CONTENT SUSTAINABILITY VALUE TRUST. years GENERAL INFORMATION ABOUT COMPANY VALUE ADDED COST REDUCTION SUCCESS REPLICATION OUTCOME SHARING

Transcription

1 ANNUAL REPORT 2013

2 CONTENT GENERAL INFORMATION ABOUT COMPANY Overall Formation and Development History Goods and Services Supplied Operation Network Organizational Structure VALUE ADDED Chairman s Statement Honour Awards 2013 Financial Highlights years SUSTAINABILITY VALUE TRUST COST REDUCTION Board of Director s Report Advantages and Threats Affecting 2013 Performance Supervisory Board s Report SUCCESS REPLICATION Board of Management s Report Sustainable Growth Report Organization and Human Resources ACRONYMS OUTCOME SHARING New projects investment and implementation Import Export Activities 2014 Target and Business Strategy Corporate Governance Associations and Joint-ventures SMC : SMC Trading Investment Joint Stock Company JSC : Joint Stock Company Co., Ltd IZ AGM Business IA GD DGD BOD : Limited Company : Industrial zone : Annual General Meeting : Manufacturing and trading : Internal Audit : General Director : Deputy General Director : Board of Directors BENEFIT BALANCED Report of the Board of Management Auditors Report Consolidated Balance Sheet Consolidated Income statement Consolidated Cash flow statement Notes to the consolidated financial statements IE : Import and Export RO : Representative Office VTU : Vietnamese Trade Union

3 Overall From a small steel shop, after 25 years of development, especially after equitization, SMC has grown and become a leading steel trader in Vietnam. With the advantage of steel services center and steel distribution experience, SMC has not only sustained its growth, but also achieved impressive results in the gloomy economy. Vietnamese name English name Trading name Abbreviation Head quarter Công ty Cổ Phần Đầu tư Thương mại SMC SMC Investment Trading JSC Steel Materials Company SMC Tel (84-08) Fax (84-08) Website Charter capital Ticker Face value Listed shares 396 Ung Van Khiem St., Ward 25, Binh Thanh District, HCMC 295,183,610,000 VND SMC 10,000 VND 29,518,361 shares on the Ho Chi Minh Stock Exchange Production, trading, import and export of all kind of steels, metal goods, construction materials, interior decoration, construction equipment, mechanical equipment, warehouse framework, factory by steel, stainless steel, and aluminum. Construction and installation of civil, industrial, transport, irrigation, and interior design projects in accordance with the laws. Business Activities Preparation of construction investment projects, consulting, designing, and trading lodgement in accordance with the laws. Trading electrical products, groceries, consumer food and goods. Logistics and warehousing services for domestic and import export products. Trading real estate and land use rights of the owners or lessee. 4 SMC INVESTMENT TRADING JSC GENERAL INFORMATION ABOUT COMPANY 5

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

5 Goods and Services Supplied wire rod rebar deformed steel Construction steels including wire rod, rebar, round steel, and deformed steel. Hot rolled coil, cold rolled coil, welded wire mesh, high tensile steel, purlin, steel pipe, section steel, galvanized steel plates, secondary steel 4 Coil Center systems throughout from the North to the South and located in such big city as Ha Noi, Ho Chi Minh, Ba Ria Vung Tau are well equipped with modern machineries and processing lines imported from Taiwan according to Germany technology. Scientific management technique according to ISO 9001:2000 allows the processing systems to professionally split and cut various sizes of cold and hot rolled coils, galvanized steel sheets, color coated steel sheet, and stainless steels with high quality and precision. Coil Center System Capacity Unit Coil Center SMC Phu My - BRVT CRC cutting line Line 1 48,000 Tons/year CRC cutting line Line 2 30,000 Tons/year CRC splitting line 60,000 Tons/year HRC cutting line 70,000 Tons/year HRC splitting line 60,000 Tons/year Coil Center SMC Ha Noi CRC cutting line 38,000 Tons/year CRC splitting line 48,000 Tons/year Coil Center SMC Tan Tao HRC cutting line 75,000 Tons/year HRC splitting line 60,000 Tons/year Hot rolled steel Cold rolled steel Purlin Euro mesh welded mesh steel 8 SMC INVESTMENT TRADING JSC GENERAL INFORMATION ABOUT COMPANY 9

6 Operation Network 100% CAPITAL JUNE 2007 SMC STEEL CO., LTD HA NOI - HA NOi Lot No.47, Quang Minh Industrial Zone, Quang Minh Town, Me Linh District, Hanoi Tel: (04) Fax: (04) MEMBER CORPORATION 100% CAPITAL NOVEMBER 2008 SMC STEEL MECHANICAL ONE MEMBER Co., LTD DA NANG - ĐA NANG Bach Dang Street, Hai Chau District, Da Nang Tel: (0511) Fax: (0511) % CAPITAL NOVEMBER 2008 SMC BINH DUONG ONE MEMBER Co., LTD BINH DUONG - BINH DUONG Road No.5, Dong An Industrial Zone, Binh Hoa Thuan An Town, Binh Duong Province Tel: (0650) Fax: (0650) % CAPITAL JULY 2009 SMC HIEP PHUOC ONE MEMBER Co., LTD HCMC Paracel Islands SMC TRADING INVESTMENT JSC - HO CHI MINH CITY HEAD QUARTER 396 Ung Van Khiem Street, Ward 25, Binh Thanh District, Ho Chi Minh City Tel: (84-8) Fax: (84-8) Website: - TAN TAO Lot 33, Center Street, Tan Tao Industrial Zone, Tan Tao A Ward, Binh Tan District, Ho Chi Minh City Tel: (84-8) Fax: (84-8) % CAPITAL DECEMBER 2009 SMC STEEL TRADING ONE MEMBER Co.,LTD SMC STEEL TRADING 124 Ung Van Khiem Street, Ward 25, Binh Thanh District, Ho Chi Minh City Tel: (08) Fax: (08) % CAPITAL OCTOBER 2011 SMC HANOI JSC - HIEP PHUOC Lot C5A, C Zone, Hiep Phuoc Industrial Zone, Nha Be District, HCMC BA RIA - VUNG TAU SMC STEEL - BA RIA VUNG TAU 1B Street - Phu My I Industrial Zone, BRVT Province Tel: (064) Fax: (064) % CAPITAL DECEMBER 2012 SMC TAN TAO ONE MEMBER Co., LTD SMC MECHANICAL STEEL - BA RIA VUNG TAU Phu My I Industrial Zone, Phu My Town, Tan Thanh District, BRVT Province Tel: (064) Fax: (064) SUMMIT Head Office: 1B Street, Phu My I Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Tel: (064) Fax: (064) JOINT VENTURE 50% CAPITAL JUNE 2012 SMC-SUMMIT LIMITED LIABILITY COMPANY Representative Office: 396 Ung Van Khiem St., Ward 25, Binh Thanh Dist., HCMC Tel: (08) / Fax: (08) Spratly Islands 10 SMC INVESTMENT TRADING JSC GENERAL INFORMATION ABOUT COMPANY 11

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

8 VALUE ADDED Speaking of steel, thinking of SMC Mentioning SMC, thinking of steel Chairman s Statement Honour Awards 2013 Financial Highlights

9 Chairman s Statement With unceasing efforts, SMC has overcome many challenges of the year 2013, though final achievement not as expectations. In return, SMC has confirmed its strong growth in tough situations with steel consumption exceeding 700,000 tons. Dear Honorable Shareholders, Ending 2013, the steel industry as a key sector in the economy, along with the country, the region and global s difficulties, has experienced a challenging year with plenty of hindrance and obstruction, which mainly come from reduced purchasing power, sluggish consumption, frozen real estate market, large finished goods inventory, and increasingly revealed NPL. Due to slow consumption, selling price were cut off to stimulate demand and trading activities, leading to decreasing profit, or even losses and bankruptcy within the steel industry. With unceasing efforts, SMC has overcome many challenges of the year 2013, though final achievement not as expectations. In return, SMC has confirmed its strong growth in tough situations with steel consumption exceeding 700,000 tons and successful investment into the new Coil Center plant for processing of hot rolled steel in Tan Tao, HCMC with total costs of over VND 170 bn. Moreover, significantly increasing production and financial capabilities, strengthening relationships with domestic and foreign steel producers, and enhancing brand-name reputation have paved the way for the signing and implementation of the steel supply contracts with foreign investors in Vietnam increasingly favorable. Armed with 04 processing flat steel factories, well equipped with modern machineries and technology, and having total processing capacity of 200,000 tons per year, SMC has created strong differences and advantages over peers, continuously improving quality of customer services, providing diversified products to not only domestic market but also to other Asian countries. The introduction of these plants has changed the countenance of SMC from pure trader of construction steels into flat steel processer and supplier of various steel products including construction steels, cold rolled coil, hot rolled coil, galvanized steel plates, steel shape, steel pipe, weld mesh, color coated steel sheets to serve plentiful customers as construction unit, manufacturers of mechanical, electronics, refrigeration, transportation with more than 500 regular customers, ensuring the solidity of market share. Move into 2014, although the domestic economy is still in difficult phase with low GDP growth and unclear real estate prospect, SMC has confidence in achieving target steel consumption of 750,000 tons, and aims at 1 million tons in the following years. With prudent and solid orientation, SMC will follow the path of development in depth and more efficient, based on the increases in both human and equipment productivity, maximizing existing advantages and capabilities, besides increasing cost management to minimize operational costs. In 2014, SMC will not have new project investment and construction but rather find solutions to improve processing activities and value added products, as well as to ensure all current Coil Center plants performance more steadily and efficient. Having the solid foundation built up from many years, together with the ceaseless efforts of all staffs and workers, SMC believes in its ability to continue overcoming all obstacles to accomplish 2014 targets. Sincerely, Chairman, NGUYEN NGOC ANH 16 SMC INVESTMENT TRADING JSC VALUE ADDED 17

10 Honour Awards Typical Awards , 2007, 2008, 2009, 2010, 2011, , , , 2008, 2009 First Class Labour Medal Vietnam Gold Star Award & Top 100 Vietnamese Brand Vietnam Excellent Retail Distributor The Best Service Trade Award Vietnam Strong Brand Receiving Third Class Labour Medal , Emulation Flag of Prime Minister The best distribution system development and organization award Vietnam Top 500 companies with the largest revenue Second Class Labour Medal Golden Brand CEO NGUYEN NGOC ANH Receiving Second Class Labour Medal 2006, Emulation Flag of Ministry of Trade Certificate of Merit by the National Committee for International Economic Cooperation Third Class Labour Medal Certificate of Merit by Prime Minister Receiving First Class Labour Medal 18 SMC INVESTMENT TRADING JSC VALUE ADDED 19

11 2013 Financial Highlights TOTAL STEEL CONSUMPTION VOLUME (tons) NET REVENUE (VND bn) 800,000 12,000 CONSUMPTION BREAKDOWN BY KEY PRODUCT SEGMENTS 2012 CONSUMPTION BREAKDOWN BY KEY PRODUCT SEGMENTS , , , , , , , , , , , ,000 8,000 6,000 4,000 2,000 5,264 6,858 8,940 8,964 9, EBITDA (VND bn) 90.0 NET PROFIT AFTER TAX (VND bn) 80.0 Construction steel 67.1% Construction steel 62.4% Flat steel Section steel 28.7% Flat steel 33.1% 1.9% Section steel 2.1% Others 2.3% Others 2.4% SMC INVESTMENT TRADING JSC VALUE ADDED 21

12 COST REDUCTION SMC is always transparently sharing information to investors, customers, and partners, focusing on core values and aiming towards sustainable development. Board of Director s Report Advantages and Threats Affecting 2013 Performance Supervisory Board s Report

13 Board of Directors Report Board of Directors Mr. NGUYEN NGOC ANH Mrs. NGUYEN THI NGOC LOAN Mr. VO HOANG VU Mr. MA DUC TU Mr. TAIRA YOSHIYUKI Mrs. VU THI THANH HONG Chairman of SMC BOD/ Member of Thong Nhat Steel JSC BOD/ Member of Nam Khang Investment JSC BOD Vice Chairwoman of SMC BOD Member of SMC BOD Member of SMC BOD / Vice chairman of Thu Duc Import Export JSC BOD / Member of Real Estate No.9 JSC BOD Member of SMC BOD / CEO of Hanwa Vietnam Co., Ltd Member of SMC BOD / Chief Representative of Bao Viet Fund Management HCMC branch 24 SMC INVESTMENT TRADING JSC COST REDUCTION 25

14 BOARD OF DIRECTORS REPORT (continued) The Board meets on quarterly basis with the Supervisory Board, BOM, and other company s key officers to assess the implementation of BOD s directions and business performance; to discuss and agree on policies, management solutions, and business plans for next quarter. Report on changing members of Board of Directors and Board of Management Implementation of 2013 shareholder resolution, total number of Board of Management members tenure increased from 05 to 06 members, including 02 independent members. In June 2013, the Board appointed Mr. Do Doan Thanh Cong as the Company s Chief Accountant in replacement for Mr. Nguyen Binh Trong, effective date from 01 July Report on the implementation of corporate governance regulations Pursuant to Circular 121/2012/TT- BTC dated 26/07/2012, regulations on corporate governance applicable to public companies, SMC Investment Trading JSC assigned independent Board members in charge of human resources and salary compensation issues as follows: Mr. Ma Duc To Independent Board Member is responsible for monitoring investment activities and advising the Board in carrying out duties and powers of the Board on issues related to organizational structure and personnel in the corporate governance process. Mrs. Vu Thi Thanh Hong Independent Board Member is responsible for monitoring and evaluating financial and accounting activities, advising the Board in the implementation of development policy and income policy in the corporate governance process. Rules, regulations, and operations of the Company are all in compliance with the regulations on corporate governance law. The Company has issued its corporate governance regulations and amendments consulted by the 2013 AGM in accordance with the new regulations of the Ministry of Finance through Circular 121/2012/ TT-BTC. In 2013, the Board has not yet allocated time to participate in training courses on corporate governance. Assessing the directive activities of the Board The Board meets on quarterly basis with the Supervisory Board, BOM, and other company s key officers to assess the implementation of BOD s directions and business performance; to discuss and agree on policies, management solutions, and business plans for next quarter. In addition, the Board also organizes other extraordinary meetings to consider and timely undertake important decisions relating to the administration of the BOM. In 2013, the Board held 08 meetings, through which issued 09 important resolutions. The contents focused on the following issues: Policies and solutions on business activities in each quarter to accomplish the goals approved by the AGM. The investment of Coil Center Tan Tao to ensure the progress of construction and in time operation. Monitoring the receivables in the entire system. Import and export activities given that demand was strongly slump in the domestic market. Evaluating the status of machineries and equipments in all plants to ensure product quality, cost management to improve performance and retrofit new equipment systems to guarantee good production activities. Financial and credit activities to ensure capital resources for production and business operation. Recession planning, especially for associate and senior managers, and training activities to ensure the qualified personnel for the entire system. Investor relations with activities to disclose information to shareholders and investors transparently. Reports on the implementation of 2013 AGM resolutions ITEMS UNIT PLAN ACTUAL % Total steel consumption volume Tons 650, , Construction steels Tons 425, , Flat steels Tons 205, , Other steels Tons 20,000 19, Total cement and clinker consumption volume Tons 120, , Total Revenue VND bn 9,800 9, Net profit after tax VND bn Cash dividend payment VND/share 1, Coil Center SMC Tan Tao Project Investment Selecting Auditing Company Total investment cost: VND 170 bn TOTAL STEEL CONSUMPTION VOLUME 500, , , , , ,335 Construction steels Total investment cost: VND bn, put into operation since Dec 2013 BOD selected DFK Vietnam Auditing Firm to audit the Company s 2013 Financial statements 250,187 Flat steels 19,820 Other steels 26 SMC INVESTMENT TRADING JSC COST REDUCTION 27

15 BOARD OF DIRECTORS REPORT (continued) Assessing the BOM s activities and the Company s 2013 financial performance. Strategic orientation to implement next period s targets The BOM has implemented good resolutions and directions of the BOD. Monthly, the Chairman attended meetings between BOM and key managers to keep abreast of business conditions as well as timely directing operating activities in accordance with the navigation of the Board. In 2013, thanks to the operating flexibility and market sensitivity of the BOM, along with existing advantages, SMC has limited the bad side of the market and confirmed stable direction and the accuracy of its decisions. Total sales volume in 2013 with over 710,000 tons of steels, up by 19.2% from the previous year, affirmed the premise strategic goal of 800,000 tons towards Meanwhile, SMC is also among proficient companies having the largest consumption volume in the domestic steel market. Total import export volume rose 71% from the year 2012, in which export volume had exceeded 10% of total sales volume which are targeted to reach by With the construction of the new Coil Center SMC Tan Tao for hot rolled coil processing, total service centers of SMC have been raised up to 04 plants with total processing capacity of 200,000 tons per year, making SMC the largest Coil center system in Vietnam. However, 2013 witnessed an inefficient financial performance year of the company. In comparison with VND 70 bn target net income, SMC only performed 37.3% of the plan. Although all activities were generally outperformed with increasing consumption and market share, large imported inventories in the second quarter has negatively affected the operating performance of the whole year, derived from both objective and subjective factors: Subjective factors: limited experience in managing import and export activities as 2013 was the first year to implement policies on promoting import export activities. Objective factors: the market in 2013 was unpredictably fluctuated so that regardless 25 years of experience in the steel industry; the BOM had not accurately forecasted the steel price movements. Strengthening forecast activities, predicting local and global market trends. Promoting the strengths and advantages of processing flat steel activities, increasing proportion of flat steel consumption to 36-37% total sales volume. Ensuring to satisfy domestic demand and processing efficiency, continue focusing on import export activities, maintaining existing export markets as well as expanding to new potential markets, tight controlling import inventory. Focusing on expanding market share for processing flat steel products in 2014, enhancing productivity and value added of after-serviced steel products to consumers. Increasing risk management activities especially in trading and financial transactions, focusing on credit issue, foreign exchange, inventory and receivables. Continuously enriching and improving the quality of the workforce to have enough strength to overcome difficulties and have self-improvement along with the company s development. Building and completing corporate culture for common benefits, for customer benefits, and for long term sustainable growth in order to powerfully differentiate with other companies. Promoting the strengths and advantages of processing flat steel activities, increasing proportion of flat steel consumption to 36-37% total sales volume. In 2013, thanks to the operating flexibility and market sensitivity of the BOM, along with existing advantages, SMC has limited the bad side of the market and confirmed stable direction and the accuracy of its decisions. 28 SMC INVESTMENT TRADING JSC COST REDUCTION 29

16 BOARD OF DIRECTORS REPORT (continued) Advantages and Threats affecting 2013 performance the management team and the whole SMC system have closely and actively implemented the proposed business strategies, operated flexibly and were dynamic in production and business activities in order to timely encounter with complicated economic and market movements. The national economy continued facing many challenges in 2013 as a result of macro-economic instability from years before. GDP growth was slower than expectation, total public investment and purchasing power also remained low. While the NPLs of banking system and the stagnation of real estate market have not improved, the state-owned enterprise restructuring issue has also not made any progress. Credit flows in 2013 despite of considerable cheaper cost still experienced low growth. Jammed and inefficiently absorbed capital flows made it difficult for businesses to access resources. However, from a more positive aspect, it can be said that the overall economic picture in 2013 has created many highlights under operating efforts and supports of the government. Some macro-economic indicators have been improved including good curb inflation and stabilized foreign exchange rate and reserves. Especially, the liquidity of the banking system was relatively solved leading to no interest rate race. The government has made great efforts to enhance market confidence. Due to unfavourable global economic conditions, weak steel demand and excess capacity remains the biggest concern in the industry, especially in China and EU. Domestic steel industry still depends largely on cyclical volatility arising from factors such as imbalance local and regional supply and demand, and unpredictable price fluctuations. Ending 2013, the entire steel domestic market recorded the overall consumption growth of 7.4% from the previous year, however mainly thanks to increases in galvanized and coated steel sheets. Consumption of construction steels and cold rolled coil in particular dropped by 2.75% and 2.83% respectively from the previous year. Total installed production capacity of the domestic construction steel in 2013 was about million tons with an additional 5 new plants in operation, yet total production only reached 7.5 million tons, which was equivalent to only 65.9% of capacity utilization rate. Excess supply and weak demand pushed many steel players in the state of struggling, leading to fierce competition by increasing discount and reducing sell price. Many products were sold below cost leading to losing profit and market share, or even high risk of bankruptcy. Meanwhile, price of raw materials and energy inputs for the steel production process increased sharply made it more difficult for steel businesses to implement their objectives and their efficient business operations. Under these circumstances, many steel companies had expanded their consumption markets to oversea in order to increase sales volume. Some steel products saw impressive growth in export volume include galvanized steel sheets, section steels, and stainless steels. In this context, the management team and the whole SMC system have closely and actively implemented the proposed business strategies, operated flexibly and were dynamic in production and business activities in order to timely encounter with complicated economic and market movements. Determining competitive advantages as the foundation for differentiation and sustainable development in all activities, SMC always enforced corporate culture, promoted the core values, equipped and strengthened the capacity and competitive advantages through its many aspects: 30 SMC INVESTMENT TRADING JSC COST REDUCTION 31

17 BOARD OF DIRECTORS REPORT (continued) Opportunities and Advantages Strong brand name High quality and diversified product portfolio SMC brand is appreciated in the domestic and international markets. SMC brand is associated with prestige professional quality, so the business activities of SMC in recent years, especially in 2013 met a lot of advantages in building relationships with customers, manufacturers at home and abroad, the credit institutions and promotion of export import activities. In addition, SMC is among a few steel companies owning a diversified high quality product and service portfolio with various types and designs steel products from large and well-known steel producers both domestically and internationally. Processing and distributing such products as construction steels (including wire rod and rebar), steel pipe, coil rolled steel, galvanized steel sheets, section steels, weld mesh, stainless steels, hot rolled coils, and secondary products SMC is confident in satisfying specialized and strict customers demands and requirements. Specific Corporate Culture System SMC always expresses its specific corporate culture in all activities unity for innovation and development. The corporate culture system is the product of the entire staffs, which is shared, accepted and employed. The corporate culture value system is now the most primarily motivation for staffs works and connects all the employees in the whole system. The SMC system dedicatedly operates to customer services, through the respectation for rights and interests of customers, keeping credibility with customers, listening to the aspirations and sharing with customers. Besides that SMC also focuses on ensuring the interests of employees, respects and enables staffs to demonstrate initiatives and talents, at the same time, concerns on environmental, social, and human issues are always emphasized. Capability and Operation Network Modern technology Human resources SMC currently owns 4 Coil Center plants in total, which are located in Ba Ria Vung Tau, HCMC, and Ha Noi, specializing in processing all flat steel products including cold rolled coil, hot rolled steels, galvanized steel sheets, zinc coated steel sheet, silic steel, inox, stainless steel, and secondary products, with total investment cost of more than VND 500 bn, total areas of 103,000 m 2, designed capacity of over 200,000 tons steel per year. The entire 04 plants consist of 09 modern and united processing systems and machinery equipments, ensuring to satisfy all strict and accurate requirements of local and foreign customers. In addition, SMC is also equipped with the warehouse system being able to store up to 120,000 tons steels, ready to serve for trading and distribution activities of the whole system. SMC is the pioneer in developing the Coil Center for flat steel product segment. All of the company s plants are made in Taiwan applying Germany technologies to ensure high quality and accuracy for products, ensure the unity from the beginning to end of the steel coil, meeting strictly requirements of big customers from Japan, Taiwan, South Korea...High productivity, capacity ultilization, and efficiency with very low waste level and by-products (almost none), low power consumption rate consumption to ensure saving social expenses, operating the machinery using the inverter system to ensure minimize the amount of power consumed when the system holding, waiting, and non-operating. Computerized controlling board system to make sure accuracy in both quantity and quality, minimizing the number of direct workers. Beside that, warehouse and quality, head office, and working environment of SMC system all were modernly built, management using the ERP system to make sure the best possible company performance. SMC is proud to have the employees with enthusiastic, attached, united, and work for a common target - for the development of the whole company. Board of management and Board of directors having many experiences in the industry, management officers meeting enough capability and knowledge is currently and will be satisfy the development demand for the whole SMC. Staffs and technical workers were formally trained and mastery on steel product information to consult and provide customers with the best and highest quality goods and services as to their needs. As a commercial business distributing mainly construction steel products, slower economic growth and frozen real estate market directly impacts growth and operation efficiency business of the company, hence there is need for strategic direction to medium and long-term stable and sustainable development of the company. 32 SMC INVESTMENT TRADING JSC COST REDUCTION 33

18 BOARD OF DIRECTORS REPORT (continued) If all competitive advantages were greatly utilized in assisting SMC to continuously increase sales volume, revenue growth, market share and to affirm its concrete position and brand name in the steel industry, besides the overall difficulties of the economy and steel industry, there are many particular risk factors and challenges affecting the Company s performance, leading to lower than expectation 2013 financial results. However, SMC is always ready to confront with various challenges, ensures the active risk management system to stick to each issue in order to minimize the impacts of risks and threats to business operations of the whole Company. Threats and Risk management Operation Efficiency Growth Capability Material Sources Material Price Volatility As a commercial business distributing mainly construction steel products, slower economic growth and frozen real estate market directly impacts growth and operation efficiency business of the company, hence there is need for strategic direction to medium and long-term stable and sustainable development of the company. As so, SMC continuously adjusts business activities to be consistent with market demands, while pursuing the Coil Center tactical development, which creates more stable market opportunities to minimize the negative impacts of construction steel segment in general unfavourable conditions. Constantly in the tough time period, SMC has introduced three Coil Center processing factories include Coil Center Phu My in 2011, Coil Center Ha Noi in 2012, and Coil Center Tan Tao in 2013; these factories are proper, modern, and adequate invested for better services and products to consumers in the years ahead and followings, being competitive and ready to break out when the economy and industry recovers. However, constant new investments also increased demands for capital and financing costs, while market conditions remaining difficult, the operations of the new plants have not brought enough profits for the entire system, making profit and profitability ratios as ROA, ROE, ROIC continuously decreased significantly over recent years. The volatility of prices and the stability of raw materials supply sources have a significant impact on the operational effectiveness of the Company. Therefore, mitigation these risks is an extremely important goal of SMC. Currently it can be said that thanks to superior relationships with top steel suppliers at home and abroad as the Vietnam Steel Corporation, Vinakyoei Steel, Pomina Steel, Hoa Phat Steel, Posco, China Steel, Nippon Steel, Hanwa, and Sumitomo steel products supply sources to the Company is relatively abundant, diverse, and stable. However, the impact of price volatility of raw materials and imported goods expressed most clearly in the 2013 business results. With the rapid expansion of import and export activities yet somewhat subjective in forecasting steel price trends, the company business performance and efficiency have been cruelly affected. This is a lesson that regardless of 25- year expertise in the industry, SMC still needs to seriously be aware of and improves price forecasting and operational risk management activities. Accordingly, the company will keep abreast and be active in steel market research locally and globally in order to have more accurate update and price movements forecast, thereby choosing more appropriate and reasonable time of signing the contracts, purchasing, importing and calculating inventory to build up more effective pricing and sales policies. Finance - Credit - Foreign exchange - Receivables Import and Export Activities Associations System As a steel company recording yearly large amount of consumption volume and sales revenue, ensuring financial strength and positively stable cash flow for business operations and development needs are relatively extremely important. Working capital and investment capital for new projects are specific financial risks to the company under the volatility of financial markets while bad debt is worried and credit is bottle-necked. In addition, interest rate which has fallen sharply in recent years is unlikely to continue adjusting down to provide business cheaper funding costs. Expansion in export import activities also brings risk related to exchange rate fluctuations, increasing financial costs and causing unstable business results. Higher sales and import export operations also incur additional liquidity and doubtful debt risks. Thanks to exclusive relationships with major domestic and oversea financial institutions with high credit rating, SMC is always appreciated and provided large credit limit with competitive rates. Moreover, the sources of constantly increasing depreciation amount in recent years and in the near future facilitate the investment fund preservation, partly affirming the efficiency of investments, and party creating capital source for the expansion development and investment. With more active import and export business operations, SMC also balances out debt structure between VND and USD to ensure the best efficiency on interest rates and the supply of foreign currency. Regarding to risk of high bad debt, SMC always pay attention closely to the issuance of credit limit and timely receivable collection for each customer. Meanwhile, the Company continuously handles incurred bad debts with flexible solutions such as asset collection for clearing debts, lawsuits, rescheduling, and swap, gradually pulling off the level of debt to be handled. By the end of 2013, the bad debt amount was reduced by one third of the outstanding debts. Advancing the benefits from relationships with foreign partners, SMC has well exploited import supply resources to ensure for trading and processing activities, from there wining the steel supply contract to Vietnam biggest FDI project. In addition, SMC has officially become a reputable business with largest market share export to Cambodia in 2013 despite facing severe competition from foreign firms and other local exporters. Besides chances and opportunities to expand consumption markets and increase sales volume, import and export activities also results in many trading and financing risks, significantly influencing the whole company performance and efficiency. Thanks to the positively and decisively interventions, SMC had fully recovered goods and products, ensuring no damage to the performance of the whole system. However, due to reckless operations and negligent price forecast and imported products management, operational efficiency and net profit of the entire Company were unhelpfully affected. With the entire system consists of 1 parent company, 6 subsidiaries, and 1 joint-venture company with foreign partner, all performing the same function and type of business activities, it is difficult to avoid the possibility of competition and direct confrontation with each other. In addition, the risk arising from the inefficient operation of any member will negatively and directly influence the performance of the whole system. Although some members of the new units in operation yet to bring the contribution, productivity, and efficiency to the overall system, with the specific corporate culture, solidarity towards the common goals and benefits, all the associations, departments, and staffs have provided good supports to each other, toward implementing the production objectives and tasks and improve labour productivity as well as business efficiency, all together for the overall development of the entire system. 34 SMC INVESTMENT TRADING JSC COST REDUCTION 35

19 Supervisory Board s Report Board of Supervisor s activities in 2013 In 2013, the Supervisory Board had four regular meetings quarterly, focusing on the following issues: Mrs. HO THI NGOC TUYET Mr. NGUYEN KINH LUAN Mrs. TRAN THUY BICH HAN Chief Board Member Member Supervisory board will maintain close coordination with the BOD in the management and administration of the business operations to comply with the provisions of state law and company s charter, contribute to strong growth and high efficiency of SMC operations, ensure stable financial situation to vigorously guarantee interests for investors, shareholders, and employees. Check and supervise the suitability of the resolutions and decisions of the boards in the management and administration, issued documents, processes and procedures of SMC in accordance with the charter of the company and the provision of law. Check the quarterly financial statements, interim and annual reports, to assess the soundness of the financial data. Coordinate with internal audit, risk management committee, reviewed the compliance of the rules, procedures vouchers circulated in the department, the member companies of the whole system. Supervise the dividend payment to shareholders, the compliance disclosure of stock transactions of those involved in the boards and chief accountant of the company. Regularly control the use of capital for investment projects, the joint-venture company to ensure the effective investment and according to the plans. Supervise the execution of business duties as prescribed by law. In 2013, the Supervisory Board also participates in quarterly meetings and extraordinary meetings with the Boards. Thereby, the Supervisory Board remark assesses implementation of the boards guidelines and understands the entire operation of the enterprise at each time point. Assessing the Board of Director s directing activities In 2013, the Board has taken seriously the content of the resolution of the 2013 AGM. Although the Board has worked hard at the beginning of the year for the forecasting activities and was flexible in directing and managing activities, providing more timely guidances for the system to overcome difficulties and creating opportunities to increase business efficiency, yet the actual economic condition was too tough to make profit as expectations. 36 SMC INVESTMENT TRADING JSC COST REDUCTION 37

20 SUPERVISORY BOARD S REPORT (continued) The Supervisory Board agrees with the opinion of the auditing firm DFK on the consolidated financial statements of the Company for the financial year ended 31/12/2013. The financial reports presented honestly and reasonably in accordance with Vietnam accounting standards and the provisions of the current law. Assessing the Board of Management s operation activities The BOM has managed the whole SMC system in a uniformed, focused and stable way, in accordance to assigned functions, duties, and powers specified in the company s charter. Although facing many challenges in the past years, the BOM has operated properly following the BOD orientation, step by step overcome the difficulties to lift the company up with increasingly development potential. In addition, the BOD also always concerns on the activities of the internal organizations, delegations, and the youths, maintaining guidelines for the implementation of tasks with society, sharing with the community, being accompany with the fundraising charity for the poor, making commitment to employees regarding policies and incentives. Assessing the consolidate financial statements The Supervisory Board agrees with the opinion of the auditing firm DFK on the consolidated financial statements of the Company for the financial year ended 31/12/2013. The financial reports presented honestly and reasonably in accordance with Vietnam accounting standards and the provisions of the current law. Assessing on the company s operating, financing, and investing activities in 2013 The Supervisory Board agrees with the financial performance in 2013 has been approved by the BOD detailed in this report. Total steel consumption volume was 717,342 tons, sales revenue was VND 9,651 bn, and net profit was VND 26.1 bn, equivalent to 110.4% % - and 37.3% targets respectively. Investment activities carried out on schedule, realistic investment estimation, construction works and equipment procurement were strictly and appropriately managed, capital sources were rational used and complied with the provisions of law. The Company s financial condition is stable, unchanged total asset structure, good capital rotation, SMC s position with credit institutions is increasingly positive and thoughtful, which is a huge competitive advantage of SMC on the market place. Board of Supervisors target activities in 2014 To perform completed supervisory tasks under the enterprise act and the charter of the company, the supervisory board submits to the 2014 AGM work plan as follows: In conjunction with the BOD to uphold the risk management activities, standardize business executive rules and regulations, closely monitor the regulation implementation of the BOM to ensure resources safety for the Company. Check out books and accounting records, quarterly, interim and annual financial statements, or perform random testing in accordance with the decision of the shareholder s meeting. Supervisory board will maintain close coordination with the BOD in the management and administration of the business operations to comply with the provisions of state law and company s charter, contribute to strong growth and high efficiency of SMC operations, ensure stable financial situation to vigorously guarantee interests for investors, shareholders, and employees. Proposals and recommendations Continue to encourage strengths of exportation and flat steel processing activities, focus on improving product quality after processing, capacity, and service quality in the whole coil center system. Building more solid apparatus, ensuring it in line with the development of the company. Continue to tighten risk managements in trading and financial activities, mainly in such aspects as credit, interest rates, foreign exchange, and imported inventory, strengthening the monitoring, review and timely amendment of management regulations in the department, subsidiaries, and joint-venture companies to improve business performance and the company management regulations. Continue to uphold systemic and corporate culture, maintaining social activities that contribute to the overall development of the country. 38 SMC INVESTMENT TRADING JSC COST REDUCTION 39

21 SUCCESS REPLICATION SMC desires to dedicate its capability and intelligence for the reliability and benefits of customers, for stable and sustainable future of the steel industry. Board of Management s Report Sustainable Growth Report Organization and Human Resources

22 Board of Management s Report Board of Management board of management of SMC has five members including three members representing in the board of director. Mr. NGUYEN NGOC ANH Mrs. NGUYEN THI NGOC LOAN Mr. VO HOANG VU Mr. NGUYEN VAN TIEN Mr. NGUYEN BINH TRONG CEO Deputy General Manager/ Sales Executive Deputy General Manager/ Production Executive Deputy General Manager/ HR and Administration Executive Deputy General Manager/ Finance Executive 42 SMC INVESTMENT TRADING JSC SUCCESS REPLICATION 43

23 BOARD OF MANAGEMENT S REPORT (continued) Summarized Financial Performance in 2013 Overall evaluation on 2013 financial performance Unit Income Statement Net Revenues VND bn 8, , ,651.1 Cost of Goods Sold VND bn 8, , ,378.1 Gross Profit VND bn Profit from operating activities VND bn Profit before tax VND bn Net profit after tax VND bn Earnings per share (EPS) VND 2,453 2, Balance sheet Current Assets VND bn 2, , ,505.9 Cash and Cash equivalent VND bn Account Receivables VND bn 1, , Inventory VND bn ,157.6 Non-current Assets VND bn Fixed Assets VND bn Total Assets VND bn 2, , ,068.0 Short term debts VND bn ,094.4 Account Payables VND bn ,225.8 Long term debts VND bn Total liabilities VND bn 1, , ,495.5 Owners Equity VND bn Charter Capital VND bn Retained earnings VND bn Key financial ratios Net revenue growth % Net profit growth % Gross margin % Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % Debt / Equity % Under the influences of unfavourable conditions, SMC has experienced an unsuccessful year in achieving profitable targets. This was the third consecutive year that SMC did not complete its target earnings. Profit after tax continued the downward trend and recorded the biggest drop ever in comparison to the previous year. A large amount of high-cost imported goods inventory in the second quarter, which was affected by the plummeted steel price trend after rocketing in the first quarter and then only fluctuated in a narrow range at low levels until the end of the year, has significantly negatively impacted the whole year performance. Regardless of the positive business results in the first quarter, losses from trading activities in three continuous months from May to July has drawn down profit for the entire year and created great pressure for the Company. Despite non-satisfied performance, in overall assessment of sales volume and revenue growths, SMC has continued to deliver steady growth in both quantity and quality factors. Besides continuing to focus and increase the proportion of flat steel segment, SMC was also succeeded in boosting exports and holding high market share in selling steel products to FDI projects. In particular, SMC 2012 Actual 2013 Actual % Actual 2013 Plan % Plan Steel consumption volume (tons) 601, , % 650, % Cement consumption volume (tons) 84, , % 120, % Sales Revenue (VND bn) 8, , % 9, % Net profit after tax (VND bn) % % Cash dividend (VND/share) 1, % 1, % Ending 2013, the company s total consumption volumes reached 717,342 tons of steel products and 103,583 tons of cement and clinker, jumping by 19.2% and 22.7% yoy respectively. While net sales revenue was also improved by 7.7% to VND 9,651 bn, net profit was only VND 26.1 bn, significantly dropping by 62% from the year In comparison to the whole year targets, only steel consumption volume target was achieved satisfying 110.4% plan; other targets were lower than expectations; especially net profit has been selected to supply steel products for two large FDI projects in Vietnam including the Formosa project (Ha Tinh Province) and the Samsung electronic production plant project (Thai Nguyen Province). In terms of weak purchasing and low consumption in the whole sector, SMC has successfully created market opportunities for itself to gain market share and sales volume. after tax only met 37.3% whole year plan. Due to a considerable decrease in net income, the dividend paid out to shareholders by cash in 2013 was also negatively affected, which was equivalent to only 53.3% target and lower by 46.7% from SMC INVESTMENT TRADING JSC SUCCESS REPLICATION 45

24 BOARD OF MANAGEMENT S REPORT (continued) Management Discussion and Analysis of 2013 Performance Management Discussion and Analysis of 2013 Performance Unit Total steel consumption volume Tons 562, , ,342 Consumption volume growth % Net revenue VND bn 8,940 8,964 9,651 Revenue growth % Despite facing many difficulties, total steel consumption volume in 2013 experienced a positive growth by 19.2% from the previous year ans was higher than the average industry growth of only 7.4%. Construction steel has promoted its role as major traditional segment, accounting for the largest proportion in the Focusing on the Coil Center activities specializing in processing flat steel products, SMC has gradually increased significant proportion of flat steel product in the whole system. Following the success of the Coil Centers in Phu My and Ha Noi, the Company continued investing and putting into operation the new Coil Center Tan Tao HCMC in December 2013, strengthening the platform for Company s total sales volume and revenue. While the whole industry s construction steel consumption dropped by 2.75%, SMC s construction steel consumption went up 10.8% in Thanks to dynamic export activities to Cambodia market and the winning of contracts to supply steel products to two large sustainable growth, stable and long-term business development with the new segment having wider and more stable market consumption, higher margins, and more operation efficiency. End of 2013, flat steel product segment recorded an impressive growth by 37.6% in sale volume and accounted for 33.1% of total consumption, compared to 28.7% in 2012 and 23.6% in FDI projects, SMC has successfully moved contrary to the general difficult trend of the industry. Although still holding the largest proportion in the total volume and revenue of the company by approximately 62.4%, construction steel segment has been weighted down importantly by more than 10% within the last three years. Construction steel Flat steel Section steel Others 73.1% 23.6% 2.1% 1.3% Construction steel Flat steel Section steel Others 62.4% 33.1% 2.1% 2.4% Total sales volume growth with positive double-digit were partially offset the decrease in steel price trend in 2013, ensuring that the company s net revenue remains in upward trend, yet the rate of increase was much slower than in the previous years. SMC continued rolling historical landmark of new revenue level by VND 9,651 bn in 2013, increasing 7.7% from the year before. Net profit and Performance Efficiency Unit Gross profit VND bn Net profit after tax VND bn Gross profit margin % Financial expenses / Net revenue % Selling expenses / Net revenue % G&A expenses / Net revenue % Net profit margin % Net profit growth % Structural shift in product consumption with strong increase in both quality and quantity of flat steel products has brought a clear improvement in the company s 2013 gross profit margin. As a result, despite the negative effects by the steel price downtrend, by the strong fluctuations in raw materials and input costs, by production costs including electricity and fuels, by higher depreciation, and by low performance in the second quarter, the overall gross profit margin for the whole year 2013 was still slightly increased by 0.1% from the previous year to reach 2.8%. More flexibility in trading and commercial activities in order to support consumption volume and market share has been accompanied by significant increases in selling expenses. In addition, although the borrowing interest rate in 2013 was significantly reduced compared to previous years, the Company s financial expenses was still up by 17% from 2012 due to higher capital needs for investment and working capital activities for the whole system. Hence, while the proportion of general and administration expenses was remained relatively stable over years, increasing selling and financial expenses unhelpfully impacted the bottom line result. By the end of 2013, SMC only delivered VND 26.1 bn in net profit after tax, plummeted 62% from a year earlier. Net profit margin was very low at 0.3%. 717,342 tons TOTAL STEEL CONSUMPTION VOLUME VND 9,651 bn NET REVENUE 46 SMC INVESTMENT TRADING JSC SUCCESS REPLICATION 47

25 BOARD OF MANAGEMENT S REPORT (continued) Assets Unit Total Assets VND bn 2, , ,068.0 Current Assets VND bn 2, , ,505.9 Receivables VND bn 1, , Inventory VND bn ,157.6 Non-current Assets VND bn Fixed Assets VND bn Total assets growth % Current asset growth % Non-current asset growth % Fixed assets growth % Liabilities Unit Total Liabilities VND bn 1, , ,495.5 Current Liabilities VND bn 1, , ,342.5 Short term debts VND bn ,094.4 Payables VND bn 1, ,225.8 Non-current Liabilities VND bn Long term debts VND bn Total liabilities growth % Current liabilities growth % Non-current liabilities growth % Total debt growth % After experiencing two consecutive years of negative growth stage, total asset at the end of 2013 was VND 3,068 bn, up 43.3% from the previous year, derived from strong gains in both factors: current asset gaining 45.4% and non-current assets gaining 34.7%. With particular steel trading, processing, and distributing activities, current assets accounted for 81.7% the company s total assets, in which inventory and receivables were critical. With more tightly control system for the processes, sales policies and procedures, credit limit and debt collection for each customer in order to minimize risk of bad debts, receivables valued at the end of 2013 slightly reduced from the year before regardless of large and continuously increasing sales revenue. However, inventory level spike 3 times compared to the amount ended 2012 and the average inventory level in previous years, was key driver for the increases in current and total assets in The new Coil Center Tan Tao plant operated in December 2013, enhancing import export activities, and increasing restock inventory ready for the delivery to FDI projects were explanation for the significant jump in the inventory level at the year end. By which, total value of inventory conclude of 65.7% of raw materials, 12% of finished goods, and 23.2% of value of goods. Non-current assets ended 2013 was VND 562 bn, in which fixed assets held 66.7%, equivalent to VND bn. The introduction and operation of Coil Center Tan Tao plant with total investment costs of more than VND 170 bn was the main reason to promote the increase in 2013 fixed assets. In correspondence to growth in total assets, which mainly were inventory and fixed assets, total liabilities in 2013 also considerably increased by VND 1,000 bn to VND 2,495 bn, up 60.9% from In particular, total short term and long term loans were up by 57.1% and 107% yoy respectively. Short term loans ended 2013 was VND 1,094 bn and long term borrowings was VND 153 bn, mainly used to finance for SMC Tan Tao project and increasing inventory level. The company continued maintaining good relationships with credit institutions with highly reliable credit rating that is considered as an extremely favourable condition for SMC in access to easy loans expand loan limits with favourable and competitive borrowing costs than many other steel businesses, playing important role supporting for business operating cash flow in the whole system. The company continued maintaining good relationships with credit institutions with highly reliable credit rating that is considered as an extremely favourable condition for SMC in access to easy loans expand loan limits with favourable and competitive borrowing costs than many other steel businesses. 48 SMC INVESTMENT TRADING JSC SUCCESS REPLICATION 49

26 BOARD OF MANAGEMENT S REPORT (continued) Owners Equity Unit Owners Equity VND bn Charter Capital VND bn Retained earnings VND bn Owners Equity growth % Charter capital was remained unchanged in the past years, yet affected by inefficient net profit performance, retained earnings ended 2013 was only VND 19 bn, considerably lower than previous years. Total owners equity was hence slightly down by 2.6% to VND 569 bn ending VND 569 bn TOTAL OWNERS EQUITY Turnover ratios and Profitability ratios Unit Total assets turnover Times Days Inventory Days Days account receivables Days Days account payables Days Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % Net profit / Invested Capital (ROIC) % Gearing ratios and liquidity ratios Unit Debt / Equity % Interest coverage Times Current ratio Times Quick ratio Times With rising demand for capital that is accessible mainly via loans, the company s debt to equity ratio in 2013 increased extensively to 219% from 132% in 2012 the highest level of the use of financial leverage since equitization so far. The mobilization of capital by debt rather large and rapid increase in recent years brings higher risks for the company in terms of financing costs and payment ability. Although the interest coverage ratio represents the ability of SMC interest payments due to lower trading result decreased to 1.5 times in 2013, it is still within the safe limits to ensure the solvency of the company. The current ratio has remained relatively stable over the years at around 1x while after eliminating large inventory value, the company s quick ratio decreased significantly in 2013 to only 0.6x. As total assets value particularly increased at a higher rate than revenue growth, the effectiveness of using company assets through 2013 total asset turnover indicator was at around 3x and was somewhat lower compared with the previous years. High and significant increases in inventory value at the end of the year created the inventory turnover indicator to be 3 times bigger than the average level of the previous years. Higher sales revenue and consumption increase the risks associated with the bad debts and outstanding debts. However, the average collection period and average payment period were both improved in the direction of more positive cash flow, with the average days for collecting account receivables reduced from 42 days in 2012 to 36 days in 2013 and the average days for payment to account payables expanded to 48 days in Good operational capacity yet low performance efficiency made the 2013 profitability ratios significantly less than previous years. Moreover, the new and ongoing investments in Coil Center factories required high investment costs, construction, and inventory reserves in the unfavourable market and economic conditions also greatly affected the overall effectiveness of the whole system. However, this will be a solid foundation for the sustainable development goals, and long term stability of the company, expecting on considerable contributions, performance improvement and profitable efficiency when the general situations were experienced positive changes. As total assets value particularly increased at a higher rate than revenue growth, the effectiveness of using company assets through 2013 total asset turnover indicator was at around 3x and was somewhat lower compared with the previous years. 50 SMC INVESTMENT TRADING JSC SUCCESS REPLICATION 51

27 Sustainable Growth Report During 25 years of operation, SMC has always focused on building and implementing sustainable development strategy. Sustainable Development Strategy of SMC focuses on the successful implementation of solid growth objectives in the long term, combined with the implementation of targets regarding social and environmental harmony to ensure the interests of stakeholders. Among these, economic objective has been identified as a key factor to contribute to the strengthening of social responsibility and enhance environmental protection. In 2013 SMC has built a system to ensure the implementation of sustainable development strategies: Operation performance As described above, although SMC has not achieved 2013 target profit, and did not fulfill dividends pay-out plan to shareholders but the company has accomplished: Expanding market share; Shifting in key product segment consumption; Significantly promoting import- export activities and expanding export markets; During 25 years of operation, SMC has always focused on building and implementing sustainable development strategy. Sustainable Development Strategy of SMC focuses on the successful implementation of solid growth objectives in the long term, combined with the implementation of targets regarding social and environmental harmony to ensure the interests of stakeholders. Strengthening SMC brand which is highly recognized by customers, partners, suppliers and credit institutions; Most importantly, fully completing steel processing systems (Coil Centers) with 04 factories stretching from North to South. The results achieved in 2013 is the basic premise for the system to continue to accomplish long term goal, focusing in expanding market share, improving productivity and especially promoting deeper vertical development in the coming years. 52 SMC INVESTMENT TRADING JSC SUCCESS REPLICATION 53

28 SUSTAINABLE GROWTH REPORT (continued) VND 740 million SPENT FOR SOCIAL ACTIVITIES Social activities 2013 was particularly a difficult year for SMC; however, the company kept actively participate in social activities, especially charity works, sharing difficulties with other people. SMC has spent over VND 740 million for social activities, through active support to people suffering from natural disasters, floods, talent development fund - Luong Van Can by Saigon Entrepreneur News, Social Charity Fund by the Union of Vietnam Industry and Trade Ministry, study encouragement funds by Ward 25, Binh Thanh District, for the poor by Fatherland Front s, contribution to retired officers - Ministry of Industry and Trade, the elderly, provided uniform for the summer by Youth Union of HCMC... Environmental protection Total 04 processing plants of SMC are located in industrial parks which have completed infrastructure systems, so have not created negative impacts to residential area nearby. Power consumption All cutting, slitting lines and crane equipment are imported brand new, modern, high-performance, installed and put into operation since Therefore, the power consumption is very effective. Besides that the plants were designed to maximize shiny light roof usage, making effective power consumption. Energy consumption Operating system is based on high technology and automated controls, thereby using very low power requirements though ensure the highest quality for customers. Besides engine power is operated by the inverter instead normal common moteur types, allowing highspeed and productivity, less energy consumption. Percentage of scrap and waste products (0.5%) Scrap mostly comes from the edge of coils or sheets to be collected and sell to billet producers. It is one of the best types of scrap because of not mixing impurities, or other toxic substances. Waste water All four plants does not generate waste water from production but from domestic usage on an average of 44m 3 /day. SMC has built complete drainage systems and signed contract with the waste water filtration in the industrial park. Emissions Due to the production, processing mainly use mechanical action should not generate smoke, noxious smells, only emissions arising primarily from the transportation vehicle which does not arise too much and not gather at the same point so the influence of this source is negligible. SMC has implemented measures to restrict emissions: cleaning regularly, enhancing natural ventilation expanding green area in the company. Heat Mainly arising from the operation of machinery and equipment, SMC has adopted measures to minimize the impact: building factory according to industrial standard, using heat-resistant materials, ensuring sure effective ventilation by using equipment for aeration such as industrial fans and ventilation fans... Noise and vibration Noise is mainly generated from operations during the production of machinery, SMC has adopted measures to minimize the effects: equipped with rubber coating, spring shock absorbers for machinery; regular maintenance of equipment; reasonably machinery layout in line to avoid resonance noise; fully equipped labor protection equipments for workers in areas where noise generation is high. Total 04 processing plants of SMC are located in industrial parks which have completed infrastructure systems, so have not created negative impacts to residential area nearby. 54 SMC INVESTMENT TRADING JSC SUCCESS REPLICATION 55

29 Organization and Human Resources The human resource attraction and development policies Continue to expand the core business operations with the establishment of new Coil Center plants and new subsidiaries during the period from led to increased demand on human resources and labour for the entire system. Total SMC labour force increased steadily with an average growth rate of about 8% per year recently. As of 31/12/2013, total SMC employees are 422 members, increasing 32 ones from the year before. SMC s workforce are young, professional with expertise and language skill to meet the long term sustainable development of the company. Equitization since 2004, SMC s strategy is oriented for sustainable development in sync infrastructure investment, expanding market share along with human resource development strategy. SMC implements a Total employees over year Total employees of each subsidiary 450 Employees 120 Employees SMC Head office SMC Binh Duong SMC Phu My SMC Mechanic SMC Trading SMC Tan Tao SMC Ha Noi 2013 employee structure by category 2013 employee structure by working age 140 Employees Management 18% Direct labours 40% Indirect labours 42% >48 human resource management system in which it harmoniously applies modern practices from recruitment, training, and assessment, job rotation and personnel promotion, aiming at the best interest of the company. From 2010 to 2013, the company s total workforces increased almost 30%, in which young members with high education accounted for the most proportion. After joining SMC, all employees are trained in soft skills and needed knowledge, especially training on corporate culture which is identified and fulfilled through 25 years of establishment and development. Annually, the Company reviews to promote adequate individuals to a higher position in the company, creating fair conditions to encourage all employees to strive for and contribute effectively to the Company. Salary payment of employee is based on rank, job placement, salary scale, and capability which are harmoniously adjusted among jobs and company members. In addition to monthly income, the company focuses on quarterly rewards and bonuses, and extraordinary income for individual and team s excellent achievements, ensuring full benefits, and stabilizing life for employees. 56 SMC INVESTMENT TRADING JSC SUCCESS REPLICATION 57

30 ORGANIZATION AND HUMAN RESOURCES (continued) Union and organizations SMC has a system of diversified organizations such as unions, youth organization and communist party organization operated from head office to the member companies. Employees are encouraged to participate to organizations and activities internally as well as with outside units. The union and youth organization operates quite effectively enabling employees to enhance their spiritual life and health. These organizations Stable lives and good incomes for workers and employees are among the most important objectives of the Company. In 2013, despite low profit from operation, SMC has tried to maintain reasonable welfare and income for staff members by increasing salary by 8%, and bonus worth of 3-month salary. Not only fulfilled the benefit for employees in according to the law, SMC also provided for staff members with better services such as periodic health examination with an average cost of 500,000 VND/person, as well as 24/24 accidental insurance. Friendly working environment, solidarity, full facilities, and comfort always motivate staff to demonstrate the full capability and long-term commitment to the company. SMC is proud to have a team of staff who are always self-motivate for the greatest perform tasks directly associated with the company s objectives. In 2013, the company organized 3 days 3 nights tour to Dalat for all employees and their families and provided 35 gifts worth of 1,000,000 VND each for disadvantaged employees to help them enjoy the Lunar New Year. Annually, the company also organizes bus trips to help employees who live in the countryside of central of Vietnam to unite with their family for the Tet holiday. Employee s quality of life improvement contribution to the company, aiming at maximizing customer benefit, towards a future of stability and sustainability in accordance with the mission SMC dedicates its wisdom and strength for the reliability and benefit of customers, for the stability and sustainability of the steel industry of Vietnam. SMC has a system of diversified organizations such as unions, youth organization and communist party organization operated from head office to the member companies. Employees are encouraged to participate to organizations and activities internally as well as with outside units. SMC is proud to have a team of staff who are always self-motivate for the greatest contribution to the company, aiming at maximizing customer benefit, towards a future of stability and sustainability. 58 SMC INVESTMENT TRADING JSC SUCCESS REPLICATION 59

31 OUTCOME SHARING CORE VALUES Professionalism Maximizing customer experience Being united, striving to win common goals Highlighting the heart value throughout the organization Prestige Spirit of learning New projects investment and implementation Import Export Activities 2014 Target and Business Strategy Corporate Governance Associations and Joint-ventures

32 New projects investment and implementation SMC Tan Tao Coil Center plant project Not only the local industrial manufacturing firms but also foreign investors who want to increase the product localization rate often have troubles looking for companies providing high quality materials and components and equipments, due to domestic supplementary industry has not been focused on the development of the corresponding quantity and technology to create high quality products. Currently, there are more and more foreign investors investing in Vietnam; consumer products, electronics, refrigeration, machineries, motorcycles, and car production are more localized in replacement for imported products, leading to increasing demand for steel materials and components, especially to processed flat steel products. With increasing demand from manufacturing industries that use flat steel products and long term development of the supplementary industry while local businesses not much focus on investing in this segment, SMC believes its path in the development of processing steel in Vietnam is appropriate and feasible. As with a promising large consumption market for these types of processed products and following the successful experience from investing in the former Coil Center systems, SMC has implemented and invested a new project for steel plate processing at Tan Tao as well as expanded warehouse system serving SMC s business operation in HCMC and the South West region. In December 2013, the Coil Center Tan Tao plant under SMC Tan Tao One Member Co., Ltd officially inaugurated and put into operation with a modern equipped system consisting of 1 automatic splitting system with capacity of 60,000 tons per year, 1 automatic cutting system with capacity of 75,000 tons per year, and 3 automatic punching forming systems with total capacity of 60,000 tons per year. The entire processing lines are invested using new and modern technologies, electronically automatic control, and high capacity ensuring the production of flat steel products with high precision, stability, and uniformity, consuming low energy, and ensuring safety for the operators and the environment. Software technologies are applied to the whole operating equipment system, including boots, cut or split, roughing, recovery, and packaging of finished products. The new plant construction schedule was shortened and effective employed within only 9 months compared with a 1-year plan helps saving significant costs and time. Total investment costs for the project was more than VND 240 bn, including VND 170 bn fixed cost and VND 70 bn working capital. In which, the proportion of equity and debt providers for the project is 30:70. It is expected that in a stable processing phase, the new plant will supply and consume more than 50,000 tons of processed flat steel per year, partly satisfying demand for serviced flat steel products in the country, especially in the economic - financial center area as HCMC, and partly contributing to production, consumption, and performance of the whole company. 60,000 tons/year CAPACITY OF AUTOMATIC SPLITTING SYSTEM 75,000 tons/year CAPACITY OF AUTOMATIC CUTTING SYSTEM VND170 bn TOTAL INVESTMENT COSTS the Coil Center Tan Tao plant under SMC Tan Tao One Member Co., Ltd officially inaugurated and put into operation with a modern equipped system consisting of 1 automatic splitting system with capacity of 60,000 tons per year, 1 automatic cutting system with capacity of 75,000 tons per year, and 3 automatic punching forming systems with total capacity of 60,000 tons per year. 62 SMC INVESTMENT TRADING JSC OUTCOME SHARING 63

33 Import Export Activities 2013 Import Export Operation Performance Unit Plan Total export volume Tons 4,717 60,675 83,360 85,000 Total import volume Tons 118, , , ,000 Export volume/total consumption volume % Export volume growth % n/a 1, Import volume growth % n/a Along with the shifting in key product segments to more flat steel, SMC has also focused on promoting export and import activities. Total import and export volumes in 2013 reached 482,411 tons of steels, strongly increased by 71.3% from 2012 and achieved 155.6% whole year target. In particular, taking the advantages of having good relationships with foreign partners, SMC has well exploited the imported resources to guarantee for trading and processing activities. Imported volumes in 2013 increased 87.5% compared to the previous year, which was mainly come from wire rod and hot rolled coil. Export activities was also enhanced significantly with total export volumes in 2013 increased by 37.4% from the year before and accounted for 11.6% of total steel consumption volume of the whole system, being completed over the plan assigned and contributed to ensure sales volume growth of the Company. Total export turnover in 2013 reached USD million, contributing to more than 10.6% of the whole system sales revenue. Over 80% of total export steel products are wire rod, others are various steel products including galvanized steel sheets, cold rolled coil, section steel, and steel pipe. The main export markets for SMC steel products are neighbouring countries in the region. With total export volumes of 67,945 tons steels to Cambodia in 2013, SMC has became the most prestigious enterprises with the largest market share in this export market, despite facing solid competition with other Vietnamese and foreign exporters. Regardless of positive performance in terms of consumption volume, import export activities which are focused in a couple years, also carry many difficulties and risks to the company from both the trading and financial risks. Low operational efficiency due to the influence of a large high-cost inventory imported in the second quarter and nearly taking the risk of fraud by the sales partner were the clearest evidences for risks related to import export activities operation in ,411 tons TOTAL IMPORT AND EXPORT VOLUMES IN 2013 USD million TOTAL EXPORT TURNOVER IN ,945 tons TOTAL EXPORT VOLUMES TO CAMBODIA IN 2013 Planning and development orientation for import export activities in 2014 For the year 2014, import export activities will continue to be one of the key business activities of the company. Total target volume for import export activities for 2014 is 385,000 tons of steels, down 20.2% compared with In which, importation still plays a very important role in the efficiency and competitiveness of the company, with particular emphasis on exploiting hot rolled coil and secondary products with competitive prices from Japan, Taiwan, and South Korea. Planning imported volume for 2014 is about 300,000 tons, down nearly 25% from the previous year. The operation of Vietnam CSVC plant since mid will provide alternative source for the importation of some steel products like HR, PO, CR, GI, and EG. Moreover, the 2014 steel market is forecasted to be continuously difficult with slow consumption, summed up the experiences from last year, SMC will enhance the inventory management system, balance between consumption importation and exploitation of sources in place. Especially in recent years, steel prices from Chinese market usually fluctuate rapidly and unpredictably, leading to great risks for the import operations. Thus in 2014, import and export department will strengthen and tighten the import procedures and risk management, assess and classify suppliers, meanwhile build up relationships and supports of trusted providers and strategic partners in order to capture market situations from which making more accurate and timely judgments. Regarding to export activities, the 2014 planned export volume is 85,000 tons of steel, a slight increase by 2% compared to the previous year and accounting for 11.3% of total sales volume of the whole company. The expansion to boost export activities plays an important role in long-term development orientation of SMC. In addition to continue exploiting traditional and potential export market as Cambodia with key items wire rod and hot rolled coil, the Company also looks for opportunities to exports other steel products like galvanized steel sheets and steel pipes to newly potential markets as Laos, Philippines and Singapore. Besides that, SMC also focuses on encouraging trading of debars and section steels from China to Cambodia and utilizes existing relationships in business to uphold the growth of hot rolled steel and wire rod products. 64 SMC INVESTMENT TRADING JSC OUTCOME SHARING 65

34 2014 Target and Business Strategy Despite many difficulties, the relatively stable macro economy in 2013 will set the stage for other factors to firmly develop in Accordingly, target GDP growth is 5.8% and inflation is objectively controlled at 7%. The function of the VAMC will be enhanced towards more efficient handling of bad debts and bring the NPLs of the whole system down to an appropriate level. While interest rates continue to remain low and are unlikely to fall further, concentrating on bad debts settlement will support the processing of credit bottleneck, enabling the economy and business capitals absorption, and encouraging business production and operational efficiency. The potential FDI flow into Vietnam is expected to be more positive, especially when Vietnam is actively preparing to participate in the economic and commercial partnership agreements, as PPP, FTA, and TPP. Besides that, government operating policies towards further restructuring and supply and demand balance enable social capital investment growth and improve productivity and economic efficiency, at the same time provide tax exemptions to support manufacturing businesses and continue to strengthen market confidence. However, the health of the businesses, mostly small and medium enterprises is still quite weak, low and slow resilience. Production and consumption rate For the year 2014, SMC will continue to overcome issues and problems, and strive to fulfill the strategic objectives towards year 2015, building a good and solid foundation for strategic development orientation in the following years of the whole society is not yet strongly recovered. However, in general, it can be said that the 2014 economy is not yet escaped from the stagnation phase but we can expect in a year of growth, slow but better. In 2014, the steel industry is forecasted to experience a slow growth rate by about 2-3% and continue to face significant pressure from low purchasing power, excess capacity, cheap and highly competitive imported steel products, and unstable export. Many steel companies will be more likely to cut off production and adjust the scale of operation as in the stalled consumption market, new plants was still put into operation, further increase the supply to the market. Especially, large scale enterprises and steel plants with strong financial capability and well-known brand will have more favourable conditions to battle and win market share over small and more difficult players. In 2014, the hopefully positive growth of the steel industry needs more government policies on public investments, infrastructure investments, and effective solutions vibrant real estate market back. Difficulties in production and consumption also makes it more complicated for steel industry players in finding funds and partners for projects investments, especially those unfinished and key projects steel price predictions will generally be less likely to have large waves. Taking opportunities especially from low cost imported inventory trading will also be less favourable. For the year 2014, SMC will continue to overcome issues and problems, and strive to fulfill the strategic objectives towards year 2015, building a good and solid foundation for strategic development orientation in the following years. The Company will also strive to improve business efficiency and financial performance to achieve growths in most key indicators including total steel consumption volume (+4.5%), sales revenue (+3.6%), net profit after tax (+91.2%) and cash dividend payment to shareholders (+25.0%). 4.5 % TOTAL STEEL CONSUMPTION VOLUME 3.6 % SALES REVENUE 91.2 % NET PROFIT AFTER TAX 50 % CASH DIVIDEND PAYMENT TO SHAREHOLDERS 66 SMC INVESTMENT TRADING JSC OUTCOME SHARING 67

35 2014 TARGET AND BUSINESS STRATEGY (continued) Primarily business targets for 2014 Items Unit 2014 Plan 2013 Actual +/- % Construction Steels Tons 455, , Hot rolled steels Tons 180, , Cold rolled & galvanized steels Tons 85,000 75, Section steels Tons 15,000 15, Weld mesh Tons 4,000 3, Other steels Tons 11,000 14, Export volume Tons 85,000 83, Total steel consumption volume Tons 750, , Total cement consumption volume Tons 100, , Sales revenue VND bn 10,000 9, Net profit after tax VND bn Cash dividend VND/share 1, Focusing on market share expansion, enhancing productivity and value added processing flat steel products. Gradually investing in appropriate and necessary machineries and equipments to satisfy the actual needs of the market, while boosting R&D activities. Enhancing risk management system by the financial accounting department for business trading and financing activities, credit, foreign exchange, and bad debt increasing credit limit by 5-10% from 2012, ensuring the competitive and appropriate borrowing rates, meeting working capital requirements for operation activities and investment capital for development. Encouraging and improving quality of staff to have sufficient strengths to overcome difficulties and concordant development in accordance with business development. Expanding and completing the corporate culture in the spirit for the common benefit, for customers benefit and for long term sustainable growth in order to create differentiation in competition with other businesses. OVERALL EVALUATION ON PERFORMANCE TOWARDS 2015 DEVELOPMENT ORIENTATION The 2014 general trend and goals are to persist the outlined direction, establish the core strengths through business operating activities, processing, and distributing of steel, aiming at consumption volume and market share increases, ensuring operational efficiency and always being ready to take advantage of every opportunity to grow up. Taking advantage of flat steel processing business with additional contribution from the new plant Coil Center Tan Tao, striving to increase the proportion of flat steel consumption in the system to 36-37%, which holds a major role in general effectiveness creation. Maintaining the market share of construction steels, tightening risk management under on-going difficult circumstances. Focusing, exploiting, and wining contracts for steel distribution to FDI projects, especially large projects to ensure stable consumption volume and safety. Continue focusing on import and export activities, especially targeting exports to reach a minimum 10% of total consumptions, maintaining existing markets and gradually expanding new markets. Targeting import to satisfy enough inventory for trading activities and enough materials for flat steel coil center processing activities, while limiting excess inventory Plan 2011 Actual 2012 Actual 2013 Actual 2014 Plan Steel consumption volume (tons) 800, , , , , ,000 Flat steel/total volume (%) 40% 23% 30.1% 33.1% 36% 40% Sales Revenue (VND bn) 10,000 8,940 8,964 9,650 10,000 >10,000 Export / total volume (%) 10% 0% 10.2% 11.6% 11% 10% With core focused and consistent strategies, the performances of SMC through the years in general is encouraging and is gradually approaching the 5 year period target from : Currently SMC is the largest trading business enterprise of flat steel products in Vietnam market, particularly having strong supply sources and consumption of hot rolled steel and secondary products Positive movements in key product consumption with increasingly focusing on flat steels, becoming the largest Coil center processing service business in Vietnam, increasing production rate and consumption, enhancing strengths and brand positions. SMC has now officially become the largest and reputable steel exporter to Cambodia market SMC is also one of the few steel companies having good and most favourable credit interest rate, 2015 Plan contributing to competitiveness and efficiency enhancement as well as ensuring favourable conditions for operational activities. With forecast of the economy and industry outlook in 2014 being still in difficulties but positively better than in 2013, SMC will attempt to fulfill strategic objectives towards 2015 with the most possible positive results and build up a stable groundwork for sustainable and long term development of the company in the coming years. 68 SMC INVESTMENT TRADING JSC OUTCOME SHARING 69

36 Corporate Governance Company policies Transparency and accountability to investors, suppliers and customers. Performing targets commitment with relevant partners / value creation to customers Code of conduct Business ethics For customers: Prestige - Listen - Sharing partners, investors, and community organizations... demonstrated by: Aiming for sustainable development, SMC has always focused on transparency to help investors, suppliers, and customers to understand the real status of the company. Consequently, SMC always pays attention to disclose timely information about operation, finance and accounting results of its business. Besides SMC ensures the information is clearly disclosed, not only providing a full range of content relevant to investors, suppliers and customers but also available to provide feedback for any questions arise: All activities of the SMC always comply with the provisions of law; Establish and publicize the strategic objectives for short, medium and long term, as well as published results and evaluate the progress of implementation; Within 25 years, SMC always uphold the prestige value in the implementation of its objectives, committed investors, suppliers and customers, thus increasing SMC brand appreciation on the domestic and international market. For investors: SMC has always focused on providing transparent information and take specific accountability for the explanation, ensures good performance all the given goals was the first year SMC did not fulfill its assigned dividend payment target, which will be explained specifically in the investor relations section below. For suppliers and credit institutions: SMC has maintained its reputation and prestige in all activities, provide information and detailed explanation if necessary, hence SMC has built up a strong confidence for suppliers at home and abroad such as Vinakyoei steel, Pomina, Vietnam steel corporation, Nippon steel, and China Steel... as well as received great evaluation and high ranking by credit institutions to provide good capital source support for all activities of SMC. For customers: SMC has always focused on improving product and service quality, satisfying the increasing demands and requirements of customers, providing reasonable price and sales policies, so SMC always maintains a large number of regular customers and is a local businesses in the south are chosen to provide steel products for large FDI projects in Vietnam. For colleagues: Respect - Unity Learning For work: Passion - Proactive Creation Aiming for sustainable development based on business ethics, SMC always keep abreast of business ethics set out right from the beginning - operating transparency, integrity, maintaining credibility in all activities. In the journey of 25 years, SMC has built up a good trust from customers, employees, More than 500 regular customers A collective of attached and enthusiastic members Shareholders and investors follow and hold shares of the company from the first day until now Partners, suppliers locally and internationally with special incentives for SMC Typical awards from local and abroad Accounting and financial reports are in accordance with Vietnamese accounting standards, auditing by the competent authority; Develop, employ and maintain a corporate culture, which focuses on ethics in all operations; Report operation results on time, on several media in accordance with the law and providing fully explanation for doubtful content to information users. AIMING FOR SUSTAINABLE DEVELOPMENT, SMC HAS ALWAYS FOCUSED ON TRANSPARENCY TO HELP INVESTORS, SUPPLIERS, AND CUSTOMERS TO UNDERSTAND THE REAL STATUS OF THE COMPANY. CONSEQUENTLY, SMC ALWAYS PAYS ATTENTION TO DISCLOSE TIMELY INFORMATION ABOUT OPERATION, FINANCE AND ACCOUNTING RESULTS OF ITS BUSINESS. 70 SMC INVESTMENT TRADING JSC OUTCOME SHARING 71

37 CORPORATE GOVERNANCE (continued) Internal control system In order to survive and develop sustainably while encountering increasing local and global competitors, at the same time manage the company effectively to improve capabilities and maintain market position, SMC has developed the internal control system, in which the internal control committee is responsible for: Checking the information processing procedures in terms of authenticity and completeness of information strictly controlling document and paperwork systems. Asset protection (physical control): Periodically compare and confront the accounting records and the actual existing assets. Checking and analysis: review of performed tasks by comparing actual figures with targets and budgets and with previous periods to identify anomalies (if any) in order to be able to make timely and appropriately adjustment of plans or strategies. Besides the internal control committee, the company also sets up the risk management committee responsible for the analysis and evaluation of factors influencing and creating risks related to the company operations. SMC has applied different methods such as data analysis, forecasting tools, and frequently performance reviews to estimate the magnitude of risks, the possibility of risks, and the management methods to cope with risks affecting the company s operations. Image and brand promotion With SMC brand is not just a brand but rather a name which includes reputable, prestige, quality and prices of products and services provided, trading style and corporate culture. SMC always pays attention on building and promoting its brand image, maintains the brand promotion through three key channels: Internal information: dissemination of information on products, services, and development orientation to all staffs. Because more than anyone else, employees who are directly dealing, trading and communicating with customers are the effective message transmission channel. Information to media and journalist: SMC sustains promotional activities on the operational information about products and services through well-known television channels as HTV and VTV, financial newspapers and magazines as SaigonTimes, Financial Investment, Connection Magazine, and through online journalism as diendandoanhnghiep, thesaigontimes, cafef, diendanhoptacdautu Investor Relations Major changes in transactions of internal shareholders in 2013 In 2013, SMC did not issue any additional shares to change the number of outstanding / listed shares and the ownership of major shareholders. There were also no significant changes in the ownership structure of key shareholders and strategic shareholders within the year. Some transactions of insiders and related shareholders were carried out during the year as followed: Traders Nguyen Ngoc Anh Nguyen Huu Kinh Luan (*) Relationship with internal shareholders Chairman cum CEO Supervisory Board s member No. of shares beginning period No. of shares ending period Reasons for changes Shares % Shares % Buy Sell 5,141, ,256, , , , ,000 Truong Tuan Dung Hung Financial Manager 8, , ,980 0 Nguyen Thuy Nhu Quynh (*) Sister of Mr. Luan Supervisory 557, , ,480 Boards member Nguyen Vu Nguyet Khanh Giang Daughter of Mr. Nguyen Van Tien Deputy General 21, ,000 Manager Vu Thi Kim Lan Wife of Mr. Nguyen Van Tien Deputy General Manager 68, , ,000 0 (*) The transaction, disclosure was prompted prescribed sanction in the year Information to partners, customers, and shareholders : through the Annual Report publications, capacity profile, product catalog... Besides that also focusing on regularly update of company related information on the website and other media channels. 72 SMC INVESTMENT TRADING JSC OUTCOME SHARING 73

38 CORPORATE GOVERNANCE (continued) Shareholders structure as of 11/03/2014 OWNERSHIP STRUCTURE SPECIAL SHAREHOLDERS OWNERSHIPS Domestic shareholders Foreign shareholders Total Shares % Shares % Shares % Total Charter Capital 25,961, ,557, ,518, Founding shareholders (*) 8,573, ,573, Shareholders holding >= 5% ,476, ,476, Shareholders holding 1-5% 12,933, ,130, ,064, Shareholders holding < 5% 4,447, , ,398, Treasury shares 6, , (*) Founding shareholders include 02 shareholders owning more than 5%, 01 shareholder owning from 1-5%, and 01 shareholder owning below 1%. No. of ordinary shares No. of blocked shares Total shares owned % Internal shareholders 9,032, ,032, Board of Directors 7,893, ,893, Board of Management 677, , Board of Supervisor 449, , Chief Accountant Financial Manager 12, , Shareholders holding > 5% 9,261, ,261, Nguyen Ngoc Anh 5,256, ,256, Nguyen Thi Ngoc Loan 2,529, ,529, Hanwa Co,. Ltd 1,476, ,476, KEY SHAREHOLDERS Name Position No. of ordinary shares No. of blocked shares Total shares owned % ownership Nguyen Ngoc Anh Chairman CEO 5,256, ,256, Nguyen Thi Ngoc Loan Board member Deputy General Manager 2,529, ,529, Ma Duc Tu (*) Board member 82, , Vu Thi Thanh Hong (*) Board member 660, , Taira Yoshiyuki (*) Board member 1,476, ,476, Vo Hoang Vu Nguyen Van Tien Nguyen Binh Trong Ho Thi Ngoc Tuyet Nguyen Huu Kinh Luan Tran Thuy Bich Han Board member Deputy General Manager Deputy General Manager Deputy General Manager Supervisory Board member Supervisory Board member Supervisory Board member 105, , , , , , , , , , , , Nguyen Doan Thanh Cong Chief Accountant Truong Tuan Dung Hung Financial Manager 12, , (*) : share holders and representative holders. Foreign shareholders 3,557, ,557, Institutions 3,270, ,270, Private 286, , SMC INVESTMENT TRADING JSC OUTCOME SHARING 75

39 CORPORATE GOVERNANCE (continued) Remuneration of Board of Directors and Board of Supervisor Total remuneration of BOD and Supervisory Board in 2013 approved by the AGM was 1.5% of the Company s net profit after tax. In 2013, SMC has paid out to BOD and Supervisory Board the remuneration amount of VND 525,000,000 as follows: Name Title Remuneration (VND) Board of Directors Nguyen Ngoc Anh Chairman 70,000,000 Nguyen Thi Ngoc Loan Vice chairwoman 60,000,000 Vo Hoang Vu Member 50,000,000 Ma Duc Tu Member 50,000,000 Vu Thi Thanh Hong Member 50,000,000 Taira Yoshiyuki Member 50,000,000 Board of Supervisor Ho Thi Ngoc Tuyet Chief 50,000,000 Nguyen Huu Kinh Luan Member 40,000,000 Tran Thuy Bich Han Member 40,000,000 Total payments to the BOD and Supervisory Board in 2013 was VND 460,000,000, the remaining VND 65,000,000 was given to the assistants to BOD. Within the year, the BOD has made the actual payment exceeding the amount approved by the AGM, which was VND 390,892,076 (= 1.5% x VND 26.1 bn). The BOD will present to the 2014 AGM held at the end of March 2014 to consider and approve on the above paid amount. Vietnam stock market and SMC share price performance In 2013, besides the relatively stable macro economy, the cheap capital after considerable rate cut has lifted the fire for the stock market. In addition, continuously adjusted downward gold prices and less volatile foreign exchange rate had made the stock market vibrant and more attractive investment channel. Vietnam stock market has recovered strongly in 2013 compared to the previous years with an increase by 22% of VN-Index and 18% of HNX-Index. The VN-Index was rated among top 10 strongest recovery index globally and was the biggest growth index in the Southeast Asia in Along with an increase in the index was the impressive recovery of market liquidity with an average trading value on two exchanges was VND 1,380 bn per day. The total market capitalization in 2013 reached VND 964 trillion, equivalent to 31% GENERAL INFORMATION ON SMC STOCK Stock code Stock exchange country s GDP and increase 26% compared to the year before. Foreign investors inflows in the year increased 54% over the same period. Fresh foreign capital was a source of fire to the bull market that the uptrend wave occurred in opening 2013 once again confirmed this trend. The changes in market management policies such as expanding trading bands, extending trading time, applying new orders, introducing new stock indexes, and opening room for foreign shareholder s ownership had played important roles in supporting for the recovery and increased the attractiveness of Vietnam stock markets. However, in 2013 domestic stock markets still faced some challenges as new listing activities and companies continued to decline while number of names being delisted in two exchanges has been recorded high. Charter capital 295,183,610,000 VND Listed outstanding shares 29,518,361 Shares Share price as at 31 December ,500 VND Market capitalization 368,979,512,500 VND SMC HSX 52-week lowest price 11,900 VND 52-week highest price 17,000 VND Earnings per share (EPS) 963 VND Book value per share (BPS) 19,270 VND P/E Times P/E 2014 (according to 2014 target net profit) 7.4 Times P/B Times P/B Times 76 SMC INVESTMENT TRADING JSC OUTCOME SHARING 77

40 CORPORATE GOVERNANCE (continued) The SMC share price in 2013 has strongly volatile along with the company s quarterly financial performance. Following the impressive growth in 2012, SMC share price continued to go up rapidly 48% from beginning 2013 till end of May in comparison with the 23.4% increase in the whole VN-Index for the same time. In accompany with the overall uptrend of the stock market, amazing financial result and the announcement of winning contract for steel distribution to Formosa project in the first quarter of the year were key driver fastening the uptrend of SMC stock. However, the suddenly reversal of steel price from uptrend to downtrend +50% +40% +30% +20% +10% 0% -10% resulted in loss performance in the second quarter and low operational performance in the second half 2013 had considerably negatively directly affected the Company s share price performance since then. After touching VND 17,000 per share in the last trading session in May 2013, SMC share price dropped significantly and rapidly during the next three months then fluctuated within a low and narrow band until the year end. The SMC share price closed at VND 12,500 per share ending 2013, although slightly increased by 8.7% from the beginning year level, yet investment efficiency and return of the stock in general was much lower than the VN- Index and other steel names. Jan 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Oct 13 The year 2013 is considered as an unsuccessful year for SMC in both business operation activities and share price performance. However, expecting on better growth and brighter outlook of the macro economy and the local stock market in 2014 together with the company s attempt to surpass all difficulties and to achieve objective goals, SMC believes in the companionship of shareholders as well as the value and liquidity of the Company s stock will be considerably improved % THE NET PROFIT PAYOUT RATIO Dividend payment and investor relations activities Reporting unsatisfactory net profit for the year 2013 achieving only 37.3% assigned target, SMC experiences difficulties in ensuring full implementation of cash dividend payments to shareholders in accordance to the dividend payout plan approved by the AGM. Consequently, the paid out dividend is only equivalent to 53.3% plan and decreases 46.7% from the year before. With a dividend payout amount of 800 VND/share for the financial year 2013, SMC has made a total payment of 23,614,688,800 VND in cash for shareholders, which is equivalent to the net profit payout ratio of 90.4%, witnessing for the Company s efforts in providing the possible highest level of dividends to shareholders under unfavourable business operation and financial performance conditions. The cash dividend payments to shareholders for the financial year 2013 were divided into two phases as follows: The first cash dividend was 5% of par value, which equivalents to 500 VND/share, paid on the 25 July Total payment amount made to shareholders was 14,759,180,500 VND. The second cash dividend was 3% of par value, or 300 VND/share, paid on the 26 March Total payment amount made to shareholders was 8,855,508,300 VND. Besides efforts to provide the highest possible dividends to shareholders, SMC responsibly prepares information disclosure and investor relations activities fully, clearly, timely, and most transparently. It can be said that 2013 was a challenging year with significant changes in the operation results of the company, yet SMC always actively reveals full, accurate, and transparent information on business operations and performance monthly, quarterly, semi-annual, and annually. The Company s key events and other activities are also updated regularly on the company s website, the HCMC stock exchange website, the media and the financial economic channel. The Investor Relations Department under BOM direction always carefully monitor and update information, and actively advance to extraordinary changes of the industry, the company s operations and the stock market, from there providing appropriate, precise, and updated information to shareholders and investors. The preparation of annual report every year has always been focused and is performed by both Vietnamese and English. This is considered as the bridge fully conveying the Company s information, pictures, facts, figures, plans, performance, and strategic objectives in short, medium, and long term to shareholders and investors. In 2013, SMC has generally performed well and full responsibility for the disclosure required by the SEC and the HCM Stock exchange. However, there were two cases occurred within the year being penalties for doing transactions violating the disclosure requirements of the stock exchange. Accordingly, the company has also reminded the violated individuals, and continued to improve investor relations activities to bring better credibility, companion, and best performance for shareholders and potential investors. 78 SMC INVESTMENT TRADING JSC OUTCOME SHARING 79

41 Associations and Joint-ventures The companies holding more than 50% of SMC s equity: None The companies having more than 50% of equity held by SMC: SMC STEEL CO., LTD. Head office Charter Capital VND bn 60 SMC ownership 100% Business activities Products & Services 1B Street - Phu My I Industrial Zone, Ba Ria Vung Tau Province Coil Center processing, cutting, and splitting flat steels Cold rolled coils, hot rolled coils, galvanized steel sheets, zinc coated steel sheets, colour coated steel sheets, stainless steels, section steels, weld mesh Items Unit / - % Net revenue VND bn , Gross profit VND bn Operating profit VND bn Profit before tax VND bn Profit after tax VND bn Total assets VND bn Total debts VND bn Owners Equity VND bn Debt / Equity % Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % SMC MECHANIC STEEL ONE MEMBER CO., LTD. Head office Charter Capital VND bn 100 SMC ownership 100% Business activities Products & Services Phu My I Industrial Zone, Phu My Town, Tan Thanh District, Ba Ria Vung Tau Province Coil Center processing, cutting, splitting hot rolled steels Hot rolled steels, secondary products, galvanized steel sheets Items Unit / - % Net revenue VND bn 1, , Gross profit VND bn Operating profit VND bn n/a Profit before tax VND bn Profit after tax VND bn Total assets VND bn Total debts VND bn Owners Equity VND bn Debt / Equity % Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % SMC BINH DUONG ONE MEMBER CO.. LTD. Head office Charter Capital VND bn 30 SMC ownership 100% Business activities Products & Services Road No.5, Dong An IZ, Binh Hoa Thuan An Town, Binh Duong Province Trading construction materials, distributing steel products for the south-east region market Reinforced concrete, irons and steels, section steels, wire rod, rebar, steel sheets Items Unit /- % Net revenue VND bn 1, , Gross profit VND bn Operating profit VND bn n/a Profit before tax VND bn Profit after tax VND bn Total assets VND bn Total debts VND bn n/a Owners Equity VND bn Debt / Equity % n/a n/a Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % SMC INVESTMENT TRADING JSC OUTCOME SHARING 81

42 ASSOCIATIONS AND JOINT-VENTURES (continued) SMC STEEL TRADING ONE MEMBER CO., LTD. Head office Charter Capital 124 Ung Van Khiem Street, Ward 25, Binh Thanh District, Ho Chi Minh City VND 20 bn SMC ownership 100% Business activities Products & Services Trading construction materials, distributing steel products for the southern region including western provinces and near HCMC areas. Construction steels, cement, clinker Items Unit /- % Net revenue VND bn , Gross profit VND bn Operating profit VND bn Profit before tax VND bn Profit after tax VND bn Total assets VND bn Total debts VND bn n/a Owners Equity VND bn Debt / Equity % n/a n/a Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % SMC TAN TAO ONE MEMBER CO., LTD. Head office Charter Capital Lot 33, Center Street, Tan Tao Industrial Zone, Tan Tao A Ward, Binh Tan District, Ho Chi Minh City VND 80 bn SMC ownership 100% Business activities Products & Services Coil Center processing and trading flat steels, providing warehouse services Hot rolled steels, secondary products, high tensile steel products Items Unit From 18/12/2013 to 31/12/2013 Net revenue VND bn Gross profit VND bn 0.39 Operating profit VND bn 0.10 Profit before tax VND bn 0.12 Profit after tax VND bn 0.09 Total assets VND bn Total debts VND bn 60.0 Owners Equity VND bn 80.1 Debt / Equity % 75.0 Net margin % 0.2 Net profit / Total assets (ROA) % 0.04 Net profit / Owners Equity (ROE) % 0.11 (*) As SMC Tan Tao has just operated since mid-dec 2013, there is no previous period for the financial data comparison SMC HA NOI JOINT STOCK COMPANY Head office Charter Capital VND bn SMC ownership 82.11% Business activities Products & Services Lot No.47, Quang Minh Industrial Zone, Quang Minh Town, Me Linh District, Hanoi Coil Center processing flat steel products, distributing steel products for the Northern market Construction steels, flat steels, galvanized steel sheets, inox Items Unit /- % Sales Revenue VND bn Gross profit VND bn Operating profit VND bn n/a Profit before tax VND bn n/a Profit after tax VND bn n/a Total assets VND bn Total debts VND bn Owners Equity VND bn Debt / Equity % Net margin % Net profit / Total assets (ROA) % Net profit / Owners Equity (ROE) % SMC INVESTMENT TRADING JSC OUTCOME SHARING 83

43 ASSOCIATIONS AND JOINT-VENTURES (continued) Joint-venture Company SMC HIEP PHUOC ONE MEMBER CO., LTD. Head office Charter Capital Lot C5A, C Zone, Hiep Phuoc Industrial Zone, Nha Be District, HCMC 30 VND bn SMC ownership 100% Key business activities Products & Services Connecting SMC and port systems in HCMC, providing warehouse services for steel products trading in HCMC market Various type of steels SMC SUMMIT JOINT-VENTURE Head office 1B Street, Phu My I Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Province Representative Office 396 Ung Van Khiem street, Ward 25th, Binh Thanh District, HCM City Charter Capital 4,000,000 USD SMC ownership 50% Key business activities Trading and distributing special and premium steel products. Products & Services Coupler, formed & bended steels... Items Unit /- % Sales Revenue VND bn Gross profit VND bn Operating profit VND bn Profit before tax VND bn Profit after tax VND bn Total assets VND bn Debt / Equity % Net margin % n/a n/a n/a ROA (Net profit/total assets) % ROE (Net profile/owner s equity) % Items Unit /- % Net Revenue VND bn Gross profit VND bn Operating profit VND bn n/a Profit before tax VND bn n/a Profit after tax VND bn n/a Total assets VND bn Debt / Equity % Net margin % ROA (Net profit/total assets) % ROE (Net profile/owner s equity) % SMC INVESTMENT TRADING JSC OUTCOME SHARING 85

44 BENEFIT BALANCED Know who know me Pioneers in every job Harmonizing interests Report of the Board of Management Auditors Report Consolidated Balance Sheet Consolidated Income statement Consolidated Cash flow statement Notes to the consolidated financial statements

45 REPORT OF THE BOARD OF MANAGEMENT SMC TRADING INVESTMENT JOINT STOCK COMPANY AND ITS SUBSIDIARIES Report of the Board of Management Audited Consolidated Financial statements The Board of Management of SMC Trading Investment Join Stock Company presents its report together with the audited consolidated financial statements of the Company and its Subsidiaries ( the Group ) for the fiscal year ended 31 December Board of Management and Controlling board The Board of Management and Controlling board of the Company in office during the year and at the date of this report is: NAME Mr. Nguyen Ngoc Anh POSITION Chairman CONTENTS 1. Report of the Board of Management Mrs. Nguyen Thi Ngoc Loan Mrs. Vu Thi Thanh Hong Mr. Ma Duc Tu Mr. Vo Hoang Vu Mr. Taira Yoshiyuki Mrs. Ho Thi Ngoc Tuyet Mrs. Tran Thuy Bich Han Mr. Nguyen Huu Kinh Luan 2. Board of Directors Vice Chairman Member Member Member Member Chief of Controlling board Member Member 2. Auditors Report The Board of Directors of the Company in office during the period and at the date of this report is: 3. Consolidated Balance Sheet 4. Consolidated Income statement 5. Consolidated Cash flow statement 6. Notes to the consolidated financial statements NAME Mr. Nguyen Ngoc Anh Mrs. Nguyen Thi Ngoc Loan Mr. Vo Hoang Vu Mr. Nguyen Binh Trong Mr. Nguyen Van Tien POSITION General Director Vice Director Vice Director Vice Director Vice Director 88 BENEFIT BALANCED 89

46 REPORT OF THE BOARD OF MANAGEMENT (CONTINUED) REPORT OF THE BOARD OF MANAGEMENT (CONTINUED) 3. Company s belonging with and subsidiaries 8. Unusual items NAME Da Nang Branch SMC Steel Co., Ltd SMC Binh Duong One Member Company Limited SMC Steel Trading Co., Ltd SMC Hiep Phuoc Co., Ltd SMC Steel Mechanical Co., Ltd SMC Tan Tao Co., Ltd SMC Ha Noi Joint Stock Company SMC SUMMIT Limited Liability Company Sao Viet Materials Trading Producing J.S.C ADDRESS Bach Dang, Hai Chau District, Da Nang City. 1B Street, Phu My I Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Province. Road No. 05, Dong An Industrial Zone, Thuan An District, Binh Duong Province. No. 124 Ung Van Khiem Street, Ward 25, Binh Thanh District, HCM City. Lot No. C5A, C Area, Hiep Phuoc Industrial Zone, Nha Be District, HCM City. Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Province. Lot No. 33, Tan Tao Industrial Zone, Tan Binh District, HCM City. Lot No. 47, Quang Minh Industrial Zone, Me Linh District, Ha Noi Capital. Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Province. No. 147/6 Ung Van Khiem Street, Binh Thanh District, HCM City. There are no unusual items that may render any amount stated in the financial statements misleading. 9. Auditors DFK Vietnam Auditing Company has been appointed as the Company s independent auditors for the fiscal year ended 31 December Statement of the Board of Directors responsibility in respect of the Financial Statements The Board of Directors is responsible for the consolidated financial statements of each fiscal year which give a true and fair view of the state of affairs of the Group and of its results and cash flow for the year. In preparing those financial statements, the Board of Directors is required to: Select suitable accounting policies and then apply them consistently; Make judgments and estimates that bare reasonable and prudent; State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Board of Directors confirms that the Group has complied with the above requirements in preparing the consolidated financial statements for the fiscal year ended 31 December The Board of Directors is responsible for ensuring that proper accounting records are kept which disclose, with reasonable accuracy at any time, the financial position of the Group, and to ensure that the accounting records comply with the applicable accounting system. It is also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 4. Principal activities - Producing, trading, importing - exporting Iron and Steel, metal products, construction materials, interior decoration products, construction equipment, machines, house and storage frames made by aluminum, steel, stainless steel; - Forwarding service for local and export goods. 5. Results of the financial year 11. Approval of the Board of Management We hereby approve the accompanying consolidated financial statements which comprise of the consolidated balance sheet, consolidated income statement and consolidated cash flow statement, together with the consolidated notes thereon. These Consolidated financial statements are drawn up so as to give a true and fair view of the state of affairs of the Group for the fiscal year ended 31 December On behalf of the Board of Management The Group s financial position as at 31 December 2013 and the results of its operations, and cash flows for the fiscal year ended 31 December 2013 are set out in the financial statements on pages 93 to Current assets At the date of this report, the Board of Management is not aware of any circumstances which would render the values attributed to current assets in the financial statements misleading. 7. Contingent liabilities At the date of this report, no contingent liabilities have arisen since the end of financial year against assets of the Group. Nguyen Ngoc Anh Chairman of BOM Date: 28 February BENEFIT BALANCED 91

47 No. 094c/BCKT INDEPENDENT AUDITORS REPORT CONSOLIDATED BALANCE SHEET As at 31 December 2013 Currency unit: VND To: The Board of Management and Directors SMC Trading Investment Joint Stock Company Audit Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of SMC Trading Investment Joint Stock Company ( the Company ) and its subsidiaries ( the Group ), which was prepared on 28 February 2014, as set out on page 93 to page 131, comprising the consolidated balance sheet as at 31 December 2013, the consolidated statement of income, the consolidated cash flow statement for the year then ended and the notes to the consolidated financial statements. Board of Directors responsibility for the financial statements Board of Directors of the Company is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Vietnamese Accounting Standards, Vietnamese Accounting System and applicable statutory requirements to the preparation and presentation of the consolidated financial statements and is responsible for the internal controls that the Board of Directors determines necessary to enable the preparation and presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Vietnamese Standards on Auditing. Those standards require that we comply with ethical requirement and plan and perform the audit in order to obtain reasonable assurance as to whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence supporting the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessment, the auditor considers internal control relevant to the Group s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying consolidated financial statements give a true and fair view in all material respects of the financial position of SMC Trading Investment Joint Stock Company and its subsidiaries as at 31 December 2013 and the results of its operations and its cash flows for the year then ended in accordance with Vietnamese Accounting Standards, Vietnamese Accounting System and applicable statutory requirements to the preparation and presentation of the consolidated financial statements. Ho Chi Minh City, 28 February 2014 For and on behalf of DFK Vietnam Auditing Company VICE DIRECTOR AUDITOR ASSETS Code Notes Closing balance Opening balance A. Current assets 100 2,505,947,037,714 1,723,024,746,334 I. Cash and cash equivalents 110 V ,957,529, ,944,258, Cash ,704,729,361 91,944,258, Cash equivalents ,252,800, ,000,000,000 II. Short-term financial investments 120 V.02 24,689,928,000 18,883,098, Short-term investments ,585,287,362 21,971,245, Provision for the diminution in value of short-term investments 129 (2,895,359,362) (3,088,147,925) III. Trade and other receivables 130 V ,878,834,238 1,092,160,256, Trade accounts receivable ,532,833,707 1,040,338,914, Prepayments to suppliers ,165,268,670 73,215,760, Other receivables 135 2,870,965, ,226, Provision for doubtful debts 139 (24,690,233,885) (22,330,644,640) IV. Inventories 140 V.04 1,157,610,086, ,737,276, Inventories 141 1,167,932,610, ,988,060, Provision for devaluation in inventories 149 (10,322,524,109) (10,250,784,090) V. Other short-term assets 150 V.05 81,810,659,479 42,299,856, Short-term prepaid expenses 151 1,337,310, ,464, Value added tax deductibles ,284,683,689 32,641,428, Other receivables from the State budget ,547,166,247 1,133,873, Other short-term assets ,641,499,401 7,821,089,728 B. Non-current assets ,025,558, ,263,194,068 I. Long-term receivables II. Fixed assets ,895,416, ,751,513, Tangible fixed assets 221 V ,817,399, ,432,210,420 - Cost ,513,939, ,742,531,655 - Accumulated depreciation 223 (170,696,539,515) (131,310,321,235) 2. Finance lease assets 224 V.08 46,220,503,242 38,266,812,860 - Cost ,037,031,929 38,915,402,909 - Accumulated amortization 226 (5,816,528,687) (648,590,049) NGUYEN VAN TUYEN Audit Practice Certificate No PHAN DUC DANH Audit Practice Certificate No BENEFIT BALANCED 93

48 CONSOLIDATED BALANCE SHEET (CONTINUED) As at 31 December 2013 Currency unit: VND CONSOLIDATED BALANCE SHEET (CONTINUED) As at 31 December 2013 Currency unit: VND ASSETS Code Notes Closing balance Opening balance 3. Intangible fixed assets 227 V.07 42,213,065,892 54,618,638,505 - Cost ,718,679,151 56,943,236,486 - Accumulated amortization 229 (505,613,259) (2,324,597,981) 4. Construction in progress 230 V.09 65,644,447,587 8,433,852,159 III. Investment properties IV. Long-term financial investments 250 V.10 92,885,635,683 92,895,949, Investments in associates and joint-ventures ,937,677,683 41,989,326, Other long-term investments ,470,767,544 83,278,994, Provision for diminution in value of long-term financial investments. 259 (33,522,809,544) (32,372,371,544) V. Other non-current assets 260 V.11 88,982,196,766 17,678,037, Long-term prepaid expenses ,330,773,755 3,973,516, Deferred tax assets 262 9,718,930,108 10,703,043, Other non-current assets 268 3,932,492,903 3,001,477,643 VI. Goodwill 269 V.12 5,262,309,621 5,937,693,433 TOTAL ASSETS 270 3,067,972,596,115 2,140,287,940,402 RESOURCES Code Notes Closing balance Opening balance A. Liabilities 300 2,495,496,013,922 1,551,187,852,029 I. Current liabilities 310 V.13 2,342,461,584,300 1,406,075,733, Short-term borrowings and liabilities 311 1,094,449,659, ,565,282, Trade accounts payable 312 1,225,845,430, ,473,912, Advance from customers 313 9,608,426,957 9,455,151, Tax and amount payable to the State budget 314 1,825,761,221 13,356,120, Payables to employees 315 1,092,905,593 5,202,634, Accrued expenses 316 1,016,743,422 1,097,557, Other current payables 319 1,690,424,558 2,562,701, Bonus and welfare funds 323 6,932,232,167 8,362,371,772 II. Long term liabilities 330 V ,034,429, ,112,118, Other long-term payables ,600, ,600, Long-term borrowings and debts ,645,857,774 73,668,620, Deferred tax liabilities ,971, Unrealized revenue ,232,897,960 B. Equity ,623,552, ,905,867,815 I. Owner's equity 410 V ,623,552, ,905,867, Chartered capital ,183,610, ,183,610, Share premium ,531,767, ,531,767, Owner's other capitals 413 5,373,000, Treasury shares 414 (142,489,800) (142,489,800) 5. Investment and development funds ,999,423,263 74,085,676, Financial reserve funds ,652,246,243 16,652,246, Retained earnings ,025,995,642 44,595,057,947 II. Other resources and funds C. Minority interests 439 V.16 3,853,029,685 5,194,220,558 TOTAL RESOURCES 440 3,067,972,596,115 2,140,287,940,402 OFF BALANCE SHEET ITEMS Closing balance Opening balance 1. Bad debt written off 187,223, ,223, Foreign currency - USD 1,384, , The notes set out are an integral part of these financial statements 94 Vo Thuy Oanh Do Doan Thanh Cong Nguyen Ngoc Anh Prepared by Chief Accountant General Director Date: 28 February 2014 BENEFIT BALANCED 95

49 CONSOLIDATED INCOME STATEMENT Currency unit: VND ITEMS Codes Notes Current year Previous year 1. Gross sales 1 9,659,994,336,924 8,975,490,908, Less deductions 2 8,921,188,990 11,824,009, Net sales 10 VI.17 9,651,073,147,934 8,963,666,898, Cost of sales 11 VI.18 9,378,050,176,538 8,718,720,305, Gross profit from sales ,022,971, ,946,592, Financial income 21 VI.19 33,309,098,666 31,830,480, Financial expenses 22 VI.20 93,754,762,454 79,944,710,100 - Including: interest expense 23 70,151,562,842 67,873,071,181 Financial investment provision cost 957,649,437 1,062,014, Selling expenses 24 VI ,790,869,962 81,444,677, General and administration expenses 25 VI.22 68,517,474,800 69,262,523, Operating profit 30 24,268,962,846 46,125,161, Other income 31 VI.23 20,531,464,011 37,945,697, Other expenses 32 VI.24 13,041,100,110 8,240,026, Profit from other activities 40 7,490,363,901 29,705,670, Profit (loss) from investments in associates, joint-ventures 45 1,948,351,271 (1,382,189,533) 15. Accounting profit before tax 50 33,707,678,018 74,448,642, Current tax expense 51 VI.25 7,310,739,359 15,606,304, Deferred tax expense 52 VI.26 1,299,530,399 (10,493,851,083) 18. Net profit after tax 60 25,097,408,260 69,336,189,515 Net profit after tax attributable to: 19. Minority interests 61 (962,063,463) 757,876, Parent company's owners 62 26,059,471,723 68,578,313, Earning per share 70 VI ,324 The notes set out are an integral part of these financial statements CONSOLIDATED CASH FLOW STATEMENT Currency unit: VND ITEMS Notes Current year Previous year CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax 01 33,707,678,018 74,448,642,436 Adjustment for: Depreciation and amortization 02 47,463,872,536 41,618,815,909 Provisions 03 3,388,978,701 12,464,521,985 Unrealized exchange differences 04 (484,727,896) (694,541,162) (Gain) loss from investing activities 05 (6,725,956,222) (16,895,897,826) Interest expense 06 70,151,562,842 67,873,071,181 Operating profit before movements in working capital ,501,407, ,814,612,523 (Increase) decrease in receivables ,773,109,750 69,724,947,695 (Increase) decrease in inventories 10 (784,531,608,680) 53,248,406,662 Increase (decrease) in accounts payable ,199,471,677 (277,749,791,354) (Increase) decrease in prepaid expenses 12 (52,725,306,544) (1,355,312,716) Interest paid 13 (69,134,819,420) (66,775,513,769) Corporate income tax paid 14 17,450,019,103 (11,445,691,154) Other cash inflows 15 1,978,518, ,191,146,091 Other cash outflows 16 (14,430,007,276) (2,794,847,283) Net cash flows from (used in) operating activities 20 (196,919,214,558) 104,857,956,695 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of fixed assets and other long-term assets 21 (147,928,054,907) (89,703,119,988) Proceeds from sales of fixed assets and other long term assets 22 5,891,000,001 2,390,760,000 Cash outflow for lending and buying debt instruments of other companies Cash recovered from lending and selling debt instruments of other companies 23 (17,100,000,000) (176,611,333,754) 24 12,300,000, ,611,333,754 Investments in other entities 25 (6,056,351,271) (58,509,693,293) Cash recovered from investments in other entities 26 4,102,185,833 12,374,536,098 Dividend received 27 7,607,677,495 17,309,927,892 Net cash flows from (used in) investing activities 30 (141,183,542,849) (116,137,589,291) Vo Thuy Oanh Do Doan Thanh Cong Nguyen Ngoc Anh Prepared by Chief Accountant General Director Date: 28 February 2014 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 33 7,847,712,241,440 7,743,055,827,772 Repayments of borrowings 34 (7,364,845,902,281) (7,730,859,077,301) Repayments of obligations under finance lease 35 (6,604,654,186) (2,049,572,708) 96 BENEFIT BALANCED 97

50 CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) Currency unit: VND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Currency unit is in VND, unless other currencies stated) ITEMS Notes Current year Previous year Dividends paid 36 (32,497,030,820) (38,365,139,400) Net cash flows from (used in) financial activities ,764,654,153 (28,217,961,637) Net increase (decrease) in cash and cash equivalents ,661,896,746 (39,497,594,233) Cash and cash equivalents at beginning of period ,944,258, ,432,641,518 Effect of changes in foreign exchange rates ,374,143 9,211,187 Cash and cash equivalents at end of period ,957,529, ,944,258,472 The notes set out are an integral part of these financial statements. These notes are an integral part of and should be read in conjunction with the accompanying financial statements. I. General Information 1. Structure of ownership SMC Trading Investment Joint Stock Company ( the Company ) is established under the Business Registration Certificate No on 18 October 2004 and the 11th Amendment Business Registration Certificate No issued on 6 November 2012 by the Planning and Investment Department of Ho Chi Minh City. Shares of Company was officially traded at the Ho Chi Minh Stock Exchange with the code of SMC since 30 October 2006 under the License No. 62/UBCK-GPNY granted by the President of State Securities Commission dated 29 September Form of capital ownership: Share capital. The Company registered their legal capital under the Business Registration Certificate with the amount of 295,183,610,000 VND, which was divided into 29,518,361 shares with the face value of each share is 10,000 VND, and the Company s shares are entirely common shares. 2. Head office and branches Vo Thuy Oanh Do Doan Thanh Cong Nguyen Ngoc Anh Prepared by Chief Accountant General Director Date: 28 February The Company s head office is located at: No. 396 Ung Van Khiem Street, Ward 25, Binh Thanh District, HCM City. - The Company s branches: Da Nang branch. 3. Business sector: Manufacturing - trade - services - construction. 4. Principal activities Producing, trading, importing - exporting Iron and Steel, metal products, construction materials, interior decoration products, construction and mechanical equipment, house and storage frames made by aluminum, steel, inox mixes (not being produced at the head office). Constructing, installing of civil, industrial transportation, irrigational projects. Repairing of house, interior decoration products. Setting up the construction and investment projects. Trading of houses. Trading of machineries and equipments and foodstuff. Forwarding and storage services for the local and export goods. 5. Number of employees Number of employees of the Group up to 31/12/2013: 423 persons. 98 BENEFIT BALANCED 99

51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 6. List of subsidiaries and associates, joint-ventures II. Name Address Business line % share SMC Steel Co., Ltd SMC Binh Duong One Member Co., Ltd SMC Steel Mechanical Co., Ltd SMC Hiep Phuoc Co., Ltd SMC Steel Trading Co., Ltd SMC Tan Tao Co., Ltd SMC Ha Noi Joint Stock Company SMC - SUMMIT Limited Liability Company Sao Viet Materials Trading Producing Joint Stock Company 1B Street, Phu My 1 Industrial Zone, Ba Ria - Vung Tau Province Road No. 05, Dong An Industrial Zone, Thuan An, Binh Duong Province Phu My 1 Industrial Zone, Tan Thanh, Ba Ria - Vung Tau Province Lot No. C5A, C Area, Hiep Phuoc Industrial Zone, Nha Be, HCM City No. 124 Ung Van Khiem Street, Ward 25, Binh Thanh, HCM City Lot No. 33, Tan Tao Industrial Zone, Tan Binh, HCM City No. 47, Quang Minh Industrial Zone, Me Linh District, Ha Noi City Phu My 1 Industrial Zone, Tan Thanh, Ba Ria - Vung Tau Province No. 147/6 Ung Van Khiem Street, Ward 25, Binh Thanh District, HCM City Accounting period and accounting currency 1. Accounting period begins from 01/01 and ends on 31/12 annually. 2. Currency unit used in accounting is Vietnam dong (VND). Manufacturing, trading and service Manufacturing, trading service and construction Manufacturing, trading service and construction Manufacturing, trading service and construction Trading service and construction Trading service and construction Manufacturing, trading and service Manufacturing, trading and service Manufacturing, trading and service % voting rights % % % % % % % % % % % % 82.11% 82.11% 50.00% 50.00% 35.00% 35.00% Stock Company and its subsidiaries ( the Group ) as at 31 December yearly. The financial statements of the subsidiaries are prepared for the same year with the Company, using accounting policies consistent with the Company s accounting policies. Adjustments are made for any difference in accounting policies that may exist to ensure the consistency between the subsidiary and the Company. All inter-company balances and transactions, including unrealized profits arising from intra-group transactions, have been eliminated in full. Unrealized losses are eliminated unless costs cannot be recovered. Minority interests represent the portion of profit or loss and net assets not held by the Company s shareholders and are presented separately in the consolidated income statement and in the consolidated balance sheet. The subsidiaries are consolidated from the date on which the Company obtains control and cease to be consolidated from the date on which the Company ceases to control. Where there is a loss of control over the subsidiaries, the consolidated financial statements still include results for the period of the reporting year during which the Company has control. Except for subsidiaries acquired under common control which are accounted for under the pooling of interests method, other subsidiaries have been included in the consolidated financial statements using the purchase method of accounting that measures the subsidiaries assets and liabilities at their fair value at the acquisition date. 2. Investment in associates Investments in associates are accounted for using the equity method of accounting. An associate is an entity in which the Company has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, investments in associates are carried in the balance sheet at cost plus post acquisition changes in the Group s share of net assets of the associates. Goodwill relating to the associates is included in the carrying amount of the investments and is amortized over ten years. The consolidated income statement reflects the Group s share in the results of operations of the associate. Where there has a change recognized directly in the equity of the associate, the Group recognizes its share of any changes and discloses this, when applicable, in its equity. Unrealized profits and losses resulting from transactions between the Group and associates are eliminated to the extent of the interest in the associate. III. Accounting standards and regime The accompanying consolidated financial statements are prepared and represented in conformity with Vietnamese Standards on Accounting by the Ministry of Finance. The financial statements of the associates are prepared for the same accounting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of the Company. 3. Investment in joint venture The accompanying consolidated balance sheet, consolidated income statement, consolidated cash flow statement and related notes are not intended to present the financial position and results of operations and cash flows of the Group in accordance with accounting principles and practices generally accepted in countries other than Vietnam. Joint venture is the compromise by the contract of two or more partners proceeding the economy activity together, that is controlled by the partners of joint venture. The joint ventures are consolidated by the equity method. IV. Principal accounting policies 4. Investments in securities and other investments 1. Basis of consolidation Investments are stated at original cost. An investment provision is created as these economic organizations are in loss situation (excepts for case of planning loss had been determined in business planning before The consolidated financial statements comprise the financial statements of SMC Trading Investment Joint 100 BENEFIT BALANCED 101

52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 4. Investments in securities and other investments (continued) 9. Receivables investing) with rate of contributed capital. Securities provision is made for any securities when market price is lower than its book value. Non-listed securities are stated at original cost when there have no basis to determine the fair value on the market. 5. Estimates The preparation of financial statements in conformity with Vietnamese Accounting Standards, Vietnamese Accounting System and prevailing accounting regulations in Vietnam requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting year (period). Actual results could differ from those estimates. 6. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash in banks and short-term, highly liquid investments with an original maturity of less than three months that are readily convertible into known amounts of cash and that are subject to an insignificant risk of change in value. 7. Foreign currency translation The accounting principles and methods in relation to foreign currency translation are applied under the Vietnamese Accounting Standard No Effects of Changes in Foreign Exchange Rates. Accordingly, transactions in currencies other than the Company s reporting currency are recorded at the actual exchange rates ruling at the date of the transaction. At year-end, monetary assets and liabilities denominated in foreign currencies are revalued at exchange rates ruling at the balance sheet date. All realised and unrealised foreign exchange differences are taken to the income statement. Beside, according to the Circular No. 179/2012/ TT-BTC issued on 24/10/2012 by the Ministry of Finance providing guidance for the treatment of foreign exchange differences as follows: - The settlement of foreign currency monetary items during period are recorded at the actual exchange rates ruling at the Commercial Bank where the Company has arisen the transactions. - At year-end, the foreign currency monetary items are revalued at the buying exchange rates ruling at the Commercial Bank where the Company has their bank account at the balance sheet date. 8. Prepaid expense These following expenses are accounted into prepaid expense to allocate in the operating result including: - Tools expense - Insurance expense - Project conducting expense - Infrastructure fee of industrial zone - Prepaid land rental - Other allocation expenses Receivables are presented in the financial statements at the carrying amounts due from customers and other debtors, along with the provision for doubtful debts. The provision for doubtful debts represents the estimated loss due to non-payment arising on receivables that were outstanding at the balance sheet date. Increases and decreases to the provision balance are recorded as general and administrative expense in the income statement. 10. Inventories Inventories are stated at the lower of cost incurred in bringing each product to its present location and condition, and net realizable value. Net realizable value represents the estimated selling price less anticipated cost of disposal and after making allowance for damaged, obsolete and slow-moving items. The perpetual method is used to record inventories. Inventories are valued based on the actual cost basis and on the last in first out (LIFO) method. An inventories provision is created for the estimated loss arising due to the impairment (through diminution, damage, obsolescence...) of raw materials, finished goods, and other inventories owned by the Company, based on appropriate evidence of impairment available at the balance sheet date. Increases and decreases to the provision balance are recorded into the cost of goods sold account in the income statement. 11. Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation. The cost of an asset comprises of its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Expenditure for additions, improvements and renewals are capitalized and expenditure for maintenance and repairs are charged to the income statement. When assets are sold or retired, their cost and accumulated depreciation are removed from the balance sheet and any gain or loss resulting from their disposal is included in the income statement. Land use rights Land use rights are actual expenditures relating to land using, include: expenditure to obtain land use rights, compensation expenses, clearance expenses and registration fees. Accounting software and software license Accounting software and software license are all expenditures which the Company has paid up to the time they are in use. Depreciation Depreciation of fixed assets is calculated on a straight-line basis over the estimated useful life of each asset. The rate of depreciation is in accordance with the Circular No. 45/2013/TT-BTC on 25 April 2013 issued by the Ministry of Finance. 102 BENEFIT BALANCED 103

53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 11. Fixed assets and depreciation (continued) Buildings Machinery and equipment Transportation Office equipment Software 12. Goodwill years years years years years Goodwill incurred from investments in subsidiaries is amortized over ten years, and negative goodwill are recorded in the income in the consolidated financial statements. 13. Finance lease contract The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific assets and the arrangement covers a right to use the asset. Assets held under finance leases, in which substantially all the risks and rewards of ownership of the asset have passed to the Company, are capitalized in the balance sheet at the inception of the lease at the fair value of the leased asset or, if lower, at the net present value of the minimum lease payments. The principal amount included in future lease payments under finance leases are recorded as a liability. The interest amounts included in lease payments are charged to the income statement over the lease term to achieve a constant rate on interest on the remaining balance of the finance lease liability. Rentals under finance leases are charged to the income statement on a straight-line basis over the term of the lease. Machinery and equipment years 14. Salary, social insurance, health insurance and unemployment insurance Salary is accounted for the expense according to the labor contract signed. Accordingly, social insurance, health insurance and unemployment insurance are also accounted with the rate of 24%, 4.5% and 2% respectively based on the salary of laborer, of which 21% amount is accounted for expense and 9.5% amount is deducted from laborer s salary. 15. Accrued expenses payable Accrued expenses payable are recognized for amount to be paid in the future for goods and services received, whether or not billed to the Company. 16. Provision for payables Provisions payable are recorded as making sure a liability must be paid at the year ending. Provisions payable are recorded in accordance with the method of accrual or reversal of the differences between provision amount of the current year and provision amount of the prior year. Provision for unemployment allowances: Be recorded in accordance with the actual arising. 17. Interest expenses The interest expense is recorded as the expense is incurred in the period, unless it is capitalized. Interest expenses that are directly attributable to the acquisition, construction or production of a particular asset are capitalized as part of the cost of the asset. The interest expenses of other loans are recorded as the financial expense when incurred. 18. Recording of contributed capital Investments of owner are recorded according to the actual contributed capital of owner. Share premium reserve is recorded under the excess or diminution difference between the actual price and face value at the first issue, the subsequent issue or reissue of treasury shares. Owner s equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or loss is recognized in profit or loss upon purchase, sale, issue or cancellation of the Company s owner s equity instruments. 19. Profit distribution Profit after tax is divided to shareholders after being passed by the Annual Shareholder Meeting and the Company s funds established under the Company s regulations and the prevailing laws of Vietnam. 20. Revenue recognition Sale turnover shall be recognized if it simultaneously meets the following five (5) conditions: - The enterprise has transferred the majority of risks and benefits associated with the rights to own the products or goods to the buyer; - The enterprise no longer holds the rights to manage the goods as the goods owner, or the rights to control the goods; - Turnover has been determined with relative certainty; - The enterprise has gained or will gain economic benefits from the good sale transaction; - It is possible to determine the costs related to the goods sale transaction. Rendering of services Where the contract outcome can be reliably measured, revenue is recognized by reference to the quantity of the service rendered and buyers accept the payments. 104 BENEFIT BALANCED 105

54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 20. Revenue recognition (continued) Rental income Rental income arising from operating leases is accounted for on a straight line basis over the lease terms. Income from securities trading, capital transfers Income from securities trading, capital transfers is defined as the diffidence between the selling price and the stock cost. This income is recorded on the date of transaction. On the other words, the assignment of contract is done. Bonus shares or dividend payment by shares No income is recognized when the rights to receive the bonus shares or stock dividends are released. However, the number of bonus shares or stock dividends received will be presented on the notes of the Financial Statements. 21. Recording of expense Expense is recorded according to actually arising and matching with revenue. 22. Taxation SMC Trading Investment Joint Stock Company and its Subsidiaries ( the Group ) is obliged to pay corporate income tax (CIT) at the rate of 25% of the taxable income. The charge for corporate income tax is based on the results of the current year and adjusted for items, which are non-deductible and losses carried forward, if any. The Group has preferential CIT as follows: - SMC Steel Mechanical Company is obliged to pay corporate income tax (CIT) at the rate of 15% for 12 years from the project SMC Steel Mechanical factory has been begun. The Company is entitled to corporate income tax exemption for three years from having the taxable income and a reduction of 50% for subsequent 7 years. The year 2013 is the first year that the Company is reduced of CIT. - SMC Steel Ltd., Co is obliged to pay corporate income tax (CIT) at the rate of 15% for 12 years from the project Investing and expanding the manufacturing, processing of steel product factory has been begun. The year 2013 is the seventh year SMC Steel Ltd., Co is obliged to pay CIT rated of 15% for the processing activity. - SMC Ha Noi Joint Stock Company is obliged to pay corporate income tax (CIT) at the rate of 15% for 12 years from the project has been begun. SMC Ha Noi Joint Stock Company is entitled to corporate income tax exemption for three years from having the taxable income and a reduction of 50% for subsequent 7 years. The year 2013 is the third year SMC Ha Noi J.S.C is reduced by 50% CIT. The land rental amount is exempted for 11 years since the project is started. Other taxes shall be paid in accordance with the prevailing laws of Vietnam. The tax payable is the amount that the Group estimated and shown in the accounting books. The tax payables will be adjusted as being finalized by the Tax office. Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted by the balance sheet date. Deferred tax Deferred tax is provided using the balance sheet liability method on temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amount for financial reporting purpose. Deferred tax assets are recognized for all deductible temporary differences, carried forward of unused tax credit and unused tax losses, to the extent that it is probable that taxable profits will be available against which deductible temporary differences, carried forward of unused tax credit and unused tax losses can be utilized. 23. Related party A party is related to the Company if it has the ability to control the Company or exercise significant influence over the Company in making financial and operating decisions. All material transactions in relation with related parties during the period will be noted in the Notes to the financial statements. V. Additional information for the items on the Balance sheet 1. Cash and cash equivalents Closing balance Opening balance Cash on hand 1,124,010,011 2,949,950,042 Cash in bank (*) 134,580,719,350 88,994,308,430 Cash equivalents (term deposits) 167,252,800, ,000,000,000 Total 302,957,529, ,944,258,472 (*) Of which, including the cash in bank by foreign currency is 1,384, USD equivalents to 29,191,671,165 VND. 106 BENEFIT BALANCED 107

55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 2. Short-term investments (3.1) Including: Closing balance Opening balance Loans (2.1) 16,000,000,000 1,200,000,000 Term deposits (six months, the interest rate of 6.8%/year) 4,000,000,000 - Short-term securities investments (2.2) 7,585,287,362 10,771,245,925 Provision for the diminution in value (2.3) (2,895,359,362) (3,088,147,925) Bonds of Nam Long Investment J.S.C - 10,000,000,000 Total 24,689,928,000 18,883,098,000 (2.1) Loans under two loan s contracts, borrowing from 5 to 9 months, interest rate: from 9%/year to 16%/year. (2.2) Details of short-term securities investments and the provision as at 31/12/2013 Listed companies Number of shares The value of investments Provision amount Net value of investments Pomina Steel JSC 171,700 3,976,895,462 (1,796,305,462) 2,180,590,000 Non-listed companies Sai Gon Inlaco Company 55,000 1,830,000,000 (730,000,000) 1,100,000,000 (*) Construction and Consulting JSC 29, ,908,200 (127,770,200) 505,138,000 (*) Saigon Packaging JSC 70, ,000, ,000,000 Closing balance Opening balance - Trade receivable (*) 942,443,507,729 1,031,419,939,987 - Receivables from related parties (Notes VII.1) 8,089,325,978 8,918,974,399 Total 950,532,833,707 1,040,338,914,386 (*) Of which, including trade receivables by foreign currency is 3,483, USD equivalents to 73,449,155,358 VND. (3.2) Including: Closing balance Opening balance - Deposit and saving interest receivables 1,290,948, ,663,701 - Receivables from overdue interest 164,902, ,902,087 - Loan to employees 663,500, Receivables from related parties (Notes VII.1) 208,169, Others 543,446, ,660,298 Total 2,870,965, ,226,086 (3.3) Fluctuation of provision for doubtful debts: Opening balance (22,330,644,640) Increased by provision established (8,133,248,313) Decreased by reversal 5,773,659,068 Closing balance (24,690,233,885) (*) Vietnam Ocean Shipping Agency Corporation 11, ,483,700 (241,283,700) 179,200, Inventories Total 7,585,287,362 (2,895,359,362) 4,689,928,000 Closing balance Opening balance (*) In the year 2013, the Company has received dividends from these companies by cash with the amount of 89,486,000 VND. As at 31/12/2013, the Company could not determine the market value as well as the book value of unlisted securities, therefore the provision amount was temporarily recorded based on the Board of Directors judgment. 3. Short-term receivables Closing balance Opening balance Trade receivable (3.1) 950,532,833,707 1,040,338,914,386 Prepayment to suppliers 10,165,268,670 73,215,760,918 Other receivables (3.2) 2,870,965, ,226,086 Total 963,569,068,123 1,114,490,901,390 Provision for doubtful debts (3.3) (24,690,233,885) (22,330,644,640) Total 938,878,834,238 1,092,160,256,750 Raw materials 760,128,462, ,719,332,616 Tools 208,776, ,001,632 Work in progress (goods for processing) - 2,336,867,866 Finished goods 139,446,125,768 54,635,419,117 Merchandise inventories 268,149,245, ,148,439,708 Provision for devaluation in inventories (10,322,524,109) (10,250,784,090) Total 1,157,610,086, ,737,276,849 (*) Provision for decline in inventory: Opening balance (10,250,784,090) Increased by provision established (337,547,529) Decreased by reversal 265,807,510 Closing balance (10,322,524,109) 108 BENEFIT BALANCED 109

56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 5. Other current assets Closing balance Opening balance Short-term prepaid expenses (mainly are tools) 1,337,310, ,464,829 Value added tax deductibles 44,284,683,689 32,641,428,093 Tax and receivables from the State (5.1) 23,547,166,247 1,133,873,613 Other current assets (5.2) 12,641,499,401 7,821,089,728 Total 81,810,659,479 42,299,856,263 (5.1) Including: Closing balance Opening balance - Value added tax awaiting for refunding 20,076,383, Corporate income tax overpaid 3,470,782,638 1,133,873,613 Total 23,547,166,247 1,133,873,613 (5.2) Including: Closing balance Opening balance - Advances 5,043,419, ,070,000 - Other deposits 24,600,000 20,000,000 - Deposit for goods purchasing - VND 2,935,000,000 2,743,359,728 - Deposit for goods purchasing (220, USD) 4,638,480,000 4,576,660,000 Total 12,641,499,401 7,821,089, Tangible fixed assets Plant, buildings Machinery and equipment Transportation Office equipment Cost Opening 137,878,039, ,833,740,753 58,304,757,573 16,725,994, ,742,531,655 Increase 1,372,979,493 55,514,250,001 11,999,836,013 1,927,367,026 70,814,432,533 Decrease 15,960, ,384,571 7,699,821,444 1,629,859,048 10,043,025,063 Closing 139,235,058, ,650,606,183 62,604,772,142 17,023,502, ,513,939,125 Accumulated depreciation Opening 30,250,747,557 66,727,958,578 23,473,467,252 10,858,147, ,310,321,235 Increase 12,730,338,379 18,495,684,341 8,005,156,244 2,788,078,605 42,019,257,569 Decrease 15,960, ,345, ,795,185 1,300,938,313 2,633,039,289 Closing 42,965,125,936 84,790,297,128 30,595,828,311 12,345,288, ,696,539,515 Total Net book value Opening 107,627,291,606 51,105,782,175 34,831,290,321 5,867,846, ,432,210,420 Closing 96,269,932,720 87,860,309,055 32,008,943,831 4,678,214, ,817,399,610 Fixed assets increased by new purchasing and finished construction. Fixed assets decreased by selling and reclassifying to tools in accordance with the Circular No. 45/2013/TT-BTC on 25 April 2013 issued by the Ministry of Finance. Cost of fixed assets has been fully depreciated but still in use with the value of 24,888,503,799 VND. Cost of fixed assets has not been used, awaiting for selling with the value of 4,090,915,092 VND. As at 31/12/2013, the net book value of tangible fixed assets is 79,076,590,055 VND used for mortgage at banks to ensure the Company s borrowings as noted at item V.13.1 and V.14* 7. Intangible fixed assets Land use rights Software Total Cost Opening 56,543,764, ,472,216 56,943,236,486 Increase - 7,393,645,525 7,393,645,525 Decrease 21,561,124,460 57,078,400 21,618,202,860 Closing (*) 34,982,639,810 7,736,039,341 42,718,679,151 Accumulated amortization Opening 1,970,852, ,745,547 2,324,597,981 Increase 67,730, ,946, ,676,329 Decrease 2,038,582,651 57,078,400 2,095,661,051 Closing - 505,613, ,613,259 Net book value Opening 54,572,911,836 45,726,669 54,618,638,505 Closing 34,982,639,810 7,230,426,082 42,213,065,892 (*) Land use rights include non-term land use rights at No. 396 Ung Van Khiem Street, Ward 25, Binh Thanh District, HCMC with the value of 33,607,900,000 VND and land use rights at Ninh Kieu District, Can Tho City with the value of 1,374,739,810 VND (the Company is conducting the procedure in order to transfer the ownership to the Company). Intangible fixed assets increased by new installment, decreased by reclassifying to long-term prepaid expenses. Cost of software has been fully depreciated but still in use with the value of 251,738,816 VND. The value of land use rights is used for mortgage: 33,607,900,000 VND as noted at item V BENEFIT BALANCED 111

57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 8. Finance lease assets Machinery and equipment Cost 52,037,031,929 Depreciation incurred in the year 5,167,938,638 Accumulated depreciation up to 31 December ,816,528,687 Net book value as at 31 December ,220,503, Construction in progress Closing balance Opening balance Expenditures relating to the ERP software installment - 7,730,212,551 Expenditures of constructing office and workshop at SMC Tan Tao Co., Ltd (*) 65,344,447,587 - Other projects 300,000, ,639,608 Total 65,644,447,587 8,433,852,159 (*) The construction has been completed in November The Company is in the process of file performing and auditing the construction finaliziation and recording of fixed assets. 10. Long-term financial investments Closing balance Opening balance Investments in Associates and Joint Venture (10.1) 43,937,677,683 41,989,326,412 Other long-term investments (10.2) 82,470,767,544 83,278,994,814 Provision for long-term investment devaluation (10.2) (33,522,809,544) (32,372,371,544) Total 92,885,635,683 92,895,949,682 (10.1) Including: Non-listed companies The value of investments Profit (loss) of the Company at Associates and Joint Venture Total SMC - SUMMIT Limited Liability Company 41,640,000,000 1,882,927,683 43,522,927,683 Sao Viet Materials Trading Producing J.S.C (*) 1,750,000,000 (1,335,250,000) 414,750,000 Total 43,390,000, ,677,683 43,937,677,683 (*) Sao Viet Materials Trading Producing J.S.C (associates) received the Confirmation No. 069/CT-TTDL dated 04/01/2012 about completing the tax obligation and ending tax code s validity. However, at the date of this NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) report, the related parties have not reached to the compromise of reversal the invested value, therefore the Company has not recorded to decrease the investments yet as mentioned above. (10.2) Details of long-term investments and provision as at 31/12/2013 Listed companies Number of share The value of investments Provision amount Net value of investments Pomina Steel JSC 1,430,000 33,599,960,344 (15,438,960,344) 18,161,000,000 UPCom companies Bien Hoa Steel JSC (*) 473,170 12,175,807,200 (8,674,349,200) 3,501,458,000 Nha Be Steel JSC 115,000 2,720,000,000 (2,409,500,000) 310,500,000 Non-listed companies Nam Khang Investment JSC (*) 450,000 9,875,000,000-9,875,000,000 Thong Nhat Steel Corporation 1,400,000 14,000,000,000 (7,000,000,000) 7,000,000,000 Vietnam Steel Corporation 1,000,000 10,100,000,000-10,100,000,000 Total 82,470,767,544 (33,522,809,544) 48,947,958,000 (*) In the year 2013, the Company has received dividends from these companies by cash with the amount of 478,244,980 VND. As at 31/12/2013, the Company could not determine the net book value of unlisted securities because the company had not gathered the invested company s audit reports, therefore, the provision amount was recorded based on the Board of Directors judgment. 11. Other non-current assets Closing balance Opening balance Long-term prepaid expenses (11.1) 75,330,773,755 3,973,516,289 Deferred tax assets (11.2) 9,718,930,108 10,703,043,077 Other non-current assets (11.3) 3,932,492,903 3,001,477,643 Total 88,982,196,766 17,678,037,009 (11.1) Including: Closing balance Opening balance - Prepaid infrastructure fee 2,022,710,104 2,073,702,796 - Prepaid land rental (*) 71,400,128, Tools awaiting for allocation 558,197,739 35,471,668 - Phu My project expense awaiting for allocation 944,851,549 1,181,064, BENEFIT BALANCED 113

58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 11. Other non-current assets (continued) 13. Current liabilities (11.1) Including: Closing balance Opening balance Closing balance Opening balance - Warehouse renewing expense awaiting for allocation 26,919, ,949,494 - Others 377,966, ,327,895 Total 75,330,773,755 3,973,516,289 (*) Including: prepaid land rental with the term up to November 2046 at Dong An industrial Zone, Thuan An District, Binh Duong Province with the value of 1,908,138,508 VND; prepaid land rental with the term up to 16 August 2050 at lot No Center Road, Tan Tao industrial Zone, Binh Tan District, HCMC with the value of 52,358,656,000 VND; prepaid land rental with the term up to 29 December 2048 at Hiep Phuoc Industrial Zone, Nha Be, HCMC with the value of 16,837,413,216 VND; and compensation expenses with the term up to July 2052 at Quang Minh Industrial Zone, Me Linh District, Vinh Phuc Province (at present is Ha Noi City) with the value of 295,921,137 VND. The Company has obtained the certificate of land use rights of these land plots. Short-term borrowings and liabilities (13.1) 1,094,449,659, ,565,282,745 Payables to suppliers (13.2) 1,225,845,430, ,473,912,941 Advances from customers (13.3) 9,608,426,957 9,455,151,348 Taxes and amount payables to the State budget (13.4) 1,825,761,221 13,356,120,905 Payables to employees 1,092,905,593 5,202,634,131 Accrued expenses payable (borrowings interest payables) 1,016,743,422 1,097,557,412 Other short-term payables (13.5) 1,690,424,558 2,562,701,948 Bonus and welfare funds 6,932,232,167 8,362,371,772 Total 2,342,461,584,300 1,406,075,733,202 (13.1) Including: (11.2) Deferred tax assets arising from deductible temporary differences of: Closing balance Opening balance Closing balance Opening balance - Expenses for provision for bad debts 2,984,920,499 5,357,544,331 - Expenses for provision for devaluation in inventories 1,074,723,016 1,752,727,950 - Expense for provision for financial investments 2,317,844,326 3,551,468,684 - Loss on foreign exchange differences - 41,302,112 - Unused taxable losses 3,203,996, Depreciation expense 137,445,582 - Total 9,718,930,108 10,703,043,077 (11.3) Including: - Vietinbank - HCM City branch (a) 410,131,729, ,412,002,442 - Vietinbank - Eastern Sai Gon branch (b) 111,000,000, Vietinbank - Quang Minh branch (c) 52,428,333, HSBC bank (Viet Nam) Ltd (d) 141,621,591,443 82,615,650,000 - Vietcombank - HCMC branch (e) 299,140,553, ,959,454,147 - TPBank - HCMC branch (f) 20,000,000, Other bank and other company - 254,151,347,364 - Borrowings from individuals (g) 37,747,000, Current portion of long-term debts (14e) 22,380,451,088 17,426,828,792 Total 1,094,449,659, ,565,282,745 Closing balance Opening balance (a) Borrowings from Vietinbank Viet Nam - HCMC branch under the credit contracts as follows: - Deposits at Vietnam International Leasing Company Limited 3,932,492,903 3,001,477,643 Total 3,932,492,903 3,001,477, Goodwill Closing balance Opening balance (*) 5,262,309,621 5,937,693,433 - The credit contract No. 01/2013-HDTDHM/NHCT900-SMC dated 12/8/2013 with the credit limit of 800,5 billion VND; borrowing duration: from months; the interest rate as at 31/12/2013: 6%/year (borrowings by VND) and 3%/year (borrowings by USD). This borrowing is guaranteed by the assets formed from borrowing amount, land use rights and project ownership rights at No. 396 Ung Van Khiem street, ward 25, Binh Thanh district, HCM city with the mortgaged assets value estimated of 41,034,000,000 VND. The balance up to 31/12/2013 is 317,631,729,803 VND including: 276,346,654,896 VND and 1,958, USD equivalents to 41,285,074,187 VND. (*) Net book value of goodwill arising from investment into SMC Ha Noi Joint Stock Company, awaiting for allocation. 114 BENEFIT BALANCED 115

59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 13. Current liabilities (continued) - The credit contract No. 01/2013-HDTDHM/NHCT900-THEP SMC dated 01/7/2013 with the credit limit of 300 billion VND; borrowing duration: 03 months; the interest rate as at 31/12/2013: 6.5%/year. The balance up to 31/12/2013 is 62,500,000,000 VND. - The credit contract No. 01/2013-HDTDHM/NHCT900-CO KHI SMC dated 20/8/2013 with the credit limit of 260 billion VND; borrowing duration: 03 months; the interest rate as at 31/12/2013: 6.5%/year. The balance up to 31/12/2013 is 30,000,000,000 VND. (b) Borrowings from Vietinbank Viet Nam - Eastern Sai Gon branch under the credit contracts as follows: - The credit contract No A/HDTDHM dated 30/5/2013 and Appendixes with the credit limit of 150 billion VND; borrowing duration: 02 months; the interest rate as at 31/12/2013: 6%/year. This borrowing is guaranteed by the assets under the contract No B/HDTC date 18/7/2012. The balance up to 31/12/2013 is 59,000,000,000 VND. - The credit contract No A/HDTDHM dated 30/5/2013 and Appendixes with the credit limit of 100 billion VND; borrowing duration: 02 months; the interest rate as at 31/12/2013: 6%/year. This borrowing is guaranteed by SMC Trading Investment Joint Stock Company. The balance up to 31/12/2013 is 52,000,000,000 VND. (c) Borrowings from Vietinbank Viet Nam - Quang Minh branch under the credit contracts No / HDTDHM dated 30/11/2012 and No /HDTDHM dated 02/5/2013; borrowing duration: 03 months; the interest rate as at 31/12/2013: from 5.8%/year to 6.5%/year. This borrowing is guaranteed by the assets under the contract No /HDTC date 22/02/2013. The balance up to 31/12/2013 is 52,428,333,974 VND. (d) Borrowing from HSBC (Viet Nam) bank under the proposal letter No. VNM between SMC Trading Investment J.S.C, SMC Steel Mechanical Co., Ltd, SMC Steel Co., Ltd, SMC Ha Noi J.S.C and the Bank dated 14/5/2013 with the total credit limit is 280 billion VND; the borrowing duration: 02 months; the interest rate as at 31/12/2013: from 5.5%/year to 5.8%/year. This borrowing is guaranteed by goods of these companies with the mortgaged assets value estimated of 323 billion VND. The balance up to 31/12/2013 is 141,621,591,443 VND. (e) Borrowings from Vietcombank - HCMC branch under the credit contract No. 0104/KH/13NH dated 26/4/2013 with the credit limit of 450 billion VND; borrowing duration: months; the interest rate as at 31/12/2013: 5.2%/year to 6.2%/year. This borrowing is guaranteed by the fixed assets of SMC Steel Co., Ltd with the guaranty value of 35,973,778,422 VND. The balance up to 31/12/2013 is 299,140,553,903 VND. (f) Borrowings from Tienphong Commercial Joint Stock bank (Viet Nam) under the credit contract No /HDTDHM/TPB.THT dated 02/12/2013 with the credit limit of 20 billion VND; the borrowing duration: 01 month; the interest rate as at 31/12/2013: 7%/year. This borrowing is guaranteed by term deposit. The balance up to 31/12/2013 is 20,000,000,000 VND. (g) Borrowings from individuals under every agreement minutes; duration of 01 year; the interest rate of 7.2%/year; and borrowing interest amount shall be paid at the date of 25th of monthly. (13.2) Including: Closing balance Opening balance - Payables to related parties (noted at VII.1) 55,502,664, Trade payables (*) 1,170,342,766, ,473,912,941 Total 1,225,845,430, ,473,912,941 (*) Of which, including the payables by foreign currency is 41,462, USD equivalents to 874,127,499,262 VND. (13.3) Mainly are the advances from customers regarding of the contracts for selling of steel. (13.4) Including: Closing balance Opening balance - Value added tax 644,460,988 6,346,902,275 - Corporation income tax 788,741,656 6,560,891,588 - Personal income tax 392,558, ,327,042 Total 1,825,761,221 13,356,120,905 (13.5) Including: Closing balance Opening balance - Union fee, and compulsory insurances payable 139,926, ,402,542 - Payables to related parties (noted at VII.1) 1,194,750,000 1,396,777,778 - Other payables 355,748, ,521,628 Total 1,690,424,558 2,562,701, Long-term borrowings Closing balance Opening balance Other long-term payables (Deposits received for warehouse leasing) 210,600, ,600,000 Long-term borrowings and liabilities (*) 152,645,857,774 73,668,620,867 Deferred tax liability 177,971,848 - Unrealized revenue - 71,232,897,960 Total 153,034,429, ,112,118,827 (*) Including: Closing balance Opening balance - Vietinbank - HCMC branch (a) 49,786,000,000 62,850,000,000 - Vietinbank - Eastern Sai Gon branch (b) 60,000,000, Shinhan Bank VietNam (c) 34,683,180, Long-term liabilities (d) 30,557,128,862 28,245,449,659 - Current portion of long-term liabilities (e) (22,380,451,088) (17,426,828,792) Total 152,645,857,774 73,668,620, Long-term borrowings (continued) BENEFIT BALANCED 117

60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) (a) Borrowings from Vietinbank - HCMC branch under the contracts as follows: - The credit contract No /HDTD.TDH dated 30/7/2009 with the credit limit of 99,9 billion VND, borrowing duration of 7 years, and the interest rate: depends on each specific bill of debt. The purpose: to implement the investment project in SMC Steel Mechanical factory at Phu My 1, Tan Thanh, Ba Ria-Vung Tau. This borrowing is guaranteed by the assets formed from borrowing amount. The balance up to 31/12/2013 is 31,750,000,000 VND, of which current portion of long-term liabilities is 11,480,000,000 VND. - The credit contract No /HDTD.DH dated 12/12/2012 with the credit limit of 20 billion VND, borrowing duration of 78 months, the grace period is 6 months, the interest rate at as the time of signing contract is 15%/year and being adjusted 3 months/time. The purpose: to implement the investment project in Coil steel center at plot No. 47, Quang Minh industrial park, Quang Minh town, Me Linh district, Ha Noi city. This borrowing is guaranteed by the land use rights and assets on land at plot No. 47, Quang Minh industrial park, Quang Minh town, Me Linh district, Ha Noi city under the assets mortgage contract No HDTC.HTTTL dated 12/12/2012 with the mortgaged assets value of 34,294,000,000 VND. The balance up to 31/12/2013 is 18,216,000,000 VND, of which current portion of long-term liabilities is 3,168,000,000 VND. (b) Borrowings from Vietinbank Viet Nam - Eastern Sai Gon branch under the credit contracts No. 22/2013-HDTDDA/NHCT946-SMC TAN TAO dated 11/9/2013 with the credit limit of 70 billion VND. The purpose: to implement to investment into the project of steel processing center at Tan Tao industrial park; borrowing duration: 78 months (of which, grace period of 12 months); the interest rate as at 31/12/2013: 10%/year. This borrowing is guaranteed by the assets formed from borrowing amount. The balance up to 31/12/2013 is 60,000,000,000 VND. (c) Borrowings from Shinhan Bank VietNam under the credit contract No. SHBVN/2013/SMC/HDTD01 dated 05/4/2013 with the credit limit of 3,645, USD. The purpose: machinery and equipment purchasing for manufacturing steel; borrowing duration: 05 years; the interest rate as at 31/12/2013: 4.35%/year. This borrowing is guaranteed by the assets formed from borrowing amount. The balance up to 31/12/2013 is 34,683,180,000 VND. (d) Including long-term liabilities regarding to finance lease contracts with Vietnam International Leasing Company Limited as follows: USD Equivalents to VND - The contract No dated 21/10/ , ,115,882,860 - The contract No dated 04/11/ , ,483,940,357 - The contract No dated 29/11/ , ,957,305,645 Total 1,449, ,557,128,862 (e) Of which, including current portion of long-term liabilities by foreign currency is 366, USD equivalents to 7,732,451,088 VND. 15. Increase and decrease in owner s equity Opening balance Increase Decrease Closing balance (a) Chartered capital 295,183,610, ,183,610,000 Share premium 153,531,767, ,531,767,160 (b) Owner's other capitals - 5,373,000,000-5,373,000,000 (c) Treasury shares (142,489,800) - - (142,489,800) Business investment and development funds 74,085,676,265 7,703,698,578 2,789,951,580 78,999,423,263 Financial reserve fund 16,652,246, ,652,246,243 (d) Retained earnings 44,595,057,947 26,059,471,723 51,628,534,028 19,025,995,642 Total 583,905,867,815 39,136,170,301 54,418,485, ,623,552,508 (a) The legal capital under the Business Registration Certificate is 295,183,610,000 VND equivalents to 29,518,361 shares, face value of 10,000 VND/share. Shares Closing balance Opening balance Authorized shares 29,518,361 29,518,361 Issued and paid-up shares 29,518,361 29,518,361 - Common shares 29,518,361 29,518,361 - Preferred shares - - Treasury shares (6,718) (6,718) - Common shares (6,718) (6,718) - Preferred shares - - Outstanding shares 29,511,643 29,511,643 - Common shares 29,511,643 29,511,643 - Preferred shares - - (b) Owner s other capitals increased by: Opening balance - The Subsidiary's owner's equity increased from investment and development funds 2,789,951,580 - The Subsidiary's owner's equity increased from retained earnings 2,583,048,420 Total 5,373,000,000 (c) As at 31/12/2013, the Company has bought 6,718 outstanding shares with the buying price of 21,210 VND/ share and put them into treasury shares of the Company. 15. Increase and decrease in owner s equity (continued) 118 BENEFIT BALANCED 119

61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) (d) Retained earnings Current year Previous year Retained earning as at 01/01/ ,595,057,947 Profit after tax of the year ,059,471,723 Distribution to Bonus and welfare funds (5,512,804,630) Distribution to Business investment and development funds (7,703,698,578) Remuneration of Board of Management and controlling board (420,000,000) Dividends of the year 2012 distributed by cash (20,658,156,400) Dividends of the year 2013 advanced by cash (14,755,826,000) SMC Ha Noi J.S.C (subsidiary) paid to dividends by stock (2,583,048,420) Others 5,000,000 Retained earnings as at 31/12/ ,025,995, Minority interests Bank interest income 4,112,945,404 10,863,910,232 Deposits loan interest income 871,111, ,934,467 Bond interest income 1,535,000,000 2,700,000,000 Payment discounts received 652,679, ,189,581 Gains on foreign exchange differences 22,154,609,153 7,738,820,875 Income from selling of securities 2,685,963,370 5,817,607,736 Dividends received 1,088,620,980 3,746,017,660 Others 208,169,318 - Total 33,309,098,666 31,830,480, Financial expenses Closing balance Opening balance Minority interests of SMC Ha Noi Joint Stock Company 3,853,029,685 5,194,220,558 Total 3,853,029,685 5,194,220,558 VI. Additional information for the items on the Income statements 17. Revenue Current year Previous year Borrowing interest expense 70,151,562,842 67,873,071,181 Provision for financial investments 957,649,437 1,062,014,790 Loss on selling of securities 2,331,577,203 4,614,796,008 Loss on foreign exchange differences 19,990,759,678 6,359,774,821 Other financial expenses 323,213,294 35,053,300 Current year Previous year Total 93,754,762,454 79,944,710,100 Sales of goods 9,649,598,118,465 8,962,950,082,035 Sales from services rendered 10,396,218,459 12,540,826,103 Sales returns (7,495,127,525) (4,112,620,217) Sales allowances (1,426,061,465) (7,711,389,512) Total 9,651,073,147,934 8,963,666,898, Cost of sales Current year Previous year Cost of goods sold and services rendered 9,377,978,436,519 8,721,619,291,511 Provision (reversal) for devaluation in inventories 71,740,019 (2,898,985,982) Total 9,378,050,176,538 8,718,720,305, Selling expenses Current year Previous year Staff expense 17,412,585,051 17,906,257,002 Raw materials, tools expenses 120,796, ,109,582 Depreciation expense 4,684,012,939 7,372,118,690 Cost of hired services 85,214,315,630 52,474,353,334 Other expenses paid by cash 12,359,160,218 3,455,839,312 Total 119,790,869,962 81,444,677, General and administration expenses 19. Financial income 120 BENEFIT BALANCED 121

62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) Current year Previous year Staff expense 20,099,407,527 21,335,846,878 Office tools expense 975,589, ,720,665 Depreciation expense 11,619,710,927 7,630,243,791 Cost of hired services 24,772,103,744 17,746,361,097 Provision for bad debts 2,359,589,245 14,488,717,003 Goodwill allocated 1,121,955,297 1,032,641,000 Other expenses paid by cash 7,569,118,192 6,783,993,461 Total 68,517,474,800 69,262,523, Other income Current year Previous year Income from fixed assets and sub-materials sold 10,301,867,370 4,159,009,497 Income from receiving the supports of guarantee fees 396,919,172 1,577,438,016 Income from the compensation received 3,561,803, ,022,565 Income form contract fine - 470,886,098 Income from overdue interest 4,200,503,234 15,725,384,867 Treatment of physical counts 1,568,029,643 12,546,999,527 Adjustments to decrease transport expense in prior year - 827,175,893 Reversal for provision for unemployment allowance - 316,009,676 Other income 502,340,938 1,664,771,068 Total 20,531,464,011 37,945,697,207 Current corporate income tax expenses arising from: Current year Previous year - SMC Trading Investment Joint Stock Company - 10,953,674,791 - SMC Steel Co., Ltd. 2,904,148, ,270,087 - SMC Binh Duong One Member Co., Ltd - 903,677,474 - SMC Steel Mechanical Co., Ltd 2,441,093, ,082,370 - SMC Steel Trading Co., Ltd 1,932,223,465 1,332,257,725 - SMC Tan Tao Co., Ltd 33,273, SMC Ha Noi Joint Stock Company - 830,341,557 Current corporate income tax expense 7,310,739,359 15,606,304, Deferred income tax expense Current year Previous year Deferred income tax expense arising from taxable temporary differences (deductible) as follows: - Expenses for provision for bad debts 2,372,623,832 (5,357,544,331) - Expense for provision for financial investments 1,233,624,358 (3,551,468,684) - Expenses for provision for devaluation in inventories 678,004,934 (1,752,727,950) - Unused taxable losses (3,203,996,685) - - Foreign exchange differences 219,273,960 (41,302,112) - Depreciation expense - 209,191,994 Total 1,299,530,399 (10,493,851,083) 27. Earnings per share 24. Other expenses Current year Previous year Current year Previous year Expenses for fixed assets sold 6,775,223,274 2,804,790,066 Depreciation of finance lease assets used for leasing - 648,590,023 Fines 1,073,778,597 1,932,078,321 Treatment of physical counts 2,814,813,894 1,427,803,444 Treatment of differences between VAT declaration and accounting book - 614,790,342 Treatment of debts - 108,456,587 Additional corporate income tax of the year ,747,323,790 - Other expenses 629,960, ,517,971 Total 13,041,100,110 8,240,026,754 Profit after corporate income tax 26,059,471,723 68,578,313,319 Increase/decrease in order to define profit or loss distributed to shareholders of common shares Adjustment of increase Adjustment of decrease - - Profit (loss) for common shares 26,059,471,723 68,578,313,319 Outstanding common shares in the period 29,511,643 29,511,643 Earnings per share 883 2, Production and operating cost by elements 25. Current corporate income tax expense 122 BENEFIT BALANCED 123

63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) VII. Current year Previous year Raw materials, tools 3,480,822,121,837 2,739,281,465,899 Staff expense 46,110,825,514 45,552,670,549 Depreciation expense 47,463,872,536 40,970,225,860 Cost of hired services 120,520,545,981 99,832,647,023 Other expenses paid by cash 26,218,149,980 22,584,826,881 Total 3,721,135,515,848 2,948,221,836,212 Other information 1. Transactions and balances with related parties At the date of balance sheet, the balance not paid for the related parties as follows: Related parties Relationship Balance Receivable / (payable) Receivables 8,089,325,978 SMC - SUMMIT Limited Liability Company Joint Venture Other receivables 208,169,318 Payables (55,502,664,249) Sao Viet Materials Trading Producing J.S.C Associates Other payables (1,194,750,000) Related parties Relationship Content Amount Selling goods 574,297,826,133 SMC - SUMMIT Limited Liability Company Joint Venture Service rendered 2,462,452,840 Interest expense (2,597,444,443) Purchasing goods (433,324,745,878) 2. Other commitments - The Company has committed to lease 01 line of steel cutting machinery and 01 line of steel slitting machinery to SMC Ha Noi J.S.C (subsidiary) under the contract No. 434/SMC-2012 and No. 435/SMC-2012 dated 05/11/2012 and Appendixes: + Leasing period: from 01/11/2012 to 31/12/2020. SMC Ha Noi J.S.C will own of these assets at the time point of fully payment for the contract value. + Leasing price: 6,225,000,000 VND/year (excluding VAT). This unit price will be adjusted in 01/01 yearly by the appendix to increase/decrease up to +/- 10% of this unit price. + Leasing payment: grace period for 02 months since 01/11/2012 and rental amount shall be paid at the date of 25th of monthly. 3. Events after the balance sheet date There have no significant events occurring after the balance sheet date which would require adjustments or disclosures to be made in the financial statements. Significant transactions with related parties during this financial year were as follows: 124 BENEFIT BALANCED 125

64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 4. Segments report As at 31/12/2013, the Company reported their business segments by geographic area as follows: Ho Chi Minh Binh Duong Ba Ria - Vung Tau Ha Noi Net off Total Revenue from external customers 5,569,074,803,442 1,163,847,847,110 2,621,854,996, ,295,500,881-9,651,073,147,934 Internal 2,994,691,147, ,404,476, ,523,395,824 91,342,475,741 (4,187,961,495,110) - Total net sales 8,563,765,950,981 1,475,252,323,116 3,412,378,392, ,637,976,622 (4,187,961,495,110) 9,651,073,147,934 Operating results Gross profit 134,680,090,782 22,962,113, ,796,839,507 10,583,927, ,022,971,396 Operating expenses (107,227,370,437) (18,025,450,869) (52,539,091,181) (10,516,432,275) - (188,308,344,762) Financial income 30,000,468, ,416,477 2,678,565,601 57,648,171-33,309,098,666 Financial expenses (65,095,996,104) (3,975,201,232) (20,091,071,973) (4,592,493,145) - (93,754,762,454) Other profit/(loss) (1,299,664,751) 763,893,483 6,653,764,543 1,372,370,626 7,490,363,901 Income from investment into Associates and Joint Venture 1,948,351, ,948,351,271 Profit before tax (6,994,120,822) 2,297,771,829 41,499,006,497 (3,094,979,486) - 33,707,678,018 Corporate income tax (1,998,756,396) (34,184,722) (6,577,328,640) - - (8,610,269,758) Profit after tax (8,992,877,218) 2,263,587,107 34,921,677,857 (3,094,979,486) - 25,097,408,260 Assets and liabilities Assets 1,573,912,060, ,447,861,717 1,133,718,749, ,174,994,529-3,058,253,666,007 Deferred tax assets 6,985,646,488 1,300,402,053 1,432,881, ,718,930,108 Total assets 1,580,897,706, ,748,263,770 1,135,151,630, ,174,994,529-3,067,972,596,115 Liabilities 1,876,318,519,823 86,986,702, ,184,471,382 90,006,320,617-2,495,496,013,922 Fixed assets purchased 70,223,879,992-23,020,158, ,668,682-93,879,707,078 Depreciation expense 10,800,165, ,496,573 30,876,409,626 5,180,325,106-47,456,396, Segments report (continued) As at 31/12/2012, the Company reported their business segments by geographic area as follows: Ho Chi Minh Binh Duong Ba Ria - Vung Tau Ha Noi Net off Total Revenue from external customers 5,412,424,046,566 1,311,463,064,342 2,183,888,276,158 55,891,511,343-8,963,666,898,409 Internal 2,274,788,164,836 9,227,723, ,055,608, ,979,641,334 (3,115,051,138,751) - Total net sales 7,687,212,211,402 1,320,690,787,961 2,798,943,885, ,871,152,677 (3,115,051,138,751) 8,963,666,898,409 Total net sales Gross profit 147,365,046,047 21,592,562,314 65,487,004,556 10,501,979, ,946,592,880 Operating expenses (82,678,671,853) (16,497,369,656) (45,446,567,917) (6,084,592,389) - (150,707,201,815) Other profit/(loss) 13,452,821, ,775,222 14,844,141, ,932,567 29,705,670,453 Financial income 28,151,637, ,585,750 2,943,780, ,476,595-31,830,480,551 Financial expenses (59,586,697,873) (3,342,839,391) (16,708,547,500) (306,625,336) - (79,944,710,100) Income from investment into Associates and Joint Venture (1,316,765,945) - (65,423,588) - - (1,382,189,533) Profit before tax 45,387,369,653 2,881,714,239 21,054,387,144 5,125,171,400-74,448,642,436 Corporate income tax (5,490,216,192) 430,909, ,195,527 (830,341,557) - (5,112,452,921) Profit after tax 39,897,153,461 3,312,623,540 21,831,582,671 4,294,829,843-69,336,189,515 Assets and liabilities Assets 1,382,933,472, ,957,583, ,481,185,164 79,212,655,610-2,129,584,897,325 Deferred tax assets 6,795,716,324 1,334,586,775 2,572,739, ,703,043,077 Total assets 1,389,729,189, ,292,170, ,053,925,142 79,212,655,610-2,140,287,940,402 Liabilities 1,203,783,123,331 9,604,274, ,556,170,890 24,244,283,230-1,551,187,852, BENEFIT BALANCED 127

65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 5. Financial risks management 5.1 Market risk a. Price risk The Group invested in listed and non-listed companies and is exposed to risks of price fluctuations of these investments. The risk factors affecting the performance of these investment include business performance and financial position of invested companies and market conditions. The Board of Directors manages risks regarding of business performance and financial position of invested companies by selecting industries and legal entities to invest in. The risk factor regarding of market conditions is itself affected by general economic conditions in Viet Nam and behaviors of investors, which are all out of the Board s control. These factors have caused market conditions to be changed in the previous years. b. Currency risk The Group are exposed to foreign exchange risk on sales and purchases that are denominated in currencies other than VND. This foreign currency risk mainly is United State Dollar ( USD ). The Group ensures that the net currency risk level is kept to an acceptable level by buying or selling foreign currencies at spot rates where necessary to reduce the short-term imbalances. The Board has not used risk preventing transactions since they considers that the cost for using such instruments may exceeding the potential risk of exchange rate fluctuations. The Group s currency exposure to the USD is as follows: Financial assets USD Equivalents to VND - Cash in bank 1,384, ,191,671,165 - Trade receivables 3,483, ,449,155,358 - Deposits 220, ,638,480,000 Total 5,088, ,279,306,523 Financial liabilities - Short-term borrowings and liabilities 2,324, ,017,525,270 - Trade payables 41,462, ,127,499,262 - Long-term borrowings and liabilities 2,727, ,507,857,774 Total 46,515, ,652,882,306 Currency exposure (41,426,548.50) (873,373,575,783) As at 31 December 2013, if US dollar had strengthened/(weakened) by 5% against Vietnam dong with all other variables (including interest rate) being held constant, the profit before tax of the Group for the fiscal year ended 31/12/2013 would have been (43,668,678,789 VND) (lower)/higher because of (loss)/gain from foreign exchange difference on the remaining USD denominated financial instruments balance. c. Interest rate risk Interest rate risk is the risk that the fair value or cash flows in the future of a financial instrument will fluctuate according to the changing of interest rate on the market. Market risk is caused by changing the Group s interest rates that are mainly related to the short-term deposits and borrowings. The Group controlled the risk by analyzing the competitive situation on the market in order to get a beneficial interest rate for the Group s purpose and also stand on its risk limit. For increasing/(decreasing) of interest rate by 2%: Assets get the interest 31/12/2013 Movement by 2% (*) - Cash in bank 167,252,800,000 3,345,056,000 - Deposits 7,573,480, ,469,600 Total 174,826,280,000 3,496,525,600 Liabilities pay the interest 31/12/2013 Movement by 2% - Borrowings and liabilities 1,247,095,517,265 24,941,910,345 Total 1,247,095,517,265 24,941,910,345 Differences (21,445,384,745) (*) Movement by 2% = Total assets get the interest or Total liabilities pay the interest x 2%. Effect of gains/(losses) on the Group s profit before tax by interest rate fluctuation (with supposed movement level of 2%) was (21,445,384,745 VND). 5.2 Liquidity risk Liquidity risk is the risk that the Group will come up against difficulties and can not conduct the related obligations to financial liabilities. The Group s policy is to do regularly monitoring the current and expected liquidity requirements to ensure that the Group maintains sufficient reserves of cash in order to meet its liquidity requirements in the short and medium term. The Group s holdings of cash, together with net cash flows from operations, are expected to be sufficient to cover the Group s liabilities in due in the next financial year. The table below analyses the Group s related non-derivative financial liabilities in due based on the remaining term from the balance sheet date to the contractual maturity date. The amounts disclosed in this table are contractual undiscounted cash flows. At as 31/12/2013 Less than 01 year From 01 to 05 years Total - Borrowings and liabilities 1,094,449,659, ,645,857,774 1,247,095,517,265 - Trade payables 1,225,845,430,891-1,225,845,430,891 - Taxes and amount payables to the State budget 1,825,761,221-1,825,761,221 - Payables to employees 1,092,905,593-1,092,905,593 - Other payables and accrued expenses 2,707,167, ,600,000 2,917,767,980 Total 2,325,920,925, ,856,457,774 2,478,777,382, BENEFIT BALANCED 129

66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) 5. Financial risks management (continued) 5.2 Liquidity risk (continued) The Group stated that the concentration of risk against debt payment is rather high. The Group believes to able to reach the necessary capital resources. Guaranteed Assets The Group s tangible and intangible assets are mortgaged for the Group s borrowings (Notes at item No and 14* - Notes to the financial statements). Fair value measurements The book value of trade receivables, cash in bank, trade and other payables be estimated to their fair values. Belows are the fair values of the Group s short-term and long-term investments: Compared to market value Unit: thousand dongs Book value Increase Decrease Fair value Provision Short-term investments Listed securities 3,976,895 - (1,796,305) 2,180,590 (1,796,305) Unlisted securities 3,608,392 - (1,099,054) 2,509,338 (1,099,054) Term deposits 4,000, ,000,000 - Loans 16,000, ,000,000 - Long-term investments Listed securities 33,599,960 - (15,438,960) 18,161,000 (15,438,960) Equity securities traded on UPCOM floor 14,895,807 - (11,083,849) 3,811,958 (11,083,849) Unlisted securities (*) 77,912,678 - (7,000,000) 70,912,678 (7,000,000) Total 153,993,733 - (36,418,169) 117,575,564 (36,418,169) (*) Including investments in the associates, joint ventures and other long-term investments. As at 31/12/2013, for other short-term and long-term investments: because the Group could not determine the market value from reliable resources as well as the net book value of unlisted securities, therefore the Group recorded at the original value of initial investments or based on judgment of the Board of Directors Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty of the financial instruments fail to meet its contractual obligations and this risk will be mainly incurred from the Group s receivables from customers. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Currency unit is in VND, unless other currencies stated) the Board. Customers that fail to meet the Group s creditworthiness requirement may trade with the Group only on a prepayment basis. The Group will make the provision to reduce the value in order to reflect the estimated impairment level for trade and other receivables and investments. The main components of this provision are the specific losses regarding of the specific impairment level for each customer and general impairment level of similar financial assets, and be determined as these risks may happened but not yet identified. The general impairment levels are determined based on statistic databases about liquidity in the past of similar financial assets. Bank balance The Group has cash balance in local credit organization. The Board stated that there is not any impairments to the operating results of these credit organization. The maximum credit risk level of each financial assets group is the book value of that financial instrument presented on the balance sheet. The Group s major groups of financial assets are cash in bank, trade and other receivables and investments. Financial assets that are neither overdue nor impaired Cash in bank is the cash deposit in the banks which have high credit-rating in Viet Nam. Trade and other receivables that are neither overdue nor impaired are mainly from companies which have good settlement process to the Group. The Group s trade receivables, prepayments to suppliers and other receivables are neither past due nor impaired amounted to 928,201,483,081 VND. Financial assets that are overdue and/or impaired The book value of trade and other receivables are determined to be impaired and the movement of the provision as follows: Book value Closing balance Gross amount 35,367,585,042 Less provision for impairment (24,690,233,885) Net value 10,677,351,157 Provision for impairment Opening balance (22,330,644,640) Increased by provision established (8,133,248,313) Decreased by reversal 5,773,659,068 Closing balance (24,690,233,885) Trade receivables and other receivables The Group s credit risk levels are influenced mainly by private characteristics of each customer. 130 The Board has established the credit policies, accordingly, each new customer must be analysed about their creditworthiness before the Group offers conditions and delivery terms. Purchasing limits are established for each customer, which represents the maximum amount that the customer can buy without approval from Vo Thuy Oanh Do Doan Thanh Cong Nguyen Ngoc Anh Prepared by Chief Accountant General Director Date: 28 February 2014 BENEFIT BALANCED 131

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