expenses. Starting from 10 June 2013, according to Circular 45, the prepaid rental related to land lease contract with effectiveness after 2003 is not qualified for recognition as intangible asset. Accordingly, the unamortized balances of prepaid rental made in accordance with the lease contract with effectiveness after 2003 are reclassified from intangible assets to long-term prepaid expenses and allocated to the consolidated income statement over the remaining lease term.

ANNUAL REPORT 2014

â&#x20AC;&#x2020;

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3.12 Business combination and goodwill Business combinations are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair values at the date of business combination. Goodwill is initially measured at cost being the excess of the cost of the business combination over the Group’s share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the consolidated income statement. After initial recognition, goodwill is measured at cost less accumulated amortization. Amortization of goodwill is calculated on a straight-line basis over ten (10) years during which the source embodying economic benefits are recovered by the Group. 3.13 Investment in associates The Group’s investment in its associates is accounted for using the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. The Group generally deems they have significant influence if they have over 20% of the voting rights. Under the equity method, the investment is carried in the consolidated balance sheet at cost plus post acquisition changes in the Group’s share of net assets of the associates. Goodwill arising on acquisition of the associate is included in the carrying amount of the investment and is amortized over a 10-year period. The consolidated income statement reflects the share of the post-acquisition results of operation of the associate. The share of post-acquisition profit (loss) of the associates is presented on the face of the consolidated income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative postacquisition movements are adjusted against the carrying amount of the investment. Dividend or profit sharing received or receivable from associates reduce the carrying amount of the investment. The financial statements of the associates are prepared for the same reporting year and use the same accounting policies as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. 3.14 Investment in jointly controlled entity The Group’s investment in jointly controlled entity is accounted for using the equity method of accounting. Under the equity method, the investment is carried in the consolidated balance sheet at cost plus post joint venture changes in the Group’s share of net assets of the jointly controlled entity. The consolidated income statement reflects the share of the post-acquisition results of operation of the jointly controlled entity. The share of profit (loss) of the jointly controlled entity is presented on face of the consolidated income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividend or profit sharing received or receivable from jointly controlled entities reduces the carrying amount of the investment. The financial statements of the jointly controlled entities are prepared for the same reporting year and use the same accounting policies as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

Audited Report

100

101

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

B 09 - DN/HN

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3.15 Investments in securities and other investments Investments in securities and other investments are stated at their acquisition costs. Provision is made for any diminution in value of the investments at the balance sheet date in accordance with the guidance under Circular No. 228/2009/TT-BTC dated 7 December 2009 and Circular No. 89/2013/TT-BTC dated 28 June 2013 issued by the Ministry of Finance. Increases and decreases to the provision balance are recorded as finance expense in the consolidated income statement. 3.16 Payables and accruals Payables and accruals are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the Group. 3.17 Accrual for severance pay The severance pay to employee is accrued at the end of each reporting year for all employees who have been being in service up to 31 December 2008 at the rate of one-half of the average monthly salary for each year of service up to 31 December 2008 in accordance with the Labour Code, the Law on Social Insurance and related implementing guidance. The average monthly salary used in this calculation will be revised at the end of each reporting year following the average monthly salary of the 6-month period up to the reporting date. Any increase to the accrued amount will be taken to the consolidated income statement. This accrued severance pay is used to settle the termination allowance to be paid to employee upon termination of their labor contracts following Article 48 of the Labour Code. 3.18 Foreign currency transactions Transactions in currencies other than the Group’s reporting currency of VND are recorded at the exchange rates ruling at the date of the transaction. At the end of the year, monetary assets and liabilities denominated in foreign currencies are translated at buying exchange rate announced by the commercial bank where the Group maintains bank accounts ruling at the balance sheet date. All realized and unrealized foreign exchange differences are taken to the consolidated income statement. 3.19 Treasury shares Own equity instruments which are reacquired by the Group (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss upon purchase, sale, re-issue or cancellation of the Group’s own equity instruments. 3.20 Earnings per share Basic earnings per share is computed by dividing net profit after tax for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, where applicable. Diluted earnings per share amounts are calculated by dividing the net profit after tax attributable to ordinary equity holders of the Company (after adjusting for interest on the convertible preference shares) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all potential dilutive ordinary shares into ordinary shares. 3.21 Segment information A segment is a component determined separately by the Group which is engaged in providing products or related services (business segment) or providing products or services in a particular economic environment (geographical segment), that is subject to risks and returns that are different from those of other segments. ANNUAL REPORT 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3.22 Appropriation of net profit Net profit after tax (excluding unrealized exchange gains as at the balance sheet date) is available for appropriation to shareholders after approval in the shareholders’ meeting, and after making appropriation to reserve funds in accordance with the Group’s charter and Vietnamese regulatory requirements. The Group maintains the following reserve funds which are appropriated from its net profit after tax as proposed by the Board of Directors and subject to approval by shareholders at the Annual General Meeting: Financial reserve fund This fund is set aside to protect the Group’s normal operations from business risks or losses, or to prepare for unforeseen losses or damages for objective reasons and force majeure, such as fire, economic and financial turmoil of the country or elsewhere. Investment and development fund This fund is set aside for use in the Group’s expansion of its operations or in-depth investments. Bonus and welfare fund This fund is set aside for the purpose of pecuniary rewarding and encouragement, common benefits and improvement of the employees’ benefits, and presented as a liability on the consolidated balance sheet. Dividends Final dividends proposed by the Board of Directors are classified as a separate allocation of undistributed earnings within the equity section of the consolidated balance sheet, until they have been approved by the shareholders at the Annual General Meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability in the consolidated balance sheet. 3.23 Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, excluding trade discount, rebate and sales return. The following specific recognition criteria must also be met before revenue is recognised: Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually upon the delivery of the goods. Rendering of services Revenue is recognised when service is rendered and completed. Interest Revenue is recognised as the interest accrues (taking into account the effective yield on the asset) unless collectability is in doubt. Dividends Income is recognised when the Group’s entitlement as an investor to receive dividends is established.

Audited Report

102

103

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

B 09 - DN/HN

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3.24 Taxation Current income tax Current income tax assets and liabilities for current and prior years 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. Current income tax is charged or credited to the consolidated income statement, except when it relates to items recognised directly to equity, in which case it is also dealt with in the equity account. Current income tax assets and liabilities are offset when there is a legally enforceable right for the Group to set off current tax assets against current tax liabilities and when the Group intends to settle its current tax assets and liabilities on a net basis. 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 liabilities are recognised for all taxable temporary differences, except: »»

where deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction affects neither the accounting profit nor taxable profit or loss;

»»

in respect of taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures where timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carried forward 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 unused tax credit and unused tax losses can be utilised, except: »»

where deferred tax asset in respect of deductible temporary difference which arises from the initial recognition of an asset or liability which at the time of the related transaction, affects neither the accounting profit nor taxable profit or loss;

»»

in respect of deductible temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profits will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of deferred tax asset to be utilised. Previously unrecognised deferred tax assets are re-assessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled based on tax rates and tax laws that have been enacted at the balance sheet date. Deferred tax is charged or credited to the consolidated income statement, except when it relates to items recognised directly to equity, in which case it is also dealt with in the equity account.

ANNUAL REPORT 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3.24 Taxation (continued) Deferred tax (continued) Deferred tax assets and liabilities are offset when there is a legally enforceable right for the Group to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority on either the same taxable entity or when the Group intends to either settle current tax liabilities and assets on a net basis or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. 3.25 Financial instruments Initial recognition and presentation Financial assets Financial assets within the scope of Circular No. 210 /2009/TT-BTC dated 6 November 2009 issued by the Ministry of Finance providing guidance for the adoption in Vietnam of the International Financial Reporting Standards on presentation and disclosures of financial instruments (“Circular 210”) are classified, for disclosures in the notes to the separate financial statements, as financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables or available-for-sale financial assets as appropriate. The Group determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at cost plus directly attributable transaction costs. The Group’s financial assets include cash and short-term deposits, trade and other receivables, loan receivables and short-term and long-term investments. Financial liabilities Financial liabilities within the scope of Circular 210 are classified, for disclosures in the notes to the consolidated financial statements, as financial liabilities at fair value through profit or loss or financial liabilities measured at amortized cost as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at cost, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables and loans. Subsequent re-measurement No subsequent re-measurement of financial instruments is currently required. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

Audited Report

104

105

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

BUSINESS COMBINATION AND GOODWILL

4.1

Business combination

B 09 - DN/HN

On 31 December 2014, the Group acquired additional 31% equity interest of TAP which made its investment in TAP increased from 49% to 80% accordingly. The fair value of the net assets owned by TAP at the date of acquisition was assessed by management which showed that there were no identifiable intangible assets recognised on the acquisition and the fair values of the net assets acquired approximate their carrying amount. Accordingly, the fair values of identifiable assets and liabilities of TAP as at the acquisition date were as follows: Fair value recognized on acquisition VND Assets Land use rights

350,000,000,000

Construction in progress

6,881,984,649

Cash and cash equivalents

1,601,427,523

Inventories Other receivables Other current assets

15,841,815 137,500,000,000 1,975,827,164 497,975,081,151

Liabilities Accounts payable

295,663,146

Total net assets

497,679,418,005

Net assets acquired, 31%

154,280,619,582

Goodwill arising on acquisition Consideration

719,380,418 155,000,000,000

The total cost of business combination as presented above represents the transfer of TAPâ&#x20AC;&#x2122;s shares from an individual to the Group under the form of offsetting against a receivable due from this individual. 4.2 Goodwill Goodwill is amortized on a straight line basis over ten years from acquisition date. The amortization charges of goodwill during the year and the accumulated amortization as at balance sheet date are as follows: VND Cost Beginning balance Addition Ending balance

454,059,745,854 719,380,418 454,779,126,272

Accumulated amortization Beginning balance Amortization for the year Ending balance

127,737,579,833 46,414,951,874 174,152,531,707

Net carrying amount Beginning balance

326,322,166,021

Ending balance

280,626,594,565

ANNUAL REPORT 2014

â&#x20AC;&#x2020;

CASH AND CASH EQUIVALENTS VND Ending balance

Beginning balance

Cash on hand

9,362,694,558

1,902,172,564

Cash in banks

610,501,854,049

282,810,221,399

Cash in transit

1,531,000,000

2,352,154,161

Cash equivalents

1,845,782,000,000

1,671,000,000,000

TOTAL

2,467,177,548,607

1,958,064,548,124

Cash equivalents represent term deposits at the commercial banks with the original maturity of less than three months and earn the interest at the rates ranging from 5% to 5.5% p.a. 6.

CURRENT ACCOUNTS RECEIVABLE VND Ending balance

Beginning balance

179,621,469,269

188,931,745,641

16,071,747,403

26,479,518,640

163,549,721,866

162,452,227,001

69,329,681,247

70,757,652,186

Due from a related party (Note 29)

13,755,048,742

13,950,621,542

Due from unrelated parties

55,574,632,505

56,807,030,644

538,297,499,600

603,491,045,600

467,750,573,417

30,941,621,645

Trade receivables In which: Due from related parties (Note 29) Due from unrelated parties Advances to suppliers In which:

Other receivables In which: Advance for investment (*) Advance for investment consulting services

29,604,096,321

Interest receivable

28,713,004,976

3,023,356,389

1,450,000

402,054,592,874

Due from a related party (Note 29) Other receivables Provision for doubtful debts NET

12,228,374,886

167,471,474,692

(3,217,586,213)

(3,287,129,493)

784,031,063,903

859,893,313,934

(*) In accordance with the Extraordinary General Meeting Resolution dated 1 December 2014, the Group’s shareholders approved a plan to acquire additional shares in Vietnam Vegetable Oils Industry Corporation (“Vocarimex”). The ending balance represents the advances made for the said additional acquisition of shares. Details of movement of provision for doubtful debts VND Beginning balance Provision created during the year Reversal of provision during the year Ending balance

Current year

Previous year

3,287,129,493

1,631,142,631

3,217,586,213

3,287,129,493

(3,287,129,493)

(1,631,142,631)

3,217,586,213

3,287,129,493

Audited Report

106

107

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

B 09 - DN/HN

7. INVENTORIES VND Ending balance

Beginning balance

Raw materials

187,640,895,041

182,115,956,240

Finished goods

55,542,223,591

66,529,353,608

Tools and supplies

39,815,078,721

37,506,961,237

Merchandise goods

16,761,055,797

11,119,095,817

Goods in transit

34,323,130,980

8,398,681,676

Goods on consignment

7,921,831,996

8,479,275,211

Work in process

3,167,541,062

3,464,716,868

TOTAL

345,171,757,188

317,614,040,657

Provision for obsolete inventories

(11,431,307,218)

(13,916,436,529)

NET

333,740,449,970

303,697,604,128

Details of movement of provision for obsolete inventories VND

Current year

Previous year

Beginning balance

13,916,436,529

7,339,802,889

Provision created during the year

11,431,307,218

13,916,436,529

Reversal of provision during the year

(13,916,436,529)

(7,339,802,889)

Ending balance

11,431,307,218

13,916,436,529

TAX AND OTHER RECEIVABLE FROM THE STATE VND Ending balance

Beginning balance

1,713,569,134

16,764,949,919

Others

227,608,798

750,371,719

TOTAL

1,941,177,932

17,515,321,638

Corporate income tax overpaid (Note 28.2)

ANNUAL REPORT 2014

â&#x20AC;&#x2020;

TANGIBLE FIXED ASSETS VND Buildings Machinery and structures and equipment

Means of transportation

411,196,221,621 1,137,682,791,711

130,235,425,057

Office equipment

Total

Cost Beginning balance Increases

76,031,362,629 1,755,145,801,018

5,030,225,438

150,841,092,181

14,513,991,367

7,422,495,280

177,807,804,266

5,030,225,438

18,997,627,263

14,513,991,367

7,422,495,280

45,964,339,348

131,843,464,918

(2,837,029,738)

(1,917,338,388)

560,300,388

(4,194,067,738)

(845,131,652)

(8,968,059,940)

(7,060,060,219)

(7,974,220,770)

(24,847,472,581)

412,544,285,669 1,277,638,485,564

137,689,356,205

In which: Newly purchase Transfer from construction in progress Reclassifications Disposal Ending balance

76,039,937,527 1,903,912,064,965

In which: Fully depreciated

17,338,197,079

178,698,982,890

16,127,865,721

21,135,512,148

233,300,557,838

116,047,106,874

606,650,251,926

64,453,600,899

48,713,052,218

835,864,011,917

Depreciation for the year

25,441,595,006

102,146,003,696

13,997,943,117

7,961,517,560

149,547,059,379

Reclassifications

(1,638,629,207)

(915,629,910)

779,926,110

(1,774,333,007)

(690,025,680)

(8,474,496,799)

(6,290,786,727)

(7,889,205,604)

(23,344,514,810)

139,160,046,993

699,406,128,913

72,160,757,289

49,565,290,284

960,292,223,479

Beginning balance

295,149,114,747

531,032,539,785

65,781,824,158

27,318,310,411

919,281,789,101

Ending balance

273,384,238,676

578,232,356,651

65,528,598,916

26,474,647,243

943,619,841,486

Accumulated depreciation Beginning balance

Disposal Ending balance Net carrying amount

The machinery of the Group with a carrying amount of VND 71,786,307,003 were placed as collateral for the Groupâ&#x20AC;&#x2122;s long-term loans from the banks. Details of such loans are presented in Note 21.

Audited Report

108

109

ANNUAL REPORT 2014

INTANGIBLE ASSETS

11,614,376,443

9,955,179,808

Ending balance

6,636,786,540

Beginning balance

Net carrying amount

Ending balance

1,659,196,635

Amortization for the year

Disposal

4,977,589,905

16,591,966,348

Beginning balance

Accumulated amortization

Fully amortized

In which:

Ending balance

Increase from business combination

Disposal

16,591,966,348

Brand name

Newly purchased

In which:

Additions

Beginning balance

Cost

10.

Computer software

76,794,973,826 457,000,000

457,000,000 (1,913,824,444) 75,338,149,382

1,668,852,260

35,495,842,822 7,508,007,108 (1,783,991,229) 41,219,858,701

41,299,131,004 34,118,290,681

Land use rights

1,278,278,770 350,000,000,000

350,000,000,000 351,278,278,770

671,220,840

1,068,653,512 20,213,663 1,088,867,175

209,625,258 350,189,411,595

44,410,793,807

47,348,179,253

10,857,267,350

2,937,385,446

7,919,881,904

55,268,061,157

Land lease advantage

208,211,307,892

225,562,250,216

69,403,769,296

17,350,942,324

52,052,826,972

277,615,077,188

Customer relationships

166,666,668

2,000,000,000

166,666,668

1,833,333,332

2,000,000,000

Others

646,884,983,783

326,200,228,842

131,206,549,062

(1,783,991,229)

29,642,411,844

103,348,128,447

2,340,073,100

778,091,532,845

(1,913,824,444)

350,000,000,000

457,000,000

350,457,000,000

429,548,357,289

Total

VND

as at and for the year ended 31 December 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) B 09 - DN/HN

â&#x20AC;&#x2020;

11.

CONSTRUCTION IN PROGRESS VND

12.

Ending balance

Beginning balance

Software development

9,360,438,730

2,437,080,393

Installation of machinery

4,304,457,182

120,770,769,156

Construction of new plants

2,331,277,842

Others

6,881,984,649

2,501,806,612

TOTAL

22,878,158,403

125,709,656,161

INVESTMENT PROPERTY VND Plant Cost Beginning and ending balances

34,524,970,816

Accumulated depreciation Beginning balance

13,080,062,245

Depreciation for the year

2,573,389,029

Ending balance

15,653,451,274

Net carrying amount Beginning balance

21,444,908,571

Ending balance

18,871,519,542

Investment property represents the plant which was leased out to North Tribeco Joint Stock Company for 15 years starting from 25 May 2007. The cost of this investment property is depreciated over 13.5 years commencing from 17 November 2008. The fair value of the investment property had not yet been formally assessed and determined as at 31 December 2014. However, it is managementâ&#x20AC;&#x2122;s assessment that the fair value of this property is higher than its carrying value as at the balance sheet date. 13. INVESTMENTS 13.1 Investments in associate and jointly controlled entity Carrying value Name of associate and jointly controlled entity

Interest %

Ending balance VND

Interest %

Beginning balance VND

Lavenue

50.00

1,050,000,000,000

50.00

1,050,000,000,000

Vocarimex

24.00

421,505,599,984

TAP

49.00

205,300,000,000

TTR

30.00

1,800,000,000

TOTAL

1,471,505,599,984

1,257,100,000,000

Audited Report

110

111

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

13.

B 09 - DN/HN

INVESTMENTS (continued)

13.2 Short-term investments Ending balance Number of shares

Beginning balance

Amount VND

Marketable securities, net

Number of shares

2,705,600

Short-term securities

Amount VND 3,681,723,350

206

8,299,143

95,691

4,778,276,394

206

8,299,143

45,691

1,278,276,394

50,000

3,500,000,000

In which: Listed shares Unlisted shares Provision for diminution in value of securities Other short-term investments, net

(5,593,543)

(1,096,553,044)

700,098,000,000

35,798,000,000

700,000,000,000

8,098,000,000

43,798,000,000

Short-term deposit in Vietnam Prosperity Bank (i) Other short-term investments In which: Short-term investments in corporate bond of REE

1,000

98,000,000

Loans to Hung Vuong Corporation

98,000,000

35,700,000,000

8,000,000,000

(8,000,000,000)

700,100,705,600

39,479,723,350

Other short-term investment Provision for other short-term investments Net value of short-term investments

1,000

(i) The Group used this short-term deposit to mortgage and pledge for the loans from this bank obtained by â&#x20AC;&#x2020; Kinh Do Land Corporation. 13.3 Other long-term investments Ending balance

Viet Capital Healthcare Fund

14.

Beginning balance

Number of fund certificate

Amount VND

Number of fund certificate

Amount VND

8,640,000,000

150

15,000,000,000

LONG-TERM PREPAID EXPENSES VND Ending balance

Beginning balance

Land rental

60,994,973,604

71,275,053,740

Tools and consumables

42,209,715,252

47,416,744,169

Others

6,556,784,963

5,682,202,370

TOTAL

109,761,473,819

124,374,000,279

ANNUAL REPORT 2014

15.

SHORT-TERM LOANS VND Ending balance

Beginning balance

502,273,638,213

255,722,512,286

51,044,853,498

145,216,700,016

553,318,491,711

400,939,212,302

Short-term loans Current portion of long-term loans (Note 21) Total

The Group has obtained loans from banks to finance its working capital requirements. The ending balance is as follows: Name of bank

Term

Interest rate % p.a.

Description of collateral

Vietnam International Bank

163,202,158,098

6 months from drawdown date

5 – 5.5

Unsecured

Taipei Fubon Commercial Bank

106,230,000,000

6 months from drawdown date

Unsecured

Vietnam Joint Stock Commercial Bank for Industry and Trade

100,000,000,000

5 months from drawdown date

5.2

Unsecured

Hongkong and Shanghai Bank Corporation

89,670,279,097

90 days from drawdown date

5.5 – 5.8

Unsecured

Military Joint Stock Commercial Bank

27,262,272,825

5 months from drawdown date

5.2

United Overseas Bank

14,249,652,993

30 days from drawdown date

5.1 – 5.5

Unsecured

180 days from drawdown date

5.2

Unsecured

ChinaTrust Commercial Bank TOTAL

16.

Ending balance VND

1,659,275,200

Assets at Tay Bac Cu Chi Industrial Zone

502,273,638,213

TRADE PAYABLES VND

Payables to unrelated parties Payables to related parties (Note 29) TOTAL

Ending balance

Beginning balance

265,946,544,319

265,262,235,541

12,092,229,596

18,510,145,567

278,038,773,915

283,772,381,108

Audited Report

112

113

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

17.

B 09 - DN/HN

ADVANCE FROM CUSTOMERS VND

Payables to unrelated parties Payables to related parties TOTAL

18.

Ending balance

Beginning balance

37,066,122,475

34,845,875,955

104,852,253

37,066,122,475

34,950,728,208

STATUTORY OBLIGATIONS VND Ending balance

Beginning balance

32,596,893,838

60,627,851,285

Value-added tax payable

9,517,587,240

17,662,993,337

Land rental fees

5,176,863,038

Other taxes

3,363,115,001

3,536,278,041

50,654,459,117

81,827,122,663

Corporate income tax (Note 28.2)

TOTAL

19.

ACCRUED EXPENSES VND Ending balance

Beginning balance

148,046,257,305

93,547,309,568

13th month salary and bonus

56,109,633,177

45,985,328,998

Tax on changing of purpose for use of land

34,594,000,000

Sales commission

21,898,027,385

20,871,418,585

Transportation fees

22,207,185,365

14,350,962,827

Utilities

9,774,809,785

5,458,486,312

License fees

6,120,702,896

5,752,005,440

Interest expense

1,381,060,512

1,931,764,928

Others

9,599,468,289

7,617,763,267

TOTAL

309,731,144,714

230,109,039,925

Marketing expenses

ANNUAL REPORT 2014

â&#x20AC;&#x2020;

20.

OTHER PAYABLES VND Ending balance

Beginning balance

169,356,357,000

Unearned revenue

2,947,932,000

Dividends payable

2,181,123,780

2,435,013,268

Deposits received

2,072,218,796

2,767,218,796

100,000,000,000

Others

9,705,740,910

14,207,341,990

TOTAL

186,263,372,486

122,357,506,054

100,614,628,800

186,263,372,486

21,742,877,254

Payables for purchasing treasury shares

Capital holding on behalf

In which: Payables to related parties Payables to unrelated parties

21.

LONG-TERM LOANS VND

Long-term loans from banks

Ending balance

Beginning balance

51,044,853,498

314,102,469,716

51,044,853,498

145,216,700,016

168,885,769,700

Interest rate % p.a.

Description of collateral

4 plus VNIBOR on US$

The new soft-cakes production line amounting to VND 71,786,307,003

Less: Current portion of long-term loans (Note 15) NON-CURRENT PORTION

Details of long-term loans from banks are as follows: Name of bank

Ending balance VND

Term

United Overseas Bank - In USD

36 months from the 51,044,853,498 first withdrawal date on 8 November 2012

In which: Current portion

51,044,853,498

TOTAL

51,044,853,498

Audited Report

114

115

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

22.

B 09 - DN/HN

OWNERS’ EQUITY

22.1 Increase and decrease in owners’ equity Issued share capital

Share premium

Treasury shares

1,599,216,250,000

2,189,781,329,788

(655,246,276,814)

Issuance of new shares issued to employees

66,010,000,000

31,686,000,000

Issuance of new shares for business combination

11,056,450,000

40,630,558,500

Acquisition of treasury shares

82,210,830,889

502,620,072,914

Net profit for the year

Dividends declared

Transferred to funds

Board of Directors' allowance

1,676,282,700,000

2,344,308,719,177

(152,626,203,900)

1,676,282,700,000

2,344,308,719,177

(152,626,203,900)

65,000,000,000

52,000,000,000

Issuance of new shares for strategic investors

400,000,000,000

1,303,236,643,412

Issuance of bonus shares for existing shareholders

425,251,270,000

(425,251,270,000)

Purchase of treasury shares (*)

(653,199,988,000)

Net profit for the year

Dividends declared

Transferred to funds

Board of Directors’ allowance

2,566,533,970,000

3,274,294,092,589

(805,826,191,900)

Beginning balance

Ending balance Beginning balance Issuance of new share to employees

Ending balance

(*)

In accordance with the Extraordinary General Meeting Resolution dated 1 December 2014, the Group’s shareholders approved a plan for the purchase of treasury shares up to 30% of its issued ordinary shares. On 31 December 2014, the Group completed purchase of 6,574,292 treasury shares amounting to VND 483,843,631,000 and was in the process of completing an order to additional purchase of 3,401,660 treasury shares amounting to VND 169,356,357,000. Subsequent to the balance sheet date, the Group also completed another purchase of 20,000,000 treasury shares amounting to VND 1,000,860,000,000 and submitted the Report of Treasury Shares Purchasing Result to the State Securities Commission.

ANNUAL REPORT 2014

VND Investment and development fund

Financial Other funds belonging reserve fund to ownersâ&#x20AC;&#x2122; equity

Undistributed earnings

Total

25,370,280,515

25,792,635,752

15,909,752,661

809,449,689,144

4,010,273,661,046

97,696,000,000

51,687,008,500

584,830,903,803

493,869,552,142

(318,141,106,487)

(31,543,480,073)

(7,028,950,000)

25,370,280,515

25,792,635,752

15,909,752,661

946,605,704,726

4,881,643,588,931

25,370,280,515

25,792,635,752

15,909,752,661

946,605,704,726

4,881,643,588,931

117,000,000,000

1,703,236,643,412

(653,199,988,000)

536,445,639,109

(378,772,028,000)

(14,817,893,820)

(4,928,000,000)

25,370,280,515

25,792,635,752

15,909,752,661

1,084,533,422,015

6,186,607,961,632

Audited Report

116

117

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

22.

B 09 - DN/HN

OWNERS’ EQUITY (continued)

22.2 Capital transactions with owners and distribution of dividends VND Current year

Previous year

1,676,282,700,000

1,599,216,250,000

890,251,270,000

77,066,450,000

2,566,533,970,000

1,676,282,700,000

Issued share capital Beginning balance Increase Ending balance

22.3 Shares Share Current year

Previous year

Ordinary shares authorised to be issued

256,653,397

167,628,270

Ordinary shares issued and fully paid

256,653,397

167,628,270

Treasury shares held by the Group

(11,468,287)

(1,492,335)

Ordinary outstanding shares

245,185,110

166,135,935

Current year

Previous year

378,772,028,000

318,141,106,487

378,772,028,000

318,141,106,487

379,025,917,488

317,070,140,579

22.4 Dividends

Dividends declared during the year Final dividends for 2013: VND 2,000 per share (2012: VND 2,000 per share) Dividends paid during the year

In accordance with the 2015 Extraordinary General Meeting (“EGM”) Resolution dated 12 March 2015, the Group’s shareholders approved a plan to declare the 2014 dividends for existence shareholders at 200% of par value, which is VND 20,000 per share. At the date of these consolidated financial statements, The Board of Director is in process of implementing the said plan. 22.5 Earnings per share Current year

Previous year

536,445,639,109

493,869,552,142

233,652,061

194,315,943

Basic earnings per share (VND)

2,296

2,542

Diluted earnings per share (VND)

2,296

2,542

Net profit attributable to the Company’s shareholders (VND) Weighted average number of ordinary shares

The weighted average number of ordinary shares has taken into account the treasury shares and bonus shares made by the Group up to the date of these consolidated financial statements. Accordingly, the opening weighted average number of ordinary shares has been adjusted retrospectively. There are no potential dilutive ordinary shares as at the balance sheet date.

ANNUAL REPORT 2014

23. REVENUES 23.1 Revenues from sale of goods and rendering of services VND Current year

Previous year

5,125,718,821,077

4,674,796,415,910

5,027,197,963,283

4,593,939,105,675

95,277,259,191

78,697,252,611

3,243,598,603

2,160,057,624

(173,055,897,638)

(114,198,130,572)

Sales returns

(78,839,708,547)

(52,633,490,262)

Sales discounts

(94,216,189,091)

(61,564,640,310)

4,952,662,923,439

4,560,598,285,338

Gross revenue Of which: Sale of finished goods Sale of merchandise goods Rendering of services Less Of which:

NET REVENUE

23.2 Finance income VND Current year

Previous year

138,966,526,733

108,281,743,978

Realized foreign exchange gains

3,183,710,423

2,630,600,578

Gains from disposal of investment

1,456,767,250

1,569,220,394

Others

720,086,024

653,728,957

TOTAL

144,327,090,430

113,135,293,907

Interest income

24.

COST OF GOODS SOLD AND SERVICES RENDERED VND Current year

Previous year

2,750,536,925,604

2,489,214,834,327

Cost of merchandise sold

54,532,662,240

44,467,415,735

Cost of services rendered

2,573,389,029

2,573,389,028

Others

(812,450,319)

48,229,070,154

TOTAL

2,806,830,526,554

2,584,484,709,244

Cost of finished goods sold

Audited Report

118

119

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

25.

B 09 - DN/HN

FINANCE EXPENSES VND Current year

Previous year

20,731,742,626

43,391,810,398

Realized foreign exchange loss

3,720,588,624

3,139,219,009

Unrealized foreign exchange loss

Interest expense

26.

1,141,136,920

2,258,288,851

Finance consulting fees

34,328,987,760

Reversal of provision for investment diminution

(15,616,014,863)

Others

592,028,756

6,014,649,072

TOTAL

26,185,496,926

73,516,940,227

OTHER INCOME AND EXPENSES VND Current year

Previous year

Other income

63,331,885,612

30,372,643,049

Proceeds on land use rights

31,884,849,516

Sale of scrap materials

12,150,033,146

12,340,588,017

Rental income

3,723,456,727

Proceeds on disposal of fixed assets

2,871,533,727

7,167,957,959

12,702,012,496

10,864,097,073

(32,196,031,460)

(34,690,086,601)

Expenses on disposal of fixed assets

(1,632,790,986)

(5,765,583,605)

Expenses on disposal of land use rights

(8,356,352,539)

Disposal of scrap materials

(8,495,782,014)

(6,707,431,121)

Penalty

(561,161,960)

(4,243,636,059)

Others

(13,149,943,961)

(17,973,435,816)

NET

31,135,854,152

(4,317,443,552)

Others Other expenses

27.

PRODUCTION AND OPERATING COSTS VND Current year

Previous year

23,601,343,871

44,467,415,735

2,186,929,212,008

1,986,466,175,919

Labour costs

797,399,900,824

665,734,246,822

Depreciation and amortization (Notes 4, 9, 10 and 12)

228,177,812,126

230,052,975,960

Expenses from external services

683,503,647,577

581,591,958,146

Other expenses

523,459,085,845

477,497,756,620

4,443,071,002,251

3,985,810,529,202

Cost of merchandise goods Raw materials

TOTAL

ANNUAL REPORT 2014

â&#x20AC;&#x2020;

28.

CORPORATE INCOME TAX The Company and its subsidiaries, except for KDBD, have the obligation to pay corporate income tax (“CIT”) at the rate of 22% of taxable profits (2013: 25%). KDBD has the obligation to pay the CIT at the rate of 15% of taxable profits for twelve (12) years from commencement of its operations, and 25% for the years thereafter. KDBD is entitled to an exemption from CIT for three (3) years commencing from the first year of earning profits (year 2008) and a 50% reduction from CIT for the following seven (7) years. The tax returns filed by the Company and its subsidiaries are subject to examination by the tax authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the consolidated financial statements could change at a later date upon final determination by the tax authorities.

28.1 CIT expense VND

Current income tax expense Deferred tax expense TOTAL

Current year

Previous year

121,010,750,584

118,676,164,588

4,823,411,040

7,148,912,968

125,834,161,624

125,825,077,556

28.2 Current tax The current CIT payable is based on taxable profit for the current year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted by the balance sheet date.

Audited Report

120

121

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

28.

B 09 - DN/HN

CORPORATE INCOME TAX (continued)

28.2 Current tax (continued) A reconciliation between the taxable profit and accounting profit as reported in the consolidated income statement is presented below: VND Current year

Previous year

662,958,462,227

618,617,962,194

Amortization of goodwill

46,414,951,874

44,643,343,543

Payments not related to taxable income

31,233,884,848

50,610,068,519

Amortization of revalued intangible assets

Accounting profit before tax Adjustments: Permanent differences

21,626,470,878

21,708,646,991

Profit from reissuing treasury shares held by subsidiaries

109,771,116,686

Advertising expenses in excess of 15% cap

82,496,490,142

9,910,932,373

4,008,871,773

Accrued expenses

18,446,624,063

5,099,602,203

Unrealized profits

(10,995,447,441)

725,046,329

Other adjustments Temporary differences

Severance allowance

(9,569,812,628)

417,312,314

Allocation of prepaid expenses exceeded

(2,082,800,000)

4,165,600,000

(361,647,921)

2,927,966,169

Unrealized gains on foreign exchange differences Provision for obsolete inventories

875,818,540

5,613,303,193

Reversal of provision for loans to related parties

(12,500,000,000)

Provision for investment diminution

(3,651,496,756)

768,457,436,813

934,653,833,300

(2,526,796,680)

Estimated current taxable income

765,930,640,133

934,653,833,300

Estimated current CIT

143,957,671,174

191,816,622,453

CIT exemption

(26,423,755,242)

(31,956,622,487)

(27,560,285,797)

117,533,915,932

132,299,714,169

3,476,834,652

(13,623,549,581)

121,010,750,584

118,676,164,588

43,862,901,366

79,116,759,336

27,560,285,797

(133,990,327,246)

(181,490,308,355)

30,883,324,704

43,862,901,366

Taxable profit before tax loss carried forward Utilization of tax losses carried forward

Adjustment for CIT from re-issue of treasury shares by subsidiaries recognised directly to share premium Estimated CIT expense Under-accrued (over-accrued) CIT in previous years CIT expense CIT payable at beginning of year Adjustment for CIT from re-issue of treasury shares by subsidiaries CIT paid during the year CIT payable at end of year In which: CIT payable (Note 18)

32,596,893,838

60,627,851,285

CIT overpaid (Note 8)

(1,713,569,134)

(16,764,949,919)

ANNUAL REPORT 2014

â&#x20AC;&#x2020;

28.

CORPORATE INCOME TAX (continued)

28.3 Deferred tax The Group recognized deferred CIT as at the balance sheet date as follows: VND Consolidated balance sheet Ending balance

Beginning balance

Current year

Previous year

26,431,040,676

25,203,852,708

1,227,187,968

(6,632,106,491)

Severance allowance

6,811,318,348

9,089,061,831

(2,277,743,483)

(947,721,791)

Provision for other investment

Accrued expense

1,760,000,000

Provision for obsolete inventories

773,559,185

778,982,791

(5,423,606)

346,403,370

Allocation of prepaid expenses exceeded

458,216,000

916,432,000

(458,216,000)

916,432,000

(353,793,089)

2,656,344,922

(3,010,138,011)

(180,967,271)

(88,989,691)

(7,979,377)

(81,010,314)

731,141,329

32,250,131

250,317,725

(218,067,594)

(62,482,202)

Provision for investment diminution

(3,125,000,000)

Provision for investment diminution at subsidiary level

45,388,088

35,823,601,560

40,647,012,600

(4,823,411,040)

(7,148,912,968)

Unrealized profits Unrealized gains on foreign exchange differences Depreciation

TOTAL

29.

Consolidated income statement

TRANSACTIONS WITH RELATED PARTIES Related parties transactions include all transactions undertaken with other companies to which the Group is related, either through the investor/investee relationship or because they share a common investor and thus are considered to be a part of the same corporate group. Significant transactions with related parties during the year were as follows: VND Related party

Relationship

Transaction

Amount

Sale of finished goods Kinh Do Saigon Bakery Joint Stock Corporation Kinh Do Investment Co., Ltd.

Related party

Service rendered

449,891,444

Sales of raw and packaging materials, tools and supplies

384,343,524

Loan collection

286,000,000,000

Short term loan to

286,000,000,000

Loan interest receivable License fees Hung Vuong Corporation

Related party

Tung Yoan Co., Ltd.

Related party

3,274,426,815

3,983,388,889 44,201,853,036

Loan interest receivable

966,875,000

Loan collection

35,700,000,000

Purchase of Packing

32,667,011,738

Expenses related to printing cost

552,000,000 Audited Report

122

123

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

29.

B 09 - DN/HN

TRANSACTIONS WITH RELATED PARTIES (continued) Remuneration to members of the Board of Directors, management and the Board of Supervision during the year was as follows: VND Current year

Previous year

11,365,239,465

7,016,950,000

32,570,435,851

25,407,190,000

168,150,000

174,000,000

44,103,825,316

32,598,140,000

Board of Directors Allowance and bonus Management Salaries and bonus Board of Supervision Allowance and bonus TOTAL

Amounts due from and due to related parties at the balance sheet date, other than the investments disclosed in Note 13, were as follows: VND Related party Trade receivables

Relationship Transaction

Receivable (payable)

Kinh Do Saigon Bakery Joint Stock Corporation

Related party

Sale of finished goods, materials, tools and supplies

Kinh Do Land Corporation

Related party Sale of finished goods

14,596,240,609 1,475,506,794 16,071,747,403

Other receivable Kinh Do Investment Co., Ltd.

Related party Payment on behalf

1,450,000

Advance to supplier Kinh Do Investment Co., Ltd.

Related party Advance for license fees

13,755,048,742

Tong Yuan Co., Ltd.

Related party Purchase of packaging

(11,288,817,589)

Kinh Do Saigon Bakery Joint Stock Corporation

Related party Purchase of finished goods

Trade payables

(803,412,007) (12,092,229,596)

ANNUAL REPORT 2014

30. COMMITMENTS Operating lease commitment The Group leases land, offices and warehouses under operating lease arrangements. The minimum lease commitment as at the balance sheet date under the operating lease agreements is as follows: VND Ending balance

Beginning balance

69,897,808,665

54,810,143,295

After one year but not more than five years

207,269,912,080

168,147,573,881

More than five years

193,971,673,629

170,712,526,759

TOTAL

471,139,394,374

393,670,243,935

Within one year

Capital contribution obligation As at the balance sheet date, the Group had outstanding capital contribution obligation to a subsidiary amounting to VND 37,500,000,000. 31.

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial liabilities comprise loans and debts, trade and other payables. The main purpose of these financial liabilities is to finance the Group’s operations. The Group has loans, receivables, trade and other receivables, and cash and short-term deposits that arise directly from its operations. The Group does not hold or issue derivative financial instruments. The Group is exposed to market risk, credit risk and liquidity risk. Risk management is integral to the whole business of the Group. The Group has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. The management continually monitors the Group’s risk management process to ensure that an appropriate balance between risk and control is achieved. Management reviews and agrees on the policies for managing each of these risks which are summarized below: Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits and investments. The sensitivity analyses in the following sections relate to the Group’s consolidated financial position as at the balance sheet date. The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and the proportion of financial instruments in foreign currencies are all constant. In calculating the sensitivity analyses, management assumed that the consolidated balance sheet relates to financial instruments and the sensitivity of the relevant income statement item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at the balance sheet date.

Audited Report

124

125

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

31.

B 09 - DN/HN

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Market risk (continued) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group is exposed to market risk for changes in interest rate relates primarily to the Group’s short-term investments including cash and short-term deposits and its loans. 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 management limits. Interest rate sensitivity With all other variables held constant, the following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and deposits and its effect to the Group’s profit before tax: Increase/decrease in basis points

Effect on profit before tax VND

USD

+100

586,882,667

VND

+200

37,815,224,019

USD

-100

(586,882,667)

VND

-200

(37,815,224,019)

USD

+100

(2,439,546,151)

VND

+300

48,965,734,669

Current year

Previous year

USD

-100

2,439,546,151

VND

-300

(48,965,734,669)

The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment. Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group is exposed to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities. The Group is not exposed to foreign currency risk as most of the Group’s operating activities, which are relating to purchases and sales of goods, are denominated in VND, the Group’s accounting currency. The Group does not employ any derivative financial instruments to hedge its foreign currency exposure. Equity price risk The Group’s listed and unlisted equity securities are susceptible to market price risk arising from uncertainty about future values of the investment securities. The Group manages equity price risk by placing a limit on equity investments. The Group’s Board of Directors reviews and approves all equity investment decisions. At the balance sheet date, the Group is not exposed to significant equity securities price risk. ANNUAL REPORT 2014

31.

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Commodity price risk The Group is exposed to commodity price risk in relation to purchase of certain commodities. The Group manages its commodity price risk by keeping close watch on relevant information and situation of commodity market in order to properly manage timing of purchases, production plans and inventories level. The Group does not employ any derivative financial instruments to hedge its commodity price risk. Credit risk Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks, short-term investments and other financial instruments. Trade receivables Customer credit risk is managed by the Group based on its established policy, procedures and control to minimise credit risk at an acceptable level. In view of the aforementioned and the fact that the Group’s trade receivables relate to a large number of diversified customers, management evaluates that there is no significant concentration of credit risk. Bank deposits The Group’s bank balances are mainly maintained with well-known banks in Vietnam. Credit risk from balances with banks is managed by the Group’s treasury department in accordance with its policy. The Group’s maximum exposure to credit risk for the components of the consolidated balance sheet at each reporting dates are the carrying amounts. Management evaluates the concentration of credit risk in respect to bank deposit as low.

Audited Report

126

127

31.

ANNUAL REPORT 2014

792,422,791,241 35,700,000,000

Loans to related parties

714,701,382,656

Trade receivables and other receivables

Beginning balance

Trade receivables and other receivables

Ending balance

Total

59,424,878,913

62,623,704,495 -

693,425,596,331 35,700,000,000

< 90 days

629,212,083,249

Neither past due nor impaired

9,720,926,085

5,598,287,811

1,071,556,890

2,218,264,122

91–180 days 181–210 days

Past due but not impaired

25,581,007,440

18,247,868,561

> 210 days

VND

Other financial instruments of the Group mainly include trade and other receivables and management evaluates all financial assets are neither past due nor impaired as they related to recognized and creditworthy counterparties except for the following receivable which are past due but not impaired as at the balance sheet date:

Other financial instruments

Credit risk (continued)

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) as at and for the year ended 31 December 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) B 09 - DN/HN

31.

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Liquidity risk The liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligation due to shortage of funds. The Group is exposed to liquidity risk arises primarily from mismatches of maturities of financial assets and liabilities. The Group monitors its liquidity risk by maintaining a level of cash and cash equivalents and bank loans deemed adequate by management to finance the Groupâ&#x20AC;&#x2122;s operations and to mitigate the effects of fluctuations in cash flows. The table below summarizes the maturity profile of the Groupâ&#x20AC;&#x2122;s financial liabilities based on contractual discounted payments: VND Less than 1 year

From 1 to 5 years

Total

Loans

553,318,491,711

Trade payables

278,038,773,915

Other payables and accrued expenses

439,884,884,023

13,263,005,860

453,147,889,883

1,271,242,149,649

13,263,005,860

1,284,505,155,509

Loans

400,939,212,302

168,885,769,700

569,824,982,002

Trade payables

283,772,381,108

Other payables and accrued expenses

206,481,216,981

11,873,420,941

218,354,637,922

TOTAL

891,192,810,391

180,759,190,641

1,071,952,001,032

Ending balance

TOTAL Beginning balance

Management assessed the concentration of risk with respect to refinancing its debt and concluded it as low. Access to sources of funding is sufficiently available and debt maturing within 12 months can be rolled over with existing lenders.

Audited Report

128

129

32.

ANNUAL REPORT 2014

3,916,104,649,039

TOTAL

Other current liabilities

Trade payables

Loans

Financial liabilities

2,467,177,548,607

Cash and cash equivalents

538,297,499,600

Other receivables

8,000,000,000

Other short-term investment 179,621,469,269

14,261,832,420

Deposits

Trade receivables

700,000,000,000

98,000,000

Corporate bond

Bank deposits

8,640,000,000

8,299,143

Fund certificates

Investments in securities

Financial assets

Cost 4,778,276,394 15,000,000,000 98,000,000 13,240,682,284 43,700,000,000 188,931,745,641 603,491,045,600 1,958,064,548,124

(5,593,543) (8,000,000,000) (3,217,586,213) -

2,467,177,548,607

538,297,499,600

176,403,883,056

14,261,832,420

700,000,000,000

98,000,000

8,640,000,000

2,705,600

1,958,064,548,124

603,491,045,600

185,644,616,148

35,700,000,000

13,240,682,284

98,000,000

15,000,000,000

3,681,723,350

Ending balance Beginning balance

Fair value

Beginning balance 569,824,982,002 283,772,381,108 218,354,637,922 1,071,952,001,032

553,318,491,711 278,038,773,915 453,147,889,883 1,284,505,155,509

1,284,505,155,509

453,147,889,883

278,038,773,915

553,318,491,711

Ending balance

1,071,952,001,032

218,354,637,922

283,772,381,108

569,824,982,002

Beginning balance

Fair value

VND

(12,383,682,537) 3,904,881,469,283 2,814,920,615,506

(3,287,129,493)

(8,000,000,000)

(1,096,553,044)

Provision

Ending balance

Carrying amount

(11,223,179,756) 2,827,304,298,043

Cost

Beginning balance Provision

Ending balance

Carrying amount

Set out below is a comparison by class of the carrying amounts and fair value of the Groupâ&#x20AC;&#x2122;s financial instruments that are carried in the consolidated financial statements: VND

FINANCIAL ASSETS AND FINANCIAL LIABILITIES as at and for the year ended 31 December 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) B 09 - DN/HN

â&#x20AC;&#x2020;

32.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued) The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following method and assumption were used to estimate the fair values: »»

Cash and short-term deposits, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

»»

Fair value of quoted bonds and shares is based on price quotations at the reporting date.

»»

Fair value of other financial assets is derived from quoted market prices in active markets, if available.

Audited Report

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131

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

33.

B 09 - DN/HN

SEGMENT INFORMATION The Group’s principal activities are to process agricultural products and foods which include purified drinks and dairy products. The Group views these activities as one business segment. However, the Group manages its geographical segments based on the location of the Group’s assets. Sales to external customers disclosed in geographical segments are based on the geographical location of its customers. The Group’s geographically segments comprise South and North of Vietnam. The following tables present revenue, profit and certain asset, liabilities information regarding the Group’s geographical segments: VND South segment

North segment

Total

Sales to external customers

3,309,096,191,869

1,816,622,629,208

5,125,718,821,077

Sales deductions

(131,424,718,357)

(41,631,179,281)

(173,055,897,638)

286,691,409,728

20,723,910,718

307,415,320,446

3,464,362,883,240

1,795,715,360,645

5,260,078,243,885

Current year Segment revenue

Inter-segment sales Reconciliation: Elimination of inter-segment sales

(307,415,320,446)

Revenue for the year

4,952,662,923,439

Segment results

300,940,302,272

290,198,327,722

591,138,629,994

Reconciliation: Interest income

138,966,526,733

Interest expense

(20,731,742,626)

Amortization of goodwill

(46,414,951,874)

Profit before tax

662,958,462,227

Other segment information Depreciation and amortization

165,706,923,684

62,470,888,442

228,177,812,126

Provision for doubtful debts

(1,350,343,280)

1,280,800,000

(69,543,280)

Provision for obsolete inventories

(4,194,582,724)

1,709,453,413

(2,485,129,311)

Provision for investment diminution

(1,090,959,501)

6,898,163,907,442

866,195,831,152

7,764,359,738,594

Segment assets Reconciliation: Elimination of inter-segment receivables

(169,109,822,696)

Unallocated assets

280,626,594,565

Total assets Segment liabilities

7,875,876,510,463 1,365,918,146,207

391,376,997,354

1,757,295,143,561

Reconciliation: Elimination of inter-segment payables

(169,109,822,696)

Total liabilities

1,588,185,320,865

ANNUAL REPORT 2014

33.

SEGMENT INFORMATION (continued) The following tables present revenue, profit and certain asset, liabilities information regarding the Groupâ&#x20AC;&#x2122;s geographical segments: (continued) VND South segment

North segment

Total

3,129,441,180,449

1,545,355,235,461

4,674,796,415,910

Sales deductions

(88,181,185,216)

(26,016,945,356)

(114,198,130,572)

Inter-segment sales

304,367,007,200

60,331,807,297

364,698,814,497

3,345,627,002,433

1,579,670,097,402

4,925,297,099,835

Previous year Segment revenue Sales to external customers

Reconciliation: Elimination of inter-segment sales

(364,698,814,497)

Revenue for the year

4,560,598,285,338

Segment results

382,405,095,828

215,966,276,329

598,371,372,157

Reconciliation: Interest income

108,281,743,978

Interest expense

(43,391,810,398)

Amortization of goodwill

(44,643,343,543)

Profit before tax

618,617,962,194

Other segment information Depreciation and amortization

168,430,076,741

61,622,899,219

230,052,975,960

Provision for doubtful debts

1,758,295,537

(102,308,675)

1,655,986,862

Provision for obsolete inventories

8,473,486,616

(1,896,852,976)

6,576,633,640

(15,316,014,863)

(300,000,000)

(15,616,014,863)

5,329,538,962,849

960,366,669,489

6,289,905,632,338

Provision for investment diminution Segment assets Reconciliation: Elimination of inter-segment receivables

(237,982,219,361)

Unallocated assets

326,322,166,021

Total assets Segment liabilities

6,378,245,578,998 1,273,148,393,589

459,864,203,500

1,733,012,597,089

Reconciliation: Elimination of inter-segment payables

(237,982,219,361)

Total liabilities

1,495,030,377,728

Audited Report

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133

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

as at and for the year ended 31 December 2014

34.

B 09 - DN/HN

SIGNIFICANT EVENTS DURING THE YEAR (a) Issuance of ordinary shares to the strategic shareholders In accordance with the 2013 Extraordinary General Meeting (“EGM”) Resolution dated 4 November 2013, the Group’s shareholders approved the issuance of 40,000,000 new shares for the potential strategic investors. On 21 May 2014, the Group issued 40,000,000 new shares at the price per share of 44,000 VND to the strategic investors as listed in the 2014 Annual General Meeting (“AGM”) Resolution dated 30 June 2014. On 27 May 2014, the Group submitted the Report of Distribution Result to the State Securities Commission and issued the shareholder certificate for these strategic investors. (b) Acquisition of shares of Vocarimex On 25 July 2014, the Group acquired 24% equity interests of Vocarimex amounting to VND 421,505,599,984. Accordingly, Vocarimex becomes an associate of the Group. In accordance with the EGM Resolution dated 1 December 2014, the Group’s shareholders approved a plan to increase the Group’s ownership rate in Vocarimex up to more than 51% to secure the control over the Vocarimex’s operations for long-term investment objectives. As at the date of these consolidated financial statements, the Group is in the process of completing this plan. (c) Restructuring plan In accordance with the 2014 AGM Resolution dated 30 June 2014, the Group’s shareholders approved a restructuring plan for the purpose of separating the Group’s confectionery segment out of other business activities to achieve higher efficiency. On 15 October 2014, the Group transferred its entire investments in NKD to KDBD at the total price of VND 694,175,525,000, which is also the carrying value of the investment in NKD, in exchange for the increase in the Group’s investments in KDBD by the same amount. This transfer is part of the said restructuring plan. (d) Transferring the confectionery segment In accordance with the EGM Resolution dated 1 December 2014, the Group’s shareholders approved a plan to transfer 80% equity interests in KDBD to Mondelēz International, an enterprise incorporated overseas, or its assigned subsidiary, Cadbury Enterprises Pte. Ltd., together with an option to purchase the remaining 20%, after the Group completed the restructuring plans as approved by the shareholders in the 2014 AGM Resolution dated 30 June 2014. (e) The repurchase of treasury shares Also, in accordance with the EGM Resolution dated 1 December 2014, the Group’s shareholders approved a plan to repurchase treasury shares up to 30% of the Group’s issued ordinary shares for the purpose of decreasing the number of existing shares being circulated.

ANNUAL REPORT 2014

35.

EVENTS AFTER THE BALANCE SHEET DATE Except for the events as disclosed at Note 22, there have been no other significant events occurring after the balance sheet date which would require adjustments or disclosures to be made in the consolidated financial statements.

Tran Minh Nguyet Preparer

Nguyen Thi Oanh Chief Accountant

Tran Le Nguyen General Director

26 March 2015

Audited Report

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KINH DO CORPORATION Address: 138 - 142 Hai Ba Trung Street, Da Kao Ward, District 1, HCMC Tel: (08-8) 3827 0838 Fax: (08-8) 3827 0839 Email: info@kinhdo.vn www.kinhdo.vn