ANNUAL REPORT CONTINUITY THE 30-YEAR JOURNEY

Transcription

1 ANNUAL 2017 REPORT CONTINUITY THE 30-YEAR JOURNEY

2 SMC has experienced various ups and downs in 2017, from the exhilaration of business performance as the Company has far exceeded its profit target for the year to the sorrow by the sudden mortality of our late Chairman cum CEO Mr. Nguyen Ngoc Anh which is such an extraordinary loss for all SMC members. The Company s 2017 Annual Report, with the theme CONTINUITY the 30-year journey, is the story of the inheritance team, the expression of gratitude, and the promise to our late Chairman that SMC will follow the SUSTAINABLE FUTURE ADVANCEMENT orientation, focusing on the Company s strengths, advantages, and core business activities, targeting more efficient and sustainable business development, and constantly generating interrelation and added-values to the business itself, all employees, our partners, shareholders, and investors. CONTENTS CHAIRWOMAN S MESSAGE VISSION MISSION CORE VALUE GENERAL INFORMATION ABOUT SMC 1. Overall 2. Goods and Services 3. Affiliates and Distribution Network 4. Historical Development and 2017 Highlights 5. Organizational Structure BOARD OF DIRECTORS 1. Introduction to the Board of Directors 2. Board of Directors Reports and Evaluations Overview on market conditions and Evaluation on the Company s performance in 2017 Review on BoM s managing activities in 2017 Report on implementation of the 2017 AGM s resolutions Report on BoD s activities within the year Orientations and Tactics of the BoD in ABBREVIATIONS BOARD OF MANAGEMENT 28 SMC JSC AGM IZ NPAT ROE EPS BPS BOD BOM BOS : SMC Trading Investment JSC : Joint-stock company : Annual general shareholders meeting : Industrial zone : Net profit after tax : Return on Equity : Earnings per share : Book value per share : Board of Directors : Board of Management : Board of Supervisory HCMC BRVT JV HSX CEO Timexco MoIT yoy ASP VSA Forex : Ho Chi Minh City : Ba Ria Vung Tau Province : Joint-venture : Ho Chi Minh Stock Exchange : Chief Executive Officer : Thu Duc Import-Export JSC : Ministry of Industry and Trade : year on year : average selling price : Vietnam Steel Association : Foreign exchange 1. Introduction to the Board of Management 2. Board of Management s Reports and Observations Overview on External and Internal Influences to the Business Performances in 2017 Assessment on 2017 Financial Performance versus Previous Year and Targets Key Financial Data Analysis Organizational Structure and Managing Activities in Business Plans, Targets, and Orientations BOARD OF SUPERVISOR 1. Introduction to the Board of Supervisor Board of Supervisor s Reports and Recommendations 46 CORPORATE GOVERNANCE Risk Management Organization and Human Resources Shareholder and Investor Relations Social-Community Activities and Environmental Safety Sustainable Development 60 AFFILIATES AND JOINT-VENTURES 62 AUDITED CONSOLIDATED FINANCIAL STATEMENTS 72 SMC INVESTMENT TRADING JOINT STOCK COMPANY I 0 3

3 CHAIRWOMAN S MESSAGE On behalf of the BoD, I sincerely appreciate the BoM for their conscientious, creative and active managing activities, thank you for the trust and companionship of our shareholders, partners, and customers, especially acknowledge the dedicated efforts of all employees for the great performance of SMC last year. DEAR VALUED SHAREHOLDERS AND INVESTORS Ending 2017, SMC has surpassed all key targets set by the General meeting of shareholders. Total net sales revenue reached VND 12,654 bn, fulfilling 120% of whole year target while net profit after tax reached over VND 270 bn, achieving 180% plan. Especially, 2017 dividend payment extents to 40% par value, including 10% in cash and 30% in stock, being the highest dividend paid ever of SMC. The Company affirms its concrete position as a professional steel distributor, at once continuously stimulates intensive investment activities in the steel processing and manufacturing fields. The success of 2017 has important implications for the coming year celebrating the 30th anniversary of SMC Trading Investment JSC (19th Aug th Aug 2018), exclusively marking the Company s business operations and changes after 14 years of equitization. From such a small business mainly engaged in construction steel trading, SMC has advanced into the field of steel processing and manufacturing, providing and distributing various high quality steel products for civil works, national and regional projects and industries, along with exploited other potential investment orientations. The Company s growth, scale, brand-name, and current industry position are confirmations for the success of the 30-year progression. With the achievements of the past 30 years, SMC has become a prestigious brand-name and has received high credit and appreciation from both local and international partners and customers. SMC today is much stronger, being a solid base for further motivation and expansion of markets and investment opportunities, and advancement of the subsidiaries value chain, to ensure the sustainable and efficient development of the entire SMC system. In 2018, SMC will certainly encounter different internal and external challenges, yet will also receive various opportunities and advantages accrued from previous years to create progressive development steps. Besides, the Company will continue to enhance a standardized governance system, to rearrange organizational structure, to further engage into corporate culture, and to generate fresh development inspiration for the whole system. Especially, SMC will focus on stimulating the strengths of shareholders, and building tactical relationships with partners and customers to place SMC being a strong, reputable and efficient steel enterprise in Vietnam and the region. Following the journey of the past 30 years, centered on the business guideline of transparent governance, efficient operation, and sustainable development as well as corporate culture of responsibility, discipline, and unity, along with accumulated experiences, resources, and efforts of all SMC members, I definitely believe that SMC will continue to achieve great success in 2018 and the following years. Sincerely, CHAIRWOMAN OF THE BOARD OF DIRECTORS SMC INVESTMENT TRADING JSC NGUYEN THỊ NGOC LOAN ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 0 5

4 VISION MISSION CORE VALUES CORE VALUES VISION Being professional in all activities Maximizing customers benefits Fulfilling customers expectations Motivated towards common goals and targets Honoring integrity Being prestigious and professional Willing to learn Being a PRESTIGIOUS AND PROFESSIONAL steel distributor Mentioning steel, thinking of SMC Mentioning SMC, thinking of steel SMC is committed to comply with the role of a prestigious and professional steel corporation in terms of processing, manufacturing, and distributing different types of steel products, regularly self-improved and innovated to ensure and enhance the quality of goods and services provided, to meet diverse needs of customers and markets. MISSION SMC desires to focus its capability and know-how for benefits of customers and to contribute to the stable and sustainable future of the domestic steel industry BUSINESS PHILOSOPHIES Understanding others, understanding ourselves Pioneer in all activities Balancing all interests ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 0 7

5 GENERAL INFORMATION ABOUT SMC 1. OVERALL ABOUT SMC Vietnamese name English name Trading name Abbreviation Head quarter : Công ty Cổ phần Đầu Tư Thương Mại SMC : SMC Investment Trading Joint Stock Company : Steel Materials Company : SMC Tel : (84-028) Fax : (84-028) Website Charter Capital Ticker Face value Listed shares Business activities : : 396 Ung Van Khiem st, Ward 25, Binh Thanh District, HCMC : : 420,059,610,000 VND : SMC : 10,000 VND : 42,005,961 shares listed in Ho Chi Minh Stock Exchange (HSX) Producing, processing, trading, importing and exporting all kind of steel products, metal goods, construction materials, interior decoration, construction equipment, mechanical equipment, warehouse framework, stainless steel, and aluminum. Construction and installation of civil, industrial, transport, irrigation, and interior design projects in accordance with the laws. Preparation of construction investment projects, consulting, designing, and trading lodgment in accordance with the laws. Trading electrical products, groceries, consumer food and goods. Logistics and warehousing services for domestic and import export products Car rental service. Trading real estate and land use rights of the owners or lessee. Wholesale, other specialized businesses ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 9

6 GENERAL INFORMATION ABOUT SMC 2. GOODS AND SERVICES Construction steels including Wire rod, Rebar, Round steel, and Deformed steel Welded wire mesh Steel pipe Section steel (H,I,U) Flat steels including Hot rolled coil, Cold rolled coil, Galvanized steel plates, flat bar. Purlin High tensile steel Secondary steel Round steel Rebar Hot rolled coil Cold rolled coil Welded wire mesh Coil Center Zinc-coated steel Coil Center system Steel pipe Wire rod Purlin Warehouse service Coil Center system (flat steel processing services) with total capacity of 350,000 tons per year, located at BRVT, HCMC, and Hanoi 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 sheets, and stainless steels with high quality and precision. Vietnam Japan JV SENDO steel pipe processing factory with designed capacity of 100,000 tons per year providing various kinds of steel pipe products including round tubes, square tubes, and rectangle tubes in original black steel or zinc galvanized steel. TOAMI Vietnam Japan Weld mesh production plant, specializing in manufacturing high quality weld mesh products. Zinc coated steel sheet plant at SMC Steel Mechanical Co. having full production chain from HRC bleaching, cold rolling, to zinc galvanizing activities, with designed capacity of 160,000 tons per year, providing high quality zinc coated steel sheets. SMC Building Materials Retails, specializing in providing all kinds of steel and steel related materials ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 11

7 GENERAL INFORMATION ABOUT SMC 3. AFFILIATES AND DISTRIBUTION NETWORK AFFILIATES JOINT-VENTURES Head Office SMC TRADING INVESTMENT JOINT STOCK COMPANY 396 Ung Van Khiem st, Ward 25, Binh Thanh District, HCMC Tel: (84-28) Fax: (84-28) Website: Affiliates SMC TRADING ONE MEMBER CO., LTD. (SMC BINH DUONG) Street 05, Dong An Industrial Zone, Thuan An District, Binh Duong Province Tel: (0274) Fax: (0274) SMC STEEL CO., LTD. Street 1B, Phu My I Industrial Zone, Ba Ria Vung Tau Province Tel: (0254) Fax: (0254) SMC STEEL MECHANICAL ONE MEMBER CO., LTD Street 1B, Phu My I Industrial Zone, Ba Ria Vung Tau Province Tel: (0254) Fax: (0254) SMC TAN TAO ONE MEMBER CO., LTD Lot No. 33, Tan Tao Industrial Zone, Tan Binh District, HCMC Tel: (84-28) Fax: (84-28) SMC HA NOI JSC Lot No. 47, Quang Minh Industrial Zone, Me Linh District, Ha Noi Tel: (84-24) Fax: (84-24) Joint-ventures with foreign partners SMC SUMMIT Limited Liability Company (JV between SMC and Summitomo Group Japan) Add: Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Province Tel: (0254) Fax: (0254) Rep Office: : 396 Ung Van Khiem, Ward 25 Binh Thanh District, HCMC Tel: (84-28) Fax: (84-28) SENDO Steel Pipe Joint Venture Co., Ltd. (JV between SMC and HANWA) Street 1B, Phu My I Industrial Zone, Ba Ria Vung Tau Province Tel: (0254) Fax: (0254) Website: SMC TOAMI Co., Ltd. (JV among SMC TOAMI Corp HANWA Co., Ltd.) Street 1B, Phu My I Industrial Zone, Ba Ria Vung Tau Province Tel: (0254) Fax: (0254) Website: Rep Office: Level Ung Van Khiem, Ward 25, Binh Thanh District, HCMC Tel: (84-28) Fax: (84-28) ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 13

8 GENERAL INFORMATION ABOUT SMC 4. HISTORICAL DEVELOPMENT AND 2017 HIGHLIGHTS Establishment of the Construction Materials Store No. 15 belonged to the Southern Retail and Wholesale Construction Materials Center. Transformation into Manufacturing and Trading Construction Materials Enterprise No.1 Official launch of SMC brand name which stands for Steel Materials Company Receiving Third Class Labor Medal and officially introducing SMC logo 1988 Registering trademark certification for SMC brand Establishing SMC Binh Duong One Member Co., Ltd and SMC Mechanic Steel One Member Co., Ltd Establishing Joint Venture SMC Summit between SMC and Sumitomo Group (Japan) Equitization and changing into SMC Trading Investment Joint Stock Company Establishing SMC Hiep Phuoc One Member Co., Ltd and Steel Trading One Member Co., Ltd Receiving First Class Labor Medal and establishing SMC Tan Tao One Member Co., Ltd Listed on Ho Chi Minh Stock Exchange with the ticker SMC Completing strategic goals for the 5-year period with total steel consumption volume of 558,000 tons Completing strategic goals for the 5-year period with total steel consumption volume of 867,000 tons Receiving Second Class Labor Medal and establishing SMC Steel Co., Ltd at BRVT Establishing SMC Ha Noi Joint Stock Company Total steel consumption volume reached 1 million tons per year 2016 Net profit after tax reached the record high of VND 362 bn April 2017 Successfully offering new shares to strategic shareholders, raising charter capital from VND bn to VND 420 bn. July 2017 Merger of SMC Steel Trade One Member Co., Ltd. into SMC Binh Duong One Member Co., Ltd., and renamed to SMC Trading One Member Co. Ltd. in Dec September 2017 Operation of the new zinc coated steel sheet factory with designed capacity of 160,000 tons/year at SMC Steel Mechanical One Member Co., Ltd, Phu My IZ, BRVT ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 15

9 GENERAL INFORMATION ABOUT SMC 5. ORGANIZATIONAL STRUCTURE GENERAL MEETING OF SHARE HOLDERS BOARD OF SUPERVISORS BOARD OF DIRECTORS CEO DEPUTY GENERAL DIRECTOR OF LONG PRODUCTION DEPUTY GENERAL DIRECTOR OF FINANCE & ACCOUNTANCY DEPUTY GENERAL DIRECTOR OF ADMINISTRATION JOINT VENTURE DIRECTOR OF HOT ROLL COIL FINANCIAL DIRECTOR HR & ADMIN DIRECTOR SMC STEEL Co., LTD SMC MECHA NICAL ONE MERBER Co., LTD SMC HANOI JSC SMC TAN TAO ONE MEMBER Co., LTD PROJECT BUSINESS DEPART- MENT STEEL BUSINESS DEPART- MENT SMC TRADING ONE MEMBER Co., LTD BOARD OF R&D PURCHASE DEPARTMENT FINANCIAL DEPARTMENT BOARD OF INTERNAL CONTROL ACCOUNTING DEPARTMENT PERSONNAL DIVISION ADMINISTRATIVE DIVISION PROJECT DIVISION SMC SUMMIT LIMITED LIABILITY COMPANY SENDO PIPE JOINT VENTURE CO., LTD SMC TOAMI LIMITED LIABILITY COMPANY STORE DEPARTMENT IMPORT- EXPORT DEPARTMENT PR - IR DIVISION TECHNICAL DIVISION ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 17

10 BOARD OF DIRECTORS ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 19

11 BOARD OF DIRECTORS 1. INTRODUCTION TO THE BOARD OF DIRECTORS Mrs. NGUYEN THI NGOC LOAN Year of Birth: 1961 Mr. MA DUC TU Year of Birth: 1958 Mr. TAIRA YOSHIYUKI Year of Birth: 1967 Mr. NGUYEN BINH TRONG Year of Birth: 1963 Ms. NGUYEN NGOC Y NHI Year of Birth: 1983 Qualification: College of Business Administration Qualification: Bachelor of Banking Qualification: Bachelor of Accounting and Finance Qualification: Master of Commerce Finance and Banking, University of Sydney Chairwoman of SMC SMC BoD s member / Chairman of Timexco / BoD s member of Real Estate No.9 JSC SMC BoD s member / CEO of Hanwa Vietnam Co., Ltd SMC BoD s member / SMC Deputy General Director - Accounting and Finance Executive SMC BoD s member ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 21

12 BOARD OF DIRECTORS 2. BOARD OF DIRECTORS REPORTS AND EVALUATIONS 12,654 VND bn NET SALES REVENUE 270 NET PROFIT AFTER TAX VND bn The BoD highly valued the close coordination and responsibility of the BoM, that well accomplished all the business objectives and plans, successfully built up a united team to overcome difficulties in all circumstances, and continued to direct SMC following the sustainable development orientations in the medium and long terms OVERVIEW ON MARKET CONDITIONS AND EVALUATION ON THE COMPANY S FINANCIAL PERFORMANCE IN 2017 In 2017, the global economies increased positively and actively; demand and commodity s prices continued the uptrend of the previous year. Domestically, the average GDP growth in 2017 exceeded forecasts reaching 6.81% - the highest level within the last 6 years; the FDI disbursement reached a record high of USD 17.5 bn, increasing 10.8% yoy; and trade surplus was USD 2.67 bn. Enlarged direct and indirect investment inflows, export growth, and increased foreign exchange reserves helped stabilize exchange rate. The banking system continued to handle bad debts in a positive way, credit growth reached 19%, interest rate maintained stable, the economy absorbed good capital, and inflation was well controlled. The above points all together sketched a bright economic picture for Vietnam, all sectors elevated confidently, in which the industry sector grew by 7.9% and the construction sector was up by 8.7%. For the steel industry particularly, 2017 stayed a successful year, creating an exceptional opportunity for good business performances of all steel participants. Steel prices continued its upward trend throughout 2017 after experiencing a strong rally in By the end of 2017, steel prices still remained high. Domestic demand was also maintained confidently by the government s active investments in infrastructures and strong growth of the real estate market. In addition, some key factors supporting 2017 steel prices included: (1) Positive consumption from mainstream markets in Asia such as China and Japan, (2) drastic restructuring of the coal and steel industries in China to resolutely cut the surplus production and limit environmental pollution, (3) unusual price fluctuation of raw material for steel making the coal electrodes, and (4) trade protection by domestic government. In summary, total domestic steel consumption in 2017 was more than 18 million tons, increasing 20.7% yoy, in which construction steel consumption reached over 9.1 million tons, up 12.1% yoy, galvanized steel consumption reached 3.5 million tons, gaining 23.6% yoy, and steel pipe consumption was over 2.2 million tons, increasing 18.8% yoy. Steel exports reached more than 3.8 million tons, up 34% compared to 2016, in which construction steel exports significantly reached over 1 million tons, up considerably 62.4% over the same period; and from a billet importer, Vietnam had exported more than 300,000 tons of billet in At the same time, Vietnam s steel imports in 2017 were down by 14% yoy; the operation of Formosa plant, which partly fulfilled the HRC demand for domestic cold rolling and galvanizing mills, was the main reason. Thanks to well catching up and making good use of the favorable market conditions, SMC s business performance in 2017 was inspiring. Total sales volume just reached whole year plan, getting million tons yet thanks to the positive steel price trend, SMC s net sales revenue was VND 12,654 bn, increasing 34% yoy and achieving 120% full year target. The Company s NPAT reached over VND 270 bn, although decreased by 25% yoy (due to extraordinary positive factors in 2016), yet had successfully completed 180% of the whole year target. REVIEW ON BOM S MANAGING ACTIVITIES IN 2017 SMC had serious changes in senior positions in 2017 the Chairman and the CEO of the Company. The BoD highly appreciated and credited to all achievements of the former BoM and our honourable late Chairman/ CEO within the first half of Accordingly, the former BoM had flexibly and prudently managed the Company, taken advantages of industry and market movements to generate high business results for SMC. In particular, NPAT for the first half of 2017 was VND 150bn, outstandingly completed the whole year profit plan. The BoD also accredited and valued all efforts of the new BoM for the second half of 2017; whereby the new BoM has inherited, encouraged, and quickly stabilized the business operations of the entire system through difficulties. The new BoM always closely followed the directions and regulations of the BoM and AGM, as well as had timely, careful and appropriate solutions to cope with various market movements, in order to ensure stable and effective business performances and the achievements of all key targets set out by the AGM. Overall for the year 2017, the BoD highly valued the close coordination and responsibility of the BoM, that well accomplished all the business objectives and plans, successfully built up a united team to overcome difficulties in all circumstances, and continued to direct SMC following the sustainable development orientations in the medium and long terms. REPORT ON IMPLEMENTATIONS OF RESOLUTIONS OF THE 2017 SHAREHOLDERS MEETING (1) Implementations of key targets: Key items Unit 2017 Targets 2017 Actual % Target Total steel sales volume Tons 1,050,000 1,056, % - Construction steel Tons 570, , % - Flat steel Tons 405, , % - Other steels Tons 75,000 23, % Total Sales Revenue VND bn 10,550 12, % Net Profit after tax VND bn % Dividend payment VND/share 8.0% (min) 40.0% 500.0% Independent Auditor Selection The BoD selected the Auditing and Informatic Services Company Limited (AISC) to perform the Company s 2017 audited financial statements ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 23

13 BOARD OF DIRECTORS 2. BOARD OF DIRECTORS REPORTS AND EVALUATIONS (2) Private issuance of new shares: SMC had completed the private issuance of nearly 12.5 million new shares at the price of VND 18,000/share for strategic shareholders, raising the Company s charter capital from VND bn to VND 420 bn. (3) Investment Projects: - Completed the investment and put into operation the new bleaching, laminating, cold rolling and galvanizing line effectively and stabilized at Phu My 1 IZ - BRVT, with total investment costs of VND 130 bn, and designed capacity of 160,000 tons per year. - Implemented the investment of phase 2 SENDO steel pipe production plant at Phu My 1 IZ BRVT, to expectedly increase total designed capacity from 60,000 tons to 100,000 tons per year, which will be fully activated by end of Q2/2018; total investment cost is nearly VND 100bn. - Applying license and completing related procedures for the new Coil Center plant on the new 5ha land area in Phu My 1 IZ BRVT. - Implementing the construction plan, license, and related works for construction of the new head office building at Ung Van Khiem, Ward 25, Binh Thanh District, HCMC BOARD MEMBERS AND STRUCTURE IN 2017 REPORT ON BOD S ACTIVITIES WITHIN THE YEAR The BoD has implemented its functions as navigation and surveillance of BoM s activities in implementing the resolutions of the AGM and the BoD in During the financial year 2017, the BoD had held 19 regular and extraordinary meetings with the participations of the BoS and the executive board in order to provide strategic plans and precise and timely commands and decisions to enhance business investment and economic efficiency as well as to ensure sustainable development for the whole system. Besides that, the BoD also organized several meetings in form of consulting the BoD members by written documents to guideline solutions related to such issues as basic construction, human resources development, investment activities, and corporate governance structure amendment; to closely monitor activities of the executive board in implementing resolutions and decisions of the AGM and the BoD, and to issue internal documents and regulations. The resolutions and decisions of the BoD based on not only the consensus of all board members but also the benefits and interests of all shareholders for the Company s sustainable growth in the future. - From 10th July 2017, Mr. Nguyen Ngoc Anh resigned from the Chairman position (dissolution) - From 11th July 2017, Ms. Nguyen Thi Ngoc Loan resigned from the Vice Chairwoman position and was appointed as the new Chairwoman. - From 11th July 2017, temporarily appointed Mr. Nguyen Binh Trong and Ms. Nguyen Ngoc Y Nhi as the new BoD s members - From 12th July 2017, Mr. Vo Hoang Vu resigned from the BoD s member and was appointed as the new CEO. No Full names Position Total shares owned % Other positions 1 Nguyen Ngoc Anh Late Chairman 5,933, Dissolution on 08 th July 2017 Resigned on 10 th July Nguyen Thi Ngoc Loan Chairwoman 6,105, Appointed on 11 th July Vo Hoang Vu Member 356, Resigned on 12 th July 2017 CEO of SMC Trading Investment JSC 4 Taira Yoshiyuki Member CEO of Hanwa VN Co., Ltd 5 Ma Duc Tu Independent Member 2, Chairman of Timexco / BoD s member of Real estate No. 9 JSC 6 Nguyen Binh Trong Member 106, Appointed on 11 th July 2017 SMC Deputy General Director - Accounting and Finance Executive 7 Nguyen Ngoc Y Nhi Member 201, Appointed on 11 th July 2017 CRUCIAL BOARD S MEETINGS WITHIN THE YEAR The BoD had periodically and quarterly meetings with supervisory board, BoM, executive board, and key members to evaluate the implementation of BoD s resolutions and the Company s performance, to discuss and agree on operational guidelines and solutions, and to plan for next quarter business operation and performance. In addition, the BoD also organized extraordinary meetings to timely consider and approve on important issues related to the BoM s operating activities. Date Participants Key conclusions from meetings Jan 3, /5 Members - Consensus on using SMC shares of 2 key shareholders Mr. Nguyen Ngoc Anh and Ms. Nguyen Thi Ngoc Loan as collateral assets for deferred payments to Vinakyoei steel company. - Consensus on credit limit increase at Vietcombank HCMC to execute 2017 business plans, using assets of SMC Steel Co., Ltd., SMC Hiep Phuoc One Member Co., Ltd, and SMC Trading Investment JSC as collateral security. Jan 9, /5 Members - Consensus on gathering shareholder s written opinions on the amendment of the Company s charters to comply with current law of business and some other matters under the jurisdiction of the general meeting of shareholders. - Plans for 2017 AGM organization. Jan 16, /5 Members - Consensus on the business operating and financial performance in 2016 and orientations and targets for Feb 22, /5 Members - Consensus on the amendment of the Company s charters, approved the private placement plan to increase charter capital, approved the organization of 2017 AGM according to the BoD s reports - Consensus on detailed deployment of the private placement plan, approved the blocked rate of foreign ownership by 32.52%, the time of blockade was since receiving written approval of the SSC, and the time to release foreign ownership back to 49% was after the private placement completion, approved the registration of private issuance to the SSC ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 25

14 BOARD OF DIRECTORS 2. BOARD OF DIRECTORS REPORTS AND EVALUATIONS Date Participants Key conclusions from meetings Mar 8, /5 Members - Consensus on borrowings at Vietinbank Dong Sai Gon branch of SMC Binh Duong, SMC Steel Trade, and SMC Tan Tao, to employ 2017 business plans. - Summary of the first 2 months 2017 financial performance - Approved on organizational plan for 2017 AGM Mar 9, /5 Members - Consensus on deployment of the private placement to increase charter capital according to the resolution of extraordinary shareholder s meeting (in written documents No. 54/NQ-ĐHĐCĐ/2017) - Approved SMC s 2016 audited financial statements - Approved on the 2016 final cash dividend payment by 5% face value. Apr 1, /5 Members AGM approved all reports, and authorized the BoD to implement the resolutions of the AGM. Apr 10, /5 Members - Consensus on the acquisition of real estate at Ung Van Khiem, Ward 25, Binh Thanh Distrit, HCMC. - Consensus on the borrowings at VIB Bank to employ 2017 business plans. May 8, /5 Members - Consensus on the borrowings at Vietinbank for SMC Steel Mechanical One Member Co, Ltd. to employ 2017 business plans. - Consensus on the borrowings at VietCapital Bank to employ 2017 business plans. Jul 10, /5 Members - Approved on 1H2017 business operating and financial performances, orientations and targets for the last 6 months, 1st dividend payment for 2017 in cash by 5% face value. - Select AISC as the independent auditor to perform the Company s 2017 audited financial statements. - Implementing construction plan for the new head office building at Ung Van Khiem. - Planning for the new 5ha land area project at Phu My 1 IZ BRVT - Resigned the Chairman position of Mr. Nguyen Ngoc Anh (dissolution) since July 10, Resigned the BoD s member position of Mr. Vo Hoang Vu from July 12, Appointed Ms. Nguyen Thi Ngoc Loan as the new Chairwoman from July 11, 2017 and appointed Mr. Vo Hoang Vu as the new CEO from July 12, Temporarily appointed Mr. Nguyen Binh Trong and Ms. Nguyen Ngoc Y Nhi as two new BoD s members since July 11, The BoD would report to and get the approval of the shareholders at our next AGM. - Consensus on the merger of SMC Steel Trade into SMC Binh Duong. July 14, /5 Members - Consensus on the guarantee for SMC SENDO to borrow at Vietcombank Leasing HCMC. Aug 1, /5 Members - Appointed Mr. Le Tran Anh Vu as the Director and legal representative of SMC Tan Tao in replacement for Mr. Nguyen Anh Tuan from Aug 1, Appointed Ms. Tran Thi Thin as the Director and legal representative of SMC Binh Duong in replacement for Mr. Nguyen Huu Quoc Cuong from Aug 1, Appointed Mr. Vo Hoang Vu as the Chairman of SMC Steel, SMC Steel Mechanical, SMC Tan Tao, and SMC Ha Noi in replacement for Mr. Nguyen Ngoc Anh since Aug 1, Aug 21, /5 Members - Consensus on bank borrowings to employ SMC business plans with collateral assets. Sep 8, /5 Members - Consensus on borrowings and related things from VPBank - Consensus on borrowings using collateral assets in period of SMC Steel at Vietinbank. Sep 8, /5 Members - Consensus on the long term financial investment purchase of 2 million shares of NKG through their private placement at VND 27,000/share in order to strengthen the business relationship and strategic partnership between two enterprises. Oct 11,2017 5/5 Members - Approved on the Companys performances for the first 9 months of Approved on 2018 key business targets and orientations. Oct 23, /5 Members - Consensus on the borrowings at MBB Saigon branch of SMC and SMC Tan Tao. Nov 20, /5 Members - Consensus on the dissolution of SMC Hiep Phuoc - Approved on the land use right transfer at Hiep Phuoc IZ from Nov 20, Dec 25, /5 Members - Consensus on renaming SMC Binh Duong One Member Co., Ltd. to SMC Trading One Member Co., Ltd. - Consensus on using collateral assets for credit provision by HD Bank. ORIENTATIONS AND TACTICS OF THE BOD IN 2018 In 2018, the BoM will appoint one more independent member, to further improve the Company s management and corporate governance capability, closely monitor the actual situations and conditions of global and domestic economy, market and the Company to forecast, instruct, and support the BoM and the executive board in performing the orientations and objectives set out, improve performance efficiency, increase investment activities, and strengthen position and competiveness to create concrete foundation for sustainable growth in coming years. Focusing on directing effectively the following implementations: - Further enhance the R&D activities, especially in potential steel related areas; promote the synchronization of closed production lines for steel and steel related products; build up and expand the retail network throughout the whole system. - Re-organize each key segment in the entire system more reasonably and efficiently; improve corporate governance capacity; focus on human resources to foster a sufficient quality and strong team to create a dynamic and sustainable development in the entire system. - Promote the implementation of corporate culture; create and renovate emulation and remuneration policies. With particular and appropriate plans and orientaions for the Company s business directions, activities, and performances, the BoD believes that the management team and the whole SMC employees will continue to achieve all goals and targets as well as will be able to boost up sales volume and improve business efficiency in ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 27

15 BOARD OF MANAGEMENT ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 29

16 BOARD OF MANAGEMENT 1. INTRODUCTION TO THE BOARD OF MANAGEMENT 1. Mr. VO HOANG VU CEO Year of Birth: 1978 Qualification: Bachelor of Business Administration 2. Mr. NGUYEN BINH TRONG Deputy General Director / Accounting and Finance Executive Year of Birth: 1963 Qualification: Bachelor of Accounting and Finance 3. Ms. NGUYEN HONG CHAU Deputy General Director / Project Executive Year of Birth: 1974 Qualification: Bachelor of Commerce 4. Mr. NGUYEN VAN TIEN Deputy General Director / HR and Administration Executive Year of Birth: 1953 Qualification: Bachelor of Sociology ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 31

17 BOARD OF MANAGEMENT 2. BOM S REPORTS AND OBSERVATIONS SMC has gradually restructured the entire business system in a more professional, specialized, and efficient way, and enhanced the management feature of each division to shift SMC from a purely commercial trading enterprise into a concrete steel player with aggregate functions harmonizing three main activities including Trading Coil Processing Services and Manufacturing OVERVIEW ON EXTERNAL AND INTERNAL FACTORS INFLUENCING BUSINESS PERFORMANCE IN 2017 External influences: The global steel industry continued to recover healthily in By the end of the year, most steel prices were higher than the average levels in In particular, the 2017 iron ore price increased by 16.5% compared to the 2016 average; the scrap and billet prices at the end of 2017 were around USD 360/ton and USD 540/ton respectively, up 24.1% and nearly 35% correspondingly from the beginning of the year, while HRC price ending 2017 was around USD 580/ ton, up about 18.5% from the early level. In China, thanks to positive domestic demand together with the government s efforts in cutting excess steel production output, steel exports to global markets substantially dropped compared to previous years, which contributed significantly to the improvement of steel market and steel prices not only in China but also around the world. China has been successful in aggressively eliminating 115 million tons of excess steel capacity in just two years, while the capacity reduction target for the five-year period from is between 100 to 150 million tons. Within the last 5 years, Vietnamese steel enterprises have step by step used domestic trade defense tools flexibly and effectively. So far, Vietnam has initiated total 5 investigations on imported steel products, and already issued official decisions. In particular, there were three cases imposing anti-dumping taxes on stainless cold rolled steel, galvanized steel sheet, and section steel H-shape. Another two cases were on the imposition of global safeguard duties on billet and color coated galvanized steel sheets. The steel industry in general is one of the pioneers applying effectively trade defense tools, which helps creating favourable conditions and supporting business activities of enterprises in the industry. Internal influences: The dissolution of our late Chairman has created a big gap in the Companys corporate governace and administration. However, the new BoD and BoM have made great efforts to bring the business operations back to stable, to ensure the productivity and to maintain business efficiency. Experienced a wonderful year in 2016 with many advantages and overwhelmed all difficulties and losses of 2015, yet the management board in 2017 still remained cautious and committed to the principles of prudence, stability, efficiency, and sustainable development of core businesses. SMC has gradually restructured the entire business system towards each major segment in a more professional, specialized, and efficient way, and enhanced the management feature of each division to shift SMC from a purely commercial trading enterprise into a concrete steel player with aggregate functions harmonizing three main activities including Trading Coil Processing Services and Manufacturing. The year 2017 marked a new milestone as SMC has participated more deeply in the steel production section when the new cold rolling and galvanizing lines with total designed capacity of 160,000 tons/year has operated stabibly and fully ultilized within the shortest time. The new factory with all processes from bleaching, laminating, cold rolling to galvanizing provides quality products that are highly appreciated by the customers; on the one hand, contributing to SMC s diversified steel product portfolio, on the other hand, gradually fulfilling the integrated production chain for the Sendo steel pipe plant, which helps increasing the initiative and efficiency of Sendo specifically and of the whole system generally. The five main solutions in monitoring business activities 4 decreases 1 increase including reducing total assets, reducing bank loans, reducing inventory at reasonable level, reducing expenses, and increasing profits are always the guiding principles and completely implemented. In addition, the Company s business relationship with Formosa on the long-term vision has taken effects when SMC is highly credited and appreciated by its partner, being one of the most popular customers of Formosa in the Southern region. Beside that, SMC has continued to expand, maintain, and develop good relations with large domestic and foreign steel manufacturers and suppliers such as Hoa Phat, VNSteel, Vinakyoei, Pomina, NKG, Ton Dong A, Hanwa, Toami, Sumitono, Marubeni, Nippon, Huyndai, Daewoo, Posco, CSC, Sumikin ensuring sufficient extraction and distribution especially under major market fluctuations. Financial activities always ensured high efficiency. SMC continued to maintain, expand, and promote good relationships with major local and international financial institutions, ensuring sufficient and timely credit funds for the Company at the most competitive costs, to fully and effectively support for production, business activities, and import export activities of the entire system ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 33

18 BOARD OF MANAGEMENT 2. BOM S REPORTS AND OBSERVATIONS LONG STEELS ACCOUNTED FOR 55.8% TOTAL SALES CONSUMPTION FLAT STEELS ACCOUNTED FOR 43.7% TOTAL SALES CONSUMPTION EVALUATION ON 2017 FINANCIAL PERFORMANCE VERSUS PREVIOUS YEAR AND TARGET Key items Unit A +/- % 2017 Target % Target Total steel sales volume Tons 1,042,672 1,056, % 1,050, % Net sales revenue VND bn 9,441 12, % 10, % Net profit after tax VND bn % % Other Steels Steel Pipes Total Steel Sales Volume Break-down for % 1.3% Other Steels 0.5% 1.4% 1.3% 1.3% Section Steels 1.7% 1.3% Ending 2017, SMC consumed more than 1.05 million tons of various steel products, a slight increase of 1.3% yoy and fulfilled 100.6% whole year plan. With the average selling price in 2017 higher than the previous year, total net sales revenue of the Company reached VND 12,654 bn, up sharply 34.0% yoy and satisfying 120% full year target. However, as the market condition was less favourable than 2016, SMC ended 2017 with NPAT of VND bn, down 25.4% yoy yet still outstandingly completing 180% full year plan. Serviced Steels CRC & GI HRC Construction Steels 6.1% 15.8% 20.4% 54.1% 5.1% 14.7% 21% 55.3% 0% 20% 40% 60% 80% 100% Flat Steels 43.7% 42.1% Long Steels 55.8% 56.6% 0% 20% 40% 60% 80% 100% KEY FINANCIAL DATA ANALYSIS Sales Revenue and Sales Volume (*) Long steel products = Construction steels + Section steels (*) Flat steel products = HRC + CRC&GI + Serviced products + Steel pipes tấn tỷ đồng In 2017, total sales volume of the whole system reached 1,056,101 tons, slightly up 1.3% yoy. With the focus on improving quality and efficiency over quantity, the Company has closely followed the consumption target. Moreover, SMC progressively shifted the product mixed portfolio towards increasing the proportion of flat steel products. Total sales consumption of construction steels in 2017 reached 588,916 tons, slightly gained 2.2% yoy, and accounting for 55.8% of total consumption. Total sales volume of flat steel products in 2017 was 460,846 tons, up 4.7% yoy and accounting for 43.7% total sales volume, equivalently increasing 1.6% from the previous year proportion. Net sales revenue of the whole system in 2017 reached VND 12,654 bn, significantly up by 34% yoy and establishing the highest sales milestone in the Company s history, in which sharp increase in steel prices was the key driver of revenue growth. Total Steel Sales Volume (tons) Net Sales Revenue (VND bn) ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 35

19 BOARD OF MANAGEMENT 2. BOM S REPORTS AND OBSERVATIONS 5.34% 22.4% ROA ROE OPERATIONAL EFFICIENCY AND PROFITABILITY Key items Unit /- % Avg Operational costs and expenses Cost of goods sold VND bn 8, , % Selling expenses VND bn % General and Administrative expenses VND bn % Financial expenses VND bn % Interest expenses VND bn % Operational efficiency and profitability Gross profit VND bn % Financial Revenue VND bn % Profit before tax VND bn % Net profit after tax VND bn % Gross margin % % 2.69 Profit before tax margin % % 0.59 Net margin % % 0.51 NPAT/Total Assets (ROA) % % 1.90 NPAT/Total Equity (ROE) % % 8.14 Enjoying extremely favourable conditions in 2016, especially with sharp increases in domestic and global steel prices throughout the year together with low-cost inventories, SMC s profit margins and financial performances in 2016 were recorded particularly high. On that comparable basis, the Company s business results and financial performances in 2017 were rather lower. However, objectively assessing, SMC s achievements in 2017 not only exceeded the plan but also significantly improved from previous years. The orientation and rearrangement of the Company into 3 main core business segments Trading Coil Processing Services Manufacturing and on-going investments in steel production and Coil Center have played important roles in enhancing margins, improving efficiency, and stabilizing business operations of SMC over years. ASSETS Key Items Unit /- % Current Assets VND bn 3, , % Cash & Equivalents VND bn % Short-term Financial investments VND bn % Account Receivables VND bn 1, , % Account Receivables Turnover Days % Inventory VND bn 1, , % Inventory Turnover Days % Non-Current Assets VND bn , % Total Assets VND bn 4, , % Total assets of SMC at the end of 2017 was nearly VND 5,055 bn, up 8.7% yoy, equivalent to an increase by VND 405 bn, mostly contributed by increasing non-current assets. Total current assets ending 2017 was VND 4,026 bn, slightly up by 1.9% compared to 2016, in which cash & equivalents and account receivables gained significantly. On the other hand, due to policy changes together with capital restructuring plan, short-term financial investments mostly short-term deposits dropped sharply at the end of Thanks to positive steel price movements plus inventory policy preparing for business operational activities in 2018, total inventory value by end of 2017 increased 16.3% yoy and the inventory turnover was controlled at reasonable level. Total non-current assets at the end of 2017 was over VND 1,028 bn, strongly up by 47% from the previous year, mostly contributed by increasing fixed assets, machineries, equipments, and long-term financial investments. On-going investment and expansion projects, especially the operations of the cold rolling and galvanizing lines from Sept 2017 together with the investment in phase 2 Sendo steel pipe plant had particularly pushed up fixed asset value and capital construction in progress to VND 720 bn at the year end, up by 43.1% yoy, or an increase by VND 217 bn. In addition, the Company s long-term financial investments ending 2017 also reached over VND 203 bn, doubling last year amount, mostly come from the investment by VND 54 bn into NKG s shares and long-term bank bonds. Summing up 2017, total COGS significantly went up by 37.1% yoy, which was higher than the net sales revenue growth, resulting in lower gross profit by 3.2% yoy reaching VND 700 bn, and lower gross margin of 5.54%, down by 2.13% from the previous year. Nevertheless, the 2017 gross margin was still considerably improved from the average gross margin of 2.7% for the past 5-year period from NPAT of SMC in 2017 was VND 270.2bn, decreasing 25.4% from Also, the Company continued to heavily investing in machineries, equipments and long-term investments in strategic partners while simultaneously issuing new shares to increase charter capital, leading to robust escalations in both total assets and owner s equity ending 2017 over the past year. Therefore, the ROA and ROE in 2017 was only 5.34% and 22.4% respectively, significantly reduced compared to ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 37

20 BOARD OF MANAGEMENT 2. BOM S REPORTS AND OBSERVATIONS 1,210 bn VND LIABILITIES AND OWNER S EQUITY OWNER S EQUITY Key Items Unit /- % Short-term Liabilities VND bn 3, , % Short-term bank loans VND bn 2, , % Account Payables VND bn 1, , % Account Payables Turnover Days % Long-term Liabilities VND bn % Long-term bank loans VND bn % Total Liabilities VND bn 3, , % Total Owner s Equity VND bn , % Charter Capital VND bn % Total bank loans/owner s Equity % % Total liabilities of SMC at the end of 2017 was VND 3,845 bn, declining by VND 54 bn or 1.4% from the previous year, in which both short and long term liabilities slightly down over the same period. Total current liabilities ending 2017 was VND 3,766 bn, declining by VND 44 bn or 1.1% yoy. In particular, thanks to successful private placement, SMC s charter capital and surplus increased considerably, which partly helps to reduce short-term borrowings by 30% yoy, while there was a strong increase by 61.7% yoy in account payables. Total non-current liabilities, mostly long-term bank loans went down more than 12% yoy. As encouraging results continuously delivered and financial restructuring orientation well implemented, both charter capital and retained earnings ending 2017 increased sharply over the previous year. Total owner s equity of SMC at the end of 2017 hence reached nearly VND 1,210 bn, strongly up by 61.1% yoy. Consequently, the Company s debt to equity ratio was improved meaningfully from 3.6 times to 1.6 times. SMC will gradually improve its operating and working capital as well as the debt to equity ratio, sticking to the long term orientation of capital efficiency, the balance between short and long term loans with low financial costs, in order to ensure stable, effective, and sustainable development objectives of the whole system. ORGANIZATIONAL STRUCTURE AND MANAGING ACTIVITIES IN 2017 Operation and Production Management In 2017, the operation and production managing activities always thoughtfully carried out towards efficiency and sustainability. The whole SMC group has well achieved sales volume target and maintained total steel consumption of more than 1 million tons per year, sustained market share, seized market opportunities, and balanced with the capability and strengths of the business to generate positive revenue, cash flow and efficient financial performance. The BoM step by step reorganized the business structure, directing and focusing on each specific core business segment including Trading Coil Processing Service Manufacturing in a more professional and specialized manner, to enhance and stabilize the operation and production effectiveness of not only each division but also the entire group. In terms of Trading SMC maintained its solid position as a professional steel distributor, prolonged and stimulated good relationships with large domestic and foreign steel manufacturers; total consumption of long steel products in 2017 continued to slightly upsurge from the previous year. During the year, taking the strengths and advantages of a large and prestigious distribution partner, SMC well exploited alternative sources of goods and products for its business operations, especially when the market constrained by anti-dumping tax policies on imported steel products. Besides that, SMC restructured and merged its members with the same trading functions to streamline the management system, save costs, and improve management effectiveness and performance proficiency. Specifically, in July 2017, SMC Steel Trade One Member Co., Ltd was merged into SMC Binh Duong One Member Co., Ltd, and renamed to SMC Trading One Member Co., Ltd, being responsible for the commercial trading activities of the whole system. In terms of Coil Processing Services all Coil Center plants were well-run and highly efficient, contributing meaningfully to preserving SMC s position in the specialized processing sector. Currently, the full Coil Center system consists of 3 factories with total designed capacity of 350,000 tons per year, being ultilized at full capacity. In details, there are two CRC Coil Center located at Phu My 1 IZ BRVT and Quang Minh IZ Ha Noi, and one HRC Coil Center located at Tan Tao IZ Binh Tan HCMC. Last year, the BoM re-organized the whole HRC Coil Center service operations from SMC Steel Mechanical to SMC Tan Tao, enhancing the dedicated functions of SMC Tan Tao in trading and processing hot rolled steel products, which initially proved positive changes and results. In terms of Manufacturing the year 2017 marked a significant movement of SMC in more professional and selective involvement in steelmaking field. SMC Steel Mechanical after transferred all HRC Coil Center service activities, focused on being the galvanized steel sheet producer. In Sept 2017, the completed production chain from bleaching, laminating, cold rolling to galvanizing was put into operation with designed capacity of 160,000 tons per year. The new factory was quickly ultilized at full capacity providing high quality products that are highly appreciated by consumers. SENDO steel pipe joint-venture on the other hand still encountered various difficulties and obstacbles, mostly from the organizational structure and consumption markets. Sales volume target was not achieved, yet business performance was still positive thanks to fully supports from SMC system. All aspects of Sendo s operation, human resource, and management should be improved and stabilized in order to strengthen its position and brand name in export markets while expand and concentrate more on domestic market, preparing to welcome the second phase operating officially in In terms of external relationships, SMC continued to encourage good relations with large steel producers and financial institutions domestically and internationally. In 2017, SMC successfully issued new private shares to strategic shareholders, raising the stake ownership of Hanwa Corp Japan in SMC from 5% to 20%, marking a new milestone for the strategic partnership between the two parties ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 39

21 BOARD OF MANAGEMENT 2. BOM S REPORTS AND OBSERVATIONS IMPORT EXPORT ACTIVITIES Key Items Unit /- % Total export volume Tons 143, , % Total import volume Tons 444, , % Total export volume/ Total steel sales consumption % % Total export volume of SMC in 2017 was 117, 315 tons of steel, declining 18.3% yoy, mostly come from the reduction of exported wire rod and debar products while the exported volume of billet and steel pipe were more positive. In 2017, most importers of Vietnamese steels actively increased their trade defense tax policies, causing difficulties for domestic industry players. In addition, with diversified sales strategy, SMC more aggressively exploited domestic market. Total export volume in 2017 in general relatively dropped compared to the previous year, yet still ensured minimum target of 10% total sales volume of the whole system. And, regardless of decreasing volume, total export value in 2017 still gained nearly 13% yoy thanks to higher price. Total import volume of SMC in 2017 was 298,210 tons, strongly declining 33% from 2016, in which there was a strong shift in the structure of imported goods and the source of goods. In particular, such products as wire rod, debar, GI, and PPGI continued to reduce significantly due to the impact of the government s anti-dumping tariffs. On the other hand, in 2017 the operation of SMC s new cold rolling and galvanizing line using HRC as the key input materials leading to higher HRC demand for the company, in addition to the on-site supply from Formosa plant, higher volume of imported HRC also needed in order to supply enough raw materials for manufacturing and processing activities. Secondary products with good profit margins and high business efficiency continued to be actively exploited. PROJECT INVESTMENTS AND IMPLEMENTATIONS IN 2017 In 2017, SMC actively installed and accelerated the investment progress to quickly put the cold rolling and galvanizing lines at SMC Steel Mechanical Co. into operation in September. With total investment costs of VND 130 bn and designed capacity of 160,000 tons/ year, the new manufacturing lines rapidly operated efficiently at full capacity, provided quality products highly appreciated by customers, and especially supported Sendo steel pipe plant more initiative in raw materials and production cost management. The operation of the galvanized steel plant not only enriches SMC s business product portfolio, promotes SMC brand-name, adds value to customers, but also significantly confirms SMC s further involvement in the steel production process, which is more stable and effective than commercial trading operation, ensuring the consistency and prudence of the whole group and maximizing the capital investment efficiency. The preliminary achievement of the plant is the premise for second phase expansion project in Implementing investment in phase 2 of the Sendo steel pipe manufacturing plant, with expected total investment cost of VND 100 bn, installing 6 new production lines, increasing to 13 production lines totally with capacity of at least 100,000 tons/year, which will be completed and operated in 1H2018. Carrying out necessary procedures for the investment in new Coil Center factory located on 5ha land area in Phu My 1 IZ-BRVT, increasing capacity and standardized operating conditions targeting at providing precision steel processing services for large foreign corporations such as Samsung and LG. Carrying out necessary procedures for the new office building investment project. ACCOUNTING AND FINANCIAL MANAGEMENT SMC continued to focus and maintain good relationships with important domestic and foreign banks and financial institutions, being positively supported for stabilizing and developing business activities. High credibility and improved financial performance together have enhanced SMC s financial strength, ensuring sufficient capital for business operations and developing investments with reasonable and efficient capital cost, and contributing to increasing competitiveness and efficiency of the whole system BUSINESS PLANS, TARGETS, AND ORIENTATIONS General Outlook and Business Plan for 2018 The 2018 Vietnam economy is expected to unceasingly having favourable conditions for positive growth with the government s target GDP of 6.7%. The growth dynamics will be primarily originated from the FDI and private sectors. Promoting public and infrastructure investments, monitoring inflation target, restructuring banking system, focusing on bad debt management, and gradually improving human resources quality and labor productivity, all together would help to advance business environment and create more favourable conditions for enterprises. Domestic steel industry growth is also forecasted to be optimistic in Domestic steel consumption is expected to grow well mainly thanks to infrastructure, transportation, and utility investments and constructions of the government in big cities. The continuous implementation of steel output reduction by Chinese government, which would be around 35 million tons by 2018, would create a helpful impact on the global steel market. The controlled supply from China would lessen the amount of steel exports, thereby improving the supply and demand balance in the steel market, especially in neighbouring markets including Vietnam. However, the unceasing expansion of new plants and projects, the increased production capacity of many steel enterprises will definitely increase the competitiveness and severity of the business environment. Trade protection and safeguard measures against the steel industry in many countries including Vietnam are on the rise, leading to more difficulties for exportation activities and export growth. Based on the above factors, SMC sees both chances and challenges for its business outlook and targets in After two years of achieving encouraging business performances, SMC has generated favourable conditions and worthy accumulations for the Company s medium to long term sustainable growths. With the trend of increasing protection for domestic steel industry, the main supply sources will come from domestic market/manufacturers, which is promising conditions for SMC as the Company is a large, professional, and prestigious steel distributor with stable market share, warehouse facilities, and processing service capability. Positive production and business operation activities together with appropriate and effective investment activities would promise to ensure the Company s accomplishment of 2018 objectives ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 41

22 BOARD OF MANAGEMENT 2. BOM S REPORTS AND OBSERVATIONS 2018 KEY BUSINESS OPERATING TARGETS No Items Unit 2017 Actual 2018 Target % 2018/ Total Steel Sales Volume Tons 1,056,101 1,100, % - Long steels Tons 550, , % - Flat steels Tons 460, , % 2 Total Sales Revenue VND bn 12,654 12, % 3 Net Profit After Tax VND bn % 2018 PRODUCTION, INVESTMENT PLANS AND PROJECTS Positive production and operation activities together with appropriate and effective investment activities would promise to ensure the Company s accomplishment of 2018 objectives. Completed investment in phase 2 of the cold rolling and galvanizing plant at SMC Steel Mechanical, increasing total production capacity to 300,000 tons per year. Projected investment cost is approximately VND 60-80bn. The new expansion plan is expected to be done and put into operation by end of Q3/2018, partly satisfying the input materials from phase 2 of Sendo steel pipe production plant, partly supply more products for market need. Deploying phase 2 of Sendo steel pipe production plant to put 6 new pipe production lines into operation within first half of 2018, with total investment cost of nearly VND bn. Total capacity after enhancement will be doubled to 100,000 tons per year with total 13 production lines, matching with the increasing capacity from the galvanizing steel plant and providing more products to both internal and global markets. Completing required procedures and documents at the new 5ha land area at Phu My 1 IZ to relocate and upgrade the current Phu My Steel Coil Center, improving Coil Center s system, operation, and function, researching to expand processing functions and services to meet high standard requirements from developing manufacturing industries. In addition, using the old Coil Center as a warehouse facility serving the business operation and development needs. Investment in expanding the Coil Center system to HRC processing services at SMC Ha Noi, with total expected investment cost of VND 50bn, ultilizing the current good relationship with Formosa to expand business activities, products and services, as well as to exploit the potential Northern market. Studying and researching on establishment of a new HRC Coil Center and trading plant in the Central Highland. Officially putting into operation the SMC building materials retail store since end of Q1/2018, to support sales volume and proficiency of the commercial trading segment. Completing required procedures and documents for the construction of the new office building at 124 Ung Van Khiem, Binh Thanh district, expected to start cosnstruction in Q3/2018 with total investment cost of VND 120bn. KEY SOLUTIONS TO IMPLEMENT 2018 OBJECTIVES Manage the company on a cautious and disciplined principle; focus on both quantity and quality to ensure business s safety, sustainability and efficiency; apply tight control together with flexible and appropriate policies on sales and inventory; manage and moderate operational and productional expenses; enhance human resources, working productivity, and competitive capability of the whole system; streamline and advance the competence of subsidiary s management team and operation activities; always monitor, coordinate, support and provide the right strategic orientations to subsidiaries. Outline more specific and tactical direction in restructuring the Company following three main business activities Trading Coil Processing Service Manufacturing ; increase the efficiency of each segment; hold a concrete position in the commercial trading activity while gradually and selectively increase investments in the steel Coil Center and manufacturing fields; step by step increase the proportion of flat steel to 50% total sales consumption; research and develop new business activities that have potential efficiency and related to the Company s core businesses. Promote member units to actively build up their own business identity, improve self-accountable ability and self-responsibility to enhance management capability and problem solving, as well as to create motivation for each member to accomplish business goals. Continue construction and investment activities targeting at further long term sustainable development and market requirements; actively build up a strong human resources system and technical apparatus, gradually growth both in width and depth. Construction and investment activities will be carried out in accordance with approved business plans. Financial and accounting works are continuously promoted to endure the financial capability to serve the business operating activities and development strategies; gradually increase the application of information technology in accounting, finance, and business operations according to the development requirements of SMC and markets ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 43

23 BOARD OF SUPERVISOR 1. INTRODUCTION TO THE BOARD OF SUPERVISOR 2. BOARD OF SUPERVISOR S REPORTS AND RECOMMENDATIONS ACTIVITIES THAT THE BOS PARTICIPATED AND PERFORMED WITHIN THE YEAR: In 2017, the BoS participated all the BoD s periodic and extra-ordinary meetings; occasionally review the Companys plans, business operational and productional performances, financial statements, audited financial statements and annual report; analyze and commend on the Company s business operational activities and financial performances; feedback to the BoD on matters of operating, accounting, auditing, and information disclosure; monitor and feedback to shareholder s opinions on the Company s activities. EVALUATION ON 2017 BUSINESS AND FINANCIAL PERFORMANCE No Key items Unit 2016A 2017A 2017 Target % Target 1 Total sales volume Tons 1,042,672 1,056,101 1,050, % 2 Sales revenue VND bn 9,447 12,654 10, % 3 Net profit after tax VND bn % 4 Export volume Tons 143, , , % Ms. LE THI CAM TU Year of Birth:1981 Mr. NGUYE N HU U KINH LUAN Year of Birth: 1982 Ms. DANG THI THU TRANG Year of Birth: 1980 In 2017, SMC has well accomplished all business objectives with total sales consumption of 1.05 million tons, meeting 100.6% target. Thanks to the positive uptrend steel price, sales revenue strongly increased to reach VND 12,654 bn, fulfilling 120% target. And last but not least, NPAT although lower than 2016, was a very encouraging result when exceeding whole year plan by 80% while export volume surpassed 12% objective. Qualification: Bachelor of Law Qualification: MBA Murray University, USA Qualification: Bachelor of Economic Evaluation on audited consolidated financial statements Member Chief Board Member The BoS has evaluated the Company s 2017 audited consolidated financial statements throughout frequent supervisions, reviews, and discussions with the accounting department. SMC has periodically reported and disclosed information in accordance with regulations. The BoS agreed with the auditors opinions on the company s audited consolidated financial statements for the financial period ending 31st Dec The audited consolidated financial statements are presented honestly and reasonably in accordance with Vietnam accounting standards and other current legal regulations on the content and timing of the completion ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 45

24 BOARD OF SUPERVISOR 2. BOARD OF SUPERVISOR S REPORTS AND RECOMMENDATIONS ensure sustainable and efficient operations of the whole system; gradually rearranged organizational and capital structures in line with the development requirements of the Company and market. EVALUATION ON THE BOD S DIRECTIONS OF OPERATING ACTIVITIES: Regardless of unexpected happenings and changes in 2017, The BoD has well performed their activities and directions following functions, duties, and powers in accordance with the Enterprises Law and the Charter of the Company, to ensure decent and effective implementations of goals and AGM resolutions. - The BoD held regular and important meetings to review and evaluate the Company s quarterly/ periodically performances; proposed solutions, targets and directions for the implementation of the next quarter; ensured goals, objectives and resolutions set out in the 2017 AGM. - The BoD s meetings are practical and help to promptly and effectively resolve emergent problems. The BoD has well performed the role of directing, supervising, and supporting the BoM and all divisions; has guided the entire system to overcome difficulties and to maintain the stable operations. Determinations of the BoD in 2017 are legal and in accordance with the Charter of the Company and the AGM resolutions. - All the board members fully comply with the charter, regulations, and resolutions of the AGM and perform their task in a dynamic, committed, and responsible manner. - There was close coordinations among the BoS with BoD and BoM; all meetings of the BoD are attended by the BoS; the contents of discussion and voting are done transparently in accordance with regulations. EVALUATION ON THE BOM S OPERATING MANAGEMENT ACTIVITIES: The BoM has well implemented the AGM resolutions and the BoD s directions with encouraging business results. The BoD has had flexible and cautious managing measures following market situations to EVALUATION ON INVESTMENTS ACTIVITIES The Company s medium and long-term investment activities in 2017 were generally carried out in a timely manner and consistent with the plan, orientation and budget; some research activities and preparation works in 2017 were foundation for strong implementation in , as follows: - In 2017, SMC completed and implemented the operations of cold rolling and galvanizing lines at SMC Steel Mechanical, with total investment cost of VND 130bn. - Sendo steel pipe factory actively invested in phase 2 expansion project, increasing production equipments from 7 to 13 pipe production lines which will be operated in the first half of 2018, with total capacity of 100,000 tons per year and total investment cost of approximately VND bn. - Actively implement necessary procedures to relocate, upgrade, and further invest in the new Coil Center plant at the new 5 ha land area located on Phu My 1 IZ, converting old factory into commodity warehouse, attempting to accelerate and complete the project within Implement necessary procedures for the construction of new office building at 124 Ung Van Khiem, Binh Thanh district; expected completion is in Research and develop the building material retail system under SMC brand-name, actively support and enhance the efficiency of the commercial trading segment, which was put into operation by end of Q1/2018. BOS S PROPOSALS AND RECOMMENDATIONS - The SMC s BoD need to have more independent members; assign tasks to full-time members to meet the requirements of relevant authorities and to strenghthen the management and corporate governance of the Company; set out appropriate and effective strategic directions and business solutions. - Maintain internal control, especially focus on sales activities and debt managements; tighten risk management in business and financial related activities. - From a purely commercial trading enterprise and simple processing service provider, SMC has been gradually expanding its operations in steel production as well as more specialization and diversification in steel processing service activities; the preparation and management of human resources hence are key elements, the application of advanced management models to enhance internal strengths is also needed to be ready for the new growth era. - Develop the decentralization mechanism and supervise the implementation of affiliates and divisions; ensure that all members have the opportunity to self-develop while still maintain their unity within the whole SMC system. - Speedily complete the current invested projects to put into operation and to increase the investment efficiency of the enterprise ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 47

25 CORPORATE GOVERNANCE ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 49

26 CORPORATE GOVERNANCE 1. RISK MANAGEMENT To minimize major risks related to business operating activities such as market risk, operational risk, and financial risk, the BoD and BoM always adhere to guidelines and directions with the priority goals of safety and efficiency, in order to ensure positive performance of the entire system. To minimize major risks related to the Company s business operating activities such as market risk, operational risk, and financial risk, the BoD and BoM always adhere to guidelines and directions with the priority goals of safety and efficiency. In addition, SMC also implements internal risk management strategies such as the active presentations of internal control board, material team, price appraisal team, and debt recovery team in order to prevent and to deal with the possible risks, ensuring positive results of the entire system. ECONOMIC AND MARKET RISKS The economic growth rate is a direct factor affecting the development of steel industry and enterprises in the industry. In 2017, the national GDP growth rate exceeded target along with the excitement of the real estate market, active government s public and infrastructure investments, and the steady growth of steel price, domestic steel industry and steel enterprises continued to have an exciting year with high business performance results. Despite having positive accumulations and advantages over the past two years, from the lessons of 2015, SMC is always ready to encounter with unpredictable shakes and fluctuations of market, ensuring flexibly reacting ability to every situation to perform the most effective business result. In 2018, forecasted economic and industry growths are all positive, which is a good signal for all corporations in general, however, the actual market situations and commodity price fluctuations are unpredictable, having the ability to directly affect the Company s operation and business results. At the same time, the business environment has also become increasingly competitive with the participation of both new companies and the extensive expansion of existing large enterprises; SMC hence would be rather careful in every aspect, proactively review and make flexible decisions according to various market situations, to minimize the effect of economic and market risks (if any), to maintain efficiency, stability, and sustainable development. BUSINESS OPERATION AND PRODUCTION RISKS With the incessant expansion of flat steel processing and producing activities over the past ten years, SMC has gradually reduced risks of a purely commercial trading company in the face of construction steel price fluctuations and real estate market instability. Nevertheless, processing and producing activities also present risks of HRC and CRC inventories, price movements, risk of production technology, human resources and management to the Company s business operation and performance. Accordingly, SMC has always built up and maintained good relationships with leading domestic and foreign steel producers and suppliers to ensure the stable and steady supply sources, and always emphasized the importance of investment in modern technology production lines. SMC has implemented the new, modern, and synchronized machinery and equipment lines which have been regularly maintained. Materials used are well controlled in terms of quality and reasonable prices. The whole Coil center, galvanizing and steel pipe production systems are strictly organized to ensure safe and effective operations, where incidents, errors and raw-material wastage are minimized. FINANCIAL AND CREDIT RISKS SMC has to encounter financial and credit risks of foreign exchange and interest rate fluctuations, bad debt, and liquidity throughout its business operating activities. As import-export are focused and strengthened, playing an important role in escalating sales volume and supporting other operating activities of the whole group, SMC always considers and balances out loans proportion in VND vs USD to ensure the best interest rates while at the same time have enough USD source for importation activity. Movements of foreign exchange rate and interest on the market are closely updated and analyzed to have flexible and adequate responses to significant changes. Moreover, building trust and maintaining good relationships with credit institutions and banks also ensure that SMC actively controls and minimizes credit risk, liquidity risk, interest rate risk, and foreign exchange risk. The continuous expansion of investments for the period leads to the risk of capital requirements, interest rates, and foreign exchange rates. SMC always actively searches and maintains loans with competitive rates, is flexible in receivables collection and bad debt recovery solutions, and maintains inventory at a reasonable level in order to balance working capital and gradually improves the capital structure among debts and equity. For the risk of bad debt/receivables, SMC constantly ensures the full application of sales processes and specific credit/ debt limit policy applied to different customer groups, based on each customer s financial situation/capability, collateral assets, and reputation in transactions and payments. They are reviewed periodically on monthly, quarterly, semi-annually, and annually basis, with the participation of the internal control board and the debt/receivables recovery team to minimize the risk of bad debts of the whole system. In 2017, SMC had significantly recovered some of its bad debt provisions ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 51

27 CORPORATE GOVERNANCE 2. ORGANIZATION AND HUMAN RESOURCES The average monthly income gained 12.8% In 2017, SMC proactively reorganized its human resources system with more focus on managing each key segment such as construction steel, hot rolled steel, cold rolled steel, and steel pipe, creating a strong development premise for each single segment in Moreover, the Company also added the segment director and functional director positions, specialized in each particular field, to timely and efficiently advise the Boards on market movements, price changes, inventory, and resources of the Company, creating more energy and innovation in management organization. The rotation of staff in the system also promotes the improvement and motivation for each employee and the entire system. CHANGES OF THE ORGANIZATIONAL STRUCTURE WITHIN Merged SMC Steel Trade One Member Co., Ltd into SMC Binh Duong One Member Co., Ltd, and renamed to SMC Trading One Member Co., Ltd, being responsible for all commercial trading activities of the system, to concentrate resources, to streamline the apparatus, and to create overall strength to maintain and develop the output and market share of the Company in the steel market người Set up the R&D department to research and develop new core-business related products and services suitable for the efficiency and development requirements of the enterprise and the market. - Restructured the hot rolled trading and Coil center processing service activites to SMC Tan Tao, appointed the position of HRC segment s Director to have timely and appropriate guidances for trading and development of this segment. EMPLOYEES STRUCTURE As of 31 st Dec 2017, total employees of the whole SMC group are 650 persons, enlarging by 24 people yoy, or an increase by 4% from The supplementary source is mainly technical staff with qualifications, skills, and experiences in production field, to meet the human resource needs of the new cold rolling and galvanizing factory in particular, and in general to enhance the quality and competitive advantage of the whole production team of SMC on the market. The Company s human resources are mainly young, dynamic, and professional with high foreign language skills. With highly qualified human resources, SMC is confident to meet the development needs of the Company in the direction of expanding production and gradually increase the market share as well as position of SMC on the market. Management Indirect labour 56% % 28% EMPLOYEES INCOME AND WELFARE The average monthly income of SMC s employees has increased by 12.8% in 2017 from the previous year. In addition to monthly income, SMC also implements the rewarding and bonus policy on quarterly basis for individuals and teams excellent performances, ensures fully packed welfare to help stabilize staff s life. Every year, SMC organizes travel tours for all employees, enforces regular health check up at prestigious and quality hospital, supports additional benefits for maternity and difficult circumstances, and takes care of employees through special occasions as Tet holiday. In addition, SMC also owns a system of various unions including the communist union, the youth union, and the labour union from the head quarter to each affiliate that are constantly ready to support employees when needed. Everyone is encouraged to participate in unions, internal emulation activities, and external units exchange. Employees are always supported both mentally and physically in difficult circumstances as well as are always facilitated to improve psychological and material life. The unions carry out tasks of connecting employees directly with the Company s development orientations and promoting the fulfillment of the Company s annual financial and operational objectives. RECRUITMENT, TRAINING, DEVELOPING, AND EVALUATING HUMAN RESOURCES From 2011 to 2017, total employees of the whole system have increased by 72%. SMC always ensures the harmonious combination of recruitment, training, screening, rotating, and promoting personnel in order to achieve optimum efficiency and to prioritize the goals and interests of the entire company. The quality of resources is the key factor in the development orientation of the enterprise. The recruited candidates must have sufficient skills and qualifications, and satisfy requirements of the recruitment position and the corporate culture. In particular, SMC always attaches the importance of internal training programs on corporate culture and professional expertise with the unique know-how methodology and experiences that the Company has accumulated and selected throughout establishment and development. Besides, the Company will consider promoting qualified, excellent and experienced individuals into higher positions within the group, creating favorable conditions to encourage employees to incessantly contribute to the performances of the entire system. In 2017, SMC had promoted and appointed 2 senior positions Branch Director and Functional Director at the head office and 3 managing Directors at the subsidiaries, based on individual capabilities and the whole system development needs, to create a strong and rich middle-level management legacy. HUMAN RESOURCES USAGE AND DEVELOPMENT STRATEGY TO ENSURE THE IMPLEMENTATION OF SUSTAINABLE GROWTH OBJECTIVES The orientation throughout the formation of development of SMC is sustainable development, in which human resources play a significant role. Therefore, the company will focus on maintaining and improving policies on benefits, welfare, and payments for employees; encourage employees to create and strive to develop individual capability by arranging suitable tasks, providing good working facilities and environment, and improving skills to all staff; develop a decentralization mechanism for the management level, raise the sense of responsibility and create all conditions to maximize the capacity and dedication of all staffs; create a professional working environment, and committed to promotion opportunities for employees Total employees from Direct Labour 2017 employee structure by category ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 53

28 CORPORATE GOVERNANCE 3. SHAREHOLDER AND INVESTOR RELATIONS In 2017, SMC continued to focus and strengthen the investor relation activities; increased meetings, and always paid attention on the importance of transparency to assist investors, shareholders, suppliers, and customers to understand the business situations and performances. The Company also focuses on information disclosure activities, ensures the information clearly disclosed to provide fully relevant contents for investors, shareholders, suppliers, and customers easily access and check, and is always ready for explanation on the Company s performance requirements. SMC is always active in investor relation activities and disclosure of all information related to business operating performances on quarterly, semi-quarterly, and yearly basis in full, clear, and transparent manner. With more dynamic and professional investor relation activities in 2017, SMC had met and worked with many investment funds, potential domestic and foreign investors, guided investors more understanding on the company s current business structure, operation activities, strengths and advantages, position in the industry, and the positive changes of the company lately. SMC also welcomed many investors becoming the Company s new and significant shareholders. Foreign stake ownership at SMC hence increased significantly to 33.51% by end of 2017, capturing the attention and attractiveness of the Company to both domestic and foreign partners and shareholders. GENERAL INFORMATION ON SMC STOCK EPS 7,180vnd Ticker SMC Listed stock exchange HSX Charter Capital 420,059,610,000 VND Current listed shares 42,005,961 Shares Market Capitalization (as of 31st Dec 2017) 1,117,358,562,600 VND Earnings per share in 2017 (EPS) 7,180 VND Book value per share in 2017 (BPS) 28,803 VND VN-Index movements in % SMC stock price movements in % The senior/major position crisis in 2017 to some extent has affected SMC s stock price, yet within just a very short time, the price of stock has quickly stabilized and gradually increased by the actual capability and business performance of the Company. With the solid corporate system, effective business operations, capable and enthusiastic inheritors, SMC has gradually affirmed its persistence in the face of all challenges. BPS 28,803vnd Ending 2017, the VN-Index impressively increased to nearly 1,000 points, equivalent to an increase by 46.46% yoy, reaching the highest level within the past 10 years. With improved liquidity, the average trading value remained very high and the capitalization of the stock markets was over 70% of GDP, the highest in history. The strong rise of Vietnam stock market last year has been attributed to the positive economic changes as Vietnam is among the fastest growing countries in the world; besides, foreign capital inflows also played an important role in creating a strong market momentum. The accelerated equitization activities, large divestments of state-owned enterprises, and a growing number of listed big banks and private enterprises had together enhanced the attractiveness and fascinated a large amount of money inflow from domestic and foreign investors into Vietnam stock market. The year 2017 also marked an important point for the securities industry with the introduction of derivatives, contributing to enrich and perfect the model of modern stock market. Along with the positive uptrend of the stock market, SMC in particular also had a successful and excited trading year. The Company s stock ended 2017 with 31% gain yoy, which was less than market presentation yet was still an encouraging performance in comparison to some other stock names in the industry such as HSG (-15% yoy) or TLH (-3.3% yoy). The senior/major position crisis in 2017 to some extent has affected SMC s stock price, yet within just a very short time, the price of stock has quickly stabilized and gradually increased by the actual capability and business performance of the Company. With the solid corporate system, effective business operations, capable and enthusiastic inheritors, SMC has gradually affirmed its persistence in the face of all challenges. DIVIDEND PAYMENT With good performance in 2017, the BoD has approved and paid out the first interim cash dividend payment with 5% par value, particularly as follows: - First payment 5% par value cash dividend payment, equivalent to VND 500 per share, paid on the Sept 13, The BoD recently had a meeting on Mar 9, 2018, and approved to pay 5% par value more in cash and 30% par value more in stocks for its shareholders, increasing total dividend payment for 2017 to 40% par value, including 10% in cash and 30% in stocks. - Second payment 5% par value cash dividend payment, equivalent to VND 500 per share, plus 30% par value stock dividend payment, equivalent to 3 new shares for every 10 owned shares, which will be executed soon in May 2018, after the AGM s approval. VN-Index and SMC share price movements in ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 55

29 CORPORATE GOVERNANCE 3. SHAREHOLDER AND INVESTOR RELATIONS 42,005,961 Private issuance of 12,487,600 shares SHAREHOLDERS STRUCTURE Major changes and insiders transactions within the year: - In 2017, SMC has successfully issued 12,487,600 new shares, changing the number of outstanding and listing shares from 29,518,361 shares to 42,005,961 shares. -Transactions of insiders and their related parties have been made during the year are as follows: Relation with inside shareholders Beginning shares owned Ending shares owned Reason for change Traders Shares % Shares % Buy Sell Nguyen Ngoc Anh Late Chairman 5,533, ,933, ,000 0 Nguyen Thi Ngoc Loan Chairwoman 2,679, ,105, ,426,300 0 Hanwa Co. Ltd BoD s Member 1,476, ,401, ,925,200 0 Vo Hoang Vu CEO 105, , ,340 0 Nguyen Ngoc Y Nhi BoD s Member 1, , ,000 0 Nguyen Van Tien Deputy GD 540, , ,090 - Treasury shares buy-back within the year: None - Transactions and disclosures being reminded and fined within the year: None - Shareholders information and structure as of 12th Feb 2018: 29,518,361 shares Shareholders Structure Domestic shareholders Foreign shareholders Total Value % Value % Value % Total Charter Capital 279,316, ,742, ,059, Founding shareholders (*) 124,972, ,972, Shareholders holding >= 5% 21,661, ,852, ,513, Shareholders holding 1% - 71,936, ,808, ,745, % Shareholders holding < 1% 60,679, ,081, ,761, Treasury shares 67, , (*) Founding shareholders include 02 shareholders holding more than 5%, 01 shareholder holding 1-5%, and 01 shareholder holding less than 1% Key shareholders Ordinary shares Blocked shares Total shares % Special shareholders 16,126,097 10,351,500 16,126, Board of Directors 14,817,117 10,351,500 14,817, Board of Management 921, , Board of Supervisor 482, , Chief Accountant Financial Director 12, , Shareholders holding > 5% 25,090,198 12,487,600 25,090, Nguyen Ngoc Anh 5,933, ,933, Nguyen Thi Ngoc Loan 6,105,399 3,426,300 6,105, Hanwa Co. Ltd 8,401,210 6,925,200 8,401, Nguyen Cam Ha 2,166,108 2,136,100 2,166, KIM Vietnam Growth Equity Fund 2,484, ,484, Foreign shareholders 14,074,264 6,925,200 14,074, Institutions 13,500,742 6,925,200 13,500, Individual 573, , Treasury shares 6, , DETAILED LIST OF KEY/IMPORTANT SHAREHOLDERS Full name Position Ordinary shares Blocked shares Total shares Nguyen Thi Ngoc Loan Chairwoman 6,105,399 3,426,300 6,105, Ma Duc Tu BoD s Member 2, , Hanwa Co., Ltd BoD s Member 8,401,210 6,925,200 8,401, Nguyen Binh Trong BoD s Member ,36 Deputy General Director Nguyen Ngoc Y Nhi BoD s Member 201, , Vo Hoang Vu CEO 356, , Nguyen Van Tien Deputy General Director 458, , Nguyen Huu Kinh Luan Chief Supervisor 482, , Dang Thi Thu Trang BoS s Member Le Thi Cam Tu BoS s Member Do Doan Thanh Cong Chief Accountant Truong Tuan Dung Hung Financial Director 12, , Total 16,126,097 10,351,500 16,126, List of shareholders having blocked shares: see details on the above tables - List of strategic shareholders having blocked shares: see details on the above tables % ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 57

30 CORPORATE GOVERNANCE 3. SHAREHOLDER AND INVESTOR RELATIONS 4. SOCIAL COMMUNITY ACTIVITIES AND ENVIRONMENTAL SAFETY REMUNERATIONS AND EXPENSES OF THE BOD, BOM, AND BOS IN 2017 SMC has paid the remunerations to the BoD, BoM, and BoS in 2017 as follows: Full name Position 2017 Remuneration (VND) Nguyen Ngoc Anh Late Chairman cum CEO 240,000,000 Nguyen Thi Ngoc Loan Chairwoman 200,000,000 Ma Duc Tu BoD s Member 160,000,000 Taira Yoshiyuki BoD s Member 160,000,000 Nguyen Binh Trong BoD s Member / Deputy GD 160,000,000 Nguyen Ngoc Y Nhi BoD s Member 160,000,000 Vo Hoang Vu CEO 180,000,000 Nguyen Huu Kinh Luan Chief Supervisor 120,000,000 Le Thi Cam Tu BoS s Member 100,000,000 Dang Thi Thu Trang BoS s Member 100,000,000 Ho Thi Ngoc Tuyet BoD s secretary 80,000,000 Nguyen Hong Chau Deputy General Director 80,000,000 Nguyen Van Tien Deputy General Director 80,000,000 Truong Tuan Dung Hung Financial Director 80,000,000 Do Doan Thanh Cong Chief Accountant 80,000,000 Total 2017 allowance paid 1,980,000,000 Total 2017 allowance approved by the 4,000,000,000 AGM (approximately) Remaining 2017 allowance to be paid 2,020,000,000 SOCIAL COMMUNITY ACTIVITIES SMC always focuses on charity activities to help improving the quality of local community living conditions where SMC s office and factories located. In particular, SMC has created jobs for the locals, supported people affected by natural disasters, contributed to poor people s fund in Binh Thanh district, contributed to charity fund of the Vietnam Industry and Trade Union, donated the educational promotion fund for the People committee of Ward 25 Binh Thanh district ENVIRONMENTAL SAFETY Currently, all the processing and manufacturing plants of SMC are located in the fully planned industrial zones for heavy industry with synchronous and well developed infrastructure system that have no impacts on the living environment of the surrounding population throughout the Company s whole process from investment and construction to completion and production. Power and energy consumption all production and processing lines are newly imported and implemented with modern technologies in accordance with European standards, ensuring high productivity with regular maintenance, so the level of power consumption during the manufacturing process is well controlled. Moreover, during the construction of the workshop, SMC has maximized the natural lighting system utilization in order to mostly reduce the possible power consumption. The entire system is driven by automatic and controlled technology, with inverter motive power technology that reduces power and energy consumption the most yet still ensures high speed, productivity, and product s quality. Material consumption/utilization SMC always manages the quality of raw material inputs used for the processing and producing activities, in combination with modern equipments and machineries to minimize the wastage rate of raw materials throughout the production process. At the present, the whole system s wastage rate is around 0.5%. The major scrap from SMC s manufacturing operations are collected and sold to scrap steel mills for billet production. Impacts on the overall environment are minimal. Waste-water and emissions SMC has applied the wastewater treatment and completed construction for drainage systems as well as signed contracts with responsible units in the IZ for wastewater treatment activities, ensuring the wastewater is properly treated and has no negative effects on the environment. Regarding emissions, the Company s processing activities do not generate smoke and noxious emissions, yet SMC still improves natural airing and enhances green space in the working environment for employees and workers. Noise and vibration mainly arisen during the operations of machineries and equipments. SMC has applied different measures to minimize the effects of noise and vibration to employees working directly and indirectly in the factories such as outfitting rubber and spring damper for vibrated machineries, ensuring regular maintenance, arranging reasonable machineries and equipments in a proper line to avoid noise resonance, and providing adequate labor protections for workers in high noise generating areas ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 59

31 CORPORATE GOVERNANCE 5. SUSTAINABLE GROWTH SMC focuses on developing the business both in depth and breadth counting market share expansion, productivity improvement, importexport activities enhancement, overseas markets development and especially more active and effective engagement in flat steel processing and producing activities to achieve the goals of sustainable growth..sustainable GROWTH STRATEGY SMC has always set the sustainable growth objective as the core focus of the entire organizational operation and development orientations, that emphasizes on the successful completion of long-term sustainable growth objectives in combination with accomplishment of other social and environmental goals to ensure harmony of interests of all related parties. From a purely construction steel commercial trading entity, SMC has gradually turned into a business with aggregate functions in the steel industry, balancing and focusing on three key segments including Trading Coil Processing Services and Manufacturing, on the one hand, enhancing business efficiency for long-term sustainable growth strategy, while on the other hand diversifying product portfolio to satisfy the increasing demands of customers and market. The harmony and balance of all three aspects of sustainable growth including Economy Social Environment are always guaranteed throughout the whole Company s cooperate governance and business activities. SUSTAINABLE GROWTH VALUE - DRIVEN FOCUS SMC focuses on developing the business both in depth and breadth counting market share expansion, productivity improvement, import-export activities enhancement, overseas markets development and especially more active and effective engagement in flat steel processing and producing activities to achieve the goals of sustainable growth. With core business and core values centered tactical directions. SMC has affirmed its position in the domestic steel market with remarkable attainments such as being the largest construction steel distributor and the largest owned Coil Center system in Vietnam, gradually completing the integrated production chain from hot rolled coil to finished products such as galvanized steels and steel pipes. Encountering various challenges and difficulties throughout the way of formation and development up to now, especially after the 2015 financial performance crisis and 2017 senior position changes, SMC has continuously stood still to face and overcome problems, to ensure stable operational business activities, and to assert itself in the marketplace following the strategic sustainable growth orientations that brings long-term benefits to all shareholders, investors and partners. With the responsibility for community and society developments, for reliance and confidence of shareholders, customers, partners, related organizations and all employees, we are determined to constantly critically implement the precise orientations that the Company has been doing so far ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 61

32 AFFILIATES AND JOINT-VENTURES ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 63

33 AFFILIATES AND JOINT-VENTURES 1. AFFILIATES (1) Company having more than 50% ownership of SMC: None (2) Companies having more than 50% ownership held by SMC: 1. SMC STEEL Co., Ltd Head Office 1B street, Phu My 1 Industrial Zone, Ba Ria Vung Tau Province Charter Capital VND 120 bn SMC s ownership 100% Key business activities Coil Center processing, cutting, splitting flat steels Products and Services CRC, HRC, galvanized steel sheets, zinc coated steel sheets, color coated steel sheets, stainless steels, section steels, weld mesh 2. SMC STEEL MECHANICAL Co., Ltd Head Office Phu My 1 Industrial zone, Phu My Town, Tan Thanh District, BRVT Charter Capital VND 100 bn SMC s ownership 100% Key business activities Coil Center processing, cutting, splitting HRC Products and Services HRC, secondary products, galvanized steel sheets Key financial items Unit /- % Net revenue VND bn 1, , Gross profit VND bn Profit before tax VND bn Profit after tax VND bn Total assets VND bn Total Liabilities VND bn Owner s Equity VND bn Gross margin % Net margin % Return on Assets (ROA) % Return on Equity (ROE) % Key financial items Unit /- % Net revenue VND bn 2, , Gross profit VND bn Profit before tax VND bn Profit after tax VND bn Total assets VND bn Total Liabilities VND bn Owner s Equity VND bn Gross margin % Net margin % Return on Assets (ROA) % Return on Equity (ROE) % 24, , ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 65

34 AFFILIATES AND JOINT-VENTURES 1. AFFILIATES 3. SMC BINH DUONG ONE MEMBER Co., Ltd (SMC TRADING) Head Office Road No.5, Dong An Industrial Zone, Binh Hoa Thuan An Town, Binh Duong Charter Capital VND 50 bn SMC s ownership 100% Key business activities Trading and distributing construction materials and steel products for the South- East region market Products and Services Reinforced concrete, irons and steels, section steels, wire rod, rebar, steel sheets 4. SMC HA NOI JOINT STOCK COMPANY Head Office Lot No.47 Quang Minh IZ, Quang Minh Town, Me Linh District, Ha Noi Charter Capital VND bn SMC s ownership 82.11% Key business activities Coil Center processing flat steel products and distributing various steel products for the Northern market Products and Services Construction steels, flat steels, galvanized steel sheets, inox Key financial items Unit /- % Net revenue VND bn , Gross profit VND bn Profit before tax VND bn ,200.0 Profit after tax VND bn n/a Total assets VND bn Total Liabilities VND bn Owner s Equity VND bn Gross margin VND bn Net margin % Return on Assets (ROA) % Return on Equity (ROE) % Key financial items Unit /- % Net revenue VND bn Gross profit VND bn Profit before tax VND bn Profit after tax VND bn Total assets VND bn Total Liabilities VND bn Owner s Equity VND bn Gross margin % Net margin % Return on Assets (ROA) % Return on Equity (ROE) % (*) 2017 financial data is significantly different from the previous year in most indicators due to the merger of SMC Steel Trade into SMC Binh Duong ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 67

35 AFFILIATES AND JOINT-VENTURES 1. AFFILIATES 2. JOINT-VENTURES 5. SMC TAN TAO ONE MEMBER Co., Ltd Head Office Lot 33, Center street, Tan Tao IZ, Tan Tao A ward, Binh Tan District, HCMC Charter Capital VND 80 bn SMC s ownership 100% Key business activities Coil Center processing and distributing flat steel products, providing warehouse services Products and Services HRC, secondary products, high tensile steel products, warehouse services 1. SMC SUMMIT Co., Ltd Head Office 1B street, Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Representative Office 396 Ung Van Khiem, Ward 25, Binh Thanh District, HCMC Charter Capital USD 4,000,000 (~ VND bn) SMC s ownership 50% Key business activities Trading and distributing special and premium steel products Products and Services Couplers, formed and bended steels Key financial items Unit /- % Net revenue VND bn 1, , Gross profit VND bn Profit before tax VND bn Profit after tax VND bn Total assets VND bn Total Liabilities VND bn Owner s Equity VND bn Gross margin % Net margin % Return on Assets (ROA) % Return on Equity (ROE) % Key financial items Unit /- % Net revenue VND bn , Gross profit VND bn Profit before tax VND bn Profit after tax VND bn Total assets VND bn Total Liabilities VND bn Owner s Equity VND bn Gross margin % Net margin % Return on Assets (ROA) % Return on Equity (ROE) % ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 69

36 AFFILIATES AND JOINT-VENTURES 2. JOINT-VENTURES 2. SMC TOAMI Co., Ltd Head Office 1B street, Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Representative Office 396 Ung Van Khiem, Ward 25, Binh Thanh District, HCMC Charter Capital USD 3,000,000 (VND bn) SMC s ownership 25% Key business activities Producing, processing, and distributing Weld mesh Products and Services Weld mesh 3. SENDO STEEL PIPE JOINT VENTURE Co., Ltd Head Office 1B street, Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria Vung Tau Representative Office 396 Ung Van Khiem, Ward 25, Binh Thanh District. HCMC Charter Capital USD 8,000,000 (~ VND bn) SMC s ownership 75% Key business activities Producing, processing and distributing steel pipe products Products and Services Steel pipes Key financial items Unit /- % Net revenue VND bn Gross profit VND bn Profit before tax VND bn Profit after tax VND bn Total assets VND bn Total Liabilities VND bn Owner s Equity VND bn Gross margin % Net margin % Return on Assets (ROA) % Return on Equity (ROE) % Key financial items Unit /- % Net revenue VND bn , Gross profit VND bn Profit before tax VND bn Profit after tax VND bn Total assets VND bn Total Liabilities VND bn Owner s Equity VND bn Gross margin % Net margin % Return on Assets (ROA) % Return on Equity (ROE) % ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 71

37 AUDITED CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 73

38 AUDITED CONSOLIDATED FINANCIAL STATEMENTS REPORT OF THE BOARD OF MANAGEMENT For the fiscal year ended December 31, 2017 The Board of Management has the honor of submitting this report and the audited consolidated financial statements of SMC Trading Investment JSC and its subsidiaries (hereinafter referred to as the Group ) for the fiscal year ended December 31, BUSINESS HIGHLIGHTS: SMC TRADING INVESTMENT JOINT STOCK COMPANY AND ITS SUBSIDIARIES Audited consolidated financial statements For the fiscal year ended December 31, 2017 Thành lập: - SMC Trading Investment Joint Stock Company ( the Company ) operates under Business Registration Certificate No dated October 18, 2004 issued by the Department of Planning and Investment of HCMC which is under the 13th amendment in accordance with Business Registration Certificate No dated July 14, The Company s stock has been officially traded in HCMC Stock Exchange with the code: SMC since October 30, 2006 in compliance with Listing License No. 62/UBCK-GPNY dated September 29, 2006 issued by the Chairman of the State Securities Commission of Vietnam. Structure of ownership: Joint Stock Company. English name: SMC Trading Investment Joint Stock Company. Short name: SMC J.S.C. Security code: SMC 1. REPORT OF THE BOARD OF MANAGEMENT 75 Business sector: Production - Trade - Service - Construction. 2. INDEPENDENT AUDITOR S REPORT 80 Head office: 396 Ung Van Khiem, Ward 25, Binh Thanh Dist., HCMC. 3. CONSOLIDATED BALANCE SHEET 4. CONSOLIDATED INCOME STATEMENT 5. CONSOLIDATED CASH FLOW STATEMENT 6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS INFORMATION ON SUBSIDIARIES: To December 31, 2017, the Company has seven (07) subsidiaries as follows: SMC Steel Co.,Ltd is incorporated under Business Registration Certificate No dated June 25, 2007 and the fourth (04) amended certificate dated November 21, 2016 issued by the Department of Planning and Investment of Ba Ria Vung Tau Province. The chartered capital is VND 120,000,000,000 in which the Company s paid-in capital is 100%. To December 31, 2017, the Company has paid in VND 120,000,000,000 making up 100% of total chartered capital in SMC Steel Co.,Ltd. Address: Road 1B, Phu My I IP, Phu My Town, Tan Thanh Dist., Ba Ria - Vung Tau Province. SMC Binh Duong One-Member Co.,Ltd is incorporated under Business Registration Certificate No dated November 10, 2008 and the forth amended certificate dated December 19, 2017 issued by the Department of Planning and Investment of Binh Duong Province. The chartered capital is VND 50,000,000,000 in which the Company s paid-in capital is 100%. To December 31, 2017, the Company has paid in VND 50,000,000,000 making up 100% of total chartered capital in SMC Binh Duong One-Member Co.,Ltd. Address: Road 5, Dong An Ip, Binh Hoa Ward, Thuan An Town, Binh Duong Province. SMC Steel Mechanical One-Member Co.,Ltd is incorporated under Business Registration Certificate No dated November 26, 2008 and the third amended certificate dated January 12, 2016 issued by the Department of Planning and Investment of Ba Ria Vung Tau Province. The chartered capital is VND 100,000,000,000 in which the Company s paid-in capital is 100%. To December 31, 2017, the Company has paid in VND 100,000,000,000 making up 100% of total chartered capital in SMC Steel Mechanical One-Member Co.,Ltd. Address: Phu My I IP, Phu My Town, Tan Thanh Dist., Ba Ria - Vung Tau Province ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 75

39 AUDITED CONSOLIDATED FINANCIAL STATEMENTS REPORT OF THE BOARD OF MANAGEMENT (cont) For the fiscal year ended December 31, INFORMATION ON SUBSIDIARIES (cont) SMC Hiep Phuoc One-Member Co.,Ltd is incorporated under Business Registration Certificate No dated July 03, 2009 issued by the Department of Planning and Investment of HCMC. The chartered capital is VND 30,000,000,000 in which the Company s paid-in capital is 100%. To December 31, 2017, the Company has paid in VND 30,000,000,000 making up 100% of total chartered capital in SMC Hiep Phuoc One-Member Co.,Ltd. Address: Lot C5A Area C, Hiep Phuoc IP, Nha Be Dist., HCMC. SMC Tan Tao One-Member Co.,Ltd is incorporated under Business Registration Certificate No dated December 18, 2012 and the second amended certificate dated August 10, 2017 issued by the Department of Planning and Investment of HCMC. The chartered capital is VND 80,000,000,000 in which the Company s paid-in capital is 100%. To December 31, 2017, the Company has paid in VND 80,000,000,000 making up 100% of total chartered capital in SMC Tan Tao One-Member Co.,Ltd. Address: Lot 33 Center Street, Tan Tao IP, Tan Tao A Ward, Binh Tan Dist., HCMC. SMC Hanoi JSC is incorporated under Business Registration Certificate No and the eleventh amended certificate dated January 15, 2018 issued by the Department of Planning and Investment of Hanoi City. The chartered capital is VND 64,369,800,000 in which the Company s paid-in capital is 88,07%. To December 31, 2017, the Company has paid in VND 56,690,700,000 making up 88,07% of total chartered capital in SMC Hanoi JSC. Address: Lot No. 47, Quang Minh IP, Quang Minh Town, Me Linh Dist., Hanoi City. Sendo Steel Pipe Joint Venture Co.,Ltd đis incorporated under Business Registration Certificate No dated April 27, 2015 and the first amended certificate dated June 02, 2015 issued by the Management Board of Ba Ria Vung Tau IP, the forth amended Business Registration Certificate No dated November 07, 2017 issued by Department of Planning and Investment of Ba Ria - Vung Tau. The chartered capital is VND 176,201,485,313 in which the Company s paid-in capital is 75%. To December 31, 2017, the Company has paid in VND 132,201,485,313 making up 75% of total chartered capital in Sendo Steel Pipe Joint Venture Co.,Ltd. Head office: Road 1A, Phu My I IP, Tan Thanh Dist., Ba Ria - Vung Tau Province. 3. FINANCIAL POSITION AND RESULTS OF OPERATION: The Group s financial position and results of operation in the year are presented in the attached consolidated financial statements. 4. BOARD OF MANAGEMENT, BOARD OF SUPERVISORS AND BOARD OF GENERAL DIRECTORS AND CHIEF ACCOUNTANT: Board of Management, Board of Supervisors, Board of General Directors and Chief Accountant holding offfice in the year and at the reporting date include: Board of Management Name Position Mr. Nguyen Ngoc Anh Chairman Resigned on July 10, 2017 Ms. Nguyen Thi Ngoc Loan Chairman Appointed on July 11, 2017 Vice Chairman Resigned on July 10, 2017 Mr. Ma Duc Tu Member Mr. Vo Hoang Vu Member Resigned on July 12, 2017 Mr. Nguyen Binh Trong Member Appointed on July 11, 2017 Ms. Nguyen Ngoc Y Nhi Member Appointed on July 11, 2017 Mr. Taira Yoshiyuki Member Board of Supervisors Name Mr. Nguyen Huu Kinh Luan Ms. Dang Thi Thu Trang Ms. Le Thi Cam Tu Position Chief Supervisor Member Member Board of General Directors and Chief Accountant Name Position Mr. Nguyen Ngoc Anh General Director Resigned on July 10, 2017 Mr. Vo Hoang Vu General Director Appointed on July 12, 2017 Deputy General Director Resigned on July 12, 2017 Ms. Nguyen Thi Ngoc Loan Deputy General Director Resigned on July 10, 2017 Mr. Nguyen Binh Trong Deputy General Director Mr. Nguyen Van Tien Deputy General Director Ms. Nguyen Thi Kim Hong Chau Deputy General Director Mr. Do Doan Thanh Cong Chief Accountant ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 77

40 AUDITED CONSOLIDATED FINANCIAL STATEMENTS REPORT OF THE BOARD OF MANAGEMENT (cont) For the fiscal year ended December 31, 2017 Legal representatives of the Company in the year and to the reporting date are: Name Position Mr. Nguyen Ngoc Anh Chairman and General Resigned on July 10, 2017 Director Ms. Nguyen Thi Ngoc Loan Chairman Holding office since July 14, 2017 Ms. Nguyen Thi Ngoc Loan has authorized Mr. Vo Hoang Vu to sign the financial statements for the fiscal year ended December 31, 2017 in accordance with the Power of Attorney No.173/UQ-SMC dated July 15, AUDITOR Auditing and Informatic Services Company Limited ( AISC ) has been appointed as an independent auditor for the fiscal year ended December 31, APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS TIn the opinion of the Board of Management and Board of General Directors, the consolidated financial statements consisting of consolidated Balance Sheet as at December 31, 2017, consolidated Income Statement, consolidated Cash Flow Statement and Notes to the consolidated Financial Statements enclosed with this report give a true and fair view of the financial position of the Group as well as its operating results and cash flows for the fiscal year ended December 31, The consolidated financial statements are prepared in compliance with Vietnamese Accounting Standards and the Vietnamese Accounting System. HCMC, March 05, 2018 For and on behalf of the Board of Management 6. STATEMENT OF THE RESPONSIBILITY OF THE BOARD OF MANAGEMENT IN RESPECT OF THE CONSOLIDATED FINANCIAL STATEMENTS The Board of General Directors of the Group is responsible for the preparation of the consolidated financial statements which give a true and fair view of the consolidated financial position of the Group as of December 31, 2017 as well as its results of operation and cash flows for the fiscal year ended December 31, In order to prepare these financial statements, the Board of General Directors has considered and complied with the following matters: Nguyen Thi Ngoc Loan Chairman - Selected the appropriate accounting policies and applied them consistently; - Made judgments and estimates that are reasonable and prudent; - The consolidated financial statements of the Group are prepared on a going concern basis unless it is inappropriate to presume that the Group will continue in business. The Board of General 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 that the consolidated financial statements are prepared in compliance with the registered accounting policies stated in the Notes to the consolidated Financial Statements. The Board of General Directors is also responsible for safeguarding the assets of the Group and thus taking reasonable steps for the prevention and detection of fraud and other irregularities ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 79

41 AUDITED CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR S REPORT No: A HN/AISC DN5 To: SHAREHOLDERS, BOARD OF MANAGEMENT AND BOARD OF GENERAL DIRECTORS SMC TRADING INVESTMENT JOINT STOCK COMPANY AND ITS SUBSIDIARIES We have audited the consolidated financial statements of SMC Trading Investment Joint Stock Company ( the Company ) and its subsidiaries (hereinafter referred to as the Group ) consisting of consolidated Balance Sheet as at December 31, 2017, consolidated Income Statement, consolidated Cash Flow Statement for the fiscal year ended December 31, 2017 and Notes to the consolidated Financial Statements as set out on page 07 to page 52 which were prepared on March 05, RESPONSIBILITY OF THE BOARD OF GENERAL DIRECTORS The Board of General Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Vietnamese Accounting Standards, Accounting System (Corporate) and prevailing regulations applicable to the preparation and presentation of the financial statements and also for the internal control that the Board of General Directors considers necessary for the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. RESPONSIBILITY OF THE AUDITOR AUDITOR S OPINION In our opinion, the 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 December 31, 2017 as well as the results of its operation and its cash flows for the fiscal year ended December 31, The consolidated financial statements are prepared in accordance with the prevailing Vietnamese Accounting Standards, Vietnamese Accounting System and other statutory requirements relevant to the preparation and presentation of the consolidated financial statements. OTHER ISSUES The Group s consolidated financial statements for the fiscal year ended December 31, 2016 have been audited by other audit firm which gives unqualified opinion on the consolidated financial statements as at March 03, HCMC, March 05, 2018 GENERAL DIRECTOR AUDITOR Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with Vietnamese Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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 General Directors as well as evaluating the overall presentation of the consolidated financial statements. PHAM VAN VINH Certificate of Audit Practice Registration No: Issued by the Ministry of Finance LE HUNG DUNG Certificate of Audit Practice Registration No Issued by the Ministry of Finance We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 81

42 AUDITED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET As at December 31, 2017 Unit: VND ASSETS Code Notes Dec. 31, 2017 Jan. 01, 2017 A. CURRENT ASSETS 100 4,026,268,129,011 3,952,018,830,699 I. Cash and cash equivalents 110 V.1 398,426,274,862 94,868,546, Cash ,610,871,687 79,868,546, Cash equivalents ,815,403,175 15,000,000,000 II. Short-term financial investments 120 V.2 83,300,089, ,945,441, Trading securities ,908,200 7,147,698, Provision for devaluation of trading securities 122 (454,624,200) (4,302,257,089) 3. Held-to-maturity investments ,121,805, ,100,000,000 III. Short-term Accounts receivable 130 1,658,861,366,880 1,321,468,035, Trade accounts receivable 131 V.3 1,422,551,500,755 1,089,440,430, Prepayments to suppliers 132 V.4 180,342,797, ,906,016, Intercompany receivables Construction contract-in-progress receivables Receivables from short-term loans Other receivables 136 V.5 58,457,318,810 28,376,781, Provision for doubtful debts 137 V.3 (2,490,249,801) (5,255,192,776) 8. Shortage of assets awaiting resolution ,702,108, ,429,192,832 IV. Inventories 140 V.8 1,671,880,236,536 1,437,003,319, Inventories 141 1,680,388,611,751 1,443,344,841, Provision for decline in value of inventories 149 (8,508,375,215) (6,341,522,188) V. Other current assets ,800,161, ,702,108, Short-term prepayments 151 V.14 1,274,940,902 1,070,327, Deductible VAT ,423,254, ,955,815, Taxes and other receivables from the State Budge 153 V.18b 7,101,965,567 46,675,966, Repurchase and sale of Government's bonds Other current assets B. LONG-TERM ASSETS 200 1,028,449,057, ,700,750,272 I. Long-term receivables 210 3,419,130,880 5,012,813, Long-term trade receivables 211 V.3 87,734,474, ,880,598, Long-term prepayments to suppliers 212 V.4 459,346, ,214, Working capital from sub-units Long-term intercompany receivables ASSETS Code Notes Dec. 31, 2017 Jan. 01, Receivables from long-term loans 215 V.5 1,400,000, Other long-term receivables 216 V.6 2,184,032,967 5,177,715, Provision for doubtful long-term receivables 219 V3,4,6 (88,358,723,580) (101,520,715,312) II. Fixed assets ,911,483, ,473,758, Tangible fixed assets 221 V.9 528,313,784, ,359,940,906 - Cost ,922,163, ,451,802,466 - Accumulated depreciation 223 (334,608,379,069) (255,091,861,560) 2. Finance lease assets 224 V.10 5,920,896,532 27,878,026,146 - Cost ,428,781,620 56,344,184,529 - Accumulated depreciation 226 (11,507,885,088) (28,466,158,383) 3. Intangible fixed assets 227 V ,676,801,907 39,235,791,916 - Cost ,043,909,108 41,438,979,341 - Accumulated amortization 229 (3,367,107,201) (2,203,187,425) III. Investment Properties 230 V.12 9,020,303, Cost 231 9,080,842, Accumulated depreciation 232 (60,538,951) - IV. Non-current assets in progress ,239,202,455 26,443,187, Works in progress Capital construction in progress 242 V.13 46,239,202,455 26,443,187,732 V. Long-term investments 250 V.2 203,299,923,822 99,090,639, Investments in subsidiaries Investments in associates, joint-ventures ,791,423,822 70,393,593, Investments in equity of other entities ,699,960,344 70,221,110, Provision for decline in the value of long-term inv 254 (27,191,460,344) (46,524,064,869) 5. Held-to-maturity investments ,000,000,000 5,000,000,000 VI. Other long-term assets ,559,013,740 91,680,350, Long-term prepaid expenses 261 V.14 77,678,451,216 74,640,810, Deferred income tax assets 262 V.15 14,880,562,524 17,039,539, Equipment, materials, spare parts Other long-term assets Good-will TOTAL ASSETS 270 5,054,717,186,915 4,650,719,580, ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 83

43 AUDITED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (cont) As at December 31, 2017 Unit: VND RESOURCES Code Notes Dec. 31, 2017 Jan. 01, 2017 C. LIABILITIES 300 3,844,847,550,791 3,899,762,720,203 I. Current liabilities 310 3,766,546,123,914 3,810,291,616, Short-term trade payables 311 V.16 1,628,527,837,579 1,007,169,909, Prepayments from customers 312 V.17 63,471,606,880 62,881,335, Taxes and other payables to the State Budget 313 V.18a 11,945,753,182 30,361,603, Payables to employees ,341,404,818 15,188,533, Short-term accrued expenses 315 V.19 4,899,301,099 13,638,585, Short-term intercompany payables Construction contract-in-progress payables Short-term unrealized revenue 318 V.22 51,931,277,690 42,533,288, Other short-term payables 319 V ,837,422,946 15,110,478, Short-term borrowings and financial lease liabiliti 320 V.21 1,847,181,997,541 2,626,800,593, Provision for short-term payables Bonus and welfare fund 322 1,409,522,179 (3,392,711,167) 13. Price stabilization fund Repurchase and sale of Government's bond II. Long-term liabilities ,301,426,877 89,471,103, Long-term trade payables Long-term prepayments from customers Long-term accrued expenses Inter-company payables for operating capital recei Long-term intercompany payables Long-term unrealized revenue 336 V.22 2,934,690,488 3,835,149, Other long-term payables Long-term borrowings and financial lease liabiliti 338 V.21 74,563,283,658 85,635,954, Convertible bond RESOURCES Code Notes Dec. 31, 2017 Jan. 01, 2017 D OWNERS EQUITY 400 1,209,869,636, ,956,860,768 I. Owners' equity 410 V.23 1,209,869,636, ,956,860, Owners' capital ,059,610, ,183,610,000 - Ordinary shares with voting rights 411a 420,059,610, ,183,610,000 - Preferred shares 411b Share premium ,182,567, ,531,767, Bond conversion option Owners' other capital ,705,700,000 5,373,000, Treasury shares 415 (142,489,800) (142,489,800) 6. Difference upon assets revaluation Foreign exchange differences Investment and development fund ,382,834,356 97,827,815, Fund for support of arrangement of enterprises Other funds Undistributed earnings ,833,652, ,498,511,380 - Undistributed earnings accumulated to the end of prior period 421a 40,680,366,845 (184,729,259,122) - Undistributed earnings in this period 421b 249,153,285, ,227,770, Investment reserve for basic construction Interests of non-controlling shareholders ,847,761,634 54,684,646,938 II. Budget sources and other funds Budget sources Fund to form fixed assets TOTAL RESOURCES 440 5,054,717,186,915 4,650,719,580,971 HCMC, March 05, Preferred shares Deferred income tax liabilities ,452, Provision for long-term liabilities Fund for science and technology development NGUYEN THANH HAO Prepared By DO DOAN THANH CONG Chief Accountant VO HOANG VU General Director ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 85

44 AUDITED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT For the fiscal year ended December 31, 2017 Unit: VND CONSOLIDATED CASH FLOW STATEMENT For the fiscal year ended December 31, 2017 (Under indirect method) Unit: VND ITEMS Code Notes Year 2017 Year Sales 01 12,664,842,894,271 9,446,841,233, Less sales deductions 02 10,903,361,149 5,889,078, Net sales 10 VI.1 12,653,939,533,122 9,440,952,154, Cost of sales 11 VI.2 11,952,938,337,099 8,716,645,064, Gross profit (20 = 10-11) ,001,196, ,307,090, Financial income 21 VI.3 59,683,196,168 64,640,430, Financial expenses 22 VI.4 102,722,078, ,384,812,932 In which: loan interest expenses ,910,007,200 89,899,886, Gain or loss in joint-ventures, associates 24 2,397,830,032 4,430,496, Selling expenses 25 VI.5a 233,732,179, ,751,901, General & administration expenses 26 VI.5b 91,987,068, ,856,620, Operating profit (30 = 20 + (21-22) ( ) ,640,896, ,384,683, Other income 31 VI.6 8,142,881,324 11,775,448, Other expenses 32 VI.7 8,776,476,006 2,325,339, Other profit (40 = 31-32) 40 (633,594,682) 9,450,108, Net accounting profit before tax (50 = ) ,007,301, ,834,792, Corporate income tax - current 51 VI.8 54,680,228,127 34,579,128, Corporate income tax - deferred 52 2,962,429,803 (1,216,920,393) 18. Net profit after corporate income tax (60 = ) ,364,643, ,472,584,555 Shareholders of parent company ,152,907, ,306,917,961 Non-controlling shareholders 62 6,211,736,107 6,165,666, Earnings per share 70 VI.9 7,180 12, Diluted earnings per share 71 VI.10 7,180 9,300 NGUYEN THANH HAO Prepared By DO DOAN THANH CONG Chief Accountant HCMC, March 05, 2018 VO HOANG VU General Director ITEMS Code Notes Year 2017 Year 2016 I. CASH FLOWS FROM OPERATING ACTIVITIES 1. Net profit before tax ,007,301, ,834,792, Adjustments for : - Depreciation of fixed assets and investment properties 02 V.9-V12 67,286,796,559 56,458,355,056 - Provisions 03 (36,940,319,094) 18,991,269,877 - Gain/losses from foreign exchange differences upon revaluation of monetary assets denominated 04 (1,051,391,078) 7,861,984,117 in foreign currencies - Gains/losses from investing activities 05 (44,019,669,784) (61,595,230,495) 3. II. - Interest expense 06 VI.4 106,910,007,200 89,899,886,959 - Other adjustments 07 Profit from operating activities before changes in working capital ,192,725, ,451,057,856 - Increase (-)/ decrease (+) in receivables 09 (145,275,120,055) (547,660,665,864) - Increase (-)/ decrease (+) in inventories 10 (237,043,769,785) (945,786,452,349) - Increase (+)/ decrease (-) in payables (Other than payables, income tax) ,303,022, ,239,555,989 - Increase (-)/ decrease (+)in prepaid expenses 12 (3,242,254,055) 492,394,466 - Increase (-)/ decrease (+) in trading securities 13 6,514,790, ,731,856 - Interest paid 14 (55,761,178,609) (88,348,002,300) - Corporate income tax paid 15 (77,185,599,248) (10,956,628,588) - Other receipts from operating activities Other payments on operating activities 17 (991,469,000) (1,391,358,875) Net cash inflows/(outflows) from operating activities ,511,147,698 (659,546,367,810) CASH FLOWS FROM INVESTING ACTIVITIES 1. Purchases of fixed assets and other long-term assets 21 (300,620,504,192) (67,060,753,508) 2. Proceeds from disposals of fixed assets and other long-term assets 22 40,909, ,978, Loans granted, purchases of debt instruments of other entities 23 (546,948,573,138) (924,198,916,667) 4. Collection of loans, proceeds from sales of debt instruments of other entities ,730,250,773 1,225,201,083, Investments in other entities 25 (48,600,000,000) (269,571,116,439) 6. Proceeds from divestment in other entities 26 7,121,150, Dividends and interest received 27 44,964,750,766 61,407,222,193 Net cash inflows/(outflows) from investing activities ,687,983,825 26,647,496, ANNUAL REPORT SMC INVESTMENT TRADING JOINT STOCK COMPANY I 87