REG - VietNam Holding Ltd - Annual Report
03/10/2022 07:00
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RNS Number : 4531B VietNam Holding Limited 03 October 2022
VietNam Holding Limited
("VNH" or the "Company")
VietNam Holding Limited is pleased to announce its 2022
Annual Report and Audited Financial Statements
More information on the Company is available at www.vietnamholding.com (http://www.vietnamholding.com)
Dynam Capital, Ltd.
Craig Martin Tel.: +84 28 3827 7590
Sanne Group (Guernsey) Limited: Tel.: +44 (0) 1481 739810
finnCap Limited
Broker
Trading: Johnny Hewitson Tel: +44 20 7220 0558
Sales: Mark Whitfeld Tel: +44 20 3772 4697
Corporate Finance: William Marle Tel: +44 20 7220 0500
The information contained within the announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via
Regulatory Information Service ("RIS"), this inside information is now
considered to be in the public domain.
Contents
Strategic Report
Highlights 1
Summary Information 1
Chairman's Statement 3
Investment Manager's Report 5
Top Five Portfolio Companies 14
Sustainability Report 24
Principal Risks and Risk Management 32
Governance
Director Profiles and Disclosure of Directorships 35
Corporate Governance Report 36
Audit and Risk Committee Report 41
Directors' Remuneration Policy and Report 43
Directors' Report 44
Statement of Directors' Responsibilities 48
Financial Statements
Independent Auditor's Report 49
Statement of Financial Position 54
Statement of Comprehensive Income 55
Statement of Changes in Equity 56
Statement of Cash Flows 57
Notes to the Financial Statements 58
Alternative Performance Measures 71
Corporate Information 72
Highlights
Financial Highlights
30 June 2022 30 June 2021
Total Net Assets (USD) 128.8 million 196.1 million
Net Asset Value per share (USD) 4.408 4.600
Net Asset Value per share (GBP) 363.0p 333.0p
Share price 309.5p 265.0p
Discount to Net Asset Value 14.7% 20.4%
As at 29 September 2022 (the latest available date before approval of the
accounts), the discount to NAV had moved to 12.3%. The estimated NAV per share
and mid-market share price at 29 September 2022 was 354.8 p and 311.0 p
respectively.
Ongoing Charges
Ongoing charges for the year ended 30 June 2022 have been calculated in
accordance with the Association of Investment Companies (the "AIC")
recommended methodology. The ongoing charges for the year ended 30 June 2022
were 2.74%. Refer to page 71 for the definitions of Alternative Performance
Measures ("APMs") together with how they have been calculated.
Summary Information
The Company
VietNam Holding Limited (the "Company" or "VNH") is a closed-end investment
company that was incorporated in the Cayman Islands on 20 April 2006 as an
exempted company with limited liability under registration number 166182. On
25 February 2019, the Company, via a process of cross-border continuance,
transferred its legal domicile from the Cayman Islands to Guernsey and was
registered as a closed-ended company limited by shares incorporated in
Guernsey with registered number 66090. The Shares were admitted to trading on
AIM in June 2006 and changed to a Premium Listing on the Official List of the
UK Listing Authority and admitted to trading on the Main Market of the London
Stock Exchange on 8 March 2019. The Company also listed on the Official List
of The International Stock Exchange on 8 March 2019. The Company has an
unlimited life with a continuation vote in 2023.
Investment Objective
The Company's investment objective is to achieve long-term capital
appreciation by investing in a diversified portfolio of companies that have
high growth potential at an attractive valuation.
Investment Policy
The Company attempts to achieve its investment objective by investing in the
securities of publicly traded companies in Vietnam, and in the securities of
foreign companies if a majority of their assets and/or operations are based in
Vietnam. The Company may invest in equity securities or securities that have
equity features, such as bonds that are convertible into equity.
The Company may invest in listed or unlisted securities, either on the
Vietnamese stock exchanges, through purchases on the OTC Market, or through
privately negotiated deals.
The Company may invest its available cash in the Vietnamese domestic bond
market as well as in international bonds issued by Vietnamese entities.
The Company may utilise derivatives contracts for hedging purposes and for
efficient portfolio management but will not utilise derivatives for investment
purposes.
The Company does not intend to take control of any company or entity in which
it has directly or indirectly invested (the "investee company") or to take an
active management role in any such company. However Dynam Capital, Ltd.
("Dynam Capital"), (the "Investment Manager") may appoint one of its
directors, employees or other appointees to join the board of an Investee
Company and/or may provide certain forms of assistance to such company,
subject to prior approval by the VNH Board.
The Company integrates environmental, social and corporate governance ("ESG")
factors into its investment analysis and decision-making process. Through its
Investment Manager, the Company actively incorporates ESG considerations into
its ownership policies and practices and engages investee companies in pursuit
of appropriate disclosure and the improvement of material issues.
The Company may invest:
● up to 25% of its Net Asset Value ("NAV") (at the time of investment)
in companies with shares traded outside of Vietnam if a majority of their
assets and/or operations are based in Vietnam;
● up to 20% of its NAV (at the time of investment) in direct private
equity investments; and
● up to 20% of its NAV (at the time of investment) in other listed
investment funds and holding companies which have the majority of their assets
in Vietnam.
Borrowing Policy
The Company is permitted to borrow money and to grant security over its assets
provided that such borrowings do not exceed 25% of the latest available NAV of
the Company at the time of the borrowing unless the Shareholders in general
meeting otherwise determine by ordinary resolution.
Investment Restrictions and Diversification
The Company will adhere to the general principle of risk diversification in
respect of its investments and will observe the following investment
restrictions:
● the Company will not invest more than 10% of its NAV (at the time of
investment) in the shares of a single Investee Company;
● the Company will not invest more than 30% of its NAV (at the time of
investment) in any one sector;
● the Company will not invest directly in real estate or real estate
development projects, but may invest in companies which have a large real
estate component, if their shares are listed or are traded on the OTC Market;
and
● the Company will not invest in any closed-ended investment fund
unless the price of such investment fund is at a discount of at least 10% to
such investment fund's NAV (at the time of investment).
Furthermore, based on the guidelines established by the United Nations
Principles for Responsible Investment ("UNPRI"), of which the Company is a
signatory:
● the Company will not invest in companies known to be significantly
involved in the manufacturing or trading of distilled alcoholic beverages,
tobacco, armaments or in casino operations or other gambling businesses;
● the Company will not invest in companies known to be subject to
material violations of Vietnamese laws on labour and employment, including
child labour regulations or racial or gender discriminations; and
● the Company will not invest in companies that do not commit to
reducing in a measurable way pollution and environmental problems caused by
their business activities.
Any material change to the investment policy will only be made with the
approval of Shareholders by ordinary resolution.
Shareholder Information
Sanne Group (Guernsey) Limited (the "Administrator") is responsible for
calculating the NAV per share and delegates this function under a legal
contractual arrangement to Standard Chartered Bank (Singapore) Limited (the
"Sub-Administrator"), previously Standard Chartered Bank, Singapore Branch
until its transference under the Banking Act on 13 May 2019. The estimated NAV
per ordinary share is calculated as at the close of business each business day
by the Investment Manager and published at close of business in Vietnam the
same day. The monthly NAV is calculated by the Sub-Administrator on the last
business day of every month and announced by a Regulatory News Service within
10 business days
Chairman's Statement
Dear Shareholder,
I am pleased to present the Annual Report for VietNam Holding Limited in yet
another extraordinary twelve-month period ending 30 June 2022.
The Company's Total Assets were USD 129,177,449 at 30 June 2022, a decrease of
35.6% from USD 200,418,206 at 30 June 2021. This is partly due to the
successful tender offer for 30% of the Company's shares in September 2021.
Total Comprehensive loss was USD 7,719,310 compared with income of USD
100,153,888 in the corresponding period in 2021. Although the Company's Net
Asset Value ("NAV") has declined in absolute numbers to USD 129m, the focus,
active management, and nimble performance of the Investment Manager have led
to a significant relative outperformance of 12.2% against the market as a
whole. The Company also has outperformed most of its peers.
Vietnam's handling of the vaccination rollout in the first half of the
financial year - July to December 2021 - was nothing short of remarkable. It
went from a low-level number of vaccinations due to the lack of supply in
April to a smooth distribution by December when some cities were almost 100%
double vaccinated and by early 2022 more than 50% of the population were
triple vaccinated. This was a direct effect of the 'living with COVID-19'
approach taken by the government, in contrast with the 'zero-COVID-19'
policies of China, which meant that strict quarantine restrictions could be
lifted.
So, as two years of COVID-19 restrictions finally faded, Vietnam opened up its
borders to international travellers in April this year. Later in June the
Board met in person in Vietnam to meet with the research team of the
Investment Manager, as well as visit a number of portfolio companies and other
investors and market participants. It was good to be back in the exciting
market of Vietnam and see first-hand the early signs of its strong
post-COVID-19 recovery.
Although Russia's invasion of Ukraine on 24 February has disrupted the world
significantly and added inflationary fuel to the fire in Europe and North
America, the direct impact on Vietnam appears to be much less evident. To
start, Vietnam's direct trade with Russia is less than 1% of total trade. That
said, there are deep historical linkages with many Vietnamese entrepreneurs
having 'cut their teeth' on business in Russia and Ukraine. There are also
military ties, and the former USSR was a key supporter to Vietnam in the
1980s.
Inflation has been less of a direct issue for Vietnam especially since the
country is only a modest importer of oil and gas and has a more diversified
energy mix than many other Asian countries, for example, with hydropower,
wind, and solar energy supplying close to 50% of the country's needs. The
macro-economy of Vietnam is also robust compared to many other Emerging and
Frontier markets and its GDP growth levels reported in June surprised on the
upside as many other economies around the world shrank. Several banks have
recently increased their full year GDP growth forecasts for Vietnam at close
to 7%. With inflation forecast to reach 3.5% to 4.0% by year-end, there is
real growth. Retail consumers are buying, and retail investors are waiting for
better global news to return to the market. So, after almost two years of
net-selling of public equities by foreign portfolio investors, there are signs
signalling that the tide may be turning. The Investment Manager's
Reportincludes more details on the outlook for both the market and the
portfolio, explaining further how Vietnam certainly appears to be a market
that can still deliver high earnings growth at reasonable valuations.
Discount
In the Interim Report issued six months ago we wrote about the narrowing
discount between the Fund's share price and prevailing NAV. This time last
year the discount hit 25% and has narrowed considerably since with the tender
offer last September and the ongoing efforts of the Board in managing the
discount through regular share buybacks, but also with the Investment Manager
in delivering strong relative performance and an active investor relations
program. In February 2022 it touched a low of 4.43%, and although that has
widened to 14.7% at 30 June 2022, the discount has been the narrowest of three
London listed investment trusts focussed on Vietnam for much of the last six
months. At 29 September 2022, the discount was 12.3 %.
Marketing
With the help of the Investment Manager, Dynam Capital - and despite travel
restrictions imposed for much of the first half of the year - the Board has
further developed the Company's marketing activity throughout the year to help
narrow the discount, improve liquidity in the Company's shares, and widen our
Shareholder base.
The Investment Manager has been actively promoting the Company and along with
our broker and sales partners has organised roadshows, topical seminars,
podcasts, and several webinars. It also presented at the Mello Event in May
2022 (returning after a two-year hiatus) where it was a delight to meet many
investors in the Company face-to-face.
Marketing
Our analysis shows that the marketing and communications efforts continue to
bear fruit. We are delighted to see a greater number of wealth management
platforms on the share register having also seen the overall mix of investors
broaden considerably over recent years. The Company has also been proactively
promoted through a wide range of media outlets, including video, audio, and
online print media, and has been featured several times in publications, such
as Investors Chronicle. The Investment Manager has maintained a strong social
media presence for the Company as well. We welcome all Shareholders who may be
reading this Annual Report for the first time and thank all existing holders
for their ongoing support.
Share Buybacks
The Board has a mandate to authorise the purchase up to 14.99% of the
Company's shares each year in the open market at prices below NAV per share,
and this was renewed at the Annual General Meeting ("AGM") on 1 November 2021.
In the year from 1 July 2021 to 30 June 2022, the Company bought back
661,084 shares (representing 2.3 % of the shares outstanding at 1 July 2021)
at a weighted average discount of 15.9%. This resulted in a 0.25% accretion to
NAV per share. From September 2017, when the current Board was appointed,
through until 30 June 2022, the Company has bought back 13.32 m shares at a
weighted average discount of 15.4%. This represents a 2.8% accretion to NAV
per share.
Tender Offers
From time to time the Board uses tender offers to provide a liquidity
opportunity for investors in the Company. Last September Shareholders approved
the Board's recommended tender offer for 30% of the Company's shares at a 2%
discount to the prevailing NAV per share as at 31 August 2021.
Performance
In the twelve months to 30 June 2022 the Company's NAV per share declined by
4.36%, while the market as a whole, as measured by the Vietnam All Share
Index, declined by 16.5%. In the first six months of the financial year the
NAV per share rose by 14.1%, against an index rise of 10.6%, and in the second
six months the Company's NAV declined by 16% versus the index, which fell by
more than 24%. At 30 June the Company has outperformed the VNAS on 1, 3, 5 and
10-year measures.
Performance monitoring remains a key focus of the Board and we engage closely
with our Investment Manager in this respect through monthly conference calls
attended by members of the Board in addition to quarterly presentations. A
more detailed account of the Company's annual performance is also provided in
the Investment Manager's Report.
Responsible Investing and Sustainability Reporting
The Investment Manager and the Board have been committed to responsible
investing and a joined-up approach to environmental, social and governance
("ESG") years before the mainstream global investing community took up the
challenge. The Company has been a signatory to the United Nations' Principles
on Responsible Investing ("UNPRI") since 2009. Although the UNPRI itself has
been restructuring its reporting platform, the Company received five-star
scores for its 2021 UNPRI report and we continue to contribute to
responsible investing in Vietnam in a meaningful way. We have been measuring
the carbon footprint of both the Company and the portfolio for several years,
and this year's findings are in the Sustainability Report. The highlights are
that the Company has a lower estimated carbon footprint than the index while
continuing to out-perform the index. During the year the Investment Manager
hosted a webinar for 50 companies in Vietnam about the steps needed to
increase the accuracy of carbon-footprint reporting, and we have been
encouraging our portfolio companies to raise the bar in their own ESG
initiatives.
On behalf of the Board, I would like to extend a further thank-you to
Shareholders for your ongoing support throughout the past year. Although the
global mood is gloomy, we believe Vietnam remains a bright spot - an
attractive investment destination with good prospects for further growth over
the years to come.
Hiroshi Funaki
Chairman
VietNam Holding Limited
30 September 2022
Investment Manager's Report
This year marks the 16th anniversary of the Company and its listing in
London(1) - the Company is just four years younger than Vietnam's stock
market.
Strong Outperformance
The interim report as of 31 December 2021 characterised the last six months of
the year as a period of resilience and divergence. During the first six months
of the financial year to 31 December 2021, the NAV per share rose by 14.1%,
ahead of the Vietnam All Share Index ("VNAS") gain of 10.6%. Throughout the
second half of the financial year, the equity markets themselves were
divergent from the resilient macro-economic position and we saw the Vietnam
market fell by 24.5% in line with the sell-off in global markets while the
Company's NAV per share fell by 16.0%. As at 30 June 2022, the NAV per share
declined by 4.2% for the full financial year, in contrast with the 99%
increase in NAV per share we reported for the previous financial year.
Nevertheless, the Company continues to outperform its peers, and has also
outperformed the VNAS on a 1, 3, 5 and 10-year basis. During the financial
year the Company's share price rose 16.8%, significantly ahead of its much
larger peers: Vietnam Opportunity Fund, VOF, which rose by 1.1% and Vietnam
Enterprise and Investment Limited, VEIL, which fell by 3.4%. This is due to a
combination of higher NAV per share performance and narrower discount between
the share price and the NAV.
High Conviction Portfolio
The Company maintains a high-conviction portfolio concentrated in 24
positions, with its top-ten positions making up 67.5% of NAV. The largest
position, FPT Corporation, FPT, which is 11.5% of NAV, is the country's
leading IT and telecoms services company. It rose by 19.9% as it continues to
see significant traction in its domestic and overseas business. Mobile World,
MWG, which is 9.2% of NAV, is a leading omni-channel retailer. It rose by
42.7% as it strengthened its position as one of the country's largest
e-commerce players and started to reposition and streamline its grocery
business. Gemadept ("GMD"), which is 8.5% of NAV and the largest port operator
in Vietnam rose by 23.9% as it experienced strong growth in volumes and profit
from its new deep-water container port. Phu Nhuan Jewelry, PNJ, is 8.1% of NAV
and the leading branded jewellery retailer and gold wholesaler in Vietnam. It
rose 30.5% and delivered 56.5% revenue growth and 48.0% profit growth in the
second half of the financial year, as people resumed their retail lives with
renewed vigour after the tough lockdown of 2021. Although we pivoted to an
underweight position in banks in this financial year, taking profit after last
year's stellar performance, there are still four banks in our top-ten, and the
largest, Sacombank, STB, 5.6% of NAV, was down 29.7% but continues to deliver
strong core profit growth on a very undemanding valuation of 1.1x price to
book. See Top Five Portfolio Companies on pages 14 to 23 for more information.
Overall, 14 of our 24 positions increased in value and 10 decreased.
Post-COVID-19 Recovery
During the first part of the financial year Vietnam experienced strict
lockdowns and quarantine measures in the battle against the COVID-19 Delta
variant. From a near-standing start last year, Vietnam succeeded in rolling
out a rapid vaccination program that saw close to 100% of some city dwellers
and 90% of the entire adult population receive two vaccinations. This enabled
the government to relax COVID-19 restrictions in April 2022 and then remove
them entirely in May, which led to a resurgence in the economy. In the last
quarter of the Company's financial year, April to June, Vietnam posted a
staggering 7.7% YoY GDP growth, exceeding expectations and ranking
significantly higher than other nations around the world including in the G20
area which rose by only 0.7%(2). Vietnam's continued 'broad-based recovery'
post-COVID-19 has led some international financial institutions to upgrade
their growth forecasts for it for the rest of 2022 as different sectors in the
country regain pre-pandemic momentum. Both HSBC and Singapore-based United
Overseas Bank, for example, recently raised their Vietnam growth forecasts for
2022 to 6.9% from 6.6% and 7.0% from 6.5%, respectively, according to the
banks' market reports(3).
Vietnam's growth this year is noteworthy given record rising inflation and
other unprecedented disruptions affecting trade and investment worldwide.
Despite today's intense global risk landscape, the country's manufacturing
sector managed to expand for the ninth consecutive month in June. In addition,
new orders rose further and production capacity continued to improve.
Disbursed FDI also hit record highs during the first half of 2022 reaching USD
2.9bn in June, the highest monthly amount this year. Looking ahead, as
Vietnam's handling of the pandemic pays off, we expect the full reopening of
economic activities to continue to boost investment initiatives and
feasibility assessments for new projects in the second half of 2022.
(1)The Company was initially admitted to AIM in July 2006 and then moved to
the premium segment of the main board of the London Stock Exchange in March
2019.
(2)Source: OECD Report
(3)Source:
https://en.baochinhphu.vn/hsbc-upgrades-viet-nams-gdp-forecast-to-69-in-2022-111220706162459626.htm
(https://en.baochinhphu.vn/hsbc-upgrades-viet-nams-gdp-forecast-to-69-in-2022-111220706162459626.htm)
https://www.uobgroup.com/web-resources/uobgroup/pdf/research/QGO-3Q2022.pdf
Rise of the Retail Investor
As we reported in the Interim Report, as part of our rigorous market analysis,
in 2021 we commissioned an independent research firm to conduct a first of its
kind survey on the sentiment and behaviour of the growing retail investment
base in Vietnam. This emerged as the driving force of the equity market in
Vietnam over the pandemic years, as digitalisation of the onboarding process
for domestic investors, 'e-KYC', enabled close to 1.2 million Vietnamese to
open trading accounts during the calendar year. In the first half of 2022 a
further 1.8 million domestic accounts have been opened. In May alone 476,000
accounts were opened, the highest number in the stock market's 20-year
history.
In May 2022, we launched the fourth and final phase of the survey. 70% of the
survey's fourth phase respondents in May 2022 were F1+ investors - investors
who started trading a year before the survey's launch. The remaining 30% were
F0 investors, those who started trading within the past 12 months. Most
respondents throughout the four phases were white-collar office workers based
in Hanoi or Ho Chi Minh City with an average individual monthly income of
roughly USD 1,000. Interestingly, in the fourth part of the survey we found
that the average amount invested in stocks dropped by USD 2,000 lower than the
USD 9,900 average recorded over the previous 10 months, and about 30% lower
than the start of 2022. This corresponds to the 30% drop in average daily
trading volumes seen across the Ho Chi Minh City ("HOSE") stock exchange over
the last six months.
The global and local decline in equity prices over the last six months has
muted investor confidence in several sectors, including banking, insurance,
building materials, logistics, transportation, petroleum and oil, real estate,
and securities. The retail investors' view of securities is particularly
gloomy with just 7% of respondents considering investment in securities,
compared to a much higher 47% in August 2021. This trend can be linked to a
string of recent high-profile scandals involving real estate corporations and
stock market manipulation, along with tightened capital controls on the real
estate sector.
Many of the new investors are possibly waiting on the side-lines, and perhaps
waiting for clearer direction signals from the global economy with 42% of
recent respondents sharing that they are waiting to invest further compared to
just 19% in the first survey back in August 2021.
Nevertheless, despite these fluctuations, investors remain upbeat about their
returns after one year of investing. Across the four surveys, more than 40% of
respondents expect returns of between 11% - 20% and close to 40% expect
returns of 20% -50%. When it comes to deciding whether to invest, estimation
from market value and market index trends were the two most important sources
across the surveys, with analysis from securities companies and company
financial statements also frequently used. One constant across the four
surveys is the high frequency with which investors check the stock market
index. Over 80% of respondents said they check the market at least daily and
many check it several times per day.
What is clear from these surveys is that regardless of the market fluctuations
in Vietnam's stock market, retail investors will remain a key source of market
movement.
Liquidity
Eighteen months ago, the HOSE infrastructure struggled to cope with orders
beyond USD 700m a day. Quick fixes to the system and some interim software
upgrades expanded the capacity, and due to the rise of the retail investor
(see "Rise of the Retail investor" above) daily volumes surged to more than
USD 1.3bn, five times the levels of 2019. The HOSE infrastructure is now in
the process of being totally revamped, with faster settlement and greater
capacity coming ever closer.
Increased market liquidity in 2021 facilitated swift funding for last year's
tender offer for 30% of the Company's shares. Despite a 30% reduction in daily
liquidity over the last few months of the financial year, the portfolio
liquidity remains robust and 90% of the portfolio could be liquidated in less
than 30 days.
The portfolio's size and nimbleness as per our style of investment management
means that we can navigate across the spectrum of company sizes, and we
believe this has contributed to the outperformance of the Company versus the
index and peers. We have been able to take profit in sectors that surged last
year and move swiftly as market forces and economic mood changes.
The Fund is 70% invested in Large Cap stocks, above USD 1bn in market
capitalisation, and these have outperformed the small and mid-cap stocks for
much of the year. Last year we noted an interesting inversion in the relative
valuations of smaller stocks, driven in part by increased attention from the
growing domestic retail investor base. Three years ago, the smaller cap
stocks, as measured by the VN 70 index, traded at a P/E ratio level around 30%
lower than the larger cap stocks, as measured by the VN 30 index. During 2021
the ratio inverted with the VN70 stocks trading at a 30% premium to the VN 30
index in March 2021. In the year ended 30 June 2022, the ratio has inverted
once more, with the mid and small-caps sold off and now trading at a discount
to the larger-caps.
As of 30 June, the portfolio has about 6% in cash, which is slightly higher
than the usual 2%-3%, but provides some flexibility in taking advantage of
what we see as undemanding valuations for companies that we know well.
Although the Fund's investment policy does allow up to 20% of the assets to be
invested in unlisted or pre-IPO 'Private Equity' type deals, the Fund is
currently only invested in listed securities and all are valued as 'Level 1' -
refer to the Fair Value Information in note 12 of the Financial Statements
pages 68 to 69. We see this as a reflection of the opportunity set now and
believe liquidity has a premium that is not always reflected in the pricing of
private deals. Lastly, we are aware that the Fund has a formal continuation
vote in 2023, and we wouldn't want to set false expectations in the minds of
potential investee companies, nor do Board or shareholders in the Company wish
the disservice by tying their hands to a significant illiquid position should
the continuation vote not pass.
Resilient Macro
Resilience in the face of adverse conditions is an ongoing theme in Vietnam.
Not only did Vietnam maintain an enviable level of economic GDP growth of
approximately 3% per annum through the pandemic years, but also economic
growth has resumed to pre-pandemic levels quickly. Vietnam has seen resilient
Foreign Direct Investment ("FDI") disbursement, USD 19.7bn in 2021 and USD
10.6bn for the first six months of 2022. Vietnam has remained a very open
economy, and its overall trade reached more than USD 668bn in 2021,
representing more than 200% of GDP - levels seen by only a few countries
globally. The country has maintained its strong export growth during the first
half of 2022, increasing by 17% year-on-year, and although import growth was
16% year-on-year, the country managed to generate a Trade Surplus of USD 710m.
Retail sales also have recovered strongly from the lows of the pandemic
period, and in June 2022 were 27% higher than the previous year. The country
now has foreign reserves of more than USD 100bn. This is down 10% in the first
half of 2022 as the State Bank of Vietnam has intervened in the
foreign-exchange market to provide some stability. It is worth noting that the
Vietnam Dong has been relatively stable against the USD over the last five
years, particularly when contrasted against some other regional currencies
(see "Figure 1.1" below). However, in the first half of 2022 as the USD
strengthened, the Vietnam Dong weakened by 2.6%. This should be looked at in
the light of much sharper declines in several global currencies including the
'safe-haven' Yen, which has fallen by 20%, and the Euro and Sterling, which
are both down by about 10%. Often, a weakening currency can have inflationary
pressures, however, Vietnam runs a USD 40bn trade surplus with the US (a
strengthening currency), a USD 28bn trade deficit with China (whose currency
has weakened by 3.3% against the USD) and a USD 18bn trade deficit with South
Korea (whose currency has weakened by 7% against the USD), so in this regard
there is some natural hedging. On a broader front, inflation is increasing in
Vietnam and Core CPI rose to 2% year-on-year in June 2022 (see "Figure 1.2",
below). That said, inflation is not at the worrying levels seen in the US, UK
and Europe, in part due to the different driving forces in the economy (see
"Figure 1.3" below). An important differentiating factor between Vietnam and
some other emerging economies is in the energy mix. Vietnam's domestic
renewable sources of energy - hydropower, solar and wind - account for about
43% of its energy generation. It also has some domestic sources of Oil, Gas
and Coal, however it is a net importer of each of these sources of
hydrocarbon.
Figure 1.1: The Vietnam Dong has been relatively stable against the US Dollar
over the past 5 years
Figure 1.2: Inflation is picking up in Vietnam, but is still at manageable
levels
Figure 1.3: Vietnam is still an emerging economy, with different components to
its consumer price index
Responsible Investing
The Company is firmly focused on sustainability and has placed environmental,
social and governance ("ESG") principles at the heart of its investment
criteria for over a decade, having become an early signatory to the United
Nations Principles for Responsible Investing ("PRI") in 2009. The Company
received top grades in the report in 2020, the most recent year for which
scores have been published by PRI.
Each part of ESG is equally important. For Vietnam, the 'S' has been at work
in its society for many decades and the pandemic has further focused the
efforts of several of our portfolio companies on harmonising staff,
shareholders and society at large. 'G' has been a key pillar for VNH's
investment approach and we have been at the forefront of advocacy and training
for corporate governance at our investee companies since we were formed 16
years ago. Our CEO, Vu Quang Thinh, is a co-founder and member of the board of
the Vietnam Institute of Directors ("VIOD"), working as a lecturer for VIOD
courses and at other institutions about how to improve corporate governance
standards in Vietnam. We actively encourage our portfolio companies to give
more attention to investor relations and transparent reporting and have also
been advising some of them specifically on how to get the balance right in
aligning interests between staff and shareholders through the structure and
implementation of employee share option plans. The 'E' aspect of ESG has
rightly so taken centre stage in many investors' minds as well as those of
many Vietnamese. On the climate front, the Investment Manager and the Company
have both affirmed the Paris Agreement and our commitment to the Task Force
for Climate-related Financial Disclosure. Dynam Capital has also joined the
Asia Investor Group on Climate Change ("AIGCC") and intends to contribute more
to the advocacy of climate risk reporting. More details of this can be found
in the Sustainability Report.
Positioning and Core Themes
During the year, we sold 11 positions and added new 12 positions. We exited a
few smaller companies and selectively added to our positions in larger
companies, taking profit from a portion of our portfolio of banks, which had
risen by close to 100% in the previous year, and taking profit from Hoa Phat
Group, a leading steel maker which had also doubled in value the previous
year.
Our main investment approach remains focused on: industrialisation
(best-in-class manufacturers, international logistics); urbanisation
(purposeful real estate, transportation, clean energy and clean water); and
domestic consumption and its enablers (sustainable retail, domestic logistics,
products and finance). These themes are inter-linked, as industrialisation and
urbanisation foster further robust growth in GDP and domestic consumption, and
are all underpinned by the banking sector.
Industrialisation
Vietnam's pace of industrialisation continues to progress as it has done
dramatically over the past three decades. Last year, Vietnam overtook
Bangladesh to become the second largest garment producer in the world. It is
also very well-known as a major producer of footwear, furniture, agriculture,
and aquaculture, and less well-known but an increasingly key supplier of
hi-tech hardware and software to customers around the world. Recently on a
visit to the US, the Vietnamese Prime Minister met with the CEOs of several
large global technology companies, including Apple and Intel, who re-affirmed
their plans to produce more goods in Vietnam. Although Apple does not have its
own facilities in the country, it is umbilically linked to 35 key
manufacturers who are present. Following the PM's visit, Apple announced it
was moving more production, including the assembly of iPads, to Vietnam.
Although in the past we have invested in manufacturers, including garment
companies and seafood producers, we have chosen to obtain most of the exposure
to these themes during the past year through the business-to-business
'linkages', mainly through industrial parks and logistic companies. These
typically have a higher quality of earnings and higher return on equity than
the individual exporters. A core holding in this area is the leading shipping
company Gemadept ("GMD"), which at 8.5% NAV is the third largest position.
Urbanisation
Despite delays in domestic infrastructure expenditure (the 2022 disbursement
level is behind plan) and delays to Vietnam's metro systems becoming
operational (the HCMC metro is likely delayed by a further year until 2023) -
the pace of urbanisation is a fast one. Vietnam's urbanisation level in 2018
was about 36%, the level of Western Europe in 1945. According to a
forecast(1), its urban population is expected to reach 44% by 2030. We have
written in previous reports about the multiplier effect of investments in
domestic infrastructure. In May 2022, a new bridge across Ho Chi Minh City's
Saigon River was opened, and a short drive or walk across it connects
down-town District 1 to the Thu Thiem peninsular, a region already demarcated
to be a new 'metropolis'. Developments like this can lead to a dramatic
growth in the build-out of commercial and residential real-estate. The Company
has 14.9% exposure to the dynamic real-estate market through its real-estate
portfolio that includes 5.4% of NAV in Khang Dien House.
1 https://population.un.org/wup/Publications/Files/WUP2018-Highlights.pdf
(https://population.un.org/wup/Publications/Files/WUP2018-Highlights.pdf)
Domestic Consumerism
Vietnam's 'middle income' population is projected to expand at a rate of
18%(1) annually, adding a further 35 million people to this group of consumers
by 2030. The nature of the consumer continues to evolve. In the 1990s, for a
brand to be really successful it had to be foreign and manufactured overseas.
By the 2000s, locally manufactured global brands continue to dominate,
however, several niche local brands developed locally and owned by Vietnamese
businesses in sectors ranging from shampoos, soft drinks, sauces and
condiments to baked goods and coffee started to garner strong local appeal. In
a recent survey, it appears that in the 2020s Vietnamese consumers now prefer
and trust home-grown brands over foreign brands.
The portfolio has approximately 17.8% exposure to the domestic retail sector,
including PNJ, 8.1% of NAV, and Mobile World Group ("MWG"), 9.2% of NAV. The
physical retail components of both these companies will be impacted by
prolonged lockdowns, however, the digital online portions of these businesses
are performing extremely well. These well-managed businesses have emerged from
the pandemic with greater market share, and in the case of PNJ are seeing same
store growth and new store growth at levels higher than pre-pandemic.
Banks
VNH's allocation to banks was reduced from 31% at 30 June 2021 to 22% at 30
June 2022. Our underweight position, the index is at 33%, was due to
profit-taking in the sector in the second half of 2021 following the
significant gains booked in the previous financial year. Vietnamese Banks are
still benefitting from resilient Net Interest Margins ("NIM"), though they
face controls on credit growth by the State Bank of Vietnam ("SBV") which
issues a 'quota'. Key portfolio names in the portfolio include Sacombank,
5.3% of NAV; MBB, 5.3% of NAV; VP Bank, 4.6% of NAV; ACB, 2.8% of NAV; and
Vietin Bank ("CTG"), 2.4% of NAV.
Outlook
As we move into the second half of 2022, the global mood remains weak.
Although recessionary risks remain less severe for Asia than the West, a
global recession would hit Vietnam's export growth in 2023 and we will be
watching the implications closely, including how policy directions and actions
unfold. Trade is key to Vietnam's economy, especially given its more prominent
place on the global supply chain map - the country posted a trade surplus of
over USD 700m in the first six months of 2022. A global recession would not
only weigh in on the country's impressive exports and production growth but
could also impact its banking sector. On the positive front, the domestic
economy may benefit from an increased amount of government spending on
infrastructure, which has been under-budget in the first half of 2022.
Infrastructure expenditure has a multiplier effect on economic growth,
including accelerating the pace of urbanisation, and leading to a growth in
real-estate development and the growth in modern trade. Agile policy making
will be as important as ever. As the IMF recently reported(2) Vietnam's
handling of the pandemic and associated risks helped the country get through
the last two years, particularly its remarkable vaccination rollout, so with
rising retail sales, improving industrial production, and increasing foreign
investment, there's a lot to consider when it comes to Vietnam's monetary
policy and economic growth as the world evolves.
There are encouraging signs in the rebound and growth of domestic tourism in
Vietnam, with 60 million trips made in the first half of 2022, 40% higher than
the number made pre-pandemic(3). In May the remaining restrictions and
protocols put in place because of COVID-19 were lifted, and international
visitors started to return. As the Chairman mentioned in his Statement, the
Board of the Company were able to visit the team in Vietnam in June and see
the post-COVID-19 recovery for themselves.
North Asia has historically been a key source of international tourism for
Vietnam, and many of those countries are still imposing restrictions on travel
for their residents, particularly China, Taiwan, and Japan. We expect people
in the region would like their travel habits to normalise, though increased
costs of international flights, disruptions at airports, and rapid growth in
demand will bring about their own issues on the industry.
Many emerging and frontier markets are facing extremely testing times, mostly
because of imported inflation and supply chain disruptions. This can flow into
the lives of populations in other ways as unrest forces changes in
governments, although developing countries do not have a monopoly on this
behaviour. The Economist(4) listed the countries that are most at risk, and
Vietnam was not among them. Vietnam is still growing at high levels - back on
its 30-year trend of 6.5 to 7% GDP growth. While inflation will increase, the
forecast levels of approximately 4% do not look likely to cause financial
distress.
(1)
http://vids.mpi.gov.vn/Includes/NewsDetail/12_2016/dt_11220161027_9781464808241.pdf
(http://vids.mpi.gov.vn/Includes/NewsDetail/12_2016/dt_11220161027_9781464808241.pdf)
(2) Source:
https://www.imf.org/en/News/Articles/2021/03/09/na031021-vietnam-successfully-navigating-the-pandemic.
(3) Source: https://vietnamtourism.gov.vn/en/post/17504
(4) Source:
https://www.economist.com/emerging-market-indicators/2004/02/12/country-risk
(https://www.economist.com/emerging-market-indicators/2004/02/12/country-risk)
The war in Ukraine has obviously had a horrific direct impact in the lives of
millions of its citizens through loss of life, loss of home and livelihood.
The shadows of war have stretched further as the loss of Ukraine's grains and
fertiliser exports stress global food supply, and curtailment of Russian gas
could threaten Europe's energy security, particularly once the 40-degree
Celsius summer fades into memory. One consequence of this is the possibility
that European countries will reduce their energy consumption, leading perhaps
to a change in consumer and industrial demand and possibly favouring importing
finished products with cheaper overseas energy cost 'baked-in' rather than
intermediate goods that need energy-intensive processing. Another consequence
is that countries, such as Germany that have typically favoured renewable
energy sources, will be forced to turn on more coal fired power stations. This
will add fossil-fuel to the fire smouldering in some people's minds that
COP-26's pledges of 'Net-Zero by 2050' were unrealistic.
There is also an undercurrent of backlash against the emergence of ESG themed
investments and sustainability-linked investment policies. This began as some
concerns were raised on 'Green-Washing' by certain global asset managers but
may also have found resonance with certain industry leaders who question
whether a CEO should 'play God' in relation to moral and ethical
considerations related to finance. There is a danger that the baby is thrown
out with the bathwater, even at such an early stage of greater awareness of
ESG, and particularly the climate aspects, as parts of the world face
unprecedented and dangerously high daily temperatures. The Investment Manager
is of the opinion that responsible investing matters even more during these
times of global uncertainty. The Company has been a signatory to the United
Nations Principles for Responsible Investing for over 12 years, three quarters
of its life so far, and has set itself the task of 'Doing More, Measuring More
and Reporting More' on ESG issues. In 2021 the Fund's Board pledged its own
allegiance to the Paris Agreement and commitment to the TCFD in addition to
becoming a member of the Asia Investor Group for Climate Change ("AIGCC"). The
portfolio's carbon footprint is also 60% lower than the VNAS index. This has
been a result of the Fund's active management style in sector allocation and
selection of best-in-class companies. We report on our enhanced work related
to the climate aspects of the portfolio in the Sustainability Report.
As mentioned in last year's annual report, while our focus remains on
industrialisation, urbanisation, and domestic consumption, we also will be
eyeing emerging themes coming out of the pandemic. We are seeing, rapid moves
in digital transformation in Vietnam and are adding to our 'category killer'
stocks with 'rising stars' that may be beneficiaries of further digital
initiatives. Some of these include retailers focussing on digital consumer
electronic lifestyle products and services, and some are part of the
infrastructure for 5G and other technological developments. Our aim is to
position the portfolio for growth within a three to five-year investment
horizon. As always, this means looking through short-term noises and
volatility in search of longer-term value derived from robust compounding
growth of well-managed companies with proven sustainable business strategies.
Ten Companies by NAV as at 30 June 2022 (and as at 30 June 2021)
Top 10 companies as at 30 June 2022 Sector % NAV
FPT Corporation Telecommunications 11.5%
Mobile World Investment Corp Retail 9.2%
Gemadept Corp Industrial Goods and Services 8.5%
Phu Nhuan Jewelry JSC Retail 8.1%
Sacombank Banks 5.6%
Khang Dien House Real Estate 5.4%
Hai An Transport & Stevedori Industrial Goods and Services 5.4%
Military Commercial Bank JSC Banks 5.2%
Vietnam Prosperity JSC Bank Banks 4.6%
Vietnam JS Commercial Bank F Banks 4.0%
Total 67.5%
Top 10 companies as at 30 June 2021 Sector % NAV
FPT Corporation Telecommunications 11.0%
Vietin Bank Banks 9.6%
Hoa Phat Group JSC Industrial Goods & Services 9.4%
VP Bank Banks 7.3%
Military Commercial Bank JSC Banks 6.4%
Vinhomes Real Estate 6.1%
Mobile World Investment Corp Retail 5.0%
Phu Nhuan Jewelry JSC Retail 4.9%
Khang Dien House Real Estate 4.6%
Sacombank Banks 4.5%
Total 68.8%
Dynam Capital, Ltd.
30 September 2022
Top Five Portfolio Companies
FPT Corp ("FPT")
As at 30 June 2022
VietNam Holding's investment
Date of first investment 10 December 2012
Ownership 0.4%
Percentage of NAV 11.5%
Internal rate of return (annualised) 26.6%
Share information
Stock Exchange HOSE
Date of listing 13 December 2006
Market capitalisation (USD million) 4,062
Free float 84.4%
Foreign ownership 49%
Financial indicators (as at 31 December) 2021 2020
Capital (USD million) 390.1 339.6
Revenue (USD million) 1,533.2 1,292.3
EBIT (USD million) 232.8 199.5
NPAT (USD million) 229.9 191.6
Diluted EPS (VND) 4,349 4,120
Revenue growth 18.6% 7.6%
NPAT growth 20.0% 13.1%
Gross margin 38.2% 39.6%
EBIT margin 15.2% 15.4%
ROE 26.7% 25.0%
D/E 0.94 0.68
About the Company
Founded in 1988, FPT is a software developer that provides of a range of IT
and telecom services, including broadband internet. As it is also a brand-name
distributor and retailer of IT and communication products, the company has
held the leading position in the local IT industry in Vietnam since 1996 and
has been applauded for its educational programs, which offer learning
activities spanning various levels for more than 74,313 people.
With 178 offices and branches across 26 countries, as of the end of 2021, FPT
has transformed itself from an IT services company to an end-to-end digital
transformation service provider. Its digital transformation services' revenue
reached a record USD 237m in 2021. The company also owns telecoms
infrastructure with a main North-South link, which has recently been upgraded
from copper wires to fiber-optic cables, and today continues to focus on
expanding its overseas markets.
As of 31 December 2021, FPT was managing seven subsidiaries and 37,180
employees, including 24,068 engineers and technology experts.
Recent Developments
Despite Vietnam's 2021 Covid-19 lockdown, FPT still managed to post a strong
financial performance with revenue and profit after tax of USD 1,533.2m and
USD 229.9m, a growth of 18.6% and 20.0% YoY, respectively.
FPT Corp ("FPT")
Recent Developments
Technology sectors are the main contributor to its revenue and profit before
tax with the share of 58% and 44%, respectively. Specifically, the global IT
services segment remains the key driver of FPT's performance, and the US
market has shown a particularly strong result with revenue growth reaching 52%
in 2021. Additionally, the newer revenue stream from Digital Transformation
services increased by 72% in 2021 - the highest rise in the last four years.
Sustainability Strategy
FPT has developed a sustainable development orientation strategy to ensure the
balance of three factors: economic development, community support, and
environmental protection. In terms of objectives and activities, FPT referred
to Vietnam's action plan to implement the 2030 commitments for sustainable
development and GRI Sustainability Reporting Standards. In 2021, FPT deployed
the digital vaccination program - FPT eCovax - helping enterprises ensure
business continuity during the pandemic. FPT also spent VND 69.5bn on
activities to support Covid-19 prevention.
ESG Achievements
FPT places a strong focus on sustainability and has identified eight of the
UN's Sustainable Development Goals ("SDGs") that the company can most directly
engage with: Quality Education; Gender Equality; Affordable And Clean Energy;
Decent Work And Economic Growth; Industry, Innovation, and Infrastructure;
Responsible Consumption And Production; Climate Action And Partnerships For
The Goals.
In 2022, FPT published its very first environmental, social and governance
("ESG") report for the year 2021, further affirming the company's commitment
to help investors, shareholders and other stakeholders access transparent
information on its activities. FPT has improved its gender equality in the
workplace by increasing the number of female managers and employees by 17.5%
and 21.4% respectively. The company was also highly recognised for its
contribution to Covid-19 relief in Vietnam by opening the Hope Boarding School
for children orphaned during the pandemic.
ESG Challenges
FPT has set targets for building green office buildings but has not yet
started measuring its total carbon emissions. In addition, as human resources
is a key success factor for IT companies today, FPT will need to find ways to
attract and retain talent in the face of industry competition.
MWG JSC ("MWG")
As at 30 June 2022
VietNam Holding's investment
Date of first investment 11 September 2017
Ownership 0.3%
Percentage of NAV 9.2%
Internal rate of return (annualised) 13.5%
Share information
Stock Exchange HOSE
Date of listing 14 July 2014
Market capitalisation (USD million) 4,495
Free float 76.5%
Foreign ownership 49%
Financial indicators (as at 31 December) 2021 2020
Capital (USD million) 306.5 196.3
Revenues (USD million) 5,285.1 4,702.5
EBIT (USD million) 253.4 226.0
NPAT (USD million) 210.7 169.8
Diluted EPS (VND) 6,897 5,676
Revenue growth 12.4% 6.7%
NPAT growth 24.1% 2.6%
Gross margin 22.5% 22.1%
EBIT margin 4.8% 4.8%
ROE 27.3% 28.4%
D/E 1.21 1.08
About the Company
Established in 2004 with only one mobile phone store in Ho Chi Minh City, MWG
grew rapidly on the back of private equity involvement prior to its listing in
the middle of 2014.
As of December 2021, MWG owned 5,306, stores under six brand names. These
include: The Gioi Di Dong, mobile phone retail chain; Dien May Xanh, consumer
electronics retail chain; Bach Hoa Xanh, grocery retail chain; Topzone, an
Apple Authorized Reseller model; Bluetronics, consumer electronics retail
chain in Cambodia; and An Khang, pharmaceutical retail chain. In 2021, MWG
upheld its position as the largest retailer in Vietnam with USD 5.3bn in
revenue and USD 210.7m in net profit. As of May 2022 per its management, MWG
had a 60% share of the domestic mobile phone market, a 50% share in the
consumer electronics market, and a vision to occupy a 10% share in the USD
60bn grocery market over the next few years.
As of 31 December 2021, MWG owned ten subsidiaries and employed 74,111 people.
Recent Developments
In 2021, MWG posted net revenue of USD 5,285m and net profit after tax of USD
210.7m, a growth of 12.4% and 24.1% YoY, respectively. Despite the Delta
outbreak, which led to the lockdown of Ho Chi Minh City in the third quarter
2021, the Dien May Xanh chain continued on as the key growth engine of the
Company.
In addition, grocery chain Bach Hoa Xanh witnessed a 33% growth in revenue,
thanks largely to the opening of 233 stores in 2H2020 and 387 in 2021.
However, as the same-store sales growth is flat for 2021 it remains
loss-making for the year as a whole. Nonetheless, the company has been
remodeling its store layout and operational structure, and there are early
signs of improvement in the first six months of 2022 with an expectation of a
break-even point by December 2022.
Sustainability Strategy
MWG's sustainable development strategy puts its employees as the first
priority, followed by customers and then shareholders. The
performance-linked ESOP programs of MWG has helped retain talented people in
the company for several years and has motivated some of the company's
ambitious top managers to seek penetration into new market segments. The
company has a strong focus on internal training and has 44 trainers conducting
monthly courses for its staff. In 2021, the average training time per MWG
employee reached 29.5 hours with an average satisfaction level of an
impressive 97.4% for these internal training courses.
ESG Achievements
MWG has made significant progress in its ESG activities by improving its Board
structure, estimating and reporting its total carbon emissions, and applying
relevant energy-saving solutions across its chain of stores. The company also
disclosed more social and environmental indicators in its 2021 annual report.
In addition, MWG received an HR award from Anphabe for best working places.
ESG Challenges
As many retailers in Vietnam are starting to build their brands around
sustainability concepts, MWG needs to be more receptive to this trend and
operate their store chains in a more eco-friendly manner, including
encouraging customers to reduce the volume of single-use plastic bags. The
company also needs to apply the GRI standards in its sustainability report.
GMD JSC ("GMD")
As at 30 June 2022
VietNam Holding's investment
Date of first investment 16 August 2019
Ownership 1.6%
Percentage of NAV 8.5%
Internal rate of return (annualised) 35.2%
Share information
Stock Exchange HOSE
Date of listing 06 May 2002
Market capitalisation (USD million) 673
Free float 95.9%
Foreign ownership 46%
Financial indicators (as at 31 December) 2021 2020
Capital (USD million) 129.5 130.6
Revenue (USD million) 137.8 112.9
EBIT (USD million) 29.8 20.4
NPAT (USD million) 31.0 19.1
Diluted EPS (VND) 1,869 1,149
Revenue growth 22.1% -1.0%
NPAT growth 62.3% -27.9%
Gross margin 35.6% 36.4%
EBIT margin 21.6% 18.1%
ROE 10.6% 6.7%
D/E 0.27 0.29
About the Company
Established in 1993 by the privatisation of a state-owned company, Gemadept
("GMD") operated as a maritime agent and freight forwarder in its early days.
After 29 years of operation, the company has become one of the largest seaport
operators in Vietnam, owning a seaport system that includes dry bulk ports,
ICDs, river ports and now a deep-water port.
GMD's seaports are in two main locations: the Hai Phong port zone in the North
and the Cai Mep- Thi Vai port zone in the South. In the North, GMD owns Nam
Hai port, Nam Hai Dinh Vu port, and Nam Dinh Vu port - the latter of which is
the biggest port with a designed capacity of 1,000,000 TEUs per annum.
Furthermore, in the South, GMD now owns its first deep-water port, Gemalink,
with a design capacity of 1,500,000 TEUs for Phase 1. The commencement of
Gemalink in 2021 marked a turning point for GMD to transform itself into a
deep-water port operator, which is expected to play a more important role in
the regional trade flows in Southeast Asia.
Recent Developments
Despite the Delta wave, GMD still recorded strong revenue and profit growth of
22.1% and 62.3%, respectively, in 2021 thanks to the improvement of ports in
Hai Phong. According to Hai Phong's port authority, GMD's ports recorded a
double-digit growth in container throughput volume, mainly driven by Nam Dinh
Vu port in 2021. In 1H2022, they accounted for an 18% market share in terms of
container throughput volume in the Hai Phong port zone.
Gemalink port, the biggest deep-water port in its zone, is expected to be the
key growth driver for GMD over the next four years. According to the Vietnam
Seaports Association, Gemalink port accounted for 25.3% of the market share in
terms of container throughput volume in the Cai Mep- Thi Vai port zone in the
first five months of 2022. This has been the fastest growing region in Vietnam
in terms of container throughput volume over the past five years.
GMD JSC ("GMD")
Sustainability Strategy
GMD defines its mission as to promote economic flows and create added value
for the country, customers and partners through a chain of outstanding
services and solutions, in which ESG factors are the core foundation for
long-term development. The management team has shown determination in
developing a feasible ESG strategy and roadmap for the company.
ESG Achievements
GMD outperforms its peers in Vietnam's logistics sector when it comes to ESG
activities. The company has made a lot of efforts to align its business with
the UN's 17 SDGs, especially SDG number 9 - Build Resilient Infrastructure:
Promote Inclusive and Sustainable Industrialisation, and Foster Innovation -
with its extensive 'green' smart port ecosystem, as well as SDG number 13 -
Climate Action - with its many initiatives aimed at contributing to Vietnam's
net-zero commitment. The company has a strong organisational culture and an
extensive training program for its employees.
ESG Challenges
GMD has not yet disclosed its total carbon emissions. Also, it will take time
and significant expenditure for GMD to receive international certificates for
its entire ports and logistics system. GMD also owns a non-core rubber
plantation project in Cambodia that is a potential ESG concern, however, in
recent meetings with the company, its senior management have re-confirmed
their intention to divest this project in 2023.
Phu Nhuan Jewelry JSC ("PNJ")
As at 30 June 2022
VietNam Holding's investment
Date of first investment 8 December 2009
Ownership 0.8%
Percentage of NAV 8.1%
Internal rate of return (annualised) 30.8%
Share information
Stock Exchange HOSE
Date of listing 23 March 2009
Market capitalisation (USD million) 1,338
Free float 83.4%
Foreign ownership 49%
Financial indicators (as at 31 December) 2021 2020
Capital (USD million) 97.8 98.6
Revenue (USD million) 848.3 766.0
EBIT (USD million) 71.9 53.9
NPAT (USD million) 44.2 46.3
Diluted EPS (VND) 4,197 4,308
Revenue growth 10.7% 3.5%
NPAT growth -4.5% -10.1%
Gross margin 18.2% 19.4%
EBIT margin 8.5% 7.0%
ROE 18.3% 21.8%
D/E 0.45 0.35
About the Company
Established in 1988, PNJ is now the leading jewelry producer and retailer in
Vietnam with an estimated 56.5% market share in the branded jewelry retail
segment. Its vision is "to become a leading jewelry manufacturer and retailer
in Asia, to honour beauty and reach a global market".
In 2021, PNJ owned 342 stores across Vietnam under the brand names of PNJ,
CAO, PNJ Silver, and PNJ Style. In addition to its nationwide distribution
network, PNJ also operates two factories in Ho Chi Minh City and Long An with
a capacity of six million jewelry items per year.
As of 31 December 2021, PNJ employed 6,473 people, of which 61.7% are female.
Recent Developments
2021 was a difficult year for PNJ due to the full-fledged lockdown in HCMC
from June to October, which forced its shops to close. As a result, the
revenue 'only' increased by 10% while the NPAT dropped by 4.5%. Nevertheless,
PNJ demonstrated a remarkable recovery in the first six months of 2022 with
record-breaking revenues and net profit of USD 782m and USD 46m, respectively.
Retail jewelry is the key driver of this stellar performance with a
contribution of 58.6% and an excellent growth rate of 61.9%.
Sustainability Strategy
Sustainable development is integrated in PNJ's culture, activities and
business strategy, not least given its business philosophy of "Integrate the
customer and society benefits into the company's interests". In addition,
PNJ's focus on 'green' technologies and projects - for example, by maximising
its fuel economy and participating in reforestation projects and clean water
development - has helped it become one of the top-10 sustainable development
businesses in Vietnam both in 2020 and 2021.
ESG Achievements
PNJ is the company with the highest ESG rating score in VNH's portfolio and is
widely recognised for its efforts in improving its ESG performance over the
years. In 2021, the company created an ESG committee as a sub-committee of its
Board of Directors and continues to demonstrate its ambition to be a leading
ESG advocate among public companies in Vietnam. The company also won the top
100 Sustainable Companies in Vietnam awarded by the Vietnam Council for
Business Development in recognition of its efforts to promote gender equality
in the workplace.
ESG Challenges
PNJ has not yet disclosed its total carbon emissions. The company also needs
to further improve and disclose its material sourcing material sourcing policy
and develop a roadmap for becoming certified as a member of the Responsible
Jewelry Council.
Sacombank ("STB")
As at 30 June 2022
VietNam Holding's investment
Date of first investment 24 July 2020
Ownership 0.4%
Percentage of NAV 5.6%
Internal rate of return (annualised) 1.6%
Share information
Stock Exchange HOSE
Date of listing 13 July 2006
Market capitalisation (USD million) 1,741
Free float 93.1%
Foreign ownership 22%
Financial indicators (as at 31 December) 2021 2020
Capital (USD million) 810.3 816.7
Total Operating Income (USD million) 761.0 748.2
NPAT (USD million) 146.6 116.2
EPS (VND) 1,630 1,248
TOI growth 1.7% 18.5%
NPAT growth 26.2% 9.7%
ROA 0.7% 0.6%
ROE 10.8% 9.6%
CAR 9.9% 9.5%
NPL 1.5% 1.6%
Equity multiplier 15.2 17.0
About the Company
In 1991, STB became the first commercial joint-stock bank to be established in
Ho Chi Minh City and in 1996 it became the first bank to issue shares to the
public. By 2006 it was the first commercial joint-stock bank to be listed on
the Ho Chi Minh Stock Exchange. During the five-year period from 2006 to 2011,
the bank recorded a compound annual growth rate ("CAGR") of 34.5% in its net
profit and became one of leading private banks in the Southern Vietnam. In
2012, however, it was subject to hostile changes in the shareholders and
management, followed by a merger with a weak bank in 2015, which put the
brakes on its rapid growth. After six years of restructuring, STB has
effectively dealt with most of the consequent legacy issues and is
accelerating the restructuring process. In 2022, STB became the tenth largest
bank by assets in the industry and today runs the most extensive branch
network among private banks in the country with 566 branches and transaction
points. The bank's net profits grew by a CAGR of 30.4% from 2017 to 2021 and
it is expected to enjoy significant growth over the coming years by which
stage it is should have completely resolved all its legacy issues. Despite
many headwinds, STB successfully implemented Basel II from January 1, 2020,
showing its commitment towards prudent risk management practices.
STB has won many accolades, including "Best bank with foreign currency
service" from Global Banking & Finance Review (UK), "Vietnam's best bank
for medium and small sized enterprises" from Asia Money, "Vietnam's bank with
initiative in digital banking" from The Asian Banking & Finance, as well
as "Best Workplaces in Asia in 2021" from HR Asia.
Recent Developments
In 2021, STB's consolidated NPAT increased 26.2% YoY to USD 146.6m, with total
credit growing 14% YoY. Non-performing loan ("NPL") ratio improved to 1.5% of
total credit from 1.6% a year before, while the loan-loss-buffer enhanced to
121% of NPLs from 94% in 2020. It has continued to prioritise bad debt
handling, thus the proportion of the legacy assets to total assets declined to
6.7% in 2021 from 29.3% in 2016.
Sustainability Strategy
STB has pursued a sustainability-oriented corporate governance model. This
objective has helped the bank face difficulties and challenges in the past. In
2021, it continued to meet all the criteria of the Corporate Sustainability
Index ("CSI") and was honored as the Top 3 of the "most favorite public
companies" of investors in 2021. STB has implemented environmental and social
management system ("ESMS") in compliance with international standards.
According to Directive No 03/CT-NHNN on promoting green credit growth, which
was first piloted for small and medium size enterprises, STB was the first
private bank to implement this program alongside three of Vietnam's
state-owned commercial banks, including Vietcombank, BIDV and Agribank.
STB has been arranging loans with preferential interest rate for individuals
and enterprises whose business and production activities either 'cause no
harm' or 'protect natural resource, environment and society'. It has also
coordinated with several business associations to participate in specialised
seminars (for corporate customers accessing green credits) as well as more
modern bank products and services.
ESG Achievements
STB has improved its sustainability report by following the GRI standards. In
addition, the company's Board of Directors has created committees and councils
in compliance with the law and in reference to best practices on corporate
governance. Furthermore, the bank has documented its environmental and social
risk appetite and based on that developed a rigorous environmental and social
impact assessment process. The bank also has carried out an employee
satisfaction survey.
ESG Challenges
STB is aware of the national net-zero commitment and reports its key
environmental performance indicators in its annual report, however, it could
do better by estimating and disclosing its total carbon emissions and consider
the application of the Task Force on Climate-related Financial Disclosures
("TCFD") framework to integrate climate into its governance and risk
management framework.
Sustainability Report
2021 witnessed significant changes in Vietnam's policy commitments towards a
"clean, green and beautiful" Vietnam. At the United Nations' Climate Change
Conference in November 2021 ("COP26"), Vietnam's Prime Minister Pham Minh
Chinh announced that the country would pledge to achieve net zero carbon
emissions by 2050 and phase out coal power generation by 2040. This strong
commitment could be seen as a milestone for Vietnam paving a way for the
transformational interventions needed to address climate change challenges,
including the development of cleaner transportation and energy systems.
Since COP26, the government has taken firm steps in building a legal corridor
for responding to climate change issues and implementing the commitments made.
In particular, is the government's issuance of Decree No. 06/2022/ND-CP on
January 07, 2022, which includes regulations on the reduction of greenhouse
gas emissions and protection of the ozone layer. This new legislation
specifies how companies will be given guidance on the scheme and undergo a
pilot operation that is followed by a carbon credit trading market due to be
formally launched in 2028.
Additionally, in June 2022, the government approved the circular economy
development scheme and set several ambitious targets for the period ahead. The
scheme aims to reduce the intensity of greenhouse gas emissions per GDP by at
least 15% by 2030 and supports the net-zero emissions target by 2050. By 2025,
the country also aims to reuse, recycle, and treat 85% of plastic waste
generated, thereby reducing 50% of the plastic waste in the seas and oceans as
well as that of the volume of non-biodegradable plastic bags and disposable
plastic products that are used in daily life.
In regards to clean energy development, the draft National Power Development
Plan (draft PDP VIII) for the period 2021 to 2030, with a vision to 2045, has
been revised significantly in terms of the mix of energy sources needed to
align with Vietnam's commitment to be net-zero by 2050. The proposed structure
includes 50.7% share of wind and solar power and only 9.6% from coal power by
2045. If Vietnam achieves the goal, it will reclaim its crown as Asia's
renewable energy powerhouse.
As the fourth COVID-19 wave spread across Vietnam in 2021, we were able to
witness how Vietnamese enterprises made tremendous efforts to survive through
the most difficult time of the pandemic. From quickly digitalising their
business operations to implementing the "3 on-site" model at factories, as
well as collaborating with the authorities by organising mass vaccination
programs for their employees and making substantial donations to COVID-19
relief activities. We consider these actions to be a great reflection of the
"S" in environmental, social and governance ("ESG") activities in Vietnam.
Indeed, it also shows how Vietnam is regaining its reputation as a pandemic
"success story" as it climbed to second place in the Nikkei's COVID-19
Recovery Index in July 2022. The country has now fully reopened its borders
and we immediately saw increased trade and tourist flows, as well as rising
levels of foreign direct investments, manufacturing outputs, and the rate of
new construction. In the second quarter of 2022, Vietnam's GDP expanded 7.72%
year-on-year, exceeding market expectations and ranking significantly higher
than other nations around the world, many of which saw their economies shrink
due to the war in Ukraine and all its implications.
VNH is a long-term, responsible investor, and ESG integration lies at the
heart of our investment philosophy. We have been able to see the tremendous
evolution of ESG in the past ten years with a wide variety of metrics,
methodologies and approaches being tested and revised. While earlier
approaches used exclusionary screening and value judgments to shape their
investment decisions, ESG investing has been changed over time by shifts in
demand from the finance ecosystem, driven by both the search for better
long-term financial value and a pursuit of better alignment with values and
current socio- environmental challenges(1).
Also, we see particular interest in ESG coming from millennials - the
investors and decision makers of the future who account for over a third of
the global population. According to a 2020 report on millennials and ESG
investing by MSCI, millennial investors have contributed USD 51.1bn to
sustainable funds in 2020, compared with less than USD 5bn five years earlier.
This momentum is expected to continue over the next decade as 75m millennials
inherit an estimated USD 30tn to USD 68tn from their parents.
Over the past year, we have navigated ourselves along the ESG journey by
looking at what we have achieved and what we can do better, especially in
terms of ESG assessments and engagement with companies. We refined our ESG
policy and exclusion screening list and added more climate change commitments.
We also applied the Task Force on Climate-related Financial Disclosures
("TCFD") in our reporting, developed our own ESG rating framework, and engaged
more with companies on ESG topics.
(1)OECD, 2020
To advance our commitment to responsible investment, we have identified key
areas that we need to continue to progress in the next year:
· ESG integration: Continuously improving the quality of our in-house
ESG research with a more holistic assessment framework and ESG rating by
companies, with reference to specific industry and sector guidelines;
· Company engagement: Continue to make progress in our engagement
with companies on ESG topics, tracking their achievements and initiating
collaborative engagement with other investors; and
· Advocating the adoption of ESG standards and best practices among
the Vietnamese business community, with a strong focus on improving corporate
governance, ESG reporting and identifying appropriate decarbonisation
strategies.
ESG Management System
Our ESG Management System is a customised set of policies, procedures, tools
and reporting criteria designed to identify, assess, manage and disclose
information on ESG matters. We use this to help us both choose the right risks
and take advantage of the opportunities that they present. Furthermore, in
considering the activities of portfolio companies, we seek to ensure that our
decisions lead to more positive impacts.
The ESG Management System has been developed by our Investment Manager to:
· integrate ESG issues into every step of the investment process:
initial screening, due diligence, investment decision making and monitoring;
· provide a framework for monitoring and reporting on ESG aspects to
stakeholders; and
· work in partnership with our portfolio companies to help them
identify and implement ESG opportunities, creating sustainable enhancement to
their overall financial performance.
Our approach to ESG integration is based on the following principles:
· Investors not only have the power but also a responsibility as
stewards to drive and help create change;
· ESG research can provide unique insights not available in pure
fundamental approaches;
· ESG integration leads to better-informed investment decisions; and
· Active ownership, advocacy, and engagement on ESG issues can reduce
the risk of value destruction.
Climate Change and the ESG Agenda
According to the most recent report by the World Bank, Vietnam's 100m people
are among the most vulnerable in the world to climate impacts, facing hazards
along the country's 3,260-km long coastline and extensive low-lying regions.
The country was estimated by the World Bank to lose about USD 10bn in 2020, or
3.2% of its GDP to climate impacts. By 2050, the costs to the economy
generated by climate change could total as much as USD 523bn; therefore,
investments to address climate impacts are a priority.
At COP26, Vietnam made a strong commitment to achieve the net-zero target by
2050, and since then the government's efforts in changing its energy
strategies and relevant policies have shown the country's willingness to
address climate change issues. As a long-term investor focusing solely on the
Vietnamese market, we strongly support the country's government and business
community in addressing climate change and the socio-economic effects. During
the financial year, our Investment Manager has been actively contributing to
the national and regional dialogue on driving forward the net-zero transition.
The Investment Manager provided insights related to Vietnam's power sector for
the report "Power of ASEAN: Accelerating clean energy in Vietnam and
Indonesia" published by the Asia Investor Group on Climate Change, as we are a
member.
Through the Investor Climate Action Plans ("ICAPs")' Expectation Ladder and
Guidance, which was co-created with Asia Investor Group on Climate Change
("AIGCC"), we were able to position ourselves in the race to net-zero for
investors and develop a pathway to progress in the mid to long-term. Based on
the ICAPs, in late 2021 we identified ourselves to be between Tier 4 and Tier
3, as:
(i) We have integrated climate risks into the overall risk assessment
framework and regularly monitored portfolio climate risks;
(ii) We do not invest in companies with more than 25% of revenues from
fossil fuel; and
(iii) Our Investment Manager is a member of AIGCC and has sent its staff on
climate change training. By June 2022, we have been able to move to Tier 3 by
conducting detailed scenario analysis for the portfolio and assessing the
physical and transition risks, using these results to assist with for current
and future investment decisions. We believe VNH is now heading towards Tier 2.
Investor Climate Action Plans (ICAPs) Expectation Ladder(1)
Tier 4 Tier 3 Tier 2 Tier 1
Measure portfolio carbon emissions Align portfolio emissions reduction target with domestic policy goals or NDCs Align portfolio emissions reduction target with 1.5ºC and global net-zero Align portfolio emissions reduction target with 1.5ºC and global net-zero
emissions by 2050 emissions by 2050 or sooner Set intermediate targets covering all assets every
5 years using recognised methodologies and frameworks for setting,
assessing, reporting, and verifying performance
Strategy
Establish a formal policy on integrating climate change into: Commit to increasing investments in appropriate clean energy and low carbon Establish a formal investment policy on fossil fuels and other high impact Eliminate all investments in thermal coal, tar sands and Arctic drilling
opportunities activities, such as deforestation and biodiversity loss, that: ˙aligns with a Define a strategy for all high emitting sectors
- investment analysis net-zero target ˙includes an explicit commitment to phase out exposure to
fossil fuels (either through engagement or divestment) in line with
- decision-making science-based net-zero pathways ˙aligns with just transition principles
Develop and start implementing a recognized option strategy for at least one
- investment manager selection and appointment portfolio or asset class
Risk Management
Undertake portfolio climate risk assessment Regularly monitor portfolio Conduct a 1.5ºC and 2ºC scenario analysis including transition and physical Use scenario analysis and stress testing to: Explicitly incorporate net-zero scenario analysis.
climate risks including physical risks risks, using a recognised methodology Revise and update this analysis annually
- assess the impacts of physical and transition risks on the portfolio
- inform current and future investment decisions
Asset allocation
Invest part of the portfolio in 2ºC aligned products Invest part of the portfolio in 1.5ºC aligned companies, products, and Incorporate climate change into strategic asset allocation and invest in Invest (and grow the proportion annually) in 1.5ºC aligned companies,
projects 1.5ºC-aligned companies, products, and projects in multiple asset classes. products, and projects in all asset classes.
Additional target setting
N/A Set Scope 1 and 2 decarbonization targets for your own operational emissions Implement explicit net-zero aligned targets for clean energy and low carbon Set 1.5ºC targets in all assets classes where recognised methodologies
investments in each asset class Set Scope 3 decarbonization targets if they exist Establish net-zero-aligned targets for high impact sectors Set
are material i.e. >40% of emissions of underlying assets intermediate targets that enable progression and assessment of portfolio
emissions reduction in line with achieving net-zero emissions
(1)AIGCC, 2021
Climate Change and the ESG Agenda
Climate change is also a main topic for engagement with companies in our
portfolio. In support of the Government's Decree No. 06/2022/ND-CP on
regulating GHG mitigation and ozone layer protection, the Investment Manager
successfully hosted the webinar "Heading Towards Net-zero Targets and
Corporate Strategies" in March 2022 with representatives from 70 companies and
organisations in Vietnam in attendance. Through the timely webinar, the
Investment Manager was able to keep portfolio companies updated about the new
legislations relevant to climate change in Vietnam and provide them with
technical expertise to develop their own decarbonisation roadmaps. The webinar
received wide attention from both the business and non-profit sectors, and in
addition to its initial objectives, was able to broaden the discussion to
explore how the Vietnamese business sector can contribute to the national
commitment of reaching net zero by 2050.
As we transition to a net-zero world, VNH has identified three focus points
for climate change over the next two years:
· Continue to measure and track the portfolio's carbon footprint to
identify carbon-intensive sectors and integrate climate risks and
opportunities into the Company's broader risk management framework;
· Improve upon best-practice for climate related disclosures for
investment companies by following the guidelines of the TCFD disclosures, even
though VNH is technically out-of-scope for this; and
· Encourage more companies in the portfolio to measure their total
carbon emissions and consider a decarbonisation roadmap.
VNH's TCFD Report
This year we analysed the portfolio in greater depth in terms of the physical
and transition risks, and employed VNEEC, a Vietnamese environmental
consultant, to estimate total carbon emissions of all listed investee
companies as of 31 December 2021. This was followed by an assessment of the
portfolio's climate risks including its alignment with the Paris Agreement
goals, which was based on a scenario approach with implied temperature rise
metrics. This analysis provides a greater understanding of our portfolio risk
from a climate perspective, and is also useful for our company engagement
program. Our response to the core elements of the TCFD recommendations are
summarised in the following sections.
Governance
In 2021, VNH's Board announced its commitment to both the Paris Agreement and
the TCFD's risk, governance and reporting recommendations. During the Annual
General Meeting in 2021, the Board also endorsed a belief statement for
climate, which was later published through media releases and via the
Company's website.
The Company's ESG Committee has been working closely with the Investment
Manager to further develop its investment strategy and incorporate
climate-related risks and opportunities into the investment process and risk
management.
Sustainability matters are incorporated in its reports to investors. In
addition, the Chairman of the ESG Committee and the Managing Directors of the
Investment Manager have attended cross-industry seminars and training in both
UK and Asia on climate and sustainability issues, where we have been
advocating for greater adherence and involvement from peers. The Investment
Manager also promotes and supports climate initiatives through industry bodies
such as, the AIC, the Vietnam Institute of Directors ("VIOD"), the Singapore
Institute of Directors and the AIGCC.
Strategy
As Vietnam companies are at a very early stage to incorporate climate change
into their business strategies, in the short to medium-term (2021 to 2025), we
continue to prioritise our engagement strategy to raise portfolio companies'
awareness of climate risks and the energy transition, as well as provide them
with guidelines on how to measure their total carbon emissions and adopt
low-carbon technology.
We identify the physical risks, for example, acute weather events and
transition risks, including policy, legal and market risks, for the sectors
and industries that surround our core target investment themes. These include
industrialisation, urbanisation, and the domestic consumer. Within the sectors
and industries, we research, analyse, and prioritise the best-in-class
companies in terms of their adoption of technology solutions to lower carbon
emissions and the provision of disclosures on carbon footprint in their annual
reports. We consistently favour companies exhibiting or developing strong
climate-resilient strategies.
As Vietnam companies are at a very early stage to incorporate climate change
into their business strategies, in the short to medium-term (2021 to 2025), we
continue to prioritise our engagement strategy to raise portfolio companies'
awareness of climate risks and the energy transition, as well as provide them
with guidelines on how to measure their total carbon emissions and adopt
low-carbon technology.
Strategy
Based on the heat map developed by the United Nations' Environment Program
Finance Initiative's TCFD banking program, which assesses the sector
transition risk exposure in terms of direct and indirect emission costs, low
carbon capital expenditure and change in revenue of the majority of VNH's
portfolio in 2021 (59.1% of the NAV) is in sectors with the "Moderate" impact
rating. Additionally, 37.5 % of the portfolio in 2021 is allocated to
financial services companies, which fall under the Services and Technology
category with the "Low" impact rating. In 2021, VNH did not allocate any
investment in the Oil and Gas and Power Generation companies, and thus was not
exposed to any "High" impact sectors.
In terms of implied temperature rise, based on the calculation of VNEEC, the
2021 portfolio of VNH is consistent with a 1.81(0)C temperature rise scenario
and aligned with the fair share emission budget by the Climate Action Tracker.
However, the portfolio is not yet fully aligned with the domestic pathway in
the net-zero by 2050 scenario that Vietnam is now committed to.
Risk Management
The ESG Committee reports to the Board of the Company and liaises with the
Audit and Risk Committee and the Investment Manager to incorporate climate
risks into the overall risk management framework (see pages 32 to 34).
Climate risk assessment is integrated by the Investment Manager into all
stages of investment processes: initial screening, due diligence, investment
decision and monitoring. The risks are regularly discussed during meetings of
the Investment Committee and the Investment Manager's Board and are also
regularly reported to the Company's Board. Risks are continuously identified
and managed at the portfolio level.
Metrics and Targets
· The Portfolio carbon footprint is the key metric used to measure
and track progress towards reducing carbon emissions. Our target is to keep
the portfolio carbon footprint 20% below the Vietnam All share Index ("VNAS").
· We will join in collaborative engagement initiatives to hold the
rise in global average temperature to below 2 degrees Celsius above
pre-industrial levels. The target is measured by the number of climate
initiatives that we support through communications, policy dialogue, company
engagement, and networking.
· In 2022, we have conducted deeper quantitative analysis to assess
the climate risk exposure of the portfolio, using a scenario approach for
implied temperature increases to estimate the financial impacts and estimate
how these risks are translated into financial impacts, for example, the
potential financial loss from physical risks, carbon pricing and the impacts
on corporate profits.
· We will also identify businesses and investment opportunities that
may benefit from the transition risk process.
· In the longer-term (from 2025 onwards), and with shareholder
approval, we will set a firm target percentage in our portfolio for low-carbon
investments.
Portfolio carbon footprint
The portfolio companies' attributable carbon footprints are analysed against
the attributable footprint of an identical invested amount in the companies of
the VNAS. In 2021, the VNH portfolio had an estimated total annual emission of
9,059 tonnes carbon dioxide equivalents ("tCO(2)e") from Scope 1 and 2. The
carbon footprint of the portfolio in 2021 is significantly lower when compared
against the benchmark of an equivalent investment size in VNAS, with 67.5% or
18,803 tCO(2)e less total carbon emissions. The total carbon emissions of the
Portfolio in 2021 is also much lower than that of Portfolio in 2020 (9,059 and
21,045 tonnes of CO(2) equivalents, respectively). This positive performance
was resulted mostly from effective sector allocation, with a small
contribution from stock selection.
VNH Portfolio benchmark Difference between VNH Portfolio vs. benchmark
Total Emissions Scope 1and 2 (tCO(2)e) 9,059 27,861 -18,803
Total Emissions Scope 1, 2 and 3 (tCO(2)e) 21,042 57,050 -36,008
Carbon footprint (tCO(2)e/ $M Invested) 58.21 179.03 -67.5%
Sustainable Development Goals
The 17 Sustainable Development Goals ("SDGs"), also known as the Global Goals,
were adopted by the United Nations in 2015 as a universal call for action to
end poverty, protect the planet, and ensure that by 2030 all people enjoy
peace and prosperity. With only less than a decade left to meet the SDGs by
2030, it is crucial to accelerate actions to achieve the Goals. It is
increasingly clear that the way forward is one that must be paved by both
businesses and governments. The growing power of the business sector should be
leveraged to grow a stable, sustainable global economy and society.
We consider the 17 SDGs to be a useful framework that companies can use to
start to develop their sustainability and ESG strategies. We are pleased to
see that the SDGs have been incorporated in many of our portfolio companies'
annual reports, with detailed illustrations of how the SDGs are embedded in
their vision, business strategies and operational conduct. FPT, the largest
holding in VNH's portfolio is contributing greatly to SDG 4 - Quality
Education - with their extensive education programs. In its 2021 annual
report, FPT also pointed out the eight SDG goals that the company most
directly contributes to: Quality Education; Gender Equality; Affordable and
Clean Energy; Decent Work and Economic Growth; Industry, Innovation, and
Infrastructure; Responsible Consumption and Production; Climate Action, and
Partnerships for the Goals.
Gemadept ("GMD"), another of the Top 5 portfolio companies, has also made
considerable efforts to align its business with SDGs, especially SDG 9 - Build
Resilient Infrastructure, Promote Inclusive and Sustainable Industrialisation
and Foster Innovation - with its extensive "green, smart port" ecosystem. It
also is focusing on SDG 13 - Climate Action - and is working on many
initiatives aimed at contributing to Vietnam's net-zero commitment.
VP Bank, arguably the "greenest" bank in our portfolio, has made significant
efforts to improve its environmental and social management strategy by
following international standards and starting to apply the TCFD framework to
its processes. In 2021, VP Bank helped 422 customers to integrate
sustainability into their business or invest in a "green" project involving
renewable energy, waste treatment, or clean transportation, for example. It
ended the year with a total Green Loan balance of VND4,066bn, equivalent to
around USD170m. Meanwhile, Phu Nhuan Jewelry ("PNJ") is making much progress
in integrating SDG 5 - Gender Equality - into its management approach by
raising awareness about the role of women in families and the workplace.
Among our portfolio companies, CTG, FPT, MBB, PNJ, and VPB are included in the
Vietnam Sustainability Index ("VNSI") 2022, which features the top 20
sustainable listed companies on HOSE measured in terms of their ESG
contributions. VCS, DGW, PNJ and CTG are the companies in the top 100
sustainable companies in Vietnam based on the Corporate Sustainability Index
developed by the Vietnam Business Council for Sustainable Development
("VBCSD") under the Vietnam Chamber of Commerce and Industry ("VCCI").
Corporate Governance
During the past two decades, the Law on Enterprises and the Law on Securities
has been updated several times, with the latest versions being passed during
2019 and 2020 and effective from 1 January 2021. Decree 155, covering
corporate governance of public companies, and Circular 96 on the disclosure of
information of public companies, are the two key implementing regulations of
those laws, and were issued around the same time. These laws and regulations
form the main part of the prevailing Vietnamese corporate governance
regulatory framework. In addition to mandatory rules provided in the laws and
regulations, the State Securities Commission ("SSC"), with support from the
International Finance Corporation ("IFC"), and with inputs from the Investment
Manager's CIO, issued in summer 2019 the Vietnam Corporate Governance Code of
Best Practices for public companies (the "CG Code"), which recommends
standards that go beyond the minimum legal and regulatory requirements. The CG
Code will also help Vietnam align with its ASEAN peers, which have already
instituted similar codes.
In anticipation of Vietnam's equities being upgraded in the future and
included in the MSCI Emerging Market Index (as opposed to the current Frontier
Market Index), many companies have applied international guidelines, including
those of the IFC, to improve their corporate governance framework. Many
companies in our portfolio have set up audit committees under the board of
directors. This board structure, with the support of the audit committee,
helps set a strong 'tone-at-the-top', overseeing the effectiveness and
integrity of internal controls. In addition, many companies have made efforts
in improving the independence of their board by appointing more independent
directors with work experiences from different sectors. We have also observed
a significant improvement in investor relations activities and information
disclosure of our portfolio companies, with monthly performance updates and
quarterly reports sent to investors, more content available in English, and
better dedicated investor relations support to address questions from
investors.
Dedicated Company Engagement Program
The Investment Manager assigns a high priority to the engagement mandate
entrusted by shareholders and has established a Company Engagement Program,
emphasising the necessity to systematically implement ESG factors for investee
companies. By providing knowledge on specific issues, the Investment Manager
supports companies in their own relevant financial and ESG matters and
encourages positive changes by helping to influence improvements in
sustainability policies, practices and performance, and making recommendations
where appropriate. Furthermore, the engagement program helps the Investment
Manager in its portfolio decision-making and risk management strategy.
As we have been evolving into a post-pandemic period, the Investment Manager
has been able to set up face-to-face meetings with several portfolio companies
under the Company Engagement Program to discuss both the company's business
strategy and ESG issues. During the financial year, the team had in-depth
meetings with FPT, GMD, and PNJ to help improve their ESG practices with
practical solutions in the short and medium-term. Over several meetings, we
have seen the eagerness, willingness and strong commitment from the Board and
management of these companies in driving forward ESG and sustainability
actions for their businesses. For example, FPT published its very first ESG
report in early 2022. PNJ established an ESG committee within its Board of
Directors and recruited a Senior ESG Manager to support the company in
developing its ESG strategy in the medium, short, and long-term. GMD, with the
strong determination of its CEO, put a clear focus on improving the company's
work culture and developing a decarbonisation roadmap.
Shareholder Voting
This year the Annual General Meetings of portfolio companies ("AGM"s) were
held in both online and offline formats.
The Investment Manager considers each agenda issue proposed by a company based
on its merits related to the strategic objectives of the investee company and
its potential impact on long-term performance. As part of its usual ongoing
practice, the Investment Manager discusses the proposed agenda items with each
of the investee companies' board of directors ahead of the actual meetings.
During the financial year, the Company, through the Investment Manager,
attended and voted at the Annual General Meetings ("AGM") of every portfolio
company in which it held an equity position, 27 in total. In all cases during
the past year, the Company voted in favour for every agenda item proposed by
each company's boards of directors.
Membership and Partnership to Promote ESG Practices
UNPRI
As noted above, the Company's investment policy is aligned with the UNPRI and
the Company has been a UNPRI signatory since 2009. Each year, the Company
reports on its responsible investment activities through the UNPRI
Transparency Report. In its most recent report, the Company received two 'A'
scores and one 'A+' score, all higher than the median and higher than its last
year's score. The improvement in active ownership activities was noted,
particularly in some of the criteria, such as the engagement approach,
escalation strategy, number of companies engaged with, the topics covered, and
the way we share insights from engagements with our stakeholders.
VIOD
Mr. Vu Quang Thinh - the CEO of Dynam Capital - is a founding member of VIOD,
the Vietnam Institute of Directors, which is a professional organisation that
promotes corporate governance standards and best practices in the Vietnamese
corporate sector. VIOD was legally formed in 2018 with technical support
from the International Finance Corporation ("IFC"), a member of the World Bank
Group and Switzerland's State Secretariat for Economic Affairs ("SECO").
Governed by a Board of Directors comprised of various private sector
representatives, VIOD has close collaboration with the State Securities
Commission of Vietnam ("SSC"), HOSE and HNX under the Vietnam Corporate
Governance Initiative ("VCGI"). With the support of SSC, VIOD will continue to
represent Vietnam to participate in the 2021 ASEAN Corporate Governance
Scorecard. Our close collaboration with VIOD will continue to play a key role
in fostering good corporate governance not only in our investee companies but
across Vietnam's business community over the coming years.
AIGCC
As mentioned above, Dynam Capital, our Investment Manager, is a member of the
Asia Investor Group on Climate Change ("AIGCC") (https://www.aigcc.net/) . At
the end of this financial year, Dynam Capital signed on the 2021 Global
Investor Statement to Governments on the Climate Crisis with more than 450
investors to call for governments to raise their climate ambition and
implement more effective policies to address the climate crisis.
Others
In the financial year, the Investment Manager also contributed to the
newly-established Vietnam Business Integrity Network, VBIN, an initiative
initiated by the Vietnam Chamber of Commerce and Industry with the generous
support from the UK Prosperity Fund through the Regional Project "Promoting
Fair Business Environment in ASEAN - FairBiz" of the United Nations
Development Program - UNDP. VBIN is a new initiative, a business-led and
business-oriented network with a focus on promoting business integrity,
purpose and vision for companies in Vietnam.
Principal Risks and Risk Management
The Board has carried out a robust assessment of the Company's emerging and
principal risks and considers with the assistance of the Investment Manager
the risks and uncertainties faced by the Company in the form of a risk matrix
and heat map. The investment management of the Company has been delegated to
the Company's Investment Manager. The Investment Manager's investment process
takes into account the material risks associated with the Company's portfolio
and the holdings in which the Company is invested. The Board monitors the
portfolio and the performance of the Investment Manager at regular Board
meetings. The principal risks and the descriptions of the mitigating actions
taken by the Board are summarised in the table below.
Key risk Description Mitigating action
Market Risk Vietnam is an increasingly open trading nation, and the changes in terms of The Board is regularly briefed on political and economic developments by the
international trade, disruption to supply chains and impositions of tariffs Investment Manager. The Investment Manager publishes a monthly report on the
could impact directly and indirectly the Vietnamese economy and the companies Company which includes information and commentary on the macroeconomic
in which the Company is invested. The Vietnamese economy can also be impacted developments in Vietnam.
by the global-macro economic conditions, and also geopolitical tensions. The
Vietnamese capital markets are relatively young, and liquidity levels can The inherent liquidity levels in the portfolio have been considered explicitly
change abruptly responding to changes in the behaviour of domestic and in the viability of the Company and the Board is reasonably satisfied that
international investors. even in periods of distress and low liquidity there would be an adequate level
of assets that could be realised to meet the liabilities of the Company as
Parts of the portfolio may be prone to enhanced liquidity and price risk. they fall due.
The Board has noted that the underlying market liquidity in Vietnam has
increased dramatically during the last year, and the portfolio composition has
also included a higher percentage of larger and more liquid companies.
Investor Sentiment Vietnam is currently classified as a Frontier Market by MSCI, and the The Investment Manager keeps shareholders and other potential investors
timetable for any inclusion as an Emerging Market is unsure. Investor regularly informed on Vietnam in general and the Company's portfolio in
attitudes to Frontier and Emerging Markets can change, leading to reduced particular. At each Board meeting the Board receives reports from the
demand for the Company's shares, and an increase in the discount to NAV per Investment Manager, from finnCap Ltd, its broker, and is updated on the
share. composition of the shareholder register. In 2019 the Company migrated its
domicile from Cayman Islands to Guernsey and moved its trading from AIM to a
premium listing on the Main Market of the LSE in order to make the shares
attractive to a wider audience of potential investors. In seeking to narrow
the discount, the Board has also implemented an on-going share buy-back
programme.
Investment Performance The performance of the Company's investment portfolio could be poor, either The Board receives regular reports on the performance of the portfolio and its
absolutely or in relation to the Company's peers, or to the market as a whole. underlying assets. The Investment Manager reports to the Board at each Board
meeting, and the Board monitors the performance of the Investment Manager.
Fair Valuation The risks associated with the fair valuation of the portfolio could result in The Board reviews the valuation of the portfolio with the Investment Manager
the NAV of the Company being misstated. The quoted companies in the portfolio regularly.
are valued at market price, but it may be difficult to liquidate, where large
positions are held, at these prices in an orderly fashion in the ordinary The daily estimated NAV is calculated by the Investment Manager.
course of market activity. The values of the Company's underlying investments
are denominated in Vietnamese Dong, whereas the Company's accounts are The monthly NAV is calculated by the Fund Administrator.
prepared in US Dollars. The Company does not hedge its Vietnamese Dong
exposures so exchange rate fluctuations could have a material effect on the
NAV.
Investment Management Agreement The fund management activities are outsourced to the Investment Manager. If The Board maintains a close contact with the Investment Manager and reviews
the Investment Manager became unable to carry out these activities or if the the performance of the Investment Manager on a regular basis.
Investment Management Agreement was terminated, there could be disruptions to
the management of the portfolio until a suitable replacement is found.
Operational The Company has no employees and is dependent on a number of third parties for The Board receives regular reports from the Investment Manager and Fund
the provision of services (including Investment Management, Fund Administrator on their policies, controls and risk management.
Administration and Custody). Any control failures or gaps in the services
provided could result in damage or loss to the Company.
Legal and Regulatory Failure to comply with relevant regulation and legislation in relevant The Company is administered in Guernsey by a Fund Administrator which reports
jurisdictions may have an impact on the Company. Although there are compliance to the Board at each Board meeting on compliance matters. The Board receives
policies (including anti-bribery policies) in place at the Company, the training and updates on compliance matters. The Investment Manager is
Investment Manager and all service providers, the Company could be damaged or regulated in Guernsey and has extensive compliance and risk management
suffer losses if any of these polices were breached. policies in place.
COVID-19 Outbreaks of variants of coronavirus ("COVID-19") as part of a global pandemic The Board is in regular contact with the Investment Manager, receiving regular
pose a health concern through fast person-to-person spread, resulting in an updates on the development and the spread of COVID-19, mitigating actions in
illness that can lead to death. Lockdowns, quarantine measures and Vietnam, including the roll-out of vaccinations, and the impact on the
restrictions on travel can cause sustained global economic disruption and performance of the investment portfolio. The Board has verified that the key
slowdown in growth, and can cause some industries and companies to face severe service providers all have functional Business Continuity Plans.
financial pressures that can lead to job losses and in extreme cases
bankruptcies, impacting the value of the investments held by the Company, and The Investment Manager and its wholly owned subsidiary in Vietnam has a BCP
weakening investor confidence. Key service providers to the Company could face that includes dividing staff into two separate teams and enabling all staff to
loss of personnel, diminution in service capability and could impact the work from home as necessary. The BCP has been tested and implemented several
ongoing operations of the Company. Travel restrictions can prevent the times without loss of service to the Company.
Directors of the Company from meeting in person. Delays in rolling out
vaccinations may prolong the economic impact on Vietnam and its population as The key activities of the Company and its service providers can be conducted
other countries begin to re-open their borders to travel. virtually through online calls, electronic mail and video-calls.
The Investment Manager, on behalf of the Company uses Regulatory News
Services, monthly newsletters, webinars and ad-hoc updates through social
media to keep the investors updated on the impact of COVID-19 on the
portfolio.
Climate Risk Climate change is happening faster than models earlier predicted, threatening The Board, through the Investment Manager, has engaged a specialist consulting
the safety of billions of people on the planet. Vietnam is one of the five firm in Vietnam to help estimate the portfolio's carbon footprint and identify
countries most vulnerable to climate change. The country's diverse geography the carbon-intensive sectors. The Investment Manager has undertaken to analyse
means it is hit by sea level rise, typhoons, landslides, flooding and the physical and transition risks of climate-sensitive industries to develop
droughts, and weather events are expected to worsen in coming years. Two types an appropriate investment and engagement strategy and to encourage investee
of climate-related risks have been identified. (1) Physical risks: sea level companies to do more on climate-related risk assessment and disclosures. The
rise, floods and typhoons that put infrastructure or real estate companies Investment Manager monitors investee companies that are identified to be at
with projects in coastal areas or low-lying levels at higher risk from high climate risks.
physical impacts of climate change.
The Investment Manager is a member of the Asia Investor Group on Climate
(2) Transition risks: climate policy and rising carbon prices may cause higher Change and keeps abreast of the changes in policies that may impact transition
prices and impact the viability of companies that rely on fossil fuels or and other climate-related risks. The Board is in regular contact with the
those in carbon intensive activities and may necessitate a significant, and Investment Manager, and receives reports through the ESG Committee and the
costly, technology shift. Audit and Risk Committee.
Emerging Risks New risks beyond those identified as Principal Risks can develop. These The Board reviews the risk matrix and risk register that captures and tracks
Emerging Risks may have a detrimental or existential impact on the Company. emerging risks as part of its overall risk management practices. Emerging
Risks are identified and recorded with a description of their root cause, a
risk assessment, a description of mitigating actions, a monitoring plan, and a
net risk rating. Changes in risk ratings are presented to the Board on a
quarterly basis. There are no emerging risks to bring to the attention of
the shareholders at the date of the Annual Report.
Director Profiles and Disclosure of Directorships
All of the Directors are Non-executive Directors and are independent of the
Investment Manager.
Hiroshi Funaki (Chairman)
Mr Funaki has been actively involved in raising, researching and trading
Vietnam funds since 1995. He worked at Edmond de Rothschild Securities from
2000 to 2015 where he led the Investment Companies team, focusing on Emerging
Markets and Alternative Assets. Prior to that he was Head of Research at
Robert Fleming Securities, also specialising in closed-end funds. He currently
acts as an investment adviser to a Family Office. He has a MA in Mathematics
and Philosophy from Oxford University and is a UK resident.
Philip Scales (Audit and Risk Committee Chairman)
Mr Scales has over 40 years' experience working in offshore corporate, trust,
and third-party fund administration. For 18 years, he was managing director of
Barings Isle of Man (subsequently to become Northern Trust) where he
specialised in establishing offshore fund structures, mainly in the
closed-ended arena (both listed and unlisted entities). Mr Scales subsequently
co-founded FIM Capital Limited where he is Deputy Chairman. He is a Fellow of
the Institute of Chartered Secretaries and Administrators and holds a number
of directorships of listed companies and collective investment schemes. He is
an Isle of Man resident.
Sean Hurst (Senior Independent Director and Environmental, Social and
Governance Committee Chairman)
Mr Hurst was co-founder, director and chief investment officer of Albion Asset
Management, a French regulated asset management company, from 2005 to 2009. He
is an experienced multi-jurisdictional director including roles at Main Market
and AIM traded funds and numerous offshore and UCITS funds. In addition to
advising companies on launching both offshore and onshore investment funds, he
is currently non-executive chairman of JPEL Private Equity Ltd and
non-executive director at CIAM Opportunities Fund. Mr Hurst was formerly a
non-executive director of AIM listed ARC Capital Holdings Ltd. He holds an MBA
in Finance from CASS Business School in London and is a resident of France.
Damien Pierron (Management Engagement Committee Chairman)
Mr Pierron is currently Managing Partner at Ankaa Ventures, a Venture Capital
firm active in Seed stage in Europe. In his last position, he was a managing
director in Societe Generale. Mr Pierron has 20 years' experience in M&A
and Private equity gained at, among others, Lafarge Holcim, OC&C Strategy
Consultants, Natixis and Societe Generale. He is a CFA charterholder and
holds an Engineering Degree in Mathematics, Physics and Economy from Ecole
Polytechnique in Paris and a Master's Degree in Quantitative Innovation from
Ecole Nationale Superieure des Mines de Paris. He is a Dubai resident.
Saiko Tajima (Remuneration and Nomination Committee Chairman)
Ms Tajima has over 20 years' experience in finance, of which 8 years have been
spent in Asian real estate asset management and structured finance. Working
for Aozora Bank and group companies of Lehman Brothers and Capmark, she
focused on financial analysis, monitoring and reporting to lenders, borrowers,
auditors, regulators and rating agencies. Over the last 8 years, she has
invested in and helped develop tech start-ups in Tokyo, Seoul and Sydney. She
is a Certified Public Accountant in the US and is a UK resident.
Disclosure of Directorships in Public Companies Listed on Recognised Stock Exchanges
Name Company Name Stock Exchange
Sean Hurst JPEL Private Equity Ltd London
Philip Scales First World Hybrid Real Estate plc Channel Islands
Corporate Governance Report
The Directors are responsible for the determination of the overall management
of the Company including its investment policy and strategy. This includes the
review of investment activity, performance and control and supervision of the
Investment Manager and other advisers. All of the Directors are non-executive
and are independent of the Investment Manager.
The Board is also responsible for its own composition, capital raising,
meeting statutory obligations and public disclosure, financial reporting and
entering into any material contracts by the Company.
The Directors have access to the advice and services of the Administrator and
Secretary, who are responsible to the Board for ensuring that Board procedures
are followed and that it complies with Company Law, applicable rules and
regulations of the Guernsey Financial Services Commission, the London Stock
Exchange and The International Stock Exchange.
Where necessary, in carrying out their duties, the Directors may seek
independent professional advice at the expense of the Company.
The Board of the Company has considered the Principles and Provisions of the
Association of Investment Companies Code of Corporate Governance issued in
February 2019 ("AIC Code"). The AIC Code addresses the Principles and
Provisions set out in the UK Corporate Governance Code (the "UK Code"), as
well as setting out additional Provisions on issues that are of specific
relevance to the Company.
The Board considers that reporting against the Principles and Provisions of
the AIC Code, which has been endorsed by the Financial Reporting Council and
the Guernsey Financial Services Commission provides more relevant information
to Shareholders. The Board considers by reporting against the AIC Code, they
are meeting their obligations under the UK Code, the 2011 GFSC Finance Sector
Code of Corporate Governance and associated disclosure requirements under
paragraph 9.8.6 of the Listing Rules.
The AIC Code is available on the AIC website (www.theaic.co.uk). It includes
an explanation of how the AIC Code adapts the Principles and Provisions set
out in the UK Code to make them relevant for investment companies.
Except as disclosed within this report, the Board is of the view that the
Company complied with the recommendations of the AIC Code and the relevant
provisions of the AIC Code during the year ended 30 June 2022. Key issues
affecting the Company's corporate governance responsibilities, how they are
addressed by the Board and application of the AIC Code are presented below.
The AIC Code includes a provision relating to the appointment of a Senior
Independent Director and the Board confirms that Sean Hurst is the appointed
Senior Independent Director of the Company. Liaison with Shareholders is dealt
with mainly by the Chairman of the Company and the Senior Independent Director
working closely with the Company's Advisors.
Directors' Responsibilities to Stakeholders
Section 172 of the UK Companies Act 2006 applies directly to UK domiciled
companies, however the AIC Code requires that the matters set out in Section
172 are reported by all companies, irrespective of domicile. This requirement
does not conflict with the Companies Law in Guernsey.
Section 172 recognises that Directors are responsible for acting in a way that
they consider, in good faith, is most likely to promote the success of the
Company for the benefit of its shareholders as a whole. In doing so, they are
also required to consider the broader implications of their decisions and
operations on other key stakeholders and their impact on the wider community
and the environment.
Key decisions are defined as those that are material to the Company, but also
those that are significant to any of the Company's key stakeholder groups. The
Company's engagement with its key stakeholders is outlined on page 39 of the
corporate governance section of this report.
Board Independence and Composition
The Board consists of five Non-executive Directors, each of whom is
independent. No member of the Board is connected to the Investment Manager or
any of the service providers appointed. Four of the Board members were
appointed in September/October 2017 following the retirement of the previous
Board and the fifth member was appointed in May 2019 following the retirement
of a Board member at the 2018 AGM.
Mr Funaki is a Director of Discover Investment Company which holds 1,405,776
ordinary shares in the Company representing 4.81% of the issued share capital.
The Board are satisfied that this does not have any impact on Mr Funaki's
independence as a Director of the Company.
Board Independence and Composition
As detailed in note 8 of the financial statements, Directors own shares in the
Company as follows:
Hiroshi Funaki 19,887
Sean Hurst 5,312
Philip Scales 10,077
Damien Pierron 4,644
Saiko Tajima 5,000
The Board reviews the independence of the Directors regularly and at least
annually.
The Company is committed to ensuring that any board appointments are filled by
the most suitably qualified candidates. The Board acknowledges the benefits of
greater diversity and is committed to ensuring that the Board brings a wide
range of skills, knowledge and experience. No specific diversity parameters
have been set as the Board believes that all appointments should be made on
merit and taken in the context of the skills, knowledge and experience
required for an effective Board. The Nomination Committee is responsible for
evaluating any new Board appointment and making appropriate recommendations to
the Board.
The Board believes the current board members have the appropriate
qualifications, experience and expertise to manage the Company. The Directors'
biographies can be found on page 35.
Board Meetings and Attendance
The Board meets regularly during the year with representatives from the
Investment Manager present. In addition, representatives from the Company's
Broker and Administrator attend Board and committee meetings by invitation. At
each quarterly Board meeting the performance of the portfolio is formally
reviewed and during the year, Board members also attend investment meetings
with members of the Manager's senior team. The Board members have a range of
skills covering investment management, banking, compliance and corporate
governance as well as prior experience of acting as directors of companies
listed on the London Stock Exchange.
The Company's brokers and lawyers are consulted on any matters where external
expertise is required, and external advisers attend board meetings as invited
by the Chairman to report on and/or discuss specific matters relevant to the
Company.
During the year 6 Board meetings were held and the record of attendance at
each Board and committee meeting was as follows:
Board Audit and Risk Remuneration and Nomination Management Engagement
Hiroshi Funaki 6 (6) 6 (6) 1 (1) 1 (1)
Sean Hurst 6 (6) 6 (6) 1 (1) 1 (1)
Philip Scales 6 (6) 6 (6) 1 (1) 1 (1)
Damien Pierron 6 (6) 6 (6) 1 (1) 1 (1)
Saiko Tajima 6 (6) 6 (6) 1 (1) 1 (1)
In addition there were 2 meetings of the Buy-Back Sub-Committee held during
the year.
Tenure of Board Members and Succession Planning
The Company has adopted a formal policy that neither the Chairman nor any
other Director shall serve for more than 9 years.
Re-election of Directors
The Board has agreed that all Directors should submit themselves for annual
re-election.
Mr. Hurst, Mr Funaki, Mr Pierron, Mr Scales and Ms Tajima will all stand for
re-election at the 2022 AGM.
The individual performance of each Director standing for re-election or
election has been evaluated by the other members of the Board and a
recommendation will be made that Shareholders vote in favour of their
re-election at the AGM in November 2022.
Administration
On 7 October 2019 the Board appointed Sanne Group (Guernsey) Limited to
provide corporate governance, secretarial, compliance and accounting services
to the Company.
Conflicts of Interest
The Directors are reminded at each Board meeting of their obligations to
notify any changes in their statement of conflicts and also to declare any
benefits received from third parties in their capacity as a Director.
A register of conflicts is maintained by the Administrator and formally
reviewed on a quarterly basis. Each Director is required to declare any
potential conflicts of interest on an ongoing basis.
Performance Evaluation
During the year the Board undertook an evaluation exercise into the
effectiveness of both the Board and the Committees. The programme was
undertaken by the Administrator and no significant issues were identified.
The Remuneration and Nomination Committee will again consider whether for the
next evaluation due in 2022, an external facilitator should be appointed to
undertake the evaluations.
Professional Development and Training
New Directors are provided with all relevant information regarding the
Company's business and given the opportunity to meet with key functionaries
prior to appointment. They are also provided with induction training.
It is the responsibility of each Director to ensure that they maintain
sufficient knowledge to fulfil their role and so are encouraged to participate
in seminars and training courses where appropriate.
Committees of the Board
Four Committees have been formed, an Audit and Risk Committee, a Remuneration
and Nomination Committee, a Management Engagement Committee and an ESG
Committee. Since September/October 2017 the Company has been through a period
of considerable change and all Board members are members of each committee.
The Chairman of the Company does not Chair any of the Committees. Details of
the Chairman of each committee, together with the number of meetings held
during the year are shown on pages 37 to 39. A summary of the Terms of
Reference of each committee is detailed below and a copy of the Terms of
Reference are available on the Company's website www.vietnamholding.com.
Audit and Risk Committee
The Chairman of the Audit and Risk Committee is Philip Scales and the
Committee meets at least twice per annum. All members of the Board are members
of the Committee. This includes the Chairman of the Company where, given the
size of the Board, the experience of all members and the independence of the
Company Chairman, it is felt appropriate that all Board members play a role in
the Audit and Risk Committee. The principal responsibility of the Committee is
to monitor the production of the Interim and Annual Financial Statements and
to present these to the Board for approval.
Other duties include reviewing the internal financial controls and monitoring
third party service providers, review and monitor the external auditor's
independence and objectivity along with the effectiveness of the audit process
and to make recommendations to the Board in relation to the appointment of the
External Auditor together with their remuneration.
A report of the Audit and Risk Committee is detailed on pages 41 to 42.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee is chaired by Saiko Tajima and all
members of the Board are members of the Committee. The Board considers that
all the Directors are independent and therefore eligible to be members of the
Committee. The Committee meets at least once in each year and at such other
times as may be considered necessary.
Remuneration and Nomination Committee
The principal duties of the Remuneration and Nomination Committee are to
review the fees paid to the Non-executive Directors, to consider the
appointment of external remuneration consultants, to review the structure,
size and composition of the Board, make recommendations to the Board for any
changes and to consider succession planning. The Committee also undertakes the
evaluation of the appointment of any additional or replacement Directors and
ensures they are provided with training and induction. The Committee arranges
for an annual evaluation of all Board and Committee members.
During the year the Committee reviewed the fees paid to Directors and resolved
that no changes be recommended.
The AIC Code includes a provision relating to the appointment of a Senior
Independent Director of which Sean Hurst occupies this role.
No new Board appointments were considered during the year but the Committee
reaffirmed the policy that no Director should serve for more than 9 years.
Management Engagement Committee
The Chairman of the Management Engagement Committee is Damien Pierron and the
Committee shall meet at least once a year. All members of the Board are
members of the Committee. The principal duties of the Committee are to review
the performance and appointment of the Investment Manager together with their
remuneration and to review the effectiveness and competitiveness of the other
main service providers and functionaries together with reviewing their
performance.
A share buy-back sub-committee consisting of Hiroshi Funaki and Sean Hurst has
been formed under the Management Engagement Committee and meets regularly to
review and monitor the share buy-back programme. Damien Pierron also joins the
share buy-back sub-committee on an ad-hoc basis.
During the year the Committee reviewed the performance of the Investment
Manager, Administrator and Sub-Administrator, Corporate Broker and Registrar.
No changes were recommended as a result of these reviews.
Environmental, Social and Governance Committee
The ESG Committee was established in the prior year and is chaired by Sean
Hurst with all members of the Board forming the Committee. The aim of the
Committee is to establish a unified view of ESG, increasing understanding of
all three aspects: environmental, social and governance, and to promote the
robust standards of corporate governance that the Company adopts.
The purpose of the ESG Committee, which shall meet at least once a year, is to
support the Company's on-going commitment to environmental, health and safety,
corporate social responsibility, corporate governance, sustainability, and
other public policy matters relevant to the Company (collectively, "ESG
Matters").
Shareholder Engagement
The Company is committed to listening and communicating openly with its
Shareholders to ensure that its strategy, business model and performance are
clearly understood. All Board members have responsibility for Shareholder
liaison but Shareholder contact is mainly dealt with by the Chairman of the
Company and the Senior Independent Director in close liaison with the Company
Advisors.
Copies of the Annual Report are sent to all Shareholders and can be downloaded
from the website. Other Company information including the Interim Report is
also available on the website.
The Company holds an AGM in each year, which gives investors the opportunity
to enter into dialogue with the Board and for the Board to receive feedback
and take action as necessary. The Investment Manager also participates in
meetings with investors arranged by the Company's Broker and has arranged
seminars and webinars to update current and prospective investors on the
developments in the Vietnamese market and the performance of the Company. The
Investment Manager also updates the Company's website and sends out monthly
factsheets on the Company to investors who have registered to receive such
updates. The Company has a LinkedIn page which is administered by the
Investment Manager.
The Board reviews proxy voting reports and any significant negative response
is discussed with relevant Shareholders and, if necessary, where appropriate
or possible, action is taken to resolve any issues. In the interest of
transparency and best practice, the level of proxy votes (for, against and
vote withheld) lodged on each resolution is declared at all general meetings
and announced.
Corporate Policies
Anti-Bribery and Corruption Policy
The Board is committed to the prevention of bribery throughout the
organisation and will take every step necessary to ensure to the best of its
ability, that business is conducted fairly, honestly and openly. It has
adopted a formal policy to combat fraud, bribery and corruption and will seek
annual confirmation from the Investment Manager and other service providers it
engages that they have similar policies in place. Furthermore, the Board has
zero tolerance to the criminal facilitation of tax evasion. These policies
apply to the Company and to each of its Directors. Further, the policies are
shared with each of the Company's service providers, each of which confirms
its compliance annually to the Board.
Criminal Facilitation of Tax Evasion Policy
The Board has taken steps to ensure there is no criminal facilitation of tax
evasion. This applies to the Company and to each of its Directors, as well as
service providers. A policy has been adopted by the Board.
General Data Protection Regulation
The Company abides by general data protection regulation. As it is established
in the Bailiwick of Guernsey, under The Data Protection (Bailiwick of
Guernsey) Law, 2017, the Company has registered with the Office of the Data
Protection Authority.
The Company
Global Greenhouse Gas Emissions
The Company has no significant greenhouse gas emissions to report from its
operations for the year to 30 June 2022, nor does it have responsibility for
any other emission producing sources. The Company is very conscious of its own
carbon footprint in carrying out its business activities. The main source of
this for the Company is in the international and domestic air travel of the
Board of Directors and members of the Investment Manager in conducting the
business of the Company and meeting with Shareholders. For the year to 30 June
2022, many of the board meetings were conducted through video-conference as a
result of restrictions related to COVID-19. During the year members of the
Board travelled to London, Zurich and Ho Chi Minh City in conducting the
business of the Company. The estimated carbon footprint of travel activities
(that have not already been offset at source) amounts to approximately 46.61
tonnes of CO(2)e(.)
The Company engaged a specialist consulting firm to estimate the carbon
footprint of the portfolio, and this is detailed in the Sustainability Report.
Gender Metrics
The Board of the Company recognises the governance mechanism to ensure there
is diversity amongst the Directors and as such a female was appointed to the
Board in May 2019. In addition, the Board is reviewing the Policy Statement
issued by the FCA in April 2022 on Diversity and inclusion on company boards
and executive management and consequential changes to the Listing Rules. These
changes apply to accounting periods starting on or after 1 April 2022 and will
be reported on more fully in the 2023 financial statements of the Company. The
Board notes also that 40% of the team members employed by the Investment
Manager and its subsidiary in Vietnam are female.
Audit and Risk Committee Report
The main items that the Audit and Risk Committee (the "Committee") has
reviewed during the year ended 30 June 2022 were:
● reviewing the content of the Interim Report and the Annual Report;
● reviewing the independence and effectiveness of the External
Auditor;
● considering and reviewing the internal control and risk management
systems and the work of the service providers; and
● reviewing the control framework with the assistance of the
Investment Manager and Administrator.
Internal Control
As a company with a Board consisting entirely of Non-executive Directors and
which outsources the day-to-day activities of portfolio management,
administration, accounting and company secretarial to external service
providers, the Board considers the provision of an internal audit function is
not relevant to the position of the Company.
The Committee reviews the internal financial control systems for their
effectiveness and through the Management Engagement Committee, monitors the
performance of the external service providers. The Board recognises its
ultimate responsibility for the Company's system of internal controls to
ensure the maintenance of proper accounting records, the reliability of the
financial information upon which business decisions are made and that the
assets of the Company are safeguarded. Through these procedures, the Directors
have kept under review the effectiveness of the internal control system
throughout the year and up to the date of this report. There were no issues
arising from this review.
Membership and Attendance
The Committee membership currently consists of all Board members under the
Chairmanship of Philip Scales. This includes the Chairman of the Company
where, given the size of the Board, the experience of all members and the
independence of the Company Chairman, it is felt appropriate that all Board
members play a role in the Audit and Risk Committee. The Terms of Reference
allow appointments to the Committee for a period of up to 3 years and this may
be extended for two further 3-year periods provided that the Director remains
independent.
The Committee holds at least three meetings a year which are to review the
Annual and Half-Year Reports of the Company and also for audit planning
purposes and a review of risks relevant to the Company. Details of the number
of committee meetings held during the year ended 30 June 2022 and the number
of those attended by each committee member are shown on page 37.
The External Auditor is invited to attend committee meetings where the Annual
and Half-Year Reports are considered and separate meetings are held with the
External Auditor where the Investment Manager is not present.
Principal Duties
The main responsibilities of the Committee include:
● to monitor the integrity of the financial statements of the Company
and any formal announcements relating to the Company's financial performance;
● to review the Company's internal financial controls and the internal
control and risk management systems of the Company and its third party service
providers;
● to make recommendations to the Board in relation to the appointment
of the External Auditor and their remuneration; and
● to review and monitor the External Auditor's independence and
objectivity and the effectiveness of the audit process.
A copy of the Terms of Reference of the Committee are available either from
the Company's website or from the Company's Administrator.
Valuation of Investments
The fair value of the Company's investments at 30 June 2022 was USD 120.9
million which represented 93.9% of the Company's NAV (30 June 2021: USD 193.1
million and 98.5% respectively). The valuation of investments is the most
significant factor in relation to the accuracy of the financial statements.
Valuation of Investments
The Committee reviewed the portfolio valuation as at 30 June 2022 and obtained
confirmation from the Investment Manager that the Company's policies on the
valuation of investments had been followed. The Committee also made enquiries
of the Sub-Administrator and Custodian, both of whom are independent of the
Company, to check procedures are in place to ensure the portfolio is valued
correctly.
The Committee agreed the approach to the audit of the valuation of investments
with the External Auditor prior to the commencement of the audit. The results
of the audit in this area were reported by the External Auditor and there were
no significant disagreements between the Investment Manager, the
Sub-Administrator and the External Auditor's conclusions.
The Board reviews the changes in valuations at each quarterly Board meeting.
External Audit
KPMG Channel Islands Limited ("KPMG") has been the External Auditor since the
Company re-domiciled in Guernsey on 25 February 2019. The Committee held
meetings with KPMG before the start of the audit to discuss formal planning
and to discuss any possible issues along with the scope of the audit and
appropriate timetable. Informal meetings have also been held with the Chairman
of the Committee in order that the Chairman is kept up to date with the
progress of the audit and formal reporting required by the Committee.
Annually, the Committee reviews the performance of KPMG in order to recommend
to the Board whether or not the Auditors should be reappointed for the next
year.
Audit fees payable to KPMG for 2022 are GBP 56,000 (2021: GBP 52,000). Non
audit fees payable to KPMG for 2022 were GBP nil (2021: GBP nil).
The Committee has reviewed KPMG's report on their independence and objectivity
including their structure for the audit of the Company and is satisfied that
the services provided by KPMG do not prejudice its independence. The Committee
will continue to review any non-audit services that may be provided by KPMG in
order to ensure their continuing independence and integrity.
Risk Management
An outline of the risk management framework and principal risks is detailed on
pages 32 to 34. The Committee will keep under review financial and operational
risk including reviewing and obtaining assurances from key service providers
for the controls for which they are responsible.
Anti-Bribery and Corruption
The Company has a zero-tolerance approach to bribery and corruption, in line
with the UK Bribery Act 2010. An Anti-Bribery and Corruption Policy has been
adopted and is kept under review.
Audit Quality Review (AQR) Inspection Report
On 26 August 2022, the Company received a copy of an AQR Inspection Report
issued by the Financial Reporting Council following their completion of a
review into the Company's 30 June 2021 annual audit. The AQR described some
other findings that were required to be implemented by KPMG Channel Islands
Limited in the following year's audit of the Annual Report.
Annual Report
The Committee has reviewed the Annual Report along with reports and
explanations from the Company's Investment Manager, Administrator, and other
service providers. The Committee is satisfied that the Annual Report is fair,
balanced, and understandable and that it provides the necessary information
for Shareholders to assess the Company's performance, business model, and
strategy.
The Committee is satisfied that KPMG has fulfilled its responsibilities in
respect of the annual audit and has recommended that KPMG be re-appointed for
the forthcoming financial year.
Directors' Remuneration Policy and Report
Remuneration Policy
The Directors are entitled to receive fees for their services which reflect
their experience and the time commitment required. At the Annual General
Meeting to be held in November 2022 an ordinary resolution seeking approval
for the Directors' remuneration report will be put to Shareholders.
Directors' Remuneration
Directors' fees are paid within limits established in the Articles of
Incorporation which shall not exceed an aggregate of USD 350,000 in any
financial year (or such sum as the Company shall from time to time determine).
The Directors may also be paid reasonable travelling, hotel and other
out-of-pocket expenses properly incurred in attending Board, committee
meetings or general meetings. The Remuneration Committee reviews the
Directors' fees periodically although the review will not necessarily result
in any increase. For the year ended 30 June 2022 annual Directors' fees
remained at USD 50,000 with the Chairman of the Company receiving an
additional USD 10,000 per annum or prorated as applicable and, the Senior
Independent Director and the Chairman of the Audit and Risk Committee
receiving an additional USD 5,000 per annum or prorated as applicable.
The Directors are also paid a per diem fee of USD 1,500 for each Board meeting
attended and USD 750 for a committee meeting attended, either in person or by
telephone.
The Company has no bonus schemes, pension schemes, share option or other
long-term incentive schemes in place for the Directors.
The single total figure of remuneration for each Director who served during
the year ended 30 June 2022 and the previous year is as follows:
Year ended 30 June 2022 Year ended 30 June 2021
Additional Additional
Base Fees Ad hoc Fees Total Based Fees Ad hoc Fees Total
Director USD USD USD USD USD USD
Hiroshi Funaki (Chairman) 60,000 10,125 70,125 60,000 11,250 71,250
Sean Hurst (Senior Independent Director) 55,185 10,125 65,310 55,829 10,741 66,570
Philip Scales (Audit and Risk Committee Chairman) 55,000 9,000 64,000 55,000 6,750 61,750
Damien Pierron 50,000 9,424 59,424 50,000 7,873 57,873
Saiko Tajima 50,000 9,000 59,000 50,000 6,000 56,000
Total 270,185 47,674 317,859 270,829 42,614 313,443
Directors' Report
The Directors present the Annual Report and Financial Statements of the
Company for the year ended 30 June 2022.
The Company
VietNam Holding Limited (the "Company") is a closed-end investment company
that was incorporated in the Cayman Islands on 20 April 2006 as an exempted
company with limited liability under registration number 166182. On 25
February 2019, the Company, via a process of cross-border continuance,
transferred its legal domicile from the Cayman Islands to Guernsey and was
registered as a closed-ended company limited by shares incorporated in
Guernsey with registered number 66090.
The investment objective of the Company is to achieve long-term capital
appreciation by investing in a diversified portfolio of companies that have
high growth potential at an attractive valuation.
At the Extraordinary General Meeting held on 31 October 2018 the Shareholders
voted in favour of the continuance resolution, authorising the Company to
operate in its current form through to the 2023 Annual General Meeting when a
similar resolution will be put forward for Shareholders' approval.
Dynam Capital, Ltd has been appointed as the Company's Investment Manager and
is responsible for the day-to-day management of the Company's investment
portfolio in accordance with the Company's investment policies, objectives and
restrictions.
Results
The net loss for the year ended 30 June 2022 amounted to USD 7,719,310 (2021:
net income USD 100,153,888). There were no dividends declared during the year
ended 30 June 2022 (2021: USD nil).
Going Concern
The financial position of the Company, its cash flows and liquidity position
are described in Financial Statements and the Notes to Financial Statements.
These also contain the Company's objectives, policies, processes for managing
its capital, its financial risks management objectives, details of its
financial instruments, and its exposures to credit risk and liquidity risk.
The Company's forecasts and projections have been stress tested taking into
account the potential for (i) asset value declines, (ii) declines in cash
dividends from equities held in the portfolio and (iii) share buybacks and
tender offers. The Directors note that the underlying liquidity of Vietnamese
stocks has increased significantly over the last twelve months with average
daily traded volumes increasing by as much as 5x the level of the prior year.
The Director's also note that the portfolio is composed of a higher
percentage of larger and more liquid stocks than in the prior year. Lastly,
the Directors note that at year-end the portfolio is comprised of cash and
quoted stocks only. The Company's liquidity position, taking into account cash
held and with the ability to sell underlying assets to meet share buybacks,
tenders and to meet the operating costs of the Company, shows that the Company
is able to operate with appropriate liquidity and be able to meet its
liabilities as they fall due. The Directors therefore have a reasonable
expectation that the Company will have adequate resources to continue its
operations for the foreseeable future. Thus, they continue to adopt the going
concern basis of accounting in preparing the financial statements.
Viability Statement
The Board has considered the viability period for the Company, using the
criteria set out in the UK Corporate Governance Code. The Board considered the
current position of the Company, and its longer-term prospects, strategies as
well as its principal risks in the current, medium and long-term, as detailed
in the Principal Risks and Risk Management on pages 32 to 34 and in the
Investment Manager's Report on pages 5 to 13. The strategy provides long term
direction and is reviewed annually and further tested in a series of robust
downside financial scenarios as part of the annual review. These scenarios
included an assessment of those risks that would threaten its strategic
objectives, its business-as-usual state, its business model and its future
performance, solvency or liquidity. The sensitivity analysis was applied to
the forecasted cash flows. Based on this assessment and the Investment
Objective of the Company, the Board has determined that a three-year viability
period to 30 June 2025 is an appropriate period that the Company will be able
to continue in operation and meet its liabilities as they fall due over the
period of three years. The Board also travelled to Vietnam in June 2022,
meeting with the research team, of the Investment Manager, meeting with
portfolio companies and market commentators.
In arriving at this conclusion, the Board considered:
- The volatility of global economic conditions, lingering impacts of COVID-19, the war in Ukraine and inflation:
The Board considered the impact and effectiveness of mitigation strategies
being mandated by governments in impacted countries; the adverse financial
impact already being experienced by the Company: the disruption to economic
activity and financial pressures and impact on investments in the Company's
portfolio. The Board also engaged with the Investment Manager on the
longer-term impact of climate change, and other societal change factors, to
the portfolio. Additionally, the Board took into consideration the impact on
the capital markets in Vietnam; the existence and effectiveness of business
continuity plans of the Company and its service providers; and the impact on
our stakeholders caused by COVID-19. The Board reviewed macro-reports and
updates from the Investment Manager detailing the impacts of rising inflation
in the US and Europe on Vietnam, and also the direct impacts of the war in
Ukraine.
- Business environment:
Whilst the impact of COVID-19 on the global business environment may linger,
there are visible signs of post-COVID-19 recovery which the Board were able to
see first-hand on their visit to Vietnam in June 2022. There has been an
increase in consumer demand, return to greater travel freedoms and signs of a
return to stronger economic growth. The Company's strategy for investing in a
portfolio of equities in Vietnam and targeting growth in the value of the
portfolio over the medium term is unchanged. The combination of potential
structural opportunities that may benefit Vietnam as a destination for
manufacturing, and the opportunities within the growing domestic market
provide attractive investment opportunities. The direct impact of the war in
Ukraine on Vietnam appears to be manageable, with less than 1% of trade to
Russia and Ukraine. The levels of inflation in Vietnam are less pronounced
than those in Europe and the US, and the macro-economic position appears to be
stronger than in many other frontier and emerging economies.
- Continuation vote in 2023: The Fund has a formal continuation vote in 2023
and it is the current intention of the Board to table a continuation
resolution at the 2023 Annual General meeting.
- Operations:
2021 was another year of significant operational change caused by the COVID-19
pandemic. During parts of 2021 there were strict lockdowns enforced in
Vietnam, disruption to travel domestically and internationally, and Directors
of the Investment Manager and staff of the Market Research subsidiary of the
Investment Manager being infected with the virus. The Board ensured that the
Investment Manager and other service providers had effective Business
Continuity protocols and plans in place. The smooth operation of the Company
through the various restrictions and lockdowns brought about by COVID-19 have
reassured the Board that operationally speaking the Company is very robust and
can, if necessary, operate effectively without the need for physical meetings
or an office presence. The Board, Investment Manager, Administrator, and other
service providers have all demonstrated that they can work effectively and
efficiently despite, in many cases, working remotely for parts of the year.
- Investment:
· The liquidity of the Company's underlying portfolio is relatively
high: average daily trading volumes on Vietnam's stock markets have reached
three to four times the levels of previous years. All new invested stocks in
this year are listed which have relatively high liquidity. At year end there
were no unquoted investments and all securities are 'Level 1'. Recent stress
testing has confirmed that the underlying holdings can be easily liquidated,
despite the more uncertain and volatile economic environment. In August and
September 2021, 30% of the portfolio was readily liquidated to provide funding
for a Tender Offer, without any issues. It is estimated that up to 93% of the
portfolio can be readily liquidated in less than ten trading days and 99% of
the portfolio in less than 30 days. The portfolio is un-geared and, as it
holds all listed securities, has sufficient liquidity to meet the Company's
liabilities.
· The current portfolio is low to medium risk based on assessments
both individually and in combination of liquidity risk, credit risk, interest
rate risk and currency risk. The Investment Manager and the Board review and
evaluate the portfolio on a monthly basis.
- Principal risks:
The Board's review considered the Company's cash flows and income flows, with
reference to operational, business, market, currency, liquidity, interest rate
and credit risk associated in financial instruments set out in note 3
(Financial Instruments and Associated Risks) and note 4 (Operating Segments)
of the financial statements on pages 63 to 66. The statistical modelling is
used to quantify these risks, which ensures that the Company holds sufficient
financial assets and capital to mitigate the impact of these risks.
- Incomes and expenses:
· The Company has a portfolio that generates investment income
through dividends payments. The cash dividends received can be used to
partially offset the Company's on-going expenses. In the year under review,
total on-going expenses were covered 0.43 times by investment income. In the
following year, the current investment income is forecast to cover 0.48 times
the amount of on-going expenses. In the stress-tested scenario with
significant declines in cash dividends forecasted, the investment income is
forecast to cover 0.39 times on-going expenses.
· The Company maintains a cash buffer of approximately 3.4% of NAV to
help meet on-going expenses.
Given the adequate levels of cover set out above, the cash buffer, the
liquidity levels and the overall portfolio risk, the Board has reasonable
expectation that the Company can continue in operation and meet its
liabilities over the forecast period.
The Company's viability depends on the global economy and markets continuing
to function. The Board has also considered the possibility of a wide-ranging
collapse in corporate earnings and/or the market value of listed securities.
To the latter point, it should be borne in mind that a significant proportion
of the Company's expenses are in investment management fees linked to the
level of net assets of the Company, which are therefore variable in nature and
would naturally reduce if the market value of the Company's assets were to
fall.
In order to maintain viability, the Company has robust risk controls as set
out in the Directors' Report and the risk management and control framework
have the objectives of monitoring and reducing the likelihood and impact of
operational risks including poor judgement in decision-making, risk-taking
that exceeds the levels agreed by the Board, human error, or control processes
being deliberately ignored.
In this context, the Board considers that the prospects for economic activity
will remain such that the investment objective, policy and strategy of the
Company will be viable for the foreseeable future and through a period of at
least three years from 30 June 2022.
Key Performance Indicators ("KPIS")
To ensure the Company meets its objectives the Board evaluates the performance
of the Investment Manager at least at each quarterly Board meeting and takes
into the following performance indicators:
● NAV - reviews the performance of the portfolio
● Discount to NAV - and reviews the average discount for the Company's
share price against its peer group.
Share Capital and Share Buy-Backs
An active discount control mechanism to address the imbalance between the
supply of and demand for ordinary shares using share buy backs is employed by
the Broker and monitored by the Board. At the Annual General Meeting ("AGM")
of the Company held on 1 November 2021, the Company was granted the general
authority to purchase in the market up to 14.99% of the ordinary shares in
issue. This authority will expire at the AGM to be held in November 2022.
In the year ended 30 June 2022 661,084 ordinary shares had been bought back
and cancelled under the Company's share buyback programme. A further
12,737,184 ordinary shares were bought back following the Company's tender
offer in September 2021. Since the year-end and up to 29 September 2022, being
the latest practicable date prior to publication of the report, the Company
bought back and cancelled 205,195 ordinary shares.
Share Buy-Backs to the Year-Ended 30 June 2022
30 June 2022 30 June 2021
Number of Number of
Shares USD'000 Shares USD'000
Opening balance at 1 July 42,623,935 60,474 50,814,865 81,832
Share issued during the year - - - -
Shares repurchased during the year (661,084) (2,655) (605,681) (1,180)
Tender Offer (12,737,184) (56,884) (7,585,249) (20,178)
Closing balance at 30 June 29,225,667 935 42,623,935 60,474
Substantial Share Interests
The following shareholders owned 5% or more of the shares in issue of the
Company, as stated on the share register as at 30 June 2022.
Number of Percentage of total
Shareholder ordinary shares shares in issue
Lynchwood Nominees Limited 5,889,152 20.2
Citibank Nominees (Ireland) Designated Activity Company 5,438,957 18.6
The Bank of New York (Nominees) Limited 2,821,510 9.7
Vidacos Nominees Limited 2,603,438 8.9
Hargreaves Lansdown (Nominees) Limited 1,747,238 6.0
Chase Nominees Limited 1,650,120 5.6
Euroclear Nominees Limited 1,605,934 5.5
Interactive Investor Services Nominees Limited 1,451,443 5.0
Notification of Shareholdings
In the year to 30 June 2022 the Company received notifications in accordance
with Chapter 5 of the DTR (which covers the acquisition and disposal of major
shareholdings and voting rights), of the following changes to voting rights by
shareholders of the Company. It should be noted that for non-UK issuers, the
thresholds prescribed under DTR 5.1.2 for notification of holdings commence at
5% of total voting rights, however notifications received below 5% have been
received and are included in this reporting.
Shareholder Number of Percentage of total Announcement date
voting rights voting rights as at
announcement date
De Pury Pictet Turrettini & Cie SA 0 0 18 August 2021
City of London Investment Management Company Limited 3,225,163 10.9 15 September 2021
Euroclear Nominees Limited 5,198,113 17.5 21 September 2021
City of London Investment Management Company Limited 2,963,123 10.0 17 December 2021
EdenTree Investment Management 1,489,431 5.1 01 June 2022
Since 30 June 2022 the Company has not received DTR 5.1.2 notifications of
holdings.
Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they are required to prepare the financial
statements in accordance with International Financial Reporting Standards as
adopted by the EU and applicable law. Under company law the Directors must not
approve the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of its profit or
loss for that period.
In preparing these financial statements, the Directors are required to:
● select suitable accounting policies and then apply them
consistently;
● make judgements and estimates that are reasonable, relevant and
reliable;
● state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
● assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
● use the going concern basis of accounting unless they either intend
to liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
The Directors who hold office at the date of approval of this Director's
Report confirm that so far as they are aware, there is no relevant audit
information of which the Company's auditor is unaware, and that each Director
has taken all the steps he ought to have taken as a Director to make
themselves aware of any relevant audit information and to establish that the
Company's auditor is aware of that information.
Compliance with Disclosure and Transparency Directive
We confirm that to the best of our knowledge:
● the financial statements, prepared in accordance with the
International Financial Reporting Standards as adopted by the EU ("IFRS"),
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company; and
● the Directors' Report includes a fair review of the development and
performance of the business and the position of the issuer, together with a
description of the principal risks and uncertainties that they face.
We consider the Annual Report and Financial Statements taken as a whole, is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
For and on behalf of the Board
Hiroshi Funaki
Chairman
30 September 2022
Independent Auditor's Report to the Members of VietNam Holding Limited
Our opinion is unmodified
We have audited the financial statements of VietNam Holding Limited (the
"Company"), which comprise the statement of financial position as at 30 June
2022, the statements of comprehensive income, changes in equity and cash
flows for the year then ended, and notes, comprising significant accounting
policies and other explanatory information.
In our opinion, the accompanying financial statements:
· give a true and fair view of the financial position of the Company
as at 30 June 2022, and of the Company's financial performance and cash flows
for the year then ended;
· are prepared in accordance with International Financial Reporting
Standards as adopted by the EU ("IFRS"); and
· comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities under, and are
independent of the Company in accordance with, UK ethical requirements
including the FRC Ethical Standard as applied to public interest entities. We
believe that the audit evidence we have obtained is a sufficient and
appropriate basis for our opinion.
Key audit matters: our assessment of the risks of material misstatement,
Key audit matters are those matters that, in our professional judgment, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these
matters. In arriving at our audit opinion above, the key audit matter was as
follows (unchanged from 2021):
The risk Our response
Valuation of Investments in securities at fair value Basis: Our audit procedures included:
$120,957,996; (2021: $193,108,385) The Company's investment portfolio consists of listed equity securities Internal Controls:
trading on the Vietnamese stock exchange (the "Investments"). These
Investments, carried at a fair value, are valued by the Company based on We evaluated the design and implementation of the key control over the
quoted prices in an active market for that instrument. valuation of Investments.
Refer to page 41 and 42 of the Audit and Risk Committee report, note 2d
accounting policies and note 12 disclosures. Risk: Use of KPMG Specialists:
The valuation of investments, due to their magnitude in the context of the We engaged our own valuation specialist to independently price 100% of
financial statement as a whole, is considered to be the area which has the Investments to third party pricing sources.
greatest effect on our overall audit strategy and allocation of resources in
planning and completing our audit. Assessing disclosures:
We considered the Company's disclosures (see notes 2b and 2d) in relation to
the use of estimates and judgements regarding the valuation of investments and
the Company's investment valuation policies and fair value disclosures in note
12 "Fair Value Information" for compliance with IFRS.
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at $2,576,000,
determined with reference to a benchmark of net assets of $128,822,167, of
which it represents approximately 2.0% (2021: 2.0%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance materiality for
the Company was set at 75% (2021: 75%) of materiality for the financial
statements as a whole, which equates to $1,932,000. We applied this percentage
in our determination of performance materiality because we did not identify
any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding $128,000, in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
Going concern
The directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Company or to cease its
operations, and as they have concluded that the Company's financial position
means that this is realistic. They have also concluded that there are no
material uncertainties that could have cast significant doubt over its ability
to continue as a going concern for at least a year from the date of approval
of the financial statements (the "going concern period").
In our evaluation of the directors' conclusions, we considered the inherent
risks to the Company's business model and analysed how those risks might
affect the Company's financial resources or ability to continue operations
over the going concern period. The risk that we considered most likely to
affect the Company's financial resources or ability to continue operations
over this period was availability of capital to meet operating costs and other
financial commitments.
We considered whether this risk could plausibly affect the liquidity in the
going concern period by comparing severe, but plausible downside scenarios
that could arise from this risk against the level of available financial
resources indicated by the Company's financial forecasts.
We considered whether the going concern disclosure in note 2(b) to the
financial statements gives a full and accurate description of the directors'
assessment of going concern.
Our conclusions based on this work:
· we consider that the directors' use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
· we have not identified, and concur with the directors' assessment that
there is not, a material uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on the Company's
ability to continue as a going concern for the going concern period; and
· we have nothing material to add or draw attention to in relation to
the directors' statement in the notes to the financial statements on the use
of the going concern basis of accounting with no material uncertainties that
may cast significant doubt over the Company's use of that basis for the going
concern period, and that statement is materially consistent with the financial
statements and our audit knowledge.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Company will continue in operation.
Fraud and breaches of laws and regulations - ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud ("fraud risks") we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
· enquiring of management as to the Company's policies and procedures
to prevent and detect fraud as well as enquiring whether management have
knowledge of any actual, suspected or alleged fraud;
· reading minutes of meetings of those charged with governance; and
· using analytical procedures to identify any unusual or unexpected
relationships.
As required by auditing standards, we perform procedures to address the risk
of management override of controls, in particular the risk that management may
be in a position to make inappropriate accounting entries. On this audit we do
not believe there is a fraud risk related to revenue recognition because the
Company's revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources or
agreements with little or no requirement for estimation from management. We
did not identify any additional fraud risks.
We performed procedures including
· Identifying journal entries and other adjustments to test based on
risk criteria and comparing any identified entries to supporting
documentation; and
· incorporating an element of unpredictability in our audit
procedures.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our sector
experience and through discussion with management (as required by auditing
standards), and from inspection of the Company's regulatory and legal
correspondence, if any, and discussed with management the policies and
procedures regarding compliance with laws and regulations. As the Company is
regulated, our assessment of risks involved gaining an understanding of the
control environment including the entity's procedures for complying with
regulatory requirements.
The Company is subject to laws and regulations that directly affect the
financial statements including financial reporting legislation and taxation
legislation and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial statement
items.
The Company is subject to other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of fines or
litigation or impacts on the Company's ability to operate. We identified
financial services regulation as being the area most likely to have such an
effect, recognising the regulated nature of the Company's activities and its
legal form. Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of management and
inspection of regulatory and legal correspondence, if any. Therefore, if a
breach of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection
of fraud, as this may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the annual report but does not include
the financial statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and we do not
express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements, or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer term viability
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements
and our audit knowledge. we have nothing material to add or draw attention to
in relation to:
· the directors' confirmation within the Viability Statement (page 44
- 46) that they have carried out a robust assessment of the emerging and
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity;
· the emerging and principal risks disclosures describing these risks
and explaining how they are being managed or mitigated;
· the directors' explanation in the Viability Statement (page 44 -
46) as to how they have assessed the prospects of the Company, over what
period they have done so and why they consider that period to be appropriate,
and their statement as to whether they have a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We are also required to review the Viability Statement, set out on page 44 -
46 under the Listing Rules. Based on the above procedures, we have concluded
that the above disclosures are materially consistent with the financial
statements and our audit knowledge.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' corporate governance disclosures and the
financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit knowledge:
· the directors' statement that they consider that the annual report
and financial statements taken as a whole is fair, balanced and
understandable, and provides the information necessary for shareholders to
assess the Company's position and performance, business model and strategy;
· the section of the annual report describing the work of the Audit
Committee, including the significant issues that the audit committee
considered in relation to the financial statements, and how these issues were
addressed; and
· the section of the annual report that describes the review of the
effectiveness of the Company's risk management and internal control systems.
We are required to review the part of Corporate Governance Statement relating
to the Company's compliance with the provisions of the UK Corporate Governance
Code specified by the Listing Rules for our review. We have nothing to report
in this respect.
We have nothing to report on other matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
· the Company has not kept proper accounting records; or
· the financial statements are not in agreement with the accounting
records; or
· we have not received all the information and explanations, which to
the best of our knowledge and belief are necessary for the purpose of our
audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 48, the directors
are responsible for: the preparation of the financial statements including
being satisfied that they give a true and fair view; such internal control as
they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error;
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going concern
basis of accounting unless they either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue our opinion in an auditor's report. Reasonable
assurance is a high level of assurance but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's website
at www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) .The purpose of this report
and restrictions on its use by persons other than the Company's members as a
body
This report is made solely to the Company's members, as a body, in accordance
with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the Company's members those matters
we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
Andrew J. Salisbury
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
30 September 2022
Statement of Financial Position
As at 30 June 2022
2022 2021
Notes USD USD
Assets
Non-current assets
Investments at fair value through profit or loss 3 120,957,996 193,108,385
Total non-current assets 120,957,996 193,108,385
Current assets
Cash and cash equivalents 8,160,681 6,031,337
Prepayments - 9,290
Accrued dividends and interest 58,772 30,153
Receivables on sale of investments - 1,239,041
Total current assets 8,219,453 7,309,821
Total assets 129,177,449 200,418,206
Equity
Share capital 5 166,645,041 166,645,041
Reserve for own shares 5 (165,709,783) (106,170,790)
Retained earnings 127,886,909 135,606,219
Total equity 128,822,167 196,080,470
Liabilities
Payables on purchase of investments - 3,905,824
Accrued expenses 355,282 431,912
Total liabilities 355,282 4,337,736
Total equity and liabilities 129,177,449 200,418,206
The financial statements on pages 54 to 70 were approved by the Board of
Directors on 30 September 2022 and were signed on its behalf by
Hiroshi Funaki
Philip Scales
Chairman of the Board of Directors
Chairman of the Audit and Risk Committee
The accompanying notes on pages 58 to 70 form an integral part of these
financial statements.
Statement of Comprehensive Income
For the year ended 30 June 2022
2022 2021
Notes USD USD
Dividend income from equity securities at fair value through profit or loss 1,811,555 2,390,216
Net (loss)/gain from investments at fair value through profit or loss 7 (5,211,105) 100,730,119
Net foreign exchange loss (67,666) (1,896)
Interest income from investments at fair value through profit or loss - 694,162
Other income - 163,128
Net investment (loss)/gain (3,467,216) 103,975,729
Investment management fees 8 2,737,804 2,438,087
Advisory fees 15,715 111,579
Directors' fees and expenses 8 385,292 328,690
Custodian fees 9 152,863 146,875
Administrative and accounting fees 10 216,939 219,271
Audit fees 71,428 78,758
Other expenses 672,053 498,581
Total operating expenses 4,252,094 3,821,841
(Loss)/income for the year (7,719,310) 100,153,888
Other comprehensive income - -
Total comprehensive (loss)/income for the year (7,719,310) 100,153,888
Basic and diluted (loss)/earnings per share 14 (0.24) 2.19
The accompanying notes on pages 58 to 70 form an integral part of these
financial statements.
Reserve for Retained
Share capital own shares earnings Total
USD USD USD USD
Balance at 1 July 2020 166,645,041 (84,813,068) 35,452,331 117,284,304
Total comprehensive income for the year
Change in net assets attributable to shareholders - - 100,153,888 100,153,888
Total comprehensive income for the year - - 100,153,888 100,153,888
Transactions in shares
Repurchase of own shares - (21,357,722) - (21,357,722)
Total transactions in shares - (21,357,722) - (21,357,722)
Balance at 30 June 2021 166,645,041 (106,170,790) 135,606,219 196,080,470
Balance at 1 July 2021 166,645,041 (106,170,790) 135,606,219 196,080,470
Total comprehensive loss for the year
Change in net assets attributable to shareholders - - (7,719,310) (7,719,310)
Total comprehensive loss for the year - - (7,719,310) (7,719,310)
Transactions in shares
Repurchase of own shares - (59,538,993) - (59,538,993)
Total transactions in shares - (59,538,993) - (59,538,993)
Balance at 30 June 2022 166,645,041 (165,709,783) 127,886,909 128,822,167
The accompanying notes on pages 58 to 70 form an integral part of these
financial statements.
Statement of Cash Flows
For the year ended 30 June 2022
2022 2021
Notes USD USD
Cash flows from operating activities
Total comprehensive (loss)/income for the year (7,719,310) 100,153,888
Adjustments to reconcile total comprehensive income/(loss) to net cash from
operating activities:
Dividend income (1,811,555) (2,390,216)
Interest income - (694,162)
Net loss/(gain) from investments at fair value through profit or loss 7 5,211,105 (100,730,119)
Net foreign exchange loss 67,666 1,896
Purchase of investments (78,323,705) (87,370,357)
Proceeds from sale of investments 145,262,989 110,054,346
Changes in working capital
Decrease/(increase) in receivables on sale of investments 1,239,041 (1,239,041)
(Decrease)/increase in payables on purchase of investments (3,905,824) 3,728,278
(Decrease)/increase in accrued expenses (76,630) 146,408
Decrease/(increase) in prepayments 9,290 (9,290)
Dividends received 1,690,983 2,392,036
Interest received 91,953 786,115
Net cash from operating activities 61,736,003 24,829,782
Cash flows used in financing activities
Repurchase of own shares (59,538,993) (21,357,722)
Net cash used in financing activities (59,538,993) (21,357,722)
Net increase in cash and cash equivalents 2,197,010 3,472,060
Cash and cash equivalents at beginning of the year 6,031,337 2,561,173
Effect of exchange rate fluctuations on cash held (67,666) (1,896)
Cash and cash equivalents at end of the year 8,160,681 6,031,337
The accompanying notes on pages 58 to 70 form an integral part of these
financial statements.
Notes to the Financial Statements
For the year ended 30 June 2021
1 The Company
VietNam Holding Limited (the "Company") is a closed-end investment company
that was incorporated in the Cayman Islands on 20 April 2006 as an exempted
company with limited liability under registration number 166182. On 25
February 2019, the Company, via a process of cross-border continuance,
transferred its legal domicile from the Cayman Islands to Guernsey and was
registered as a closed-ended company limited by shares incorporated in
Guernsey with registered number 66090.
On 8 March 2019 the Company's ordinary shares were cancelled from trading on
AIM and admitted to the Premium segment of the official list of the UK Listing
Authority ("Official List") and trading on the main market of the London Stock
Exchange ("Main Market"). On the same date the Company's shares were admitted
to listing and trading on the Official List of The International Stock
Exchange ("TISE").
The investment objective of the Company is to achieve long-term capital
appreciation by investing in a diversified portfolio of companies that have
high growth potential at an attractive valuation.
At the Extraordinary General Meeting held on 31 October 2018 the Shareholders
voted in favour of the continuance resolution, authorising the Company to
operate in its current form through to the 2023 Annual General Meeting when a
similar resolution will be put forward for Shareholders' approval.
Dynam Capital, Ltd has been appointed as the Company's Investment Manager and
is responsible for the day-to-day management of the Company's investment
portfolio in accordance with the Company's investment policies, objectives and
restrictions.
Sanne Group (Guernsey) Limited is the Company's administrator.
Standard Chartered Bank (Singapore) Limited and Standard Chartered Bank
(Vietnam) Limited are the custodian and the sub-custodian respectively.
Standard Chartered Bank (Singapore) Limited is also the sub-administrator.
The registered office of the Company is De Catapan House, Grange Road, St
Peter Port, Guernsey, GY1 2QG.
2 Significant Accounting Policies
(a) Statement of compliance
These financial statements, which give a true and fair view, have been
prepared in accordance with the International Financial Reporting Standards
("IFRSs") as adopted by the European Union and comply with the Companies
(Guernsey) Law, 2008.
(b) Basis of preparation
The financial statements are presented in United States dollars ("USD"), which
is the Company's functional currency. The financial statements have been
prepared on a going concern basis, applying the historical cost convention,
except for the measurement of investments at fair value through profit or
loss.
Going concern
The Directors have reasonable expectations and are satisfied that the Company
has adequate resources to continue its operations and meet its commitments for
the foreseeable future and they continue to adopt the going concern basis for
the preparation of the financial statements. In making this statement, the
Directors confirm the Company's forecasts and projections have been stress
tested taking into account the potential for (i) asset value declines, (ii)
declines in cash dividends from equities held in the portfolio and (iii) share
buybacks and tender offers. The Directors note that the underlying liquidity
of Vietnamese stocks has increased over the last twelve months with average
daily traded volumes increasing by as much as 5x the level of the prior year.
The Directors also note that the portfolio is composed of a higher percentage
of larger and more liquid stocks than in the prior year. Lastly, the Directors
note that at year-end the portfolio is comprised of cash and quoted stocks
only. The Company's liquidity position, taking into account cash held and with
the ability to sell underlying assets to meet share buybacks, tenders and to
meet the operating costs of the Company, shows that the Company is able to
operate with appropriate liquidity and be able to meet its liabilities as they
fall due. The fund has a formal continuation vote in 2023 and it is the
current intention of the Board to table a continuation resolution at the 2023
Annual General meeting. The Directors therefore have a reasonable expectation
that the Company will have adequate resources to continue its operations for
the foreseeable future. Thus, they continue to adopt the going concern basis
of accounting in preparing the financial statements.
Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS as adopted by
the European Union requires management to make judgements, estimates and
assumptions that affect the application of policies and the reported amounts
of assets and liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other factors that
are believed to be reasonable under the circumstances, the results of which
form the basis of making judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.
The estimated and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised if the revision affects only that period or in the
period of the revision and future periods if the revision affects both current
and future periods.
The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
Functional currency
The Company's shares were issued in USD and the listing of the shares on the
Main Market and TISE is in USD. The performance of the Company is measured and
reported to the investors in USD, although the primary activity of the Company
is to invest in the Vietnamese market. The Board considers the USD as the
currency that most faithfully represents the economic effects of the
underlying transactions, events and conditions.
Fair value of financial instruments
The fair value of financial instruments that are not traded in an active
market is determined by using valuation techniques. The Company uses its
judgement to select a variety of methods and make assumptions that are mainly
based on market conditions existing at each reporting date.
(c) Foreign currency translation
Transactions in foreign currencies other than the functional currency are
translated at the applicable rates on the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies are re-translated to
USD at the applicable rates on the year-end date. Foreign currency exchange
differences arising on translation and realised gains and losses on disposals
or settlements of monetary assets and liabilities are included in the
Statement of Comprehensive Income. Foreign currency exchange differences
relating to investments at fair value through profit or loss are included in
the realised and unrealised gains and losses on those investments within "Net
gain/(loss) from investments at fair value through profit or loss" on the
Statement of Comprehensive Income. All other foreign currency exchange
differences relating to other monetary items, including cash and cash
equivalents, are included in net foreign exchange gains and losses in the
Statement of Comprehensive Income.
(d) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of
one entity and a financial liability or equity instrument of another entity.
(i) Classification
In accordance with IFRS 9, the Company classifies its financial assets and
financial liabilities at initial recognition into the categories of financial
assets and financial liabilities discussed below.
Financial assets
The Company classifies its financial assets as subsequently measured at
amortised cost or measured at fair value through profit or loss on the basis
of both:
● The entity's business model for managing the financial assets
● The contractual cash flow characteristics of the financial assets
(d) Financial instruments (continued)
(i) Classification (continued)
Financial assets (continued)
Financial assets measured at amortised cost
A financial asset is measured at amortised cost if it is held within a
business model whose objective is to hold financial assets in order to collect
contractual cash flows and its contractual terms give rise on specified dates
to cash flows that are solely payments of principal and interest on the
principal amount outstanding. The Company includes in this category accrued
income, cash and cash equivalents and receivables on sale of investments.
Financial assets measured at fair value through profit or loss ("FVTPL")
A financial asset is measured at fair value through profit or loss if:
a) Its contractual terms do not give rise to cash flows on specified
dates that are solely payments of principal and interest (SPPI) on the
principal amount outstanding; or
b) It is not held within a business model whose objective is either to
collect contractual cash flows, or to both collect contractual cash flows and
sell; or
c) At initial recognition, it is irrevocably designated as measured at
FVTPL when doing so eliminates or significantly reduces a measurement or
recognition inconsistency that would otherwise arise from measuring assets or
liabilities or recognising the gains and losses on them on different bases.
The Company measures all its investments at FVTPL.
(ii) Recognition and initial measurement
Financial assets and liabilities at fair value through profit or loss are
recognised initially on the trade date, which is the date that the Company
becomes a party to the contractual provisions of the instrument. Other
financial assets and liabilities are recognised on the date they are
originated.
Financial assets and financial liabilities at fair value through profit or
loss are recognised initially at fair value, with transaction costs recognised
in the Statement of Comprehensive Income. Financial assets or financial
liabilities not at fair value through profit or loss are recognised initially
at fair value plus transaction costs that are directly attributable to their
acquisition or issue.
(iii) Subsequent measurement
After initial measurement, the Company measures financial instruments which
are classified as FVTPL at fair value. Subsequent changes in the fair value of
those financial instruments are recorded in net gain or loss on financial
assets and liabilities at FVTPL in the Statement of Comprehensive Income.
Interest and dividends earned or paid on these instruments are recorded
separately in interest income or expense and dividend income in the Statement
of Comprehensive Income.
(iv) Derecognition
A financial asset is derecognised when the Company no longer has control over
the contractual rights that comprise that asset. This occurs when the rights
are realised, expire or are surrendered.
Financial assets that are sold are derecognised, and the corresponding
receivables from the buyer for the payment are recognised on the trade date,
being the date the Company commits to sell the assets.
A financial liability is derecognised when the obligation specified in the
contract is discharged, cancelled or expired.
(v) Fair value measurement
'Fair value' is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date in the principal or, in its absence, the most
advantageous market to which the Company has access at that date. The fair
value of a liability reflects its non-performance risk.
When available, the Company measures the fair value of an instrument using the
quoted price in an active market for that instrument. A market is regarded as
'active' if transactions for the asset or liability take place with sufficient
frequency and volume to provide pricing information on an ongoing basis. The
Company measures instruments quoted in an active market at the last traded
price.
If there is no quoted price in an active market, then the Company uses
valuation techniques that maximise the use of relevant observable inputs and
minimise the use of unobservable inputs. The chosen valuation technique
incorporates all of the factors that market participants would consider in
pricing a transaction.
The Company recognises transfers between levels of the fair value hierarchy as
at the end of the reporting period during which the change has occurred.
Any increases or decreases in fair value are recognised in the Statement of
Comprehensive Income as an unrealised gain or loss from investments at FVTPL.
(vi) Impairment of financial assets
At each reporting date, the Company measures the loss allowance on financial
assets carried at amortised cost at an amount equal to the lifetime expected
credit losses if the credit risk has increased significantly since initial
recognition. If, at the reporting date, the credit risk has not increased
significantly since initial recognition, the Company measures the loss
allowance at an amount equal to 12-month expected credit losses. The expected
credit losses are estimated using a provision matrix based on the Company's
historical credit loss experience adjusted for factors that are specific to
the accounts receivables, general economic conditions and an assessment of
both the current as well as the forecast direction of conditions at the
reporting date, including time value of money where appropriate. The
measurement of expected credit losses is a function of the probability of
default, loss given default (i.e. the magnitude of the loss if there is a
default) and exposure at the default. The assessment of the probability of
default and loss given default is based on historical data adjusted by
forward-looking information.
(vii) Cash and cash equivalents
Cash comprises current deposits with banks. Cash equivalents are short-term
highly liquid investments that are readily convertible to known amounts of
cash, are subject to an insignificant risk of changes in value, and are held
for the purpose of meeting short-term cash commitments rather than for
investment or other purposes.
(e) Offsetting
Financial assets and liabilities are offset and the net amount is reported in
the Statement of Financial Position when, and only when, the Company has a
legally enforceable right to set off the recognised amounts and the
transactions are intended to be settled on a net basis or simultaneously, e.g.
through a market clearing mechanism.
(f) Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares are recognised as a deduction
from equity, net of any tax effects.
Repurchase, disposal and reissue of share capital (treasury shares)
Where the Company purchases its own share capital, the consideration paid,
which includes any directly attributable costs, is recognised as a deduction
from equity shareholders' funds through the Company's reserves for own shares.
The reserves for own shares represents share capital which can be reissued in
the future or subsequently cancelled. When such shares are subsequently sold
or re-issued to the market any consideration received, net of any directly
attributable incremental transaction costs, is recognised as an increase in
equity shareholders' funds through the reserve of own shares account. The
Directors have cancelled all the shares repurchased during the current and the
previous year.
(g) Tax
Tax expense comprises current tax. Current tax is recognised in the Statement
of Comprehensive Income except to the extent that it relates to items
recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of previous
years.
The Company is a tax resident in Guernsey and is subject to the standard rate
of 0% on taxable income.
The Company is liable to Vietnamese transactional tax of 0.1% (2021: 0.1%) on
the sales proceeds of the onshore sale of equity investments. The related
taxes on onshore sales proceeds are accounted for at net amount in the
Statement of Comprehensive Income.
(h) Interest income and expense
Interest income and expense is recognised in the Statement of Comprehensive
Income using the effective rate method. The effective interest rate method is
a method of calculating the amortised cost of a financial asset or financial
liability and of allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments or receipts throughout the expected
life of the financial instrument - or, when appropriate, a shorter period - to
the net carrying amount of the financial asset or financial liability
When calculating the effective interest rate, the Directors estimate cash
flows considering all contractual terms of the financial instrument but do not
consider future credit losses. The calculation includes all fees and points
paid or received between parties to the contract that are an integral part of
the effective interest rate, transaction costs and all other premiums or
discounts.
(i) Dividend income
Dividend income is recognised in the Statement of Comprehensive Income on the
date on which the right to receive payment is established. For listed equity
securities, this is usually the ex-dividend date. Dividend income from equity
securities designated as at fair value through profit or loss is recognised in
the Statement of Comprehensive Income as a separate line item.
(j) Fee and commission expense
Fees and commission expenses are recognised in the Statement of Comprehensive
Income as the related services are performed.
(k) Earnings per share
The Company presents basic and diluted earnings per share data for its
ordinary shares. Basic earnings per share is calculated by dividing the profit
or loss attributable to ordinary shareholders of the Company by the weighted
average number of ordinary shares outstanding during the year, adjusted for
own shares held.
3 Financial Instruments and Associated Risks
Financial assets of the Company include investments at fair value through
profit or loss, cash and cash equivalents, receivables on sale of investments,
and accrued dividends and interest. Financial liabilities comprise payables on
purchase of investments and accrued expenses. Accounting policies for
financial assets and liabilities are set out in note 2.
The Company's investment activities expose it to various types of risk that
are associated with the financial instruments and the markets in which it
invests. The most important types of financial risk to which the Company is
exposed are market risk (which includes price risk, currency risk, and
interest rate risk), credit risk and liquidity risk.
Asset allocation is determined by the Company's Investment Manager who manages
the distribution of the assets to achieve the investment objectives.
Divergence from target asset allocations and the composition of the portfolio
is monitored by the Investment Manager.
Market risk
Market risk is the risk that the value of a financial asset will fluctuate as
a result of changes in market prices (e.g. interest rates, foreign exchange
rates, equity prices and credit spreads) whether or not those changes are
caused by factors specific to the individual asset or factors affecting all
assets in the market. The Company is exposed to market risk within its
investments purchased in the Vietnamese market.
The overall market positions are monitored continuously by the Investment
Manager and at least quarterly by the Board.
The Company's investments in securities are exposed to market risk and are
disclosed by the following generic investment types:
2022 2021
Fair value % of Fair value % of
in USD net assets in USD net assets
Investments in listed securities 120,957,996 93.90 193,108,385 98.48
Investments in unlisted securities - - - -
120,957,996 93.90 193,108,385 98.48
At 30 June 2022, a 5% reduction in the market value of the portfolio would
have led to a reduction in NAV and profit or loss of USD 6,047,900 (2021: USD
9,655,419). A 5% increase in market value would have led to an equal and
opposite effect on NAV and profit or loss.
Currency risk
The Company may invest in financial instruments and enter into transactions
denominated in currencies other than its functional currency. Consequently,
the Company is exposed to risks that the exchange rate of its currency
relative to other currencies may change and have an adverse effect on the
value of the Company's financial assets or liabilities denominated in
currencies other than USD.
The Company's net assets are calculated every month based on the most up to
date exchange rates while the general economic and foreign currency
environment is continuously monitored by the Investment Manager and reviewed
by the Board at least once each quarter.
The Company may enter into arrangements to hedge currency risks if such
arrangements become desirable and practicable in the future in the interest of
efficient portfolio management.
As at 30 June 2022, the Company had the following foreign currency exposures:
Fair value
2022 2021
USD USD
Vietnamese Dong 128,235,094 195,378,974
Pound Sterling 632,133 3,903
Swiss Franc 163 2,628
Euro 4,497 54,097
128,871,887 195,439,602
At 30 June 2022, a 5% reduction in the value of the Vietnamese Dong, Pound
Sterling, Swiss Franc, Euro versus the US Dollar would have led to a reduction
in NAV and profit or loss of USD 6,411,755 (2021: USD 9,768,949), USD 31,607
(2021: USD 195), USD 8 (2021: USD 131) and USD 225 (2021: USD 2,705)
respectively. A 5% increase in value would have led to an equal and opposite
effect.
Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial
instrument will fluctuate because of changes in market interest rates.
The majority of the Company's financial assets are non-interest-bearing.
Interest-bearing financial assets and interest-bearing financial liabilities
mature or reprice in the short-term, no longer than twelve months. As a
result, the Company is subject to limited exposure to interest rate risk due
to fluctuations in the prevailing levels of market interest rates.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered with the
Company.
At 30 June 2022, the following financial assets were exposed to credit risk
(including settlement risk): cash and cash equivalents, receivables on sale of
investments and accrued dividends and interest. The total amount of financial
assets exposed to credit risk amounted to USD 8,219,453 (2021: USD 7,300,531).
Substantially all the assets of the Company are held by the Company's
custodian, Standard Chartered Bank (Singapore) Limited. Bankruptcy or
insolvency of the custodian may cause the Company's rights with respect to
cash and securities held by the custodian to be delayed or limited. The
Company monitors its risk by monitoring the credit quality and financial
positions of the custodian the Company uses.
As at 30 June 2022, the Company's custodian, Standard Chartered Bank
(Singapore) Limited, was rated as A by Standard and Poor's, A1 by Moody's and
A+ by Fitch (2021: A by Standard and Poor's, A1 by Moody's and A+ by Fitch).
Financial assets subject to IFRS 9's impairment requirements
The Company's financial assets subject to the expected credit loss model
within IFRS 9 are cash and cash equivalents, and short-term receivables,
including accrued dividends and interest, and receivables on sale of
investments. As at 30 June 2022, the total of cash and cash equivalents, and
short-term receivables was USD 8,219,453 (2021: USD 7,300,531). The Directors
assessed the lifetime expected credit loss as at 30 June 2022 and concluded it
to be immaterial (2021: loss immaterial). There is not considered to be any
concentration of credit risk within these assets. No assets are considered
impaired and no amounts have been written off in the year.
All short-term receivables are expected to be received in three months or
less. An amount is considered to be in default if it has not been received 30
days after it is due.
Liquidity risk
The Company, a closed-end investment company, invests in companies through
listings on the Vietnam stock exchanges. There is no guarantee however that
the Vietnam stock exchanges will provide liquidity for the Company's
investments.
The Company's overall liquidity risks are monitored on at least a quarterly
basis by the Board. The Company is a closed-end investment company so
Shareholders cannot repurchase their shares directly from the Company.
The Board has considered that there may be periods of time when parts of the
portfolio are prone to higher liquidity risk, but is satisfied overall that
the fixed liabilities of the Company can be met by income or from selling
sufficient marketable securities even at periods of higher illiquidity.
Payables on purchase of investments and accrued expenses are generally payable
within one year.
The table below summarises the maturity profile of the Company's financial
assets and liabilities based on contractual undiscounted receipts and
payments:
Over
0 to 1 to 3 months No fixed
On demand 1 month 3 months to 5 years maturity Total
USD USD USD USD USD USD
2022
Cash and cash equivalents 8,160,681 - - - - 8,160,681
Investment at fair value through profit and loss - - - - 120,957,996 120,957,996
Accrued dividends - - 58,772 - - 58,772
Total financial assets 8,160,681 - 58,772 - 120,957,996 129,177,449
Accrued expenses - - 355,282 - - 355,282
Total financial liabilities - - 355,282 - - 355,282
2021
Cash and cash equivalents 6,031,337 - - - - 6,031,337
Investment at fair value through profit and loss - - - - 193,108,385 193,108,385
Accrued dividends - - 30,153 - - 30,153
Receivables on sale of investments - 1,239,041 - 1,239,041
Total financial assets 6,031,337 1,239,041 30,153 - 193,108,385 200,408,916
Payables in purchase of investments - 3,905,824 - - - 3,905,824
Accrued expenses - - 431,912 - - 431,912
Total financial liabilities - 3,905,824 431,912 - - 4,337,736
4 Operating Segments
An operating segment is a component of the Company that engages in business
activities from which it may earn revenues and incur expenses, including
revenues and expenses that relate to transactions with any of the Company's
other components. The Company is engaged in a single segment of business,
being investment in Vietnam. The Board, as a whole, has been determined as
constituting the chief operating decision maker of the Company. The key
measure of performance used by the Board to assess the Company's performance
and to allocate resources is the total return on the Company's NAV calculated
as per the prospectus.
Information on gains and losses derived from investments are disclosed in the
Statement of Comprehensive Income.
The Company is domiciled in Guernsey, Channel Islands. Entity wide disclosures
are provided as the Company is engaged in a single segment of business,
investing in Vietnam. In presenting information on the basis of geographical
segments, segment investments and the corresponding segment net investment
income arising thereon are determined based on the country of domicile of the
respective investment entities.
In line with the Company's investment policy, the Company may invest:
● up to 25% of its NAV (at the time of investment) in companies with
shares traded outside of Vietnam if a majority of their assets and/or
operations are based in Vietnam;
● up to 20% of its NAV (at the time of investment) in direct private
equity investments; and
● up to 20% of its NAV (at the time of investment) in other listed
investment funds and holding companies which have the majority of their assets
in Vietnam.
As of 30 June 2022, no individual investment exceeded 20% of the net assets
attributable to Shareholders (2021: none).
All of the Company's investments in securities at fair value are in Vietnam as
at 30 June 2022 and 30 June 2021. All of the Company's investment income can
be attributed to Vietnam for the years ended 30 June 2022 and 30 June 2021.
5 Share Capital
Ordinary shares of USD 1 each
Pursuant to its redomiciliation to Guernsey, the Company re-registered with an
authorised share capital of USD 200,000,000 divided into 200,000,000 shares of
a nominal or par value of USD 1.00 each. In line with the Company's new
Articles of Incorporation, the Company may from time to time repurchase all or
any portion of the shares held by the Shareholders upon giving notice of not
less than 30 calendar days.
On 8 March 2019 the Company's ordinary shares were cancelled from trading on
AIM and admitted to the Premium segment of the Official List and trading on
the Main Market. On the same date the Company's shares were admitted to
listing and trading on the TISE.
2022 2021
No. of shares No. of shares
Total shares issued and fully paid (after repurchases and cancellations) at 42,623,935 50,814,865
beginning of the year
Shares issued upon exercise of warrants during the year - -
Shares cancellation (13,398,268) (8,190,930)
29,225,667 42,623,935
Repurchased and reserved for own shares
At beginning of the year - -
During the year (13,398,268) (8,190,930)
Shares reissued to ordinary shares - -
Shares cancellation 13,398,268 8,190,930
Total outstanding ordinary shares with voting rights 29,225,667 42,623,935
As a result, as at 30 June 2022 the Company has 29,225,667 (2021: 42,623,935)
ordinary shares with voting rights in issue (excluding the reserve for own
shares), and Nil (2021: Nil) are held as reserve for own shares.
Reserve for own shares
Reserve for own shares are the Company's own shares which had been
repurchased. The amount represents share capital which can be reissued in the
future or subsequently cancelled. All reserves are available for distribution
subject to a solvency assessment.
During the year ended 30 June 2022 the Company repurchased and cancelled
661,084 ordinary shares (2021: 605,681 ordinary shares) under the Company's
share buyback programme (representing 1.6% of the ordinary shares outstanding
at 1 July 2021) at a weighted average NAV discount of 21.3%. This resulted in
a 0.25% accretion to NAV per share.
The Company repurchased and cancelled a further 12,737,184 shares during the
year ended 30 June 2022 following a tender offer for 30% of the Company's
ordinary shares at a 2% discount to the prevailing NAV per share as at 31
August 2021 (2021: 7,585,249 ordinary shares).
Total ordinary shares repurchased and cancelled during the year were
13,398,268 (2021: 8,190,930).
Holders of ordinary shares are entitled to attend, speak and vote at general
meetings of the Company. Each ordinary share (excluding shares in treasury)
earns one vote. Treasury shares do not carry voting rights.
Capital Management
The Company does not have any externally imposed capital requirements.
The Company's general intention is to reinvest the capital received on the
sale of investments. However, the Board may from time to time and at its
discretion, either use the proceeds of sales of investments to meet the
Company's expenses or distribute them to Shareholders. Alternatively, the
Company may repurchase its own ordinary shares with such proceeds from
Shareholders pro rata to their shareholding upon giving notice of not less
than 30 calendar days to Shareholders (subject always to applicable law) or
repurchase ordinary shares at a price not exceeding the last published NAV per
share.
6 Net Assets Attributable to Shareholders
Total equity of USD 128,822,167 (2021: USD 196,080,470) represents net assets
attributable to Shareholders. NAV per share as at 30 June 2022 is USD 4.408
(2021: USD 4.600).
7 Net (Loss)/Gain from Investments at Fair Value through Profit or Loss
2022 2021
USD USD
Realised (loss)/gain on disposal of investments 50,172,287 15,275,568
Realised foreign currency gain/(loss) 253,204 (326,765)
Unrealised (loss)/gain on investments at fair value through profit or loss (54,419,413) 84,667,613
Unrealised foreign currency (loss)/gain (1,217,183) 1,113,703
(5,211,105) 100,730,119
8 Related Party Transactions
Investment management fees
The Company entered into a new investment management agreement with Dynam
Capital, Ltd on 26 June 2018. The agreement was amended and restated on 8
October 2018 and further amended and restated on 1 October 2020. The Board and
the Investment Manager agreed to modify the management fee (previously on a
sliding scale of 1.5% per annum on NAV below USD 300 million, 1.25% per annum
on NAV between USD 300 - USD 600 million, and 1.0% per annum on NAV above USD
600 million) effectively from 1 November 2020.
Pursuant to the agreement the Investment Manager is entitled to receive a
monthly management fee, paid in the manner set out as below:
● On the amount of the Net Asset Value of the Company up to but
excluding USD 300 million, one-twelfth of 1.75%;
● On the amount of the Net Asset Value of the Company between and
including USD 300 million up to and including USD 600 million, one-twelfth of
1.5%; and
● On the amount of the Net Asset Value of the Company that exceeds USD
600 million, one-twelfth of 1%.
The management fee accruing to the Investment Manager for the year ended 30
June 2022 was USD 2,737,804 (2021: USD 2,438,087). An amount of USD 200,421
(30 June 2021: USD 273,919) was outstanding as at 30 June 2022.
Directors' fees and expenses
The Board determines the fees payable to each Director, subject to a maximum
aggregate amount of USD 350,000 (2021: USD 350,000) per annum being paid to
the Board as a whole. The Company also pays reasonable expenses incurred by
the Directors in the conduct of the Company's business including travel and
other expenses. The Company pays for directors and officers liability
insurance coverage.
The charges for the year for the Directors' fees were USD 317,859 (2021: USD
313,443) and expenses were USD 67,433 (2021: USD 15,247). The total Directors'
fees and expenses for the year were USD 385,292 (2021: USD 328,690).
As at 30 June 2022, USD 9,012 (2021: 8,250) of Directors' fees were
outstanding.
Directors' ownership of shares
As at 30 June 2022, Directors held 44,920 ordinary shares in the Company
(2021: 48,861) as listed below.
Hiroshi Funaki 19 ,887 Shares (disposed of 6,756 shares during the year and
purchased a further 6,000 shares during the year)
Sean Hurst 5,312 Shares (disposed of 5,206 shares and
purchased a further 3,300 shares during the year)
Philip Scales 10,077 Shares (disposed 3,273 shares and purchased
a further 3,350 shares during the year)
Damien Pierron 4,644 Shares (disposed 3,606 shares and purchased 3,350
shares during the year)
Saiko Tajima 5,000 Shares
Mr. Funaki is also a Director of Discover Investment Company which holds
1,405,776 ordinary shares in the Company representing 4.81% of the issued
share capital. Discover Investment Company disposed of 916,905 shares during
the year.
Mr Craig Martin, Chairman of the Investment Manager holds 59,686 shares in the
Company. During the year he participated in the tender offer tendering 26,887
shares and repurchased a further 5,000 shares during the year.
9 Custodian Fees
Custodian fees are charged at a minimum of USD 12,000 (2021: USD 12,000) per
annum and received as a fee at 0.08% on the assets under administration
("AUA") per annum. Custodian fees comprise safekeeping fees, transaction fees,
money transfer fees and other fees. Safekeeping of unlisted securities up to
20 securities is charged at USD 12,000 (2021: USD 12,000) per annum.
Transaction fees, money transfers fees and other fees are charged on a
transaction basis.
The charges for the year for the Custodian fees were USD 152,863 (2021: USD
146,875), of which USD 13,000 (2021: USD 16,000) were outstanding at year end.
10 Administrative and Accounting Fees
In accordance with the new Administration Agreement between the Company and
Sanne Group (Guernsey) Limited (the "Administrator") dated 7 October 2019, the
Administrator is entitled to receive a fee of 0.08% per annum of NAV up to USD
100,000,000, 0.07% of NAV thereafter subject to a minimum fee of USD 140,000
per annum. The administration fees are accrued monthly and are payable
quarterly in advance. The charges for the year for Administration fees were
USD 139,207 (2021: USD 138,460), of which USD 1,130 (2021: USD 2,693) were
outstanding at year end.
The Sub-Administrator receives a fee as consideration for the services
provided to the Company at such rates as may be agreed in writing from time to
time between the Company and the Sub-Administrator. The charges for the year
for Administration fees were USD 77,731 (2021: USD 80,810), of which USD 5,303
(2021: USD 8,070) were outstanding at year end.
Total administrative and accounting fees for the year were USD 216,938 (2021:
USD 219,271).
11 Controlling Party
The Directors are not aware of any ultimate controlling party as at 30 June
2022 or 30 June 2021.
12 Fair Value Information
For certain of the Company's financial instruments not carried at fair value,
such as cash and cash equivalents, accrued dividends, other receivables,
receivables/payable upon sales/purchase of investments and accrued expenses,
the amounts approximate fair value due to the immediate or short-term nature
of these financial instruments.
Other financial instruments are measured at fair value through profit or loss.
Fair value estimates are made at a specific point in time, based on market
conditions and information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
● Level 1: Inputs that are quoted market prices (unadjusted) in active
markets for identical instruments. This level includes listed equity
securities on exchanges (for example, Ho Chi Minh Stock Exchange).
● Level 2: Inputs other than quoted prices included within Level 1
that are observable either directly (i.e., as prices) or indirectly (i.e.,
derived from prices). This level includes instruments valued using: quoted
prices for identical or similar instruments in markets that are considered
less than active; quoted market prices in active markets for similar
instruments; or other valuation techniques in which all significant inputs are
directly or indirectly observable from market data.
● Level 3: Inputs that are not based on observable market data (i.e.,
unobservable inputs). This level includes all instruments for which the
valuation technique includes inputs not based on observable data and the
unobservable inputs have a significant effect on the instrument's valuation.
The table below analyses financial instruments measured at fair value at the
reporting date by the level in the fair value hierarchy into which the fair
value measurement is categorised. The amounts are based on the values
recognised in the Statement of Financial Position. All fair value measurements
below are recurring.
Level 1 Level 2 Level 3 Total
USD USD USD USD
2022
Financial assets classified at fair value upon initial recognition
Investments in securities 120,957,996 - - 120,957,996
2021
Financial assets classified at fair value upon initial recognition
Investments in securities 193,108,385 - - 193,108,385
There were no transfers between levels during the year.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined based on the lowest level input
that is significant to the fair value measurement in its entirety. Assessing
whether an input is significant requires judgement including consideration of
factors specific to the asset or liability. Moreover, if a fair value
measurement uses observable inputs that require significant adjustment based
on unobservable inputs, that fair value measurement is a Level 3 measurement.
There are no level 3 assets held at 30 June 2022 (2021: Nil).
13 Classifications of Financial Assets and Liabilities
The table below provides a breakdown of the line items in the Company's
Statement of Financial Position to the categories of financial instruments.
Fair value through Loans and Other Total carrying
Profit or loss receivables liabilities amount
USD USD USD USD
2022
Cash and cash equivalents - 8,160,681 - 8,160,681
Investment in securities at fair value 120,957,996 - - 120,957,996
Accrued dividends - 58,772 - 58,772
120,957,996 8,219,453 - 129,177,449
Accrued expenses - - 355,282 355,282
- - 355,282 355,282
2021
Cash and cash equivalents - 6,031,337 - 6,031,337
Investment in securities at fair value 193,108,385 - - 193,108,385
Accrued dividends - 30,153 - 30,153
Receivables on sale of investments - 1,239,041 1,239,041
193,108,385 7,300,531 - 200,408,916
Payables in purchase of investments - - 3,905,824 3,905,824
Accrued expenses - - 431,912 431,912
- - 4,337,736 4,337,736
14 Earnings Per Share
The calculation of basic and diluted earnings per share at 30 June 2022 was
based on the total comprehensive loss for the year attributable to
Shareholders of USD 7,719,310 (2021: Income of USD 100,153,888) and the
weighted average number of shares outstanding of 31,987,327 (2021:
45,761,268).
15 New and Amended Standards and Interpretations
(i) Standards and amendments to existing standards effective 1 July 2021
The Board of Directors has assessed the impact, or potential impact, of all
new standards and amendments to existing standards. In the opinion of the
Board of Directors, there are no mandatory new standards and amendments
applicable in the current year that had any material effect on the reported
performance, financial position, or disclosures of the Company.
(ii) Standards effective after 30 June 2022 that have been early adopted by the Company
There are no standards effective after 30 June 2022 that are relevant to the
Company.
16 Events After the Reporting Date
From 1 July 2022 to the date of signing these financial statements, there were
no material events that require disclosures and/or adjustments in these
financial statements.
Alternative Performance Measures ("APMs")
Discount or Premium
The amount, expressed as a percentage, by which the ordinary share price is
either higher (premium) or lower (discount) than the NAV per ordinary share.
Page 30 June 2022
NAV per ordinary share (pence) 1 a 363.0
Ordinary share price (pence) 1 b 309.5
Discount 1 ((b-a)/a) 14.7%
Ongoing charges
Ongoing charges have been calculated in accordance with the Association of
Investment Companies (the "AIC") recommended methodology by taking the
regularly incurred annual operating expenses of running the Company expressed
as a percentage of average NAV.
The ongoing charges for the year ended 30 June 2022 were 2.74%.
30 June 2022
Page USD
Average NAV 1 a 155,041,007
Operating expenses 1 b 4,242,306
Ongoing charges 1 b/a 2.74%
Average NAV
Calculated using twelve monthly closing average NAV for the year ended 30 June
2022.
Operating expenses
Total annual expenses incurred by the Company less the cost of project and
one-off expenses i.e. non-recurring expenses.
Page USD
Total annual expenses 55 c 4,252,094
Less: non-recurring expenses d (9,788)
Operating expenses b=c+d 4,242,306
Corporate Information
Directors Auditor
Mr. Hiroshi Funaki KPMG Channel Islands Limited
Mr. Sean Hurst Glategny Court
Mr. Philip Scales Glategny Esplanade
Mr. Damien Pierron St Peter Port
Ms. Saiko Tajima Guernsey
GY1 1WR
Investment Manager
Dynam Capital, Ltd Market Researcher
De Catapan House Dynam Consultancy and Services
Grange Road Company Limited
St Peter Port Floor 12, Deutsches Haus,
Guernsey 33 Le Duan,
GY1 2QG Ben Nghe Ward, District 1
Ho Chi Minh City,
Registered Office, Company Secretary and Administrator Vietnam
Sanne Group (Guernsey) Limited
De Catapan House Corporate Broker and Financial Adviser
Grange Road finnCap Ltd.
St Peter Port One Bartholomew Close
Guernsey London
GY1 2QG EC1A 7BL
(Nominated Adviser (AIM) until transference to LSE Main Market)
Sub-Administrator, Custodian and Principal Bankers
Standard Chartered Bank (Singapore) Limited Registrar
7 Changi Business Park Crescent Computershare Investor Services (Guernsey) Limited
Level 3, Securities Services 1st Floor, Tudor House
Singapore 486028 Le Bordage
St Peter Port
UK Legal Adviser Guernsey
Stephenson Harwood LLP GY1 1DB
1 Finsbury Circus
London
EC2M 7SH
Guernsey Legal Adviser
Carey Olsen (Guernsey) LLP
Carey House
Les Banques
St Peter Port
Guernsey
GY1 4BZ
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