VietNam Holding Limited
Annual Report 2022

Plain-text annual report

Annual Report - 2022 LSE-listed investment company focused solely on Vietnam: the fastest-growing economy in South East Asia. Invests in high-growth companies, focusing on domestic consumption, industrialisation and urbanisation. Our Purpose Capturing the growth of Vietnam through an actively managed, high-conviction portfolio of companies. Our Vision Owning a portfolio of companies with the potential to double their underlying earnings over the next four to five years. Active stock selection balanced between high-growth small-and-medium companies and best-in-class blue chips. Seeking companies that can benefit from enhanced valuations by following a trajectory of better Environmental, Social, Governance practices. Contents Strategic Report Highlights Company Overview Summary Information Chairman’s Statement Investment Manager’s Report Top Five Portfolio Companies Sustainability Report Principal Risks and Risk Management Governance Director Profiles and Disclosure of Directorships Corporate Governance Report Audit and Risk Committee Report Directors’ Remuneration Policy and Report Directors’ Report Statement of Directors’ Responsibilities Financial Statements Independent Auditor’s Report Statement of Financial Position Statement of Comprehensive Income Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Alternative Performance Measures Corporate Information 1 2 3 5 7 16 21 28 31 32 37 39 41 45 47 52 53 54 55 56 70 71 Annual Report 2022 Highlights Financial Highlights Operational Highlights Strategic Report • • • • • • • • Successful tender offer in September 2021 returned USD 56.7m to participating shareholders Including tender offer, Net Asset Value (“NAV”) decreased during the period by USD 67.3m to USD 128.8m NAV per share (USD) fell by 4.2% and NAV per share (GBP) rose by 9.0% Share price rose 16.7% during the year and the discount to NAV narrowed from 20.4% to 14.7% Fund is invested in 24 positions Top-ten positions account for 67.5% of the NAV Outperformed VNAS index on 1, 3, 5 and 10 years basis Estimated average carbon footprint of the portfolio is 67.5% lower than the VNAS index Total Net Assets (USD) 128.8m 196.1m 128.8m Net Asset Value per share (USD) 4.408 Net Asset Value per share (GBP) 363.0p Share Price 309.5p Discount to Net Asset Value 14.7% 363.0p 333.0p 4.600 4.408 309.5p 265.0p 20.4% 14.7% ‘22 ‘21 ‘22 ‘21 ‘22 ‘21 ‘22 ‘21 ‘22 ‘21 As at 29 September 2022 (the latest available date before approval of the accounts), the discount to NAV had moved to 12.3%. The estimated NAV per share and mid-market share price at 29 September 2022 was 354.8p and 311.0p respectively. Ongoing Charges Ongoing charges for the year ended 30 June 2022 have been calculated in accordance with the Association of Investment Companies (the “AIC”) recommended methodology. The ongoing charges for the year ended 30 June 2022 were 2.74%. Refer to page 70 for the definitions of Alternative Performance Measures (“APMs”) together with how they have been calculated. Year end 30 June 2022 Average NAV Operating expenses* Ongoing charges *Operating expenses per the financial statements less non-recurring expenses of USD 9,788. a b b/a USD 155,041,007 4,242,306 2.74% 1 Strategic ReportAnnual Report 2022Company Overview Focused Investment Approach Investment Manager Portfolio of 24 positions with 67.5% in top-ten positions. The portfolio has a Price-to-earnings valuation of circa 10x and an Earnings growth forecast of circa 20% for 2023. The Company Dynam Capital Ltd What Dynam Does: Vietnam specialist, regulated by the • Top-down & bottom-up research Guernsey Financial Services Commission. driven fundamental analysis. Partner-owned business whose sole • Active engagement with portfolio focus is asset management. Appointed companies on ESG. Investment Manager on 16 July 2018. • Long-term investment horizon. Vietnam Holding What Vietnam Holding Does: Premium Listed London Investment • Capturing the growth of Vietnam Company established in 2006. Seeks to through long term investment in an achieve long-term capital appreciation actively managed, high-conviction by investing in a diversified portfolio portfolio of companies. of companies in Vietnam that have • Protect shareholder interests by aspiring high growth potential at an attractive to the highest standards of corporate valuation. governance at both fund & portfolio level. What Makes Us Different Right Size for the Big enough to be an active and engaged shareholder in portfolio companies, nimble Vietnam Equity Market enough to find and fund less- known emerging champions. ESG in the DNA Since its early days the Company has been an active adherent to best practice in Environmental, Social and Governance issues, believing that better-managed companies on these dimensions will be worth more in the longer-term. The Company has been a signatory of the United Nations Principles for Responsible Investing (“UNPRI”) for over a decade and received five-star scores in the recent UNPRI report. Nimble Access Across Spectrum The Company is able to invest in best-in-class names across the spectrum of firm size with the flexibility to include pre-IPO, small-mid caps and large caps in the portfolio. Actively Managed High conviction, off-index positions managed by the Investment Manager’s active Portfolio ownership capabilities. 2 Strategic ReportAnnual Report 2022Summary Information The Company other appointees to join the board of an Investee Company VietNam Holding Limited (the “Company” or “VNH”) is a and/or may provide certain forms of assistance to such closed-end investment company that was incorporated company, subject to prior approval by the VNH Board. in the Cayman Islands on 20 April 2006 as an exempted company with limited liability under registration number The Company integrates environmental, social and 166182. On 25 February 2019, the Company, via a process corporate governance (“ESG”) factors into its investment of cross-border continuance, transferred its legal domicile analysis and decision-making process. Through its from the Cayman Islands to Guernsey and was registered Investment Manager, the Company actively incorporates as a closed-ended company limited by shares incorporated ESG considerations into its ownership policies and in Guernsey with registered number 66090. The Shares practices and engages investee companies in pursuit of were admitted to trading on AIM in June 2006 and changed appropriate disclosure and the improvement of material to a Premium Listing on the Official List of the UK Listing issues. Authority and admitted to trading on the Main Market of the London Stock Exchange on 8 March 2019. The Company The Company may invest: also listed on the Official List of The International Stock Exchange on 8 March 2019. The Company has an unlimited life with a continuation vote in 2023. Investment Objective The Company’s investment objective is to achieve long- term capital appreciation by investing in a diversified portfolio of companies that have high growth potential at an attractive valuation. Investment Policy • • • up to 25% of its Net Asset Value (“NAV”) (at the time of investment) in companies with shares traded outside of Vietnam if a majority of their assets and/or operations are based in Vietnam; up to 20% of its NAV (at the time of investment) in direct private equity investments; and up to 20% of its NAV (at the time of investment) in other listed investment funds and holding companies which have the majority of their assets in Vietnam. The Company attempts to achieve its investment objective Borrowing Policy by investing in the securities of publicly traded companies The Company is permitted to borrow money and to grant in Vietnam, and in the securities of foreign companies if security over its assets provided that such borrowings a majority of their assets and/or operations are based in do not exceed 25% of the latest available NAV of the Vietnam. The Company may invest in equity securities or Company at the time of the borrowing unless the securities that have equity features, such as bonds that Shareholders in general meeting otherwise determine by are convertible into equity. ordinary resolution. The Company may invest in listed or unlisted securities, Investment Restrictions and Diversification either on the Vietnamese stock exchanges, through The Company will adhere to the general principle of risk purchases on the OTC Market, or through privately diversification in respect of its investments and will observe negotiated deals. the following investment restrictions: The Company may invest its available cash in the Vietnamese domestic bond market as well as in international bonds issued by Vietnamese entities. The Company may utilise derivatives contracts for hedging purposes and for efficient portfolio management but will not utilise derivatives for investment purposes. The Company does not intend to take control of any company or entity in which it has directly or indirectly invested (the “investee company”) or to take an active • • • • the Company will not invest more than 10% of its NAV (at the time of investment) in the shares of a single Investee Company; the Company will not invest more than 30% of its NAV (at the time of investment) in any one sector; the Company will not invest directly in real estate or real estate development projects, but may invest in companies which have a large real estate component, if their shares are listed or are traded on the OTC Market; and the Company will not invest in any closed-ended management role in any such company. However Dynam investment fund unless the price of such investment Capital, Ltd. (“Dynam Capital”), (the “Investment fund is at a discount of at least 10% to such investment Manager”) may appoint one of its directors, employees or fund’s NAV (at the time of investment). 3 Strategic ReportAnnual Report 2022Furthermore, based on the guidelines established by the United Nations Principles for Responsible Investment (“UNPRI”), of which the Company is a signatory: • • • the Company will not invest in companies known to be significantly involved in the manufacturing or trading of distilled alcoholic beverages, tobacco, armaments or in casino operations or other gambling businesses; the Company will not invest in companies known to be subject to material violations of Vietnamese laws on labour and employment, including child labour regulations or racial or gender discriminations; and the Company will not invest in companies that do not commit to reducing in a measurable way pollution and environmental problems caused by their business activities. Any material change to the investment policy will only be made with the approval of Shareholders by ordinary resolution. Shareholder Information Sanne Group (Guernsey) Limited (the “Administrator”) is responsible for calculating the NAV per share and delegates this function under a legal contractual arrangement to Standard Chartered Bank (Singapore) Limited (the “Sub- Administrator”), previously Standard Chartered Bank, Singapore Branch until its transference under the Banking Act on 13 May 2019. The estimated NAV per ordinary share is calculated as at the close of business each business day by the Investment Manager and published at close of business in Vietnam the same day. The monthly NAV is calculated by the Sub-Administrator on the last business day of every month and announced by a Regulatory News Service within 10 business days. 4 Strategic ReportAnnual Report 2022Chairman’s Statement Hiroshi Funaki Dear Shareholder, Although Russia’s invasion of Ukraine on 24 February has disrupted the world significantly and added inflationary fuel to the fire in Europe and North America, the direct impact on Vietnam appears to be much less evident. To start, Vietnam’s direct trade with Russia is less than 1% of total trade. That said, there are deep historical linkages with many Vietnamese entrepreneurs having ‘cut their teeth’ on business in Russia and Ukraine. There are also military ties, and the former USSR was a key supporter to Vietnam in the 1980s. Inflation has been less of a direct issue for Vietnam especially since the country is only a modest importer of oil and gas and has a more diversified energy mix than many other Chairman Asian countries, for example, with hydropower, wind, and solar energy supplying close to 50% of the country’s needs. The macro-economy of Vietnam is also robust compared to many other Emerging and Frontier markets and its GDP I am pleased to present the Annual Report for VietNam growth levels reported in June surprised on the upside as Holding Limited in yet another extraordinary twelve- many other economies around the world shrank. Several month period ending 30 June 2022. banks have recently increased their full year GDP growth forecasts for Vietnam at close to 7%. With inflation forecast The Company’s Total Assets were USD 129,177,449 at 30 to reach 3.5% to 4.0% by year-end, there is real growth. June 2022, a decrease of 35.6% from USD 200,418,206 at Retail consumers are buying, and retail investors are waiting 30 June 2021. This is partly due to the successful tender for better global news to return to the market. So, after offer for 30% of the Company’s shares in September 2021. almost two years of net-selling of public equities by foreign Total Comprehensive loss was USD 7,719,310 compared with portfolio investors, there are signs signalling that the tide income of USD 100,153,888 in the corresponding period in may be turning. The Investment Manager’s Report includes 2021. Although the Company’s Net Asset Value (“NAV”) more details on the outlook for both the market and the has declined in absolute numbers to USD 129m, the focus, portfolio, explaining further how Vietnam certainly appears active management, and nimble performance of the to be a market that can still deliver high earnings growth at Investment Manager have led to a significant relative reasonable valuations. outperformance of 12.2% against the market as a whole. The Company also has outperformed most of its peers. Discount In the Interim Report issued six months ago we wrote about Vietnam’s handling of the vaccination rollout in the first the narrowing discount between the Fund’s share price half of the financial year – July to December 2021 – was and prevailing NAV. This time last year the discount hit nothing short of remarkable. It went from a low-level 25% and has narrowed considerably since with the tender number of vaccinations due to the lack of supply in April to a smooth distribution by December when some cities offer last September and the ongoing efforts of the Board in managing the discount through regular share buybacks, were almost 100% double vaccinated and by early 2022 but also with the Investment Manager in delivering strong more than 50% of the population were triple vaccinated. relative performance and an active investor relations This was a direct effect of the ‘living with COVID-19’ program. In February 2022 it touched a low of 4.43%, and approach taken by the government, in contrast with the although that has widened to 14.7% at 30 June 2022, the ‘zero-COVID-19’ policies of China, which meant that strict discount has been the narrowest of three London listed quarantine restrictions could be lifted. investment trusts focussed on Vietnam for much of the last six months. At 29 September 2022, the discount was 12.3%. So, as two years of COVID-19 restrictions finally faded, Vietnam opened up its borders to international travellers Marketing in April this year. Later in June the Board met in person in With the help of the Investment Manager, Dynam Capital Vietnam to meet with the research team of the Investment – and despite travel restrictions imposed for much of the Manager, as well as visit a number of portfolio companies first half of the year – the Board has further developed the and other investors and market participants. It was good Company’s marketing activity throughout the year to help to be back in the exciting market of Vietnam and see first- narrow the discount, improve liquidity in the Company’s hand the early signs of its strong post-COVID-19 recovery. shares, and widen our Shareholder base. 5 Strategic ReportAnnual Report 2022The Investment Manager has been actively promoting the Performance monitoring remains a key focus of the Board Company and along with our broker and sales partners and we engage closely with our Investment Manager in has organised roadshows, topical seminars, podcasts, and this respect through monthly conference calls attended several webinars. It also presented at the Mello Event in by members of the Board in addition to quarterly May 2022 (returning after a two-year hiatus) where it was presentations. A more detailed account of the Company’s a delight to meet many investors in the Company face-to- annual performance is also provided in the Investment face. Manager’s Report. Our analysis shows that the marketing and communications Responsible Investing and Sustainability Reporting efforts continue to bear fruit. We are delighted to see a The Investment Manager and the Board have been greater number of wealth management platforms on the committed to responsible investing and a joined-up share register having also seen the overall mix of investors approach to environmental, social and governance broaden considerably over recent years. The Company (“ESG”) years before the mainstream global investing has also been proactively promoted through a wide range community took up the challenge. The Company has of media outlets, including video, audio, and online print been a signatory to the United Nations’ Principles on media, and has been featured several times in publications, Responsible Investing (“UNPRI”) since 2009. Although the such as Investors Chronicle. The Investment Manager has UNPRI itself has been restructuring its reporting platform, maintained a strong social media presence for the Company the Company received five-star scores for its 2021 UNPRI as well. We welcome all Shareholders who may be reading report and we continue to contribute to responsible this Annual Report for the first time and thank all existing investing in Vietnam in a meaningful way. We have been holders for their ongoing support. Share Buybacks measuring the carbon footprint of both the Company and the portfolio for several years, and this year’s findings are in the Sustainability Report. The highlights are that the The Board has a mandate to authorise the purchase up Company has a lower estimated carbon footprint than the to 14.99% of the Company’s shares each year in the open index while continuing to out-perform the index. During market at prices below NAV per share, and this was renewed the year the Investment Manager hosted a webinar for 50 at the Annual General Meeting (“AGM”) on 1 November companies in Vietnam about the steps needed to increase 2021. In the year from 1 July 2021 to 30 June 2022, the the accuracy of carbon-footprint reporting, and we have Company bought back 661,084 shares (representing 2.3% of been encouraging our portfolio companies to raise the bar the shares outstanding at 1 July 2021) at a weighted average in their own ESG initiatives. discount of 15.9%. This resulted in a 0.25% accretion to NAV per share. From September 2017, when the current Board On behalf of the Board, I would like to extend a further was appointed, through until 30 June 2022, the Company thank-you to Shareholders for your ongoing support has bought back 13.32 m shares at a weighted average throughout the past year. Although the global mood is discount of 15.4%. This represents a 2.8% accretion to NAV gloomy, we believe Vietnam remains a bright spot – an per share. Tender Offers attractive investment destination with good prospects for further growth over the years to come. From time to time the Board uses tender offers to provide a liquidity opportunity for investors in the Company. Last September Shareholders approved the Board’s Hiroshi Funaki recommended tender offer for 30% of the Company’s Chairman shares at a 2% discount to the prevailing NAV per share as VietNam Holding Limited 30 September 2022 at 31 August 2021. Performance In the twelve months to 30 June 2022 the Company’s NAV per share declined by 4.36%, while the market as a whole, as measured by the Vietnam All Share Index, declined by 16.5%. In the first six months of the financial year the NAV per share rose by 14.1%, against an index rise of 10.6%, and in the second six months the Company’s NAV declined by 16% versus the index, which fell by more than 24%. At 30 June the Company has outperformed the VNAS on 1, 3, 5 and 10-year measures. 6 Strategic ReportAnnual Report 2022Investment Manager’s Report Vu Quang Thinh CIO and Managing Director Craig Martin Chairman and Managing Director This year marks the 16th anniversary of the Company and its listing in London1 - the Company is just four years younger than Vietnam’s stock market. Strong Outperformance which is 8.5% of NAV and the largest port operator in Vietnam rose by 23.9% as it experienced strong growth in volumes and profit from its new deep-water container port. Phu Nhuan Jewelry, PNJ, is 8.1% of NAV and the leading branded jewellery retailer and gold wholesaler The interim report as of 31 December 2021 characterised in Vietnam. It rose 30.5% and delivered 56.5% revenue the last six months of the year as a period of resilience growth and 48.0% profit growth in the second half of and divergence. During the first six months of the financial the financial year, as people resumed their retail lives year to 31 December 2021, the NAV per share rose by 14.1%, with renewed vigour after the tough lockdown of 2021. ahead of the Vietnam All Share Index (“VNAS”) gain of Although we pivoted to an underweight position in banks 10.6%. Throughout the second half of the financial year, in this financial year, taking profit after last year’s stellar the equity markets themselves were divergent from performance, there are still four banks in our top-ten, and the resilient macro-economic position and we saw the the largest, Sacombank, STB, 5.6% of NAV, was down Vietnam market fell by 24.5% in line with the sell-off in 29.7% but continues to deliver strong core profit growth global markets while the Company’s NAV per share fell by on a very undemanding valuation of 1.1x price to book. See 16.0%. As at 30 June 2022, the NAV per share declined by Top Five Portfolio Companies on pages 16 to 20 for more 4.2% for the full financial year, in contrast with the 99% information. Overall, 14 of our 24 positions increased in increase in NAV per share we reported for the previous value and 10 decreased. financial year. Nevertheless, the Company continues to outperform its peers, and has also outperformed the Post-COVID-19 Recovery VNAS on a 1, 3, 5 and 10-year basis. During the financial During the first part of the financial year Vietnam year the Company’s share price rose 16.8%, significantly experienced strict lockdowns and quarantine measures ahead of its much larger peers: Vietnam Opportunity in the battle against the COVID-19 Delta variant. From Fund, VOF, which rose by 1.1% and Vietnam Enterprise and Investment Limited, VEIL, which fell by 3.4%. This is due to a near-standing start last year, Vietnam succeeded in rolling out a rapid vaccination program that saw close a combination of higher NAV per share performance and to 100% of some city dwellers and 90% of the entire narrower discount between the share price and the NAV. adult population receive two vaccinations. This enabled High Conviction Portfolio the government to relax COVID-19 restrictions in April 2022 and then remove them entirely in May, which led to The Company maintains a high-conviction portfolio a resurgence in the economy. In the last quarter of the concentrated in 24 positions, with its top-ten positions Company’s financial year, April to June, Vietnam posted a making up 67.5% of NAV. The largest position, FPT staggering 7.7% YoY GDP growth, exceeding expectations Corporation, FPT, which is 11.5% of NAV, is the country’s and ranking significantly higher than other nations around leading IT and telecoms services company. It rose by 19.9% as it continues to see significant traction in its domestic the world including in the G20 area which rose by only 0.7%2. Vietnam’s continued ‘broad-based recovery’ post- and overseas business. Mobile World, MWG, which is 9.2% of NAV, is a leading omni-channel retailer. It rose by 42.7% 1 The Company was initially admitted to AIM in July 2006 and then moved as it strengthened its position as one of the country’s to the premium segment of the main board of the London Stock Exchange largest e-commerce players and started to reposition in March 2019. and streamline its grocery business. Gemadept (“GMD”), 2 Source: OECD Report 7 Strategic ReportAnnual Report 2022COVID-19 has led some international financial institutions research firm to conduct a first of its kind survey on the to upgrade their growth forecasts for it for the rest of 2022 sentiment and behaviour of the growing retail investment as different sectors in the country regain pre-pandemic base in Vietnam. This emerged as the driving force of momentum. Both HSBC and Singapore-based United the equity market in Vietnam over the pandemic years, Overseas Bank, for example, recently raised their Vietnam as digitalisation of the onboarding process for domestic growth forecasts for 2022 to 6.9% from 6.6% and 7.0% investors, ‘e-KYC’, enabled close to 1.2 million Vietnamese from 6.5%, respectively, according to the banks’ market reports3. to open trading accounts during the calendar year. In the first half of 2022 a further 1.8 million domestic accounts have been opened. In May alone 476,000 accounts were Vietnam’s growth this year is noteworthy given record opened, the highest number in the stock market’s 20-year rising inflation and other unprecedented disruptions history. affecting trade and investment worldwide. Despite today’s intense global risk landscape, the country’s manufacturing In May 2022, we launched the fourth and final phase of the sector managed to expand for the ninth consecutive survey. 70% of the survey’s fourth phase respondents in month in June. In addition, new orders rose further and May 2022 were F1+ investors – investors who started trading production capacity continued to improve. Disbursed FDI a year before the survey’s launch. The remaining 30% were also hit record highs during the first half of 2022 reaching F0 investors, those who started trading within the past 12 USD 2.9bn in June, the highest monthly amount this year. months. Most respondents throughout the four phases were Looking ahead, as Vietnam’s handling of the pandemic white-collar office workers based in Hanoi or Ho Chi Minh pays off, we expect the full reopening of economic City with an average individual monthly income of roughly activities to continue to boost investment initiatives and USD 1,000. Interestingly, in the fourth part of the survey we feasibility assessments for new projects in the second half found that the average amount invested in stocks dropped of 2022. Rise of the Retail Investor by USD 2,000 lower than the USD 9,900 average recorded over the previous 10 months, and about 30% lower than the start of 2022. This corresponds to the 30% drop in average As we reported in the Interim Report, as part of our rigorous daily trading volumes seen across the Ho Chi Minh City market analysis, in 2021 we commissioned an independent (“HOSE”) stock exchange over the last six months. Investment Portfolio | Average Portfolio Value Decreasing The portfolio value of investors shows a declining trend after 4 rounds of survey, with the proportion of ‘Less than 50M’ portfolio increasing, while shares of portfolio over 100M, especially over 500M value drop quickly in latter waves. What’s the approximate value of your actual stock investment? Less than 50m 50-100m 100-500m More than 500m 12% 28% 24% 35% 11% 28% 21% 40% 15% 21% 19% 46% 5% 28% 31% 36% 28% 35% 17% 20% Total $US 9,900 Aug 2021 $US 18,000 Nov 2021 $US 9,100 Jan 2022 $US 10,400 May 2022 $US 7,200 3Source: https://en.baochinhphu.vn/hsbc-upgrades-viet-nams-gdp- forecast-to-69-in-2022-111220706162459626.htm https://www.uobgroup.com/web-resources/uobgroup/pdf/research/ QGO-3Q2022.pdf 8 Strategic ReportAnnual Report 2022Investment Manager’s Report (continued) Rise of the Retail Investor (continued) Market Trends During the first three surveys, 70-80% of investors had recorded gains; in the last survey most were nursing losses. In general, how much of your portfolio changed since Jan 2021 / 2022? 46% 20% 35% 79% 79% 15% 7% 17% 4% 70% 24% 6% Loss Stable Gain 10% 22% 68% Total Aug 2021 Nov 2021 Jan 2022 May 2022 The global and local decline in equity prices over the last What is clear from these surveys is that regardless of the six months has muted investor confidence in several market fluctuations in Vietnam’s stock market, retail sectors, including banking, insurance, building materials, investors will remain a key source of market movement. logistics, transportation, petroleum and oil, real estate, and securities. The retail investors’ view of securities is Liquidity particularly gloomy with just 7% of respondents considering Eighteen months ago, the HOSE infrastructure struggled to investment in securities, compared to a much higher 47% cope with orders beyond USD 700m a day. Quick fixes to in August 2021. This trend can be linked to a string of recent the system and some interim software upgrades expanded high-profile scandals involving real estate corporations and the capacity, and due to the rise of the retail investor (see stock market manipulation, along with tightened capital “Rise of the Retail investor”) above daily volumes surged controls on the real estate sector. to more than USD 1.3bn, five times the levels of 2019. The HOSE infrastructure is now in the process of being totally Many of the new investors are possibly waiting on the side- revamped, with faster settlement and greater capacity lines, and perhaps waiting for clearer direction signals from coming ever closer. the global economy with 42% of recent respondents sharing that they are waiting to invest further compared to just 19% in the first survey back in August 2021. Increased market liquidity in 2021 facilitated swift funding for last year’s tender offer for 30% of the Company’s shares. Nevertheless, despite these fluctuations, investors remain months of the financial year, the portfolio liquidity remains upbeat about their returns after one year of investing. robust and 90% of the portfolio could be liquidated in less Despite a 30% reduction in daily liquidity over the last few Across the four surveys, more than 40% of respondents than 30 days. expect returns of between 11% - 20% and close to 40% expect returns of 20% -50%. When it comes to deciding The portfolio’s size and nimbleness as per our style of whether to invest, estimation from market value and market investment management means that we can navigate index trends were the two most important sources across across the spectrum of company sizes, and we believe this the surveys, with analysis from securities companies and has contributed to the outperformance of the Company company financial statements also frequently used. One versus the index and peers. We have been able to take profit constant across the four surveys is the high frequency with in sectors that surged last year and move swiftly as market which investors check the stock market index. Over 80% of forces and economic mood changes. respondents said they check the market at least daily and many check it several times per day. The Fund is 70% invested in Large Cap stocks, above USD 9 Strategic ReportAnnual Report 20221bn in market capitalisation, and these have outperformed first six months of 2022. Vietnam has remained a very the small and mid-cap stocks for much of the year. Last year open economy, and its overall trade reached more than we noted an interesting inversion in the relative valuations USD 668bn in 2021, representing more than 200% of GDP – of smaller stocks, driven in part by increased attention from levels seen by only a few countries globally. The country has the growing domestic retail investor base. Three years ago, maintained its strong export growth during the first half of the smaller cap stocks, as measured by the VN70 index, 2022, increasing by 17% year-on-year, and although import traded at a P/E ratio level around 30% lower than the larger growth was 16% year-on-year, the country managed to cap stocks, as measured by the VN30 index. During 2021 generate a Trade Surplus of USD 710m. Retail sales also have the ratio inverted with the VN70 stocks trading at a 30% recovered strongly from the lows of the pandemic period, premium to the VN30 index in March 2021. In the year ended and in June 2022 were 27% higher than the previous year. 30 June 2022, the ratio has inverted once more, with the The country now has foreign reserves of more than USD mid and small-caps sold off and now trading at a discount 100bn. This is down 10% in the first half of 2022 as the State to the larger-caps. Bank of Vietnam has intervened in the foreign-exchange market to provide some stability. It is worth noting that As of 30 June, the portfolio has about 6% in cash, which the Vietnam Dong has been relatively stable against the is slightly higher than the usual 2%-3%, but provides USD over the last five years, particularly when contrasted some flexibility in taking advantage of what we see as against some other regional currencies (see “Figure 1.1” undemanding valuations for companies that we know well. below). However, in the first half of 2022 as the USD Although the Fund’s investment policy does allow up to 20% strengthened, the Vietnam Dong weakened by 2.6%. This of the assets to be invested in unlisted or pre-IPO ‘Private should be looked at in the light of much sharper declines Equity’ type deals, the Fund is currently only invested in listed in several global currencies including the ‘safe-haven’ Yen, securities and all are valued as ‘Level 1’ refer to the Fair Value which has fallen by 20%, and the Euro and Sterling, which Information in note 12 of the financial statements pages are both down by about 10%. Often, a weakening currency 67 to 68. We see this as a reflection of the opportunity set can have inflationary pressures, however, Vietnam runs now and believe liquidity has a premium that is not always a USD 40bn trade surplus with the US (a strengthening reflected in the pricing of private deals. Lastly, we are aware currency), a USD 28bn trade deficit with China (whose that the Fund has a formal continuation vote in 2023, and currency has weakened by 3.3% against the USD) and a USD we wouldn’t want to set false expectations in the minds of 18bn trade deficit with South Korea (whose currency has potential investee companies, nor do Board or shareholders weakened by 7% against the USD), so in this regard there in the Company wish the disservice by tying their hands to is some natural hedging. On a broader front, inflation is a significant illiquid position should the continuation vote increasing in Vietnam and Core CPI rose to 2% year-on-year not pass. Resilient Macro in June 2022 (see “Figure 1.2” below). That said, inflation is not at the worrying levels seen in the US, UK and Europe, in part due to the different driving forces in the economy Resilience in the face of adverse conditions is an ongoing (see “Figure 1.3” below). An important differentiating factor theme in Vietnam. Not only did Vietnam maintain an between Vietnam and some other emerging economies is enviable level of economic GDP growth of approximately 3% in the energy mix. Vietnam’s domestic renewable sources per annum through the pandemic years, but also economic of energy – hydropower, solar and wind – account for about growth has resumed to pre-pandemic levels quickly. 43% of its energy generation. It also has some domestic Vietnam has seen resilient Foreign Direct Investment (“FDI”) disbursement, USD 19.7bn in 2021 and USD 10.6bn for the sources of Oil, Gas and Coal, however it is a net importer of each of these sources of hydrocarbon. 20% 15% 10% 5% 0% -5% -10% Thailand MSCI EM Vietnam China Philippines Jun 17 Mar 18 Dec 18 Aug 19 May 20 Jan 21 Oct 21 Jun 22 Figure 1.1: The Vietnam Dong has been relatively stable against the US Dollar over the past 5 years 10 Strategic ReportAnnual Report 2022Investment Manager’s Report (continued) Resilient Macro (continued) 4% 3% 2% 1% 0% CPI (YoY) Core CPI (YoY) 3.37% 1.98% Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Dec 21 Jan 22 Feb 22 Mar 22 Apr 22 May 22 Jun22 Figure 1.2: Inflation is picking up in Vietnam, but is still at manageable levels US Vietnam 30.3% 19.5% 7.3% 5.1% 2.3% 35.4% 35.2% 9.7% 25% 8.6% 2.7% 18.8% Transport & Energy Food at home Food away from home Beverages & tobacco Housing, energy services & construction materials Others Figure 1.3: Vietnam is still an emerging economy, with different components to its consumer price index Responsible Investing institutions about how to improve corporate governance The Company is firmly focused on sustainability and has standards in Vietnam. We actively encourage our portfolio placed environmental, social and governance (“ESG”) companies to give more attention to investor relations and principles at the heart of its investment criteria for over a transparent reporting and have also been advising some decade, having become an early signatory to the United of them specifically on how to get the balance right in Nations Principles for Responsible Investing (“PRI”) in 2009. The Company received top grades in the report in 2020, the aligning interests between staff and shareholders through the structure and implementation of employee share option most recent year for which scores have been published by plans. The ‘E’ aspect of ESG has rightly so taken centre PRI. stage in many investors’ minds as well as those of many Vietnamese. On the climate front, the Investment Manager Each part of ESG is equally important. For Vietnam, the ‘S’ and the Company have both affirmed the Paris Agreement has been at work in its society for many decades and the and our commitment to the Task Force for Climate-related pandemic has further focused the efforts of several of our Financial Disclosure. Dynam Capital has also joined the Asia portfolio companies on harmonising staff, shareholders Investor Group on Climate Change (“AIGCC”) and intends to and society at large. ‘G’ has been a key pillar for VNH’s contribute more to the advocacy of climate risk reporting. investment approach and we have been at the forefront More details of this can be found in the Sustainability Report. of advocacy and training for corporate governance at our investee companies since we were formed 16 years ago. Positioning and Core Themes Our CEO, Vu Quang Thinh, is a co-founder and member of During the year, we sold 11 positions and added new the board of the Vietnam Institute of Directors (“VIOD”), 12 positions. We exited a few smaller companies and working as a lecturer for VIOD courses and at other selectively added to our positions in larger companies, 11 Strategic ReportAnnual Report 2022taking profit from a portion of our portfolio of banks, have written in previous reports about the multiplier effect which had risen by close to 100% in the previous year, and of investments in domestic infrastructure. In May 2022, taking profit from Hoa Phat Group, a leading steel maker a new bridge across Ho Chi Minh City’s Saigon River was which had also doubled in value the previous year. opened, and a short drive or walk across it connects down- Our main investment approach remains focused demarcated to be a new ‘metropolis’. Developments like on: industrialisation (best-in-class manufacturers, this can lead to a dramatic growth in the build-out of international logistics); urbanisation (purposeful real commercial and residential real-estate. The Company has estate, transportation, clean energy and clean water); 14.9% exposure to the dynamic real-estate market through and domestic consumption and its enablers (sustainable its real-estate portfolio that includes 5.4% of NAV in Khang town District 1 to the Thu Thiem peninsular, a region already retail, domestic logistics, products and finance). Dien House. These themes are inter-linked, as industrialisation and urbanisation foster further robust growth in GDP and Domestic Consumerism domestic consumption, and are all underpinned by the banking sector. Industrialisation Vietnam’s ‘middle income’ population is projected to expand at a rate of 18%2 annually, adding a further 35 million people to this group of consumers by 2030. The nature of the consumer continues to evolve. In the Vietnam’s pace of industrialisation continues to 1990s, for a brand to be really successful it had to be progress as it has done dramatically over the past three foreign and manufactured overseas. By the 2000s, locally decades. Last year, Vietnam overtook Bangladesh to manufactured global brands continue to dominate, become the second largest garment producer in the however, several niche local brands developed locally and world. It is also very well-known as a major producer of owned by Vietnamese businesses in sectors ranging from footwear, furniture, agriculture, and aquaculture, and shampoos, soft drinks, sauces and condiments to baked less well-known but an increasingly key supplier of hi- goods and coffee started to garner strong local appeal. In tech hardware and software to customers around the a recent survey, it appears that in the 2020s Vietnamese world. Recently on a visit to the US, the Vietnamese consumers now prefer and trust home-grown brands over Prime Minister met with the CEOs of several large foreign brands. global technology companies, including Apple and Intel, who re-affirmed their plans to produce more The portfolio has approximately 17.8% exposure to the goods in Vietnam. Although Apple does not have its domestic retail sector, including PNJ, 8.1% of NAV, and own facilities in the country, it is umbilically linked to 35 Mobile World Group (“MWG”), 9.2% of NAV. The physical key manufacturers who are present. Following the PM’s retail components of both these companies will be visit, Apple announced it was moving more production, impacted by prolonged lockdowns, however, the digital including the assembly of iPads, to Vietnam. online portions of these businesses are performing Although in the past we have invested in manufacturers, emerged from the pandemic with greater market share, including garment companies and seafood producers, and in the case of PNJ are seeing same store growth and we have chosen to obtain most of the exposure to these new store growth at levels higher than pre-pandemic. extremely well. These well-managed businesses have themes during the past year through the business-to- business ‘linkages’, mainly through industrial parks and logistic companies. These typically have a higher Banks VNH’s allocation to banks was reduced from 31% at 30 June quality of earnings and higher return on equity than 2021 to 22% at 30 June 2022. Our underweight position, the individual exporters. A core holding in this area is the index is at 33%, was due to profit-taking in the sector the leading shipping company Gemadept (“GMD”), in the second half of 2021 following the significant gains which at 8.5% NAV is the third largest position. booked in the previous financial year. Vietnamese Banks Urbanisation are still benefitting from resilient Net Interest Margins (“NIM”), though they face controls on credit growth by the Despite delays in domestic infrastructure expenditure State Bank of Vietnam (“SBV”) which issues a ‘quota’. Key (the 2022 disbursement level is behind plan) and delays portfolio names in the portfolio include Sacombank, 5.3% to Vietnam’s metro systems becoming operational (the of NAV; MBB, 5.3% of NAV; VP Bank, 4.6% of NAV; ACB, HCMC metro is likely delayed by a further year until 2.8% of NAV; and Vietin Bank (“CTG”), 2.4% of NAV. 2023) – the pace of urbanisation is a fast one. Vietnam’s urbanisation level in 2018 was about 36%, the level of Western Europe in 1945. According to a forecast1, its urban population is expected to reach 44% by 2030. We 1 https://population.un.org/wup/Publications/Files/WUP2018-Highlights.pdf 2 http://vids.mpi.gov.vn/Includes/NewsDetail/12_2016 dt_11220161027_9781464808241.pdf 12 Strategic ReportAnnual Report 2022Investment Manager’s Report (continued) Outlook among them. Vietnam is still growing at high levels – As we move into the second half of 2022, the global mood back on its 30-year trend of 6.5 to 7% GDP growth. While remains weak. Although recessionary risks remain less inflation will increase, the forecast levels of approximately severe for Asia than the West, a global recession would hit 4% do not look likely to cause financial distress. Vietnam’s export growth in 2023 and we will be watching the implications closely, including how policy directions The war in Ukraine has obviously had a horrific direct and actions unfold. Trade is key to Vietnam’s economy, impact in the lives of millions of its citizens through especially given its more prominent place on the global loss of life, loss of home and livelihood. The shadows supply chain map – the country posted a trade surplus of war have stretched further as the loss of Ukraine’s of over USD 700m in the first six months of 2022. A grains and fertiliser exports stress global food supply, global recession would not only weigh in on the country’s and curtailment of Russian gas could threaten Europe’s impressive exports and production growth but could energy security, particularly once the 40-degree Celsius also impact its banking sector. On the positive front, the summer fades into memory. One consequence of this is domestic economy may benefit from an increased amount the possibility that European countries will reduce their of government spending on infrastructure, which has energy consumption, leading perhaps to a change in been under-budget in the first half of 2022. Infrastructure consumer and industrial demand and possibly favouring expenditure has a multiplier effect on economic growth, importing finished products with cheaper overseas energy including accelerating the pace of urbanisation, and cost ‘baked-in’ rather than intermediate goods that need leading to a growth in real-estate development and the energy-intensive processing. Another consequence is that growth in modern trade. Agile policy making will be as important as ever. As the IMF recently reported1 Vietnam’s handling of the pandemic and associated risks helped the countries, such as Germany that have typically favoured renewable energy sources, will be forced to turn on more coal fired power stations. This will add fossil-fuel to the country get through the last two years, particularly its fire smouldering in some people’s minds that COP-26’s remarkable vaccination rollout, so with rising retail sales, pledges of ‘Net-Zero by 2050’ were unrealistic. improving industrial production, and increasing foreign investment, there’s a lot to consider when it comes to There is also an undercurrent of backlash against the Vietnam’s monetary policy and economic growth as the emergence of ESG themed investments and sustainability- world evolves. linked investment policies. This began as some concerns were raised on ‘Green-Washing’ by certain global asset There are encouraging signs in the rebound and growth of managers but may also have found resonance with certain domestic tourism in Vietnam, with 60 million trips made industry leaders who question whether a CEO should ‘play in the first half of 2022, 40% higher than the number made pre-pandemic2. In May the remaining restrictions and protocols put in place because of COVID-19 were God’ in relation to moral and ethical considerations related to finance. There is a danger that the baby is thrown out with the bathwater, even at such an early stage of greater lifted, and international visitors started to return. As the awareness of ESG, and particularly the climate aspects, as Chairman mentioned in his Statement, the Board of the parts of the world face unprecedented and dangerously Company were able to visit the team in Vietnam in June high daily temperatures. The Investment Manager is of and see the post-COVID-19 recovery for themselves. the opinion that responsible investing matters even more during these times of global uncertainty. The Company North Asia has historically been a key source of international tourism for Vietnam, and many of those has been a signatory to the United Nations Principles for Responsible Investing for over 12 years, three quarters of countries are still imposing restrictions on travel for their its life so far, and has set itself the task of ‘Doing More, residents, particularly China, Taiwan, and Japan. We Measuring More and Reporting More’ on ESG issues. In 2021 expect people in the region would like their travel habits to the Fund’s Board pledged its own allegiance to the Paris normalise, though increased costs of international flights, Agreement and commitment to the TCFD in addition to disruptions at airports, and rapid growth in demand will becoming a member of the Asia Investor Group for Climate bring about their own issues on the industry. Change (“AIGCC”). The portfolio’s carbon footprint is also 60% lower than the VNAS index. This has been a result of Many emerging and frontier markets are facing extremely the Fund’s active management style in sector allocation testing times, mostly because of imported inflation and supply chain disruptions. This can flow into the lives of 1 Source: https://www.imf.org/en/News/Articles/2021/03/09/ populations in other ways as unrest forces changes in na031021-vietnam-successfully-navigating-the-pandemic. governments, although developing countries do not have a monopoly on this behaviour. The Economist3 listed the countries that are most at risk, and Vietnam was not 2 Source: https://vietnamtourism.gov.vn/en/post/17504 3 Source: https://www.economist.com/emerging-market- indicators/2004/02/12/country-risk 13 Strategic ReportAnnual Report 2022and selection of best-in-class companies. We report on our enhanced work related to the climate aspects of the portfolio in the Sustainability Report. As mentioned in last year’s annual report, while our focus remains on industrialisation, urbanisation, and domestic consumption, we also will be eyeing emerging themes coming out of the pandemic. We are seeing, rapid moves in digital transformation in Vietnam and are adding to our ‘category killer’ stocks with ‘rising stars’ that may be beneficiaries of further digital initiatives. Some of these include retailers focussing on digital consumer electronic lifestyle products and services, and some are part of the infrastructure for 5G and other technological developments. Our aim is to position the portfolio for growth within a three to five-year investment horizon. As always, this means looking through short-term noises and volatility in search of longer-term value derived from robust compounding growth of well-managed companies with proven sustainable business strategies. 14 Strategic ReportAnnual Report 2022Investment Manager’s Report (continued) Ten Companies by NAV as at 30 June 2022 (and as at 30 June 2021) Top 10 companies as at 30 June 2022 Sector % NAV FPT Corporation Telecommunications Mobile World Investment Corp Retail Gemadept Corp Phu Nhuan Jewelry JSC Sacombank Khang Dien House Industrial Goods and Services Retail Banks Real Estate Hai An Transport & Stevedori Industrial Goods and Services Military Commercial Bank JSC Vietnam Prosperity JSC Bank Vietnam JS Commercial Bank F Total Banks Banks Banks Top 10 companies as at 30 June 2021 Sector FPT Corporation Vietin Bank Telecommunications Banks Hoa Phat Group JSC Industrial Goods & Services VP Bank Military Commercial Bank JSC Vinhomes Mobile World Investment Corp Phu Nhuan Jewelry JSC Khang Dien House Sacombank Total Dynam Capital, Ltd 30 September 2022 Banks Banks Real Estate Retail Retail Real Estate Banks 11.5% 9.2% 8.5% 8.1% 5.6% 5.4% 5.4% 5.2% 4.6% 4.0% 67.5% % NAV 11.0% 9.6% 9.4% 7.3% 6.4% 6.1% 5.0% 4.9% 4.6% 4.5% 68.8% 15 Strategic ReportAnnual Report 2022Top Five Portfolio Companies FPT Corp (“FPT”) As at 30 June 2022 Recent Developments Despite Vietnam’s 2021 Covid-19 lockdown, FPT still managed to post a strong financial performance with revenue and profit after tax of USD 1,533.2m and USD 229.9m, a growth of 18.6% and VietNam Holding’s investment 20.0% YoY, respectively. Date of first investment 10 December 2012 Technology sectors are the main contributor to its revenue and Ownership Percentage of NAV Internal rate of return (annualised) 0.4% 11.5% 26.6% Share information Stock Exchange Date of listing HOSE 13 December 2006 4,062 84.4% 49% Market capitalisation (USD million) Free float Foreign ownership Financial indicators (as at 31 December) Capital (USD million) Revenue (USD million) EBIT (USD million) NPAT (USD million) Diluted EPS (VND) Revenue growth NPAT growth Gross margin EBIT margin ROE D/E profit before tax with the share of 58% and 44%, respectively. Specifically, the global IT services segment remains the key driver of FPT’s performance, and the US market has shown a particularly strong result with revenue growth reaching 52% in 2021. Additionally, the newer revenue stream from Digital Transformation services increased by 72% in 2021 – the highest rise in the last four years. Sustainability Strategy FPT has developed a sustainable development orientation strategy to ensure the balance of three factors: economic development, community support, and environmental protection. In terms of 2021 2020 objectives and activities, FPT referred to Vietnam’s action plan to implement the 2030 commitments for sustainable development 390.1 339.6 and GRI Sustainability Reporting Standards. In 2021, FPT deployed 1,533.2 1,292.3 the digital vaccination program – FPT eCovax – helping enterprises 232.8 229.9 4,349 18.6% 199.5 191.6 4,120 7.6% 20.0% 13.1% 38.2% 39.6% 15.2% 15.4% 26.7% 25.0% ensure business continuity during the pandemic. FPT also spent VND 69.5bn on activities to support Covid-19 prevention. ESG Achievements FPT places a strong focus on sustainability and has identified eight of the UN’s Sustainable Development Goals (“SDGs”) that the company can most directly engage with: Quality Education; Gender Equality; Affordable And Clean Energy; Decent Work 0.94 0.68 And Economic Growth; Industry, Innovation, and Infrastructure; Responsible Consumption And Production; Climate Action And Partnerships For The Goals. About the Company In 2022, FPT published its very first environmental, social and Founded in 1988, FPT is a software developer that provides of a governance (“ESG”) report for the year 2021, further affirming the range of IT and telecom services, including broadband internet. company’s commitment to help investors, shareholders and other As it is also a brand-name distributor and retailer of IT and stakeholders access transparent information on its activities. FPT communication products, the company has held the leading has improved its gender equality in the workplace by increasing position in the local IT industry in Vietnam since 1996 and has the number of female managers and employees by 17.5% and been applauded for its educational programs, which offer learning 21.4% respectively. The company was also highly recognised for activities spanning various levels for more than 74,313 people. its contribution to Covid-19 relief in Vietnam by opening the Hope Boarding School for children orphaned during the pandemic. With 178 offices and branches across 26 countries, as of the end of 2021, FPT has transformed itself from an IT services company to ESG Challenges an end-to-end digital transformation service provider. Its digital FPT has set targets for building green office buildings but has not transformation services’ revenue reached a record USD 237m yet started measuring its total carbon emissions. In addition, as in 2021. The company also owns telecoms infrastructure with a human resources is a key success factor for IT companies today, main North-South link, which has recently been upgraded from FPT will need to find ways to attract and retain talent in the face copper wires to fiber-optic cables, and today continues to focus on of industry competition. expanding its overseas markets. As of 31 December 2021, FPT was managing seven subsidiaries and 37,180 employees, including 24,068 engineers and technology experts. 16 Strategic ReportAnnual Report 2022Top Five Portfolio Companies (continued) MWG JSC (“MWG”) As at 30 June 2022 Recent Developments In 2021, MWG posted net revenue of USD 5,285m and net profit after tax of USD 210.7m, a growth of 12.4% and 24.1% YoY, respectively. Despite the Delta outbreak, which led to the lockdown of Ho Chi VietNam Holding’s investment Minh City in the third quarter 2021, the Dien May Xanh chain Date of first investment 11 September 2017 Ownership Percentage of NAV Internal rate of return (annualised) 0.3% 9.2% 13.5% Share information Stock Exchange Date of listing Market capitalisation (USD million) Free float Foreign ownership Financial indicators (as at 31 December) Capital (USD million) Revenue (USD million) EBIT (USD million) NPAT (USD million) Diluted EPS (VND) Revenue growth NPAT growth Gross margin EBIT margin ROE D/E continued on as the key growth engine of the Company. In addition, grocery chain Bach Hoa Xanh witnessed a 33% growth in revenue, thanks largely to the opening of 233 stores in 2H2020 and 387 in 2021. However, as the same-store sales growth is flat for 2021 it remains loss-making for the year as a whole. Nonetheless, the company has been remodeling its store layout and operational structure, and there are early signs of improvement in the first six months of 2022 with an expectation of a break-even point by December 2022. Sustainability Strategy MWG’s sustainable development strategy puts its employees as the first priority, followed by customers and then shareholders. HOSE 14 July 2014 4,495 76.5% 49% 2021 2020 The performance-linked ESOP programs of MWG has helped 306.5 196.3 5,285.1 4,702.5 253.4 226.0 210.7 169.8 6,897 5,676 12.4% 24.1% 6.7% 2.6% 22.5% 22.1% 4.8% 4.8% 27.3% 28.4% retain talented people in the company for several years and has motivated some of the company’s ambitious top managers to seek penetration into new market segments. The company has a strong focus on internal training and has 44 trainers conducting monthly courses for its staff. In 2021, the average training time per MWG employee reached 29.5 hours with an average satisfaction level of an impressive 97.4% for these internal training courses. ESG Achievements MWG has made significant progress in its ESG activities by improving its Board structure, estimating and reporting its total 1.21 1.08 carbon emissions, and applying relevant energy-saving solutions across its chain of stores. The company also disclosed more social and environmental indicators in its 2021 annual report. In addition, MWG received an HR award from Anphabe for best working places. About the Company Established in 2004 with only one mobile phone store in Ho ESG Challenges Chi Minh City, MWG grew rapidly on the back of private equity As many retailers in Vietnam are starting to build their brands involvement prior to its listing in the middle of 2014. around sustainability concepts, MWG needs to be more receptive As of December 2021, MWG owned 5,306, stores under six brand manner, including encouraging customers to reduce the volume of names. These include: The Gioi Di Dong, mobile phone retail chain; single-use plastic bags. The company also needs to apply the GRI Dien May Xanh, consumer electronics retail chain; Bach Hoa Xanh, standards in its sustainability report. to this trend and operate their store chains in a more eco-friendly grocery retail chain; Topzone, an Apple Authorized Reseller model; Bluetronics, consumer electronics retail chain in Cambodia; and An Khang, pharmaceutical retail chain. In 2021, MWG upheld its position as the largest retailer in Vietnam with USD 5.3bn in revenue and USD 210.7m in net profit. As of May 2022 per its management, MWG had a 60% share of the domestic mobile phone market, a 50% share in the consumer electronics market, and a vision to occupy a 10% share in the USD 60bn grocery market over the next few years. As of 31 December 2021, MWG owned ten subsidiaries and employed 74,111 people. 17 Strategic ReportAnnual Report 2022GMD JSC (“GMD”) As at 30 June 2022 the improvement of ports in Hai Phong. According to Hai Phong’s port authority, GMD’s ports recorded a double-digit growth in container throughput volume, mainly driven by Nam Dinh Vu port in 2021. In 1H2022, they accounted for an 18% market share in VietNam Holding’s investment terms of container throughput volume in the Hai Phong port zone. Date of first investment 16 August 2019 Gemalink port, the biggest deep-water port in its zone, is expected Ownership Percentage of NAV Internal rate of return (annualised) 1.6% 8.5% 35.2% Share information Stock Exchange Date of listing Market capitalisation (USD million) Free float Foreign ownership Financial indicators (as at 31 December) Capital (USD million) Revenue (USD million) EBIT (USD million) NPAT (USD million) Diluted EPS (VND) Revenue growth NPAT growth Gross margin EBIT margin ROE D/E to be the key growth driver for GMD over the next four years. According to the Vietnam Seaports Association, Gemalink port accounted for 25.3% of the market share in terms of container throughput volume in the Cai Mep- Thi Vai port zone in the first five months of 2022. This has been the fastest growing region in Vietnam in terms of container throughput volume over the past five years. Sustainability Strategy GMD defines its mission as to promote economic flows and create added value for the country, customers and partners through a chain of outstanding services and solutions, in which ESG HOSE 06 May 2002 673 95.9% 46% 2021 2020 factors are the core foundation for long-term development. The 129.5 137.8 29.8 31.0 1,869 130.6 112.9 20.4 19.1 1,149 22.1% -1.0% 62.3% -27.9% 35.6% 36.4% 21.6% 18.1% 10.6% 6.7% management team has shown determination in developing a feasible ESG strategy and roadmap for the company. ESG Achievements GMD outperforms its peers in Vietnam’s logistics sector when it comes to ESG activities. The company has made a lot of efforts to align its business with the UN’s 17 SDGs, especially SDG number 9 – Build Resilient Infrastructure: Promote Inclusive and Sustainable Industrialisation, and Foster Innovation – with its extensive ‘green’ smart port ecosystem, as well as SDG number 13 – Climate Action – with its many initiatives aimed at contributing to Vietnam’s 0.27 0.29 net-zero commitment. The company has a strong organisational culture and an extensive training program for its employees. ESG Challenges About the Company GMD has not yet disclosed its total carbon emissions. Also, it Established in 1993 by the privatisation of a state-owned company, will take time and significant expenditure for GMD to receive Gemadept (“GMD”) operated as a maritime agent and freight international certificates for its entire ports and logistics system. forwarder in its early days. After 29 years of operation, the GMD also owns a non-core rubber plantation project in Cambodia company has become one of the largest seaport operators in that is a potential ESG concern, however, in recent meetings with Vietnam, owning a seaport system that includes dry bulk ports, the company, its senior management have re-confirmed their ICDs, river ports and now a deep-water port. intention to divest this project in 2023. GMD’s seaports are in two main locations: the Hai Phong port zone in the North and the Cai Mep- Thi Vai port zone in the South. In the North, GMD owns Nam Hai port, Nam Hai Dinh Vu port, and Nam Dinh Vu port – the latter of which is the biggest port with a designed capacity of 1,000,000 TEUs per annum. Furthermore, in the South, GMD now owns its first deep-water port, Gemalink, with a design capacity of 1,500,000 TEUs for Phase 1. The commencement of Gemalink in 2021 marked a turning point for GMD to transform itself into a deep-water port operator, which is expected to play a more important role in the regional trade flows in Southeast Asia. Recent Developments Despite the Delta wave, GMD still recorded strong revenue and profit growth of 22.1% and 62.3%, respectively, in 2021 thanks to 18 Strategic ReportAnnual Report 2022 Top Five Portfolio Companies (continued) Phu Nhuan Jewelry JSC (“PNJ”) As at 30 June 2022 VietNam Holding’s investment the first six months of 2022 with record-breaking revenues and net profit of USD 782m and USD 46m, respectively. Retail jewelry is the key driver of this stellar performance with a contribution of 58.6% and an excellent growth rate of 61.9%. Sustainability Strategy Date of first investment 8 December 2009 Sustainable development is integrated in PNJ’s culture, activities Ownership Percentage of NAV Internal rate of return (annualised) 0.8% 8.1% 30.8% and business strategy, not least given its business philosophy of “Integrate the customer and society benefits into the company’s interests”. In addition, PNJ’s focus on ‘green’ technologies and projects – for example, by maximising its fuel economy and participating in reforestation projects and clean water development – has helped it become one of the top-10 sustainable development businesses in Vietnam both in 2020 and 2021. ESG Achievements PNJ is the company with the highest ESG rating score in VNH’s portfolio and is widely recognised for its efforts in improving its ESG performance over the years. In 2021, the company created HOSE 23 March 2009 1,338 83.4% 49% 2021 2020 an ESG committee as a sub-committee of its Board of Directors 97.8 98.6 848.3 766.0 71.9 44.2 53.9 46.3 4,197 4,308 10.7% 3.5% -4.5% -10.1% 18.2% 19.4% 8.5% 7.0% 18.3% 21.8% 0.45 0.35 and continues to demonstrate its ambition to be a leading ESG advocate among public companies in Vietnam. The company also won the top 100 Sustainable Companies in Vietnam awarded by the Vietnam Council for Business Development in recognition of its efforts to promote gender equality in the workplace. ESG Challenges PNJ has not yet disclosed its total carbon emissions. The company also needs to further improve and disclose its material sourcing material sourcing policy and develop a roadmap for becoming certified as a member of the Responsible Jewelry Council. Share information Stock Exchange Date of listing Market capitalisation (USD million) Free float Foreign ownership Financial indicators (as at 31 December) Capital (USD million) Revenue (USD million) EBIT (USD million) NPAT (USD million) Diluted EPS (VND) Revenue growth NPAT growth Gross margin EBIT margin ROE D/E About the Company Established in 1988, PNJ is now the leading jewelry producer and retailer in Vietnam with an estimated 56.5% market share in the branded jewelry retail segment. Its vision is “to become a leading jewelry manufacturer and retailer in Asia, to honour beauty and reach a global market”. In 2021, PNJ owned 342 stores across Vietnam under the brand names of PNJ, CAO, PNJ Silver, and PNJ Style. In addition to its nationwide distribution network, PNJ also operates two factories in Ho Chi Minh City and Long An with a capacity of six million jewelry items per year. As of 31 December 2021, PNJ employed 6,473 people, of which 61.7% are female. Recent Developments 2021 was a difficult year for PNJ due to the full-fledged lockdown in HCMC from June to October, which forced its shops to close. As a result, the revenue ‘only’ increased by 10% while the NPAT dropped by 4.5%. Nevertheless, PNJ demonstrated a remarkable recovery in 19 Strategic ReportAnnual Report 2022 Sacombank (“STB”) As at 30 June 2022 STB has won many accolades, including “Best bank with foreign currency service” from Global Banking & Finance Review (UK), “Vietnam’s best bank for medium and small sized enterprises” from Asia Money, “Vietnam’s bank with initiative in digital banking” VietNam Holding’s investment from The Asian Banking & Finance, as well as “Best Workplaces in Date of first investment 24 July 2020 Ownership Percentage of NAV Internal rate of return (annualised) 0.4% 5.6% 1.6% Asia in 2021” from HR Asia. Recent Developments In 2021, STB’s consolidated NPAT increased 26.2% YoY to USD 146.6m, with total credit growing 14% YoY. Non-performing loan (“NPL”) ratio improved to 1.5% of total credit from 1.6% a year before, while the loan-loss-buffer enhanced to 121% of NPLs from 94% in 2020. It has continued to prioritise bad debt handling, thus the proportion of the legacy assets to total assets declined to 6.7% in 2021 from 29.3% in 2016. Sustainability Strategy STB has pursued a sustainability-oriented corporate governance model. This objective has helped the bank face difficulties and HOSE 13 July 2006 1,741 93.1% 22% 2021 2020 challenges in the past. In 2021, it continued to meet all the criteria 810.3 816.7 761.0 748.2 146.6 1,630 116.2 1,248 1.7% 18.5% 26.2% 0.7% 10.8% 9.9% 1.5% 15.2 9.7% 0.6% 9.6% 9.5% 1.6% 17.0 of the Corporate Sustainability Index (“CSI”) and was honored as the Top 3 of the “most favorite public companies” of investors in 2021. STB has implemented environmental and social management system (“ESMS”) in compliance with international standards. According to Directive No 03/CT-NHNN on promoting green credit growth, which was first piloted for small and medium size enterprises, STB was the first private bank to implement this program alongside three of Vietnam’s state-owned commercial banks, including Vietcombank, BIDV and Agribank. STB has been arranging loans with preferential interest rate for individuals and enterprises whose business and production activities either ‘cause no harm’ or ‘protect natural resource, environment and society’. It has also coordinated with several business associations to participate in specialised seminars (for Share information Stock Exchange Date of listing Market capitalisation (USD million) Free float Foreign ownership Financial indicators (as at 31 December) Capital (USD million) Revenue (USD million) EBIT (USD million) NPAT (USD million) Diluted EPS (VND) Revenue growth NPAT growth Gross margin EBIT margin ROE D/E About the Company In 1991, STB became the first commercial joint-stock bank to be corporate customers accessing green credits) as well as more established in Ho Chi Minh City and in 1996 it became the first bank modern bank products and services. to issue shares to the public. By 2006 it was the first commercial joint-stock bank to be listed on the Ho Chi Minh Stock Exchange. ESG Achievements During the five-year period from 2006 to 2011, the bank recorded STB has improved its sustainability report by following the GRI a compound annual growth rate (“CAGR”) of 34.5% in its net standards. In addition, the company’s Board of Directors has profit and became one of leading private banks in the Southern created committees and councils in compliance with the law and in Vietnam. In 2012, however, it was subject to hostile changes in reference to best practices on corporate governance. Furthermore, the shareholders and management, followed by a merger with a the bank has documented its environmental and social risk weak bank in 2015, which put the brakes on its rapid growth. After appetite and based on that developed a rigorous environmental six years of restructuring, STB has effectively dealt with most of and social impact assessment process. The bank also has carried the consequent legacy issues and is accelerating the restructuring out an employee satisfaction survey. process. In 2022, STB became the tenth largest bank by assets in the industry and today runs the most extensive branch network ESG Challenges among private banks in the country with 566 branches and STB is aware of the national net-zero commitment and reports its transaction points. The bank’s net profits grew by a CAGR of 30.4% key environmental performance indicators in its annual report, from 2017 to 2021 and it is expected to enjoy significant growth however, it could do better by estimating and disclosing its total over the coming years by which stage it is should have completely carbon emissions and consider the application of the Task Force resolved all its legacy issues. Despite many headwinds, STB on Climate-related Financial Disclosures (“TCFD”) framework successfully implemented Basel II from January 1, 2020, showing to integrate climate into its governance and risk management its commitment towards prudent risk management practices. framework. 20 Strategic ReportAnnual Report 2022Sustainability Report As a responsible investor we are committed to do more, measure more and report more. difficult time of the pandemic. From quickly digitalising their business operations to implementing the “3 on-site” model at factories, as well as collaborating with the authorities by organising mass vaccination programs for their employees and making substantial donations to COVID-19 relief activities. We consider these actions to be a great reflection of the “S” in environmental, social and governance (“ESG”) 2021 witnessed significant changes in Vietnam’s policy activities in Vietnam. Indeed, it also shows how Vietnam is commitments towards a “clean, green and beautiful” regaining its reputation as a pandemic “success story” as it Vietnam. At the United Nations’ Climate Change climbed to second place in the Nikkei’s COVID-19 Recovery Conference in November 2021 (“COP26”), Vietnam’s Prime Index in July 2022. The country has now fully reopened its Minister Pham Minh Chinh announced that the country borders and we immediately saw increased trade and tourist would pledge to achieve net zero carbon emissions by 2050 flows, as well as rising levels of foreign direct investments, and phase out coal power generation by 2040. This strong manufacturing outputs, and the rate of new construction. commitment could be seen as a milestone for Vietnam In the second quarter of 2022, Vietnam’s GDP expanded paving a way for the transformational interventions 7.72% year-on-year, exceeding market expectations and needed to address climate change challenges, including the ranking significantly higher than other nations around the development of cleaner transportation and energy systems. world, many of which saw their economies shrink due to the war in Ukraine and all its implications. Since COP26, the government has taken firm steps in building a legal corridor for responding to climate change issues VNH is a long-term, responsible investor, and ESG and implementing the commitments made. In particular, integration lies at the heart of our investment philosophy. is the government’s issuance of Decree No. 06/2022/ND- We have been able to see the tremendous evolution of CP on January 07, 2022, which includes regulations on the ESG in the past ten years with a wide variety of metrics, reduction of greenhouse gas emissions and protection of the methodologies and approaches being tested and revised. ozone layer. This new legislation specifies how companies While earlier approaches used exclusionary screening and will be given guidance on the scheme and undergo a pilot value judgments to shape their investment decisions, ESG operation that is followed by a carbon credit trading market investing has been changed over time by shifts in demand due to be formally launched in 2028. from the finance ecosystem, driven by both the search for Additionally, in June 2022, the government approved the circular economy development scheme and set several ambitious targets for the period ahead. The scheme aims better long-term financial value and a pursuit of better alignment with values and current socio- environmental challenges1. to reduce the intensity of greenhouse gas emissions per Also, we see particular interest in ESG coming from GDP by at least 15% by 2030 and supports the net-zero millennials – the investors and decision makers of emissions target by 2050. By 2025, the country also aims to the future who account for over a third of the global reuse, recycle, and treat 85% of plastic waste generated, population. According to a 2020 report on millennials thereby reducing 50% of the plastic waste in the seas and and ESG investing by MSCI, millennial investors have oceans as well as that of the volume of non-biodegradable plastic bags and disposable plastic products that are used contributed USD 51.1bn to sustainable funds in 2020, compared with less than USD 5bn five years earlier. This in daily life. momentum is expected to continue over the next decade as 75m millennials inherit an estimated USD 30tn to USD In regards to clean energy development, the draft National 68tn from their parents. Power Development Plan (draft PDP VIII) for the period 2021 to 2030, with a vision to 2045, has been revised Over the past year, we have navigated ourselves along the significantly in terms of the mix of energy sources needed ESG journey by looking at what we have achieved and what to align with Vietnam’s commitment to be net-zero by we can do better, especially in terms of ESG assessments 2050. The proposed structure includes 50.7% share of wind and engagement with companies. We refined our ESG and solar power and only 9.6% from coal power by 2045. If policy and exclusion screening list and added more climate Vietnam achieves the goal, it will reclaim its crown as Asia’s change commitments. We also applied the Task Force renewable energy powerhouse. on Climate-related Financial Disclosures (“TCFD”) in our reporting, developed our own ESG rating framework, and As the fourth COVID-19 wave spread across Vietnam in engaged more with companies on ESG topics. 2021, we were able to witness how Vietnamese enterprises made tremendous efforts to survive through the most 1 OECD, 2020 21 Strategic ReportAnnual Report 2022To advance our commitment to responsible investment, Climate Change and the ESG Agenda we have identified key areas that we need to continue to According to the most recent report by the World Bank, progress in the next year: Vietnam’s 100m people are among the most vulnerable in the world to climate impacts, facing hazards along the • • ESG integration: Continuously improving the country’s 3,260-km long coastline and extensive low-lying quality of our in-house ESG research with a more regions. The country was estimated by the World Bank to holistic assessment framework and ESG rating by lose about USD 10bn in 2020, or 3.2% of its GDP to climate companies, with reference to specific industry and impacts. By 2050, the costs to the economy generated sector guidelines; by climate change could total as much as USD 523bn; Company engagement: Continue to make progress therefore, investments to address climate impacts are a in our engagement with companies on ESG priority. topics, tracking their achievements and initiating collaborative engagement with other investors; and At COP26, Vietnam made a strong commitment to • Advocating the adoption of ESG standards and achieve the net-zero target by 2050, and since then the best practices among the Vietnamese business government’s efforts in changing its energy strategies and community, with a strong focus on improving relevant policies have shown the country’s willingness to corporate governance, ESG reporting and identifying address climate change issues. As a long-term investor appropriate decarbonisation strategies. focusing solely on the Vietnamese market, we strongly ESG Management System support the country’s government and business community in addressing climate change and the socio-economic Our ESG Management System is a customised set of effects. During the financial year, our Investment Manager policies, procedures, tools and reporting criteria designed has been actively contributing to the national and regional to identify, assess, manage and disclose information dialogue on driving forward the net-zero transition. The on ESG matters. We use this to help us both choose the right risks and take advantage of the opportunities that Investment Manager provided insights related to Vietnam’s power sector for the report “Power of ASEAN: Accelerating they present. Furthermore, in considering the activities of clean energy in Vietnam and Indonesia” published by portfolio companies, we seek to ensure that our decisions the Asia Investor Group on Climate Change, as we are a lead to more positive impacts. member. The ESG Management System has been developed by our Through the Investor Climate Action Plans (“ICAPs”)’ Investment Manager to: Expectation Ladder and Guidance, which was co-created with Asia Investor Group on Climate Change (“AIGCC”), we • • • integrate ESG issues into every step of the investment were able to position ourselves in the race to net-zero for process: initial screening, due diligence, investment investors and develop a pathway to progress in the mid to decision making and monitoring; long-term. Based on the ICAPs, in late 2021 we identified provide a framework for monitoring and reporting on ourselves to be between Tier 4 and Tier 3, as: ESG aspects to stakeholders; and work in partnership with our portfolio companies to (i) We have integrated climate risks into the overall help them identify and implement ESG opportunities, creating sustainable enhancement to their overall risk assessment framework and regularly monitored portfolio climate risks; financial performance. (ii) We do not invest in companies with more than 25% of Our approach to ESG integration is based on the following revenues from fossil fuel; and principles: • • • • (iii) Our Investment Manager is a member of AIGCC Investors not only have the power but also a responsibility and has sent its staff on climate change training. By as stewards to drive and help create change; June 2022, we have been able to move to Tier 3 by ESG research can provide unique insights not available conducting detailed scenario analysis for the portfolio in pure fundamental approaches; and assessing the physical and transition risks, using ESG integration leads to better-informed investment these results to assist with for current and future decisions; and investment decisions. We believe VNH is now heading Active ownership, advocacy, and engagement on ESG towards Tier 2. issues can reduce the risk of value destruction. 22 Strategic ReportAnnual Report 2022 Sustainability Report (continued) Climate Change and the ESG Agenda (continued) Investor Climate Action Plans (ICAPs) Expectation Ladder1 Tier 4 Tier 3 Tier 2 Tier 1 Measure portfolio carbon emissions. Align portfolio emissions reduction target with domestic policy goals or NDCs. Align portfolio emissions reduction target with 1.5ºC and global net-zero emissions by 2050. VNH is now moving from Tier 3 to Tier 2 Strategy Establish a formal policy on integrating climate change into: • • • investment analysis decision-making investment manager selection and appointment Commit to increasing investments in appropriate clean energy and low carbon opportunities. Establish a formal investment policy on fossil fuels and other high impact activities, such as deforestation and biodiversity loss, that: aligns with a net-zero target; includes an explicit commitment to phase out exposure to fossil fuels (either through engagement or divestment) in line with science- based net-zero pathways; aligns with just transition principles. Develop and start implementing a recognized option strategy for at least one portfolio or asset class. Align portfolio emissions reduction target with 1.5ºC and global net-zero emissions by 2050 or sooner. Set intermediate targets covering all assets every 5 years using recognised methodologies and frameworks for setting, assessing, reporting, and verifying performance. Eliminate all investments in thermal coal, tar sands and Arctic drilling. Define a strategy for all high emitting sectors. Risk Management Undertake portfolio climate risk assessment. Regularly monitor portfolio climate risks including physical risks. Conduct a 1.5ºC and 2ºC scenario analysis including transition and physical risks, using a recognised methodology. Revise and update this analysis annually. Use scenario analysis and stress testing to: Explicitly incorporate net-zero scenario analysis. • • assess the impacts of physical and transition risks on the portfolio inform current and future investment decisions Asset Allocation Invest part of the portfolio in 2ºC aligned products. Invest part of the portfolio in 1.5ºC aligned companies, products, and projects. Incorporate climate change into strategic asset allocation and invest in 1.5ºC-aligned companies, products, and projects in multiple asset classes. Invest (and grow the proportion annually) in 1.5ºC aligned companies, products, and projects in all asset classes. Additional Target Setting N/A 1 AIGCC, 2021 Set Scope 1 and 2 decarbonization targets for your own operational emissions. Implement explicit net-zero aligned targets for clean energy and low carbon investments in each asset class. Set Scope 3 decarbonization targets if they are material i.e. >40% of emissions of underlying assets. Set 1.5ºC targets in all assets classes where recognised methodologies exist. Establish net-zero-aligned targets for high impact sectors. Set intermediate targets that enable progression and assessment of portfolio emissions reduction in line with achieving net-zero emissions. 23 Strategic ReportAnnual Report 2022 Climate change is also a main topic for engagement with statement for climate, which was later published through companies in our portfolio. In support of the Government’s media releases and via the Company’s website. Decree No. 06/2022/ND-CP on regulating GHG mitigation and ozone layer protection, the Investment Manager The Company’s ESG Committee has been working closely successfully hosted the webinar “Heading Towards Net- with the Investment Manager to further develop its zero Targets and Corporate Strategies” in March 2022 with investment strategy and incorporate climate-related risks representatives from 70 companies and organisations in and opportunities into the investment process and risk Vietnam in attendance. Through the timely webinar, the management. Investment Manager was able to keep portfolio companies updated about the new legislations relevant to climate change in Vietnam and provide them with technical Sustainability matters are incorporated in its reports to investors. In addition, the Chairman of the ESG Committee expertise to develop their own decarbonisation roadmaps. and the Managing Directors of the Investment Manager The webinar received wide attention from both the have attended cross-industry seminars and training in business and non-profit sectors, and in addition to its initial both UK and Asia on climate and sustainability issues, objectives, was able to broaden the discussion to explore where we have been advocating for greater adherence how the Vietnamese business sector can contribute to the and involvement from peers. The Investment Manager also national commitment of reaching net zero by 2050. promotes and supports climate initiatives through industry As we transition to a net-zero world, VNH has identified (“VIOD”), the Singapore Institute of Directors and the bodies such as, the AIC, the Vietnam Institute of Directors three focus points for climate change over the next two AIGCC. years: Strategy • • • Continue to measure and track the portfolio’s carbon As Vietnam companies are at a very early stage to footprint to identify carbon-intensive sectors and incorporate climate change into their business strategies, integrate climate risks and opportunities into the in the short to medium-term (2021 to 2025), we continue Company’s broader risk management framework; to prioritise our engagement strategy to raise portfolio Improve upon best-practice for climate related disclosures for investment companies by following the companies’ awareness of climate risks and the energy transition, as well as provide them with guidelines on how guidelines of the TCFD disclosures, even though VNH is to measure their total carbon emissions and adopt low- technically out-of-scope for this; and carbon technology. Encourage more companies in the portfolio to measure their total carbon emissions and consider a We identify the physical risks, for example, acute weather decarbonisation roadmap. VNH’s TCFD Report events and transition risks, including policy, legal and market risks, for the sectors and industries that surround our core target investment themes. These include industrialisation, This year we analysed the portfolio in greater depth in terms urbanisation, and the domestic consumer. Within the of the physical and transition risks, and employed VNEEC, sectors and industries, we research, analyse, and prioritise a Vietnamese environmental consultant, to estimate total the best-in-class companies in terms of their adoption of carbon emissions of all listed investee companies as of 31 December 2021. This was followed by an assessment of the technology solutions to lower carbon emissions and the provision of disclosures on carbon footprint in their annual portfolio’s climate risks including its alignment with the reports. We consistently favour companies exhibiting or Paris Agreement goals, which was based on a scenario developing strong climate-resilient strategies. approach with implied temperature rise metrics. This analysis provides a greater understanding of our portfolio As Vietnam companies are at a very early stage to risk from a climate perspective, and is also useful for our incorporate climate change into their business strategies, company engagement program. Our response to the core in the short to medium-term (2021 to 2025), we continue elements of the TCFD recommendations are summarised to prioritise our engagement strategy to raise portfolio in the following sections. Governance companies’ awareness of climate risks and the energy transition, as well as provide them with guidelines on how to measure their total carbon emissions and adopt low- In 2021, VNH’s Board announced its commitment to both carbon technology. the Paris Agreement and the TCFD’s risk, governance and reporting recommendations. During the Annual Based on the heat map developed by the United Nations’ General Meeting in 2021, the Board also endorsed a belief Environment Program Finance Initiative’s TCFD banking 24 Strategic ReportAnnual Report 2022Sustainability Report (continued) Strategy (continued) program, which assesses the sector transition risk exposure in terms of direct and indirect emission costs, low carbon capital expenditure and change in revenue of the majority of VNH’s portfolio in 2021 (59.1% of the NAV) is in sectors with the “Moderate” impact rating. Additionally, 37.5 % of the portfolio in 2021 is allocated to financial services companies, which fall under the Services and Technology category with the “Low” impact rating. In 2021, VNH did not allocate any investment in the Oil and Gas and Power Generation companies, and thus was not exposed to any “High” impact sectors. In terms of implied temperature rise, based on the calculation of VNEEC, the 2021 portfolio of VNH is consistent with a 1.81°C temperature rise scenario and aligned with the fair share emission budget by the Climate Action Tracker. However, the portfolio is not yet fully aligned with the domestic pathway in the net-zero by 2050 scenario that Vietnam is now committed to. Risk Management The ESG Committee reports to the Board of the Company, and liaises with the Audit and Risk Committee and the Investment Manager to incorporate climate risks into the overall risk management framework (see pages 28 to 30). Climate risk assessment is integrated by the Investment Manager into all stages of investment processes: initial screening, due diligence, investment decision and monitoring. The risks are regularly discussed during meetings of the Investment Committee and the Investment Manager’s Board and are also regularly reported to the Company’s Board. Risks are continuously identified and managed at the portfolio level. Metrics and Targets • • The Portfolio carbon footprint is the key metric used to measure and track progress towards reducing carbon emissions. Our target is to keep the portfolio carbon footprint 20% below the Vietnam All share Index (“VNAS”). We will join in collaborative engagement initiatives to hold the rise in global average temperature to below 2 degrees Celsius above pre-industrial levels. The target is measured by the number of climate initiatives that we support through communications, policy dialogue, company engagement, and networking. • In 2022, we have conducted deeper quantitative analysis to assess the climate risk exposure of the portfolio, using a scenario approach for implied temperature increases to estimate the financial impacts and estimate how these risks are translated into financial impacts, for example, the potential financial loss from physical risks, carbon pricing and the impacts on corporate profits. • • We will also identify businesses and investment opportunities that may benefit from the transition risk process. In the longer-term (from 2025 onwards), and with shareholder approval, we will set a firm target percentage in our portfolio for low-carbon investments. Portfolio carbon footprint The portfolio companies’ attributable carbon footprints are analysed against the attributable footprint of an identical invested amount in the companies of the VNAS. In 2021, the VNH portfolio had an estimated total annual emission of 9,059 tonnes carbon dioxide equivalents (“tCO2e”) from Scope 1 and 2. The carbon footprint of the portfolio in 2021 is significantly lower when compared against the benchmark of an equivalent investment size in VNAS, with 67.5% or 18,803 tCO2e less total carbon emissions. The total carbon emissions of the Portfolio in 2021 is also much lower than that of Portfolio in 2020 (9,059 and 21,045 tonnes of CO2 equivalents, respectively). This positive performance was resulted mostly from effective sector allocation, with a small contribution from stock selection. VNH Portfolio VNAS benchmark Difference between VNH Portfolio vs. VNAS benchmark Total Emissions Scope 1 and 2 (tCO2e) Total Emissions Scope 1, 2 and 3 (tCO2e) Carbon footprint (tCO2e/ $M Invested) 9,059 21,042 58.21 27,861 57,050 179.03 -18,803 -36,008 -67.5% 25 Strategic ReportAnnual Report 2022 Sustainable Development Goals The 17 Sustainable Development Goals (“SDGs”), also known as the Global Goals, were adopted by the United Nations in 2015 as a universal call for action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity. With only less than a decade left to meet the SDGs by 2030, it is crucial to accelerate actions to achieve the Goals. It is increasingly clear that the way forward is one that must be paved by both businesses and governments. The growing power of the business sector should be leveraged to grow a stable, sustainable global economy and society. We consider the 17 SDGs to be a useful framework that companies can use to start to develop their sustainability and ESG strategies. We are pleased to see that the SDGs have been incorporated in many of our portfolio companies’ annual reports, with detailed illustrations of how the SDGs are embedded in their vision, business strategies and operational conduct. FPT, the largest holding in VNH’s portfolio is contributing greatly to SDG 4 – Quality Education – with their extensive education programs. In its 2021 annual report, FPT also pointed out the eight SDG goals that the company most directly contributes to: Quality Education; Gender Equality; Affordable and Clean Energy; Decent Work and Economic Growth; Industry, Innovation, and Infrastructure; Responsible Consumption and Production; Climate Action, and Partnerships for the Goals. Gemadept (“GMD”), another of the Top 5 portfolio companies, has also made considerable efforts to align its business with SDGs, especially SDG 9 – Build Resilient Infrastructure, Promote Inclusive and Sustainable Industrialisation and Foster Innovation – with its extensive “green, smart port” ecosystem. It also is focusing on SDG 13 – Climate Action – and is working on many initiatives aimed at contributing to Vietnam’s net-zero commitment. VP Bank, arguably the “greenest” bank in our portfolio, has made significant efforts to improve its environmental and social management strategy by following international standards and starting to apply the TCFD framework to its processes. In 2021, VP Bank helped 422 customers to integrate sustainability into their business or invest in a “green” project involving renewable energy, waste treatment, or clean transportation, for example. It ended the year with a total Green Loan balance of VND4,066bn, equivalent to around USD170m. Meanwhile, Phu Nhuan Jewelry (“PNJ”) is making much progress in integrating SDG 5 – Gender Equality – into its management approach by raising awareness about the role of women in families and the workplace. Among our portfolio companies, CTG, FPT, MBB, PNJ, and VPB are included in the Vietnam Sustainability Index (“VNSI”) 2022, which features the top 20 sustainable listed companies on HOSE measured in terms of their ESG contributions. VCS, DGW, PNJ and CTG are the companies in the top 100 sustainable companies in Vietnam based on the Corporate Sustainability Index developed by the Vietnam Business Council for Sustainable Development (“VBCSD”) under the Vietnam Chamber of Commerce and Industry (“VCCI”). Corporate Governance During the past two decades, the Law on Enterprises and the Law on Securities has been updated several times, with the latest versions being passed during 2019 and 2020 and effective from 1 January 2021. Decree 155, covering corporate governance of public companies, and Circular 96 on the disclosure of information of public companies, are the two key implementing regulations of those laws, and were issued around the same time. These laws and regulations form the main part of the prevailing Vietnamese corporate governance regulatory framework. In addition to mandatory rules provided in the laws and regulations, the State Securities Commission (“SSC”), with support from the International Finance Corporation (“IFC”), and with inputs from the Investment Manager’s CIO, issued in summer 2019 the Vietnam Corporate Governance Code of Best Practices for public companies (the “CG Code”), which recommends standards that go beyond the minimum legal and regulatory requirements. The CG Code will also help Vietnam align with its ASEAN peers, which have already instituted similar codes. In anticipation of Vietnam’s equities being upgraded in the future and included in the MSCI Emerging Market Index (as opposed to the current Frontier Market Index), many companies have applied international guidelines, including those of the IFC, to improve their corporate governance framework. Many companies in our portfolio have set up audit committees under the board of directors. This board structure, with the support of the audit committee, helps set a strong ‘tone-at- the-top’, overseeing the effectiveness and integrity of internal controls. In addition, many companies have made efforts in improving the independence of their board by appointing more independent directors with work experiences from different sectors. We have also observed a significant improvement in investor relations activities and information disclosure of our portfolio companies, with monthly performance updates and quarterly reports sent to investors, more content available in English, and better dedicated investor relations support to address questions from investors. 26 Strategic ReportAnnual Report 2022Sustainability Report (continued) Dedicated Company Engagement Program Membership and Partnership to Promote ESG Practices The Investment Manager assigns a high priority to the UNPRI engagement mandate entrusted by shareholders and As noted above, the Company’s investment policy is aligned has established a Company Engagement Program, with the UNPRI and the Company has been a UNPRI signatory emphasising the necessity to systematically implement since 2009. Each year, the Company reports on its responsible ESG factors for investee companies. By providing investment activities through the UNPRI Transparency knowledge on specific issues, the Investment Manager Report. In its most recent report, the Company received two supports companies in their own relevant financial and ESG ‘A’ scores and one ‘A+’ score, all higher than the median and matters and encourages positive changes by helping to higher than its last year’s score. The improvement in active influence improvements in sustainability policies, practices ownership activities was noted, particularly in some of the and performance, and making recommendations where criteria, such as the engagement approach, escalation appropriate. Furthermore, the engagement program helps strategy, number of companies engaged with, the topics the Investment Manager in its portfolio decision-making covered, and the way we share insights from engagements and risk management strategy. with our stakeholders. As we have been evolving into a post-pandemic period, VIOD the Investment Manager has been able to set up face- Mr. Vu Quang Thinh – the CEO of Dynam Capital – is to-face meetings with several portfolio companies under a founding member of VIOD, the Vietnam Institute of the Company Engagement Program to discuss both the company’s business strategy and ESG issues. During the Directors, which is a professional organisation that promotes corporate governance standards and best practices in the financial year, the team had in-depth meetings with Vietnamese corporate sector. VIOD was legally formed in FPT, GMD, and PNJ to help improve their ESG practices 2018 with technical support from the International Finance with practical solutions in the short and medium-term. Corporation (“IFC”), a member of the World Bank Group Over several meetings, we have seen the eagerness, and Switzerland’s State Secretariat for Economic Affairs willingness and strong commitment from the Board and (“SECO”). Governed by a Board of Directors comprised management of these companies in driving forward of various private sector representatives, VIOD has close ESG and sustainability actions for their businesses. For collaboration with the State Securities Commission of example, FPT published its very first ESG report in early Vietnam (“SSC”), HOSE and HNX under the Vietnam 2022. PNJ established an ESG committee within its Board Corporate Governance Initiative (“VCGI”). With the of Directors and recruited a Senior ESG Manager to support support of SSC, VIOD will continue to represent Vietnam the company in developing its ESG strategy in the medium, to participate in the 2021 ASEAN Corporate Governance short, and long-term. GMD, with the strong determination Scorecard. Our close collaboration with VIOD will continue of its CEO, put a clear focus on improving the company’s to play a key role in fostering good corporate governance work culture and developing a decarbonisation roadmap. not only in our investee companies but across Vietnam’s business community over the coming years. Shareholder Voting This year the Annual General Meetings of portfolio AIGCC companies (“AGM”s) were held in both online and offline As mentioned above, Dynam Capital, our Investment formats. The Investment Manager considers each agenda issue Manager, is a member of the Asia Investor Group on Climate Change (“AIGCC”). At the end of this financial year, Dynam Capital signed on the 2021 Global Investor Statement to proposed by a company based on its merits related to Governments on the Climate Crisis with more than 450 the strategic objectives of the investee company and investors to call for governments to raise their climate its potential impact on long-term performance. As part ambition and implement more effective policies to address of its usual ongoing practice, the Investment Manager the climate crisis. discusses the proposed agenda items with each of the investee companies’ board of directors ahead of the actual Others meetings. In the financial year, the Investment Manager also contributed to the newly-established Vietnam Business Integrity Network, During the financial year, the Company, through the VBIN, an initiative initiated by the Vietnam Chamber of Investment Manager, attended and voted at the Annual Commerce and Industry with the generous support from the General Meetings (“AGM”) of every portfolio company in UK Prosperity Fund through the Regional Project “Promoting which it held an equity position, 27 in total. In all cases Fair Business Environment in ASEAN – FairBiz” of the United during the past year, the Company voted in favour for Nations Development Program – UNDP. VBIN is a new every agenda item proposed by each company’s boards initiative, a business-led and business-oriented network with of directors. a focus on promoting business integrity, purpose and vision for companies in Vietnam. 27 Strategic ReportAnnual Report 2022Principal Risks and Risk Management The Board has carried out a robust assessment of the Company’s emerging and principal risks and considers with the assistance of the Investment Manager the risks and uncertainties faced by the Company in the form of a risk matrix and heat map. The investment management of the Company has been delegated to the Company’s Investment Manager. The Investment Manager’s investment process takes into account the material risks associated with the Company’s portfolio and the holdings in which the Company is invested. The Board monitors the portfolio and the performance of the Investment Manager at regular Board meetings. The principal risks and the descriptions of the mitigating actions taken by the Board are summarised in the table below. Key risk Description Mitigating action Market Risk Vietnam is an increasingly open trading nation, and the The Board is regularly briefed on political and economic changes in terms of international trade, disruption to developments by the Investment Manager. The supply chains and impositions of tariffs could impact Investment Manager publishes a monthly report on the directly and indirectly the Vietnamese economy and Company which includes information and commentary the companies in which the Company is invested. on the macroeconomic developments in Vietnam. The Vietnamese economy can also be impacted by the global-macro economic conditions, and also The inherent liquidity levels in the portfolio have been geopolitical tensions. The Vietnamese capital markets considered explicitly in the viability of the Company and are relatively young, and liquidity levels can change the Board is reasonably satisfied that even in periods of abruptly responding to changes in the behaviour of distress and low liquidity there would be an adequate domestic and international investors. level of assets that could be realised to meet the Parts of the portfolio may be prone to enhanced liquidity and price risk. The Board has noted that the underlying market liabilities of the Company as they fall due. liquidity in Vietnam has increased dramatically during the last year, and the portfolio composition has also included a higher percentage of larger and more liquid companies. Investor Sentiment Vietnam is currently classified as a Frontier Market The Investment Manager keeps shareholders and other by MSCI, and the timetable for any inclusion as an potential investors regularly informed on Vietnam in Emerging Market is unsure. Investor attitudes to Frontier general and the Company’s portfolio in particular. At and Emerging Markets can change, leading to reduced each Board meeting the Board receives reports from demand for the Company’s shares, and an increase in the Investment Manager, from finnCap Ltd, its broker, the discount to NAV per share. and is updated on the composition of the shareholder register. In 2019 the Company migrated its domicile from Cayman Islands to Guernsey and moved its trading from AIM to a premium listing on the Main Market of the LSE in order to make the shares attractive to a wider audience of potential investors. In seeking to narrow the discount, the Board has also implemented an on-going share buy-back programme. 28 Strategic ReportAnnual Report 2022Principal Risks and Risk Management (continued) Key risk Description Mitigating action Investment Performance The performance of the Company’s investment The Board receives regular reports on the performance portfolio could be poor, either absolutely or in relation of the portfolio and its underlying assets. The to the Company’s peers, or to the market as a whole. Investment Manager reports to the Board at each Board meeting, and the Board monitors the performance of the Investment Manager. Fair Valuation The risks associated with the fair valuation of the The Board reviews the valuation of the portfolio with portfolio could result in the NAV of the Company being the Investment Manager regularly. misstated. The quoted companies in the portfolio are valued at market price, but it may be difficult to The daily estimated NAV is calculated by the Investment liquidate, where large positions are held, at these prices Manager. in an orderly fashion in the ordinary course of market activity. The values of the Company’s underlying The monthly NAV is calculated by the Fund investments are denominated in Vietnamese Dong, Administrator. whereas the Company’s accounts are prepared in US Dollars. The Company does not hedge its Vietnamese Dong exposures so exchange rate fluctuations could have a material effect on the NAV. Investment Management Agreement The fund management activities are outsourced to The Board maintains a close contact with the the Investment Manager. If the Investment Manager Investment Manager and reviews the performance of became unable to carry out these activities or if the the Investment Manager on a regular basis. Investment Management Agreement was terminated, there could be disruptions to the management of the portfolio until a suitable replacement is found. Operational The Company has no employees and is dependent The Board receives regular reports from the Investment on a number of third parties for the provision of Manager and Fund Administrator on their policies, services (including Investment Management, Fund controls and risk management. Administration and Custody). Any control failures or gaps in the services provided could result in damage or loss to the Company. Legal and Regulatory Failure to comply with relevant regulation and The Company is administered in Guernsey by a Fund legislation in relevant jurisdictions may have an impact Administrator which reports to the Board at each Board on the Company. Although there are compliance meeting on compliance matters. The Board receives policies (including anti-bribery policies) in place at training and updates on compliance matters. The the Company, the Investment Manager and all service Investment Manager is regulated in Guernsey and has providers, the Company could be damaged or suffer extensive compliance and risk management policies in losses if any of these polices were breached. place. 29 Strategic ReportAnnual Report 2022Key risk Description Mitigating action COVID-19 Outbreaks of variants of coronavirus (“COVID-19”) The Board is in regular contact with the Investment as part of a global pandemic pose a health concern Manager, receiving regular updates on the development through fast person-to-person spread, resulting in an and the spread of COVID-19, mitigating actions in illness that can lead to death. Lockdowns, quarantine Vietnam, including the roll-out of vaccinations, and the measures and restrictions on travel can cause sustained impact on the performance of the investment portfolio. global economic disruption and slowdown in growth, The Board has verified that the key service providers all and can cause some industries and companies to face have functional Business Continuity Plans. severe financial pressures that can lead to job losses and in extreme cases bankruptcies, impacting the The Investment Manager and its wholly owned subsidiary value of the investments held by the Company, and in Vietnam has a BCP that includes dividing staff into two weakening investor confidence. Key service providers to separate teams and enabling all staff to work from home the Company could face loss of personnel, diminution as necessary. The BCP has been tested and implemented in service capability and could impact the ongoing several times without loss of service to the Company. operations of the Company. Travel restrictions can prevent the Directors of the Company from meeting in The key activities of the Company and its service person. Delays in rolling out vaccinations may prolong providers can be conducted virtually through online calls, the economic impact on Vietnam and its population as electronic mail and video-calls. other countries begin to re-open their borders to travel. The Investment Manager, on behalf of the Company uses Regulatory News Services, monthly newsletters, webinars and ad-hoc updates through social media to keep the investors updated on the impact of COVID-19 on the portfolio. Climate Risk Climate change is happening faster than models earlier The Board, through the Investment Manager, has predicted, threatening the safety of billions of people engaged a specialist consulting firm in Vietnam to help on the planet. Vietnam is one of the five countries most estimate the portfolio’s carbon footprint and identify the vulnerable to climate change. The country’s diverse carbon-intensive sectors. The Investment Manager has geography means it is hit by sea level rise, typhoons, undertaken to analyse the physical and transition risks landslides, flooding and droughts, and weather events of climate-sensitive industries to develop an appropriate are expected to worsen in coming years. Two types of investment and engagement strategy and to encourage climate-related risks have been identified. (1) Physical investee companies to do more on climate-related risk risks: sea level rise, floods and typhoons that put assessment and disclosures. The Investment Manager infrastructure or real estate companies with projects monitors investee companies that are identified to be at in coastal areas or low-lying levels at higher risk from high climate risks. physical impacts of climate change. (2) Transition risks: climate policy and rising carbon The Investment Manager is a member of the Asia prices may cause higher prices and impact the viability Investor Group on Climate Change and keeps abreast of companies that rely on fossil fuels or those in carbon of the changes in policies that may impact transition intensive activities and may necessitate a significant, and other climate-related risks. The Board is in regular and costly, technology shift. contact with the Investment Manager, and receives reports through the ESG Committee and the Audit and Risk Committee. Emerging Risks New risks beyond those identified as Principal Risks can The Board reviews the risk matrix and risk register that develop. These Emerging Risks may have a detrimental captures and tracks emerging risks as part of its overall or existential impact on the Company. risk management practices. Emerging Risks are identified and recorded with a description of their root cause, a risk assessment, a description of mitigating actions, a monitoring plan, and a net risk rating. Changes in risk ratings are presented to the Board on a quarterly basis. There are no emerging risks to bring to the attention of the shareholders at the date of the Annual Report. 30 Strategic ReportAnnual Report 2022Annual Report 2022 Governance Director Profiles and Disclosure of Directorships All of the Directors are Non-executive Directors and are independent of the Investment Manager. Hiroshi Funaki (Chairman) Mr Funaki has been actively involved in raising, researching and trading Vietnam funds since 1995. He worked at Edmond de Rothschild Securities from 2000 to 2015 where he led the Investment Companies team, focusing on Emerging Markets and Alternative Assets. Prior to that he was Head of Research at Robert Fleming Securities, also specialising in closed-end funds. He currently acts as an investment adviser to a Family Office. He has a MA in Mathematics and Philosophy from Oxford University and is a UK resident. Philip Scales (Audit and Risk Committee Chairman) Mr Scales has over 40 years’ experience working in offshore corporate, trust, and third-party fund administration. For 18 years, he was managing director of Barings Isle of Man (subsequently to become Northern Trust) where he specialised in establishing offshore fund structures, mainly in the closed-ended arena (both listed and unlisted entities). Mr Scales subsequently co-founded FIM Capital Limited where he is Deputy Chairman. He is a Fellow of the Institute of Chartered Secretaries and Administrators and holds a number of directorships of listed companies and collective investment schemes. He is an Isle of Man resident. Sean Hurst (Senior Independent Director and Environmental, Social and Governance Committee Chairman) Mr Hurst was co-founder, director and chief investment officer of Albion Asset Management, a French regulated asset management company, from 2005 to 2009. He is an experienced multi-jurisdictional director including roles at Main Market and AIM traded funds and numerous offshore and UCITS funds. In addition to advising companies on launching both offshore and onshore investment funds, he is currently non-executive chairman of JPEL Private Equity Ltd and non-executive director at CIAM Opportunities Fund. Mr Hurst was formerly a non-executive director of AIM listed ARC Capital Holdings Ltd. He holds an MBA in Finance from CASS Business School in London and is a resident of France. Damien Pierron (Management Engagement Committee Chairman) Mr Pierron is currently Managing Partner at Ankaa Ventures, a Venture Capital firm active in Seed stage in Europe. In his last position, he was a managing director in Societe Generale. Mr Pierron has 20 years’ experience in M&A and Private equity gained at, among others, Lafarge Holcim, OC&C Strategy Consultants, Natixis and Societe Generale. He is a CFA charterholder and holds an Engineering Degree in Mathematics, Physics and Economy from Ecole Polytechnique in Paris and a Master’s Degree in Quantitative Innovation from Ecole Nationale Superieure des Mines de Paris. He is a Dubai resident. Saiko Tajima (Remuneration and Nomination Committee Chairman) Ms Tajima has over 20 years’ experience in finance, of which 8 years have been spent in Asian real estate asset management and structured finance. Working for Aozora Bank and group companies of Lehman Brothers and Capmark, she focused on financial analysis, monitoring and reporting to lenders, borrowers, auditors, regulators and rating agencies. Over the last 8 years, she has invested in and helped develop tech start-ups in Tokyo, Seoul and Sydney. She is a Certified Public Accountant in the US and is a UK resident. Disclosure of Directorships in Public Companies Listed on Recognised Stock Exchanges Name Sean Hurst Philip Scales Company Name JPEL Private Equity Ltd Stock Exchange London First World Hybrid Real Estate plc Channel Islands 31 Corporate Governance Report The Directors are responsible for the determination of the AIC Code and the relevant provisions of the AIC Code the overall management of the Company including its during the year ended 30 June 2022. Key issues affecting investment policy and strategy. This includes the review the Company’s corporate governance responsibilities, how of investment activity, performance and control and they are addressed by the Board and application of the AIC supervision of the Investment Manager and other advisers. Code are presented below. All of the Directors are non-executive and are independent of the Investment Manager. The AIC Code includes a provision relating to the appointment of a Senior Independent Director and the The Board is also responsible for its own composition, Board confirms that Sean Hurst is the appointed Senior capital raising, meeting statutory obligations and public Independent Director of the Company. Liaison with disclosure, financial reporting and entering into any Shareholders is dealt with mainly by the Chairman of the material contracts by the Company. Company and the Senior Independent Director working closely with the Company’s Advisors. The Directors have access to the advice and services of the Administrator and Secretary, who are responsible to the Directors’ Responsibilities to Stakeholders Board for ensuring that Board procedures are followed and Section 172 of the UK Companies Act 2006 applies directly that it complies with Company Law, applicable rules and to UK domiciled companies, however the AIC Code requires regulations of the Guernsey Financial Services Commission, that the matters set out in Section 172 are reported by all the London Stock Exchange and The International Stock companies, irrespective of domicile. This requirement does Exchange. not conflict with the Companies Law in Guernsey. Where necessary, in carrying out their duties, the Directors Section 172 recognises that Directors are responsible for may seek independent professional advice at the expense acting in a way that they consider, in good faith, is most of the Company. likely to promote the success of the Company for the benefit of its shareholders as a whole. In doing so, they are The Board of the Company has considered the Principles also required to consider the broader implications of their and Provisions of the Association of Investment Companies decisions and operations on other key stakeholders and Code of Corporate Governance issued in February 2019 their impact on the wider community and the environment. (“AIC Code”). The AIC Code addresses the Principles and Provisions set out in the UK Corporate Governance Code Key decisions are defined as those that are material to (the “UK Code”), as well as setting out additional Provisions the Company, but also those that are significant to any on issues that are of specific relevance to the Company. of the Company’s key stakeholder groups. The Company’s engagement with its key stakeholders is outlined on page The Board considers that reporting against the Principles 35 of the corporate governance section of this report. and Provisions of the AIC Code, which has been endorsed by the Financial Reporting Council and the Guernsey Financial Board Independence and Composition Services Commission provides more relevant information The Board consists of five Non-executive Directors, each to Shareholders. The Board considers by reporting against of whom is independent. No member of the Board is the AIC Code, they are meeting their obligations under the connected to the Investment Manager or any of the UK Code, the 2011 GFSC Finance Sector Code of Corporate service providers appointed. Four of the Board members Governance and associated disclosure requirements under were appointed in September/October 2017 following the paragraph 9.8.6 of the Listing Rules. retirement of the previous Board and the fifth member was appointed in May 2019 following the retirement of a Board The AIC Code is available on the AIC website (www.theaic. member at the 2018 AGM. co.uk). It includes an explanation of how the AIC Code adapts the Principles and Provisions set out in the UK Code Mr Funaki is a Director of Discover Investment Company to make them relevant for investment companies. which holds 1,405,776 ordinary shares in the Company representing 4.81% of the issued share capital. The Board Except as disclosed within this report, the Board is of the view are satisfied that this does not have any impact on Mr that the Company complied with the recommendations of Funaki’s independence as a Director of the Company. 32 GovernanceAnnual Report 2022Corporate Governance Report (continued) Board Independence and Composition (continued) As detailed in note 8 of the financial statements, Directors own shares in the Company as follows: Hiroshi Funaki Sean Hurst Philip Scales Damien Pierron Saiko Tajima 19,887 5,312 10,077 4,644 5,000 The Board reviews the independence of the Directors regularly and at least annually. The Company is committed to ensuring that any board appointments are filled by the most suitably qualified candidates. The Board acknowledges the benefits of greater diversity and is committed to ensuring that the Board brings a wide range of skills, knowledge and experience. No specific diversity parameters have been set as the Board believes that all appointments should be made on merit and taken in the context of the skills, knowledge and experience required for an effective Board. The Nomination Committee is responsible for evaluating any new Board appointment and making appropriate recommendations to the Board. The Board believes the current board members have the appropriate qualifications, experience and expertise to manage the Company. The Directors’ biographies can be found on page 31. Board Meetings and Attendance The Board meets regularly during the year with representatives from the Investment Manager present. In addition, representatives from the Company’s Broker and Administrator attend Board and committee meetings by invitation. At each quarterly Board meeting the performance of the portfolio is formally reviewed and during the year, Board members also attend investment meetings with members of the Manager’s senior team. The Board members have a range of skills covering investment management, banking, compliance and corporate governance as well as prior experience of acting as directors of companies listed on the London Stock Exchange. The Company’s brokers and lawyers are consulted on any matters where external expertise is required, and external advisers attend board meetings as invited by the Chairman to report on and/or discuss specific matters relevant to the Company. During the year 6 Board meetings were held and the record of attendance at each Board and committee meeting was as follows: Hiroshi Funaki Sean Hurst Philip Scales Damien Pierron Saiko Tajima Board Audit and Risk Remuneration and Nomination Management Engagement 6 (6) 6 (6) 6 (6) 6 (6) 6 (6) 6 (6) 6 (6) 6 (6) 6 (6) 6 (6) 1 (1) 1 (1) 1 (1) 1 (1) 1 (1) 1 (1) 1 (1) 1 (1) 1 (1) 1 (1) 33 In addition there were 2 meetings of the Buy-Back Sub-Committee held during the year. GovernanceAnnual Report 2022Tenure of Board Members and Succession Planning It is the responsibility of each Director to ensure that they The Company has adopted a formal policy that neither the maintain sufficient knowledge to fulfil their role and so are Chairman nor any other Director shall serve for more than encouraged to participate in seminars and training courses 9 years. where appropriate. Re-election of Directors Committees of the Board The Board has agreed that all Directors should submit Four Committees have been formed, an Audit and Risk themselves for annual re-election. Committee, a Remuneration and Nomination Committee, a Management Engagement Committee and an ESG Mr. Hurst, Mr Funaki, Mr Pierron, Mr Scales and Ms Tajima Committee. Since September/October 2017 the Company will all stand for re-election at the 2022 AGM. has been through a period of considerable change and all Board members are members of each committee. The individual performance of each Director standing for The Chairman of the Company does not Chair any of the re-election or election has been evaluated by the other Committees. Details of the Chairman of each committee, members of the Board and a recommendation will be together with the number of meetings held during the year made that Shareholders vote in favour of their re-election are shown on pages 33 to 35. A summary of the Terms of at the AGM in November 2022. Reference of each committee is detailed below and a copy of the Terms of Reference are available on the Company’s Administration website www.vietnamholding.com. On 7 October 2019 the Board appointed Sanne Group (Guernsey) Limited to provide corporate governance, Audit and Risk Committee secretarial, compliance and accounting services to the The Chairman of the Audit and Risk Committee is Philip Company. Conflicts of Interest Scales and the Committee meets at least twice per annum. All members of the Board are members of the Committee. This includes the Chairman of the Company where, given The Directors are reminded at each Board meeting of their the size of the Board, the experience of all members and obligations to notify any changes in their statement of the independence of the Company Chairman, it is felt conflicts and also to declare any benefits received from appropriate that all Board members play a role in the third parties in their capacity as a Director. Audit and Risk Committee. The principal responsibility of A register of conflicts is maintained by the Administrator and Annual Financial Statements and to present these to the Committee is to monitor the production of the Interim and formally reviewed on a quarterly basis. Each Director the Board for approval. is required to declare any potential conflicts of interest on an ongoing basis. Performance Evaluation Other duties include reviewing the internal financial controls and monitoring third party service providers, review and monitor the external auditor’s independence During the year the Board undertook an evaluation and objectivity along with the effectiveness of the audit exercise into the effectiveness of both the Board and the Committees. The programme was undertaken by the process and to make recommendations to the Board in relation to the appointment of the External Auditor Administrator and no significant issues were identified. together with their remuneration. The Remuneration and Nomination Committee will again A report of the Audit and Risk Committee is detailed on consider whether for the next evaluation due in 2022, an pages 37 to 38. external facilitator should be appointed to undertake the evaluations. Remuneration and Nomination Committee The Remuneration and Nomination Committee is chaired Professional Development and Training by Saiko Tajima and all members of the Board are New Directors are provided with all relevant information members of the Committee. The Board considers that all regarding the Company’s business and given the the Directors are independent and therefore eligible to be opportunity to meet with key functionaries prior to members of the Committee. The Committee meets at appointment. They are also provided with induction least once in each year and at such other times as may be training. considered necessary. 34 GovernanceAnnual Report 2022Corporate Governance Report (continued) Remuneration and Nomination Committee establish a unified view of ESG, increasing understanding (continued) of all three aspects: environmental, social and governance, and to promote the robust standards of corporate The principal duties of the Remuneration and Nomination governance that the Company adopts. Committee are to review the fees paid to the Non-executive Directors, to consider the appointment of external The purpose of the ESG Committee, which shall meet remuneration consultants, to review the structure, size at least once a year, is to support the Company’s on- and composition of the Board, make recommendations going commitment to environmental, health and safety, to the Board for any changes and to consider succession corporate social responsibility, corporate governance, planning. The Committee also undertakes the evaluation sustainability, and other public policy matters relevant to of the appointment of any additional or replacement the Company (collectively, “ESG Matters”). Directors and ensures they are provided with training and induction. The Committee arranges for an annual Shareholder Engagement evaluation of all Board and Committee members. The Company is committed to listening and communicating During the year the Committee reviewed the fees paid to business model and performance are clearly understood. Directors and resolved that no changes be recommended. All Board members have responsibility for Shareholder The AIC Code includes a provision relating to the Chairman of the Company and the Senior Independent appointment of a Senior Independent Director of which Director in close liaison with the Company Advisors. liaison but Shareholder contact is mainly dealt with by the openly with its Shareholders to ensure that its strategy, Sean Hurst occupies this role. No new Board appointments were considered during the and can be downloaded from the website. Other Company year but the Committee reaffirmed the policy that no information including the Interim Report is also available Director should serve for more than 9 years. on the website. Copies of the Annual Report are sent to all Shareholders Management Engagement Committee The Company holds an AGM in each year, which gives The Chairman of the Management Engagement Committee investors the opportunity to enter into dialogue with the is Damien Pierron and the Committee shall meet at least Board and for the Board to receive feedback and take action once a year. All members of the Board are members of as necessary. The Investment Manager also participates the Committee. The principal duties of the Committee in meetings with investors arranged by the Company’s are to review the performance and appointment of the Broker and has arranged seminars and webinars to update Investment Manager together with their remuneration current and prospective investors on the developments and to review the effectiveness and competitiveness of the in the Vietnamese market and the performance of the other main service providers and functionaries together Company. The Investment Manager also updates the with reviewing their performance. Company’s website and sends out monthly factsheets on the Company to investors who have registered to receive A share buy-back sub-committee consisting of Hiroshi Funaki and Sean Hurst has been formed under the such updates. The Company has a LinkedIn page which is administered by the Investment Manager. Management Engagement Committee and meets regularly to review and monitor the share buy-back The Board reviews proxy voting reports and any significant programme. Damien Pierron also joins the share buy-back negative response is discussed with relevant Shareholders sub-committee on an ad-hoc basis. and, if necessary, where appropriate or possible, action is taken to resolve any issues. In the interest of transparency During the year the Committee reviewed the performance and best practice, the level of proxy votes (for, against and of the Investment Manager, Administrator and Sub- vote withheld) lodged on each resolution is declared at all Administrator, Corporate Broker and Registrar. No changes general meetings and announced. were recommended as a result of these reviews. Environmental, Social and Governance Committee Corporate Policies The ESG Committee was established in the prior year and Anti-Bribery and Corruption Policy is chaired by Sean Hurst with all members of the Board The Board is committed to the prevention of bribery forming the Committee. The aim of the Committee is to throughout the organisation and will take every step 35 GovernanceAnnual Report 2022necessary to ensure to the best of its ability, that business Directors and as such a female was appointed to the is conducted fairly, honestly and openly. It has adopted Board in May 2019. In addition, the Board is reviewing a formal policy to combat fraud, bribery and corruption the Policy Statement issued by the FCA in April 2022 on and will seek annual confirmation from the Investment Diversity and inclusion on company boards and executive Manager and other service providers it engages that they management and consequential changes to the Listing have similar policies in place. Furthermore, the Board has Rules. These changes apply to accounting periods starting zero tolerance to the criminal facilitation of tax evasion. on or after 1 April 2022 and will be reported on more fully in These policies apply to the Company and to each of its the 2023 financial statements of the Company. The Board Directors. Further, the policies are shared with each of the notes also that 40% of the team members employed by Company’s service providers, each of which confirms its the Investment Manager and its subsidiary in Vietnam are compliance annually to the Board. female. Criminal Facilitation of Tax Evasion Policy The Board has taken steps to ensure there is no criminal facilitation of tax evasion. This applies to the Company and to each of its Directors, as well as service providers. A policy has been adopted by the Board. General Data Protection Regulation The Company abides by general data protection regulation. As it is established in the Bailiwick of Guernsey, under The Data Protection (Bailiwick of Guernsey) Law, 2017, the Company has registered with the Office of the Data Protection Authority. The Company Global Greenhouse Gas Emissions The Company has no significant greenhouse gas emissions to report from its operations for the year to 30 June 2022, nor does it have responsibility for any other emission producing sources. The Company is very conscious of its own carbon footprint in carrying out its business activities. The main source of this for the Company is in the international and domestic air travel of the Board of Directors and members of the Investment Manager in conducting the business of the Company and meeting with Shareholders. For the year to 30 June 2022, many of the board meetings were conducted through video- conference as a result of restrictions related to COVID-19. During the year members of the Board travelled to London, Zurich and Ho Chi Minh City in conducting the business of the Company. The estimated carbon footprint of travel activities (that have not already been offset at source) amounts to approximately 46.61 tonnes of CO2e. The Company engaged a specialist consulting firm to estimate the carbon footprint of the portfolio, and this is detailed in the Sustainability Report. Gender Metrics The Board of the Company recognises the governance mechanism to ensure there is diversity amongst the 36 GovernanceAnnual Report 2022Audit and Risk Committee Report The main items that the Audit and Risk Committee (the number of committee meetings held during the year “Committee”) has reviewed during the year ended 30 June ended 30 June 2022 and the number of those attended by 2022 were: each committee member are shown on page 33. reviewing the content of the Interim Report and the The External Auditor is invited to attend committee meetings Annual Report; where the Annual and Half-Year Reports are considered and reviewing the independence and effectiveness of the separate meetings are held with the External Auditor where External Auditor; the Investment Manager is not present. considering and reviewing the internal control and risk management systems and the work of the service Principal Duties providers; and The main responsibilities of the Committee include: • • • • reviewing the control framework with the assistance of the Investment Manager and Administrator. Internal Control As a company with a Board consisting entirely of Non- executive Directors and which outsources the day-to- day activities of portfolio management, administration, accounting and company secretarial to external service providers, the Board considers the provision of an internal audit function is not relevant to the position of the Company. • • • • to monitor the integrity of the financial statements of the Company and any formal announcements relating to the Company’s financial performance; to review the Company’s internal financial controls and the internal control and risk management systems of the Company and its third party service providers; to make recommendations to the Board in relation to the appointment of the External Auditor and their remuneration; and to review and monitor the External Auditor’s independence and objectivity and the effectiveness of The Committee reviews the internal financial control the audit process. systems for their effectiveness and through the Management Engagement Committee, monitors the A copy of the Terms of Reference of the Committee are performance of the external service providers. The Board available either from the Company’s website or from the recognises its ultimate responsibility for the Company’s Company’s Administrator. system of internal controls to ensure the maintenance of proper accounting records, the reliability of the financial Valuation of Investments information upon which business decisions are made and The fair value of the Company’s investments at 30 June that the assets of the Company are safeguarded. Through 2022 was USD 120.9 million which represented 93.9% of the these procedures, the Directors have kept under review the Company’s NAV (30 June 2021: USD 193.1 million and 98.5% effectiveness of the internal control system throughout the respectively). The valuation of investments is the most year and up to the date of this report. There were no issues significant factor in relation to the accuracy of the financial arising from this review. statements. Membership and Attendance The Committee membership currently consists of all The Committee reviewed the portfolio valuation as at 30 June 2022 and obtained confirmation from the Investment Board members under the Chairmanship of Philip Scales. Manager that the Company’s policies on the valuation This includes the Chairman of the Company where, given of investments had been followed. The Committee also the size of the Board, the experience of all members and made enquiries of the Sub-Administrator and Custodian, the independence of the Company Chairman, it is felt both of whom are independent of the Company, to check appropriate that all Board members play a role in the procedures are in place to ensure the portfolio is valued Audit and Risk Committee. The Terms of Reference allow correctly. appointments to the Committee for a period of up to 3 years and this may be extended for two further 3-year The Committee agreed the approach to the audit of the periods provided that the Director remains independent. valuation of investments with the External Auditor prior to The Committee holds at least three meetings a year this area were reported by the External Auditor and there which are to review the Annual and Half-Year Reports of were no significant disagreements between the Investment the Company and also for audit planning purposes and Manager, the Sub-Administrator and the External Auditor’s a review of risks relevant to the Company. Details of the conclusions. the commencement of the audit. The results of the audit in 37 GovernanceAnnual Report 2022The Board reviews the changes in valuations at each Annual Report quarterly Board meeting. External Audit The Committee has reviewed the Annual Report along with reports and explanations from the Company’s Investment Manager, Administrator, and other service providers. KPMG Channel Islands Limited (“KPMG”) has been The Committee is satisfied that the Annual Report is fair, the External Auditor since the Company re-domiciled balanced, and understandable and that it provides the in Guernsey on 25 February 2019. The Committee held necessary information for Shareholders to assess the meetings with KPMG before the start of the audit to discuss Company’s performance, business model, and strategy. formal planning and to discuss any possible issues along with the scope of the audit and appropriate timetable. The Committee is satisfied that KPMG has fulfilled its Informal meetings have also been held with the Chairman responsibilities in respect of the annual audit and has of the Committee in order that the Chairman is kept up to recommended that KPMG be re-appointed for the date with the progress of the audit and formal reporting forthcoming financial year. required by the Committee. Annually, the Committee reviews the performance of KPMG Philip Scales in order to recommend to the Board whether or not the Audit and Risk Committee Chairman Auditors should be reappointed for the next year. 30 September 2022 Audit fees payable to KPMG for 2022 are GBP 56,000 (2021: GBP 52,000). Non audit fees payable to KPMG for 2022 were GBP nil (2021: GBP nil). The Committee has reviewed KPMG’s report on their independence and objectivity including their structure for the audit of the Company and is satisfied that the services provided by KPMG do not prejudice its independence. The Committee will continue to review any non-audit services that may be provided by KPMG in order to ensure their continuing independence and integrity. Risk Management An outline of the risk management framework and principal risks is detailed on pages 28 to 30. The Committee will keep under review financial and operational risk including reviewing and obtaining assurances from key service providers for the controls for which they are responsible. Anti-Bribery and Corruption The Company has a zero-tolerance approach to bribery and corruption, in line with the UK Bribery Act 2010. An Anti- Bribery and Corruption Policy has been adopted and is kept under review. Audit Quality Review (AQR) Inspection Report On 26 August 2022, the Company received a copy of an AQR Inspection Report issued by the Financial Reporting Council following their completion of a review into the Company’s 30 June 2021 annual audit. The AQR described some other findings that were required to be implemented by KPMG Channel Islands Limited in the following year’s audit of the Annual Report. 38 GovernanceAnnual Report 2022Directors’ Remuneration Policy and Report Remuneration Policy The Directors are entitled to receive fees for their services which reflect their experience and the time commitment required. At the Annual General Meeting to be held in November 2022 an ordinary resolution seeking approval for the Directors’ remuneration report will be put to Shareholders. Directors’ Remuneration Directors’ fees are paid within limits established in the Articles of Incorporation which shall not exceed an aggregate of USD 350,000 in any financial year (or such sum as the Company shall from time to time determine). The Directors may also be paid reasonable travelling, hotel and other out-of-pocket expenses properly incurred in attending Board, committee meetings or general meetings. The Remuneration Committee reviews the Directors’ fees periodically although the review will not necessarily result in any increase. For the year ended 30 June 2022 annual Directors’ fees remained at USD 50,000 with the Chairman of the Company receiving an additional USD 10,000 per annum or prorated as applicable and, the Senior Independent Director and the Chairman of the Audit and Risk Committee receiving an additional USD 5,000 per annum or prorated as applicable. The Directors are also paid a per diem fee of USD 1,500 for each Board meeting attended and USD 750 for a committee meeting attended, either in person or by telephone. The Company has no bonus schemes, pension schemes, share option or other long-term incentive schemes in place for the Directors. The single total figure of remuneration for each Director who served during the year ended 30 June 2022 and the previous year is as follows: Year ended 30 June 2022 Year ended 30 June 2021 Base Fees USD Additional Ad hoc fees USD Total USD Base Fees USD Additional Ad hoc fees USD Total USD 60,000 10,125 70,125 60,000 11,250 71,250 Director Hiroshi Funaki (Chairman) Sean Hurst (Senior Independent Director) 55,185 10,125 65,310 55,829 10,741 66,570 Philip Scales (Audit and Risk Committee Chairman) 55,000 9,000 64,000 55,000 6,750 61,750 Damien Pierron 50,000 9,424 59,424 50,000 7,873 57,873 Saiko Tajima 50,000 9,000 59,000 50,000 6,000 56,000 Total 270,185 47,674 314,859 270,829 42,614 313,443 39 GovernanceAnnual Report 202240 GovernanceAnnual Report 2022Directors’ Report The Directors present the Annual Report and Financial increasing by as much as 5x the level of the prior year. The Statements of the Company for the year ended 30 June Director’s also note that the portfolio is composed of a 2022. The Company higher percentage of larger and more liquid stocks than in the prior year. Lastly, the Directors note that at year- end the portfolio is comprised of cash and quoted stocks VietNam Holding Limited (the “Company”) is a closed- only. The Company’s liquidity position, taking into account end investment company that was incorporated in the cash held and with the ability to sell underlying assets to Cayman Islands on 20 April 2006 as an exempted company meet share buybacks, tenders and to meet the operating with limited liability under registration number 166182. On costs of the Company, shows that the Company is able 25 February 2019, the Company, via a process of cross- to operate with appropriate liquidity and be able to meet border continuance, transferred its legal domicile from its liabilities as they fall due. The Directors therefore have the Cayman Islands to Guernsey and was registered as a a reasonable expectation that the Company will have closed-ended company limited by shares incorporated in adequate resources to continue its operations for the Guernsey with registered number 66090. foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial The investment objective of the Company is to achieve statements. long-term capital appreciation by investing in a diversified portfolio of companies that have high growth potential at Viability Statement an attractive valuation. The Board has considered the viability period for the Company, using the criteria set out in the UK Corporate At the Extraordinary General Meeting held on 31 October Governance Code. The Board considered the current 2018 the Shareholders voted in favour of the continuance position of the Company, and its longer-term prospects, resolution, authorising the Company to operate in strategies as well as its principal risks in the current, its current form through to the 2023 Annual General medium and long-term, as detailed in the Principal Meeting when a similar resolution will be put forward for Risks and Risk Management on pages 28 to 30 and in Shareholders’ approval. the Investment Manager’s Report on pages 7 to 15. The strategy provides long term direction and is reviewed Dynam Capital, Ltd has been appointed as the Company’s annually and further tested in a series of robust downside Investment Manager and is responsible for the day-to- financial scenarios as part of the annual review. These day management of the Company’s investment portfolio scenarios included an assessment of those risks that in accordance with the Company’s investment policies, would threaten its strategic objectives, its business-as- objectives and restrictions. Results usual state, its business model and its future performance, solvency or liquidity. The sensitivity analysis was applied to the forecasted cash flows. Based on this assessment and The net loss for the year ended 30 June 2022 amounted the Investment Objective of the Company, the Board has to USD 7,719,310 (2021: net income USD 100,153,888). There determined that a three-year viability period to 30 June were no dividends declared during the year ended 30 June 2025 is an appropriate period that the Company will be 2022 (2021: USD nil). Going Concern able to continue in operation and meet its liabilities as they fall due over the period of three years. The Board also travelled to Vietnam in June 2022, meeting with the The financial position of the Company, its cash flows and research team, of the Investment Manager, meeting with liquidity position are described in Financial Statements and the Notes to Financial Statements. These also contain the portfolio companies and market commentators. Company’s objectives, policies, processes for managing its In arriving at this conclusion, the Board considered: capital, its financial risks management objectives, details of its financial instruments, and its exposures to credit risk - The volatility of global economic conditions, lingering and liquidity risk. impacts of COVID-19, the war in Ukraine and inflation: The Board considered the impact and effectiveness of The Company’s forecasts and projections have been stress mitigation strategies being mandated by governments in tested taking into account the potential for (i) asset value impacted countries; the adverse financial impact already declines, (ii) declines in cash dividends from equities being experienced by the Company: the disruption to held in the portfolio and (iii) share buybacks and tender economic activity and financial pressures and impact on offers. The Directors note that the underlying liquidity of investments in the Company’s portfolio. The Board also Vietnamese stocks has increased significantly over the engaged with the Investment Manager on the longer- last twelve months with average daily traded volumes term impact of climate change, and other societal change 41 GovernanceAnnual Report 2022factors, to the portfolio. Additionally, the Board took into - Investment: consideration the impact on the capital markets in Vietnam; the existence and effectiveness of business continuity plans • The liquidity of the Company’s underlying portfolio of the Company and its service providers; and the impact on is relatively high: average daily trading volumes on our stakeholders caused by COVID-19. The Board reviewed Vietnam’s stock markets have reached three to four macro-reports and updates from the Investment Manager times the levels of previous years. All new invested detailing the impacts of rising inflation in the US and Europe stocks in this year are listed which have relatively on Vietnam, and also the direct impacts of the war in high liquidity. At year end there were no unquoted Ukraine. - Business environment: investments and all securities are ‘Level 1’. Recent stress testing has confirmed that the underlying holdings can be easily liquidated, despite the more Whilst the impact of COVID-19 on the global business uncertain and volatile economic environment. In environment may linger, there are visible signs of post- August and September 2021, 30% of the portfolio COVID-19 recovery which the Board were able to see first- was readily liquidated to provide funding for a Tender hand on their visit to Vietnam in June 2022. There has Offer, without any issues. It is estimated that up to been an increase in consumer demand, return to greater 93% of the portfolio can be readily liquidated in less travel freedoms and signs of a return to stronger economic than ten trading days and 99% of the portfolio in growth. The Company’s strategy for investing in a portfolio less than 30 days. The portfolio is un-geared and, as of equities in Vietnam and targeting growth in the value it holds all listed securities, has sufficient liquidity to of the portfolio over the medium term is unchanged. The meet the Company’s liabilities. combination of potential structural opportunities that may • The current portfolio is low to medium risk based on benefit Vietnam as a destination for manufacturing, and the assessments both individually and in combination of opportunities within the growing domestic market provide liquidity risk, credit risk, interest rate risk and currency attractive investment opportunities. The direct impact of risk. The Investment Manager and the Board review the war in Ukraine on Vietnam appears to be manageable, and evaluate the portfolio on a monthly basis. with less than 1% of trade to Russia and Ukraine. The levels of inflation in Vietnam are less pronounced than those in - Principal risks: Europe and the US, and the macro-economic position The Board’s review considered the Company’s cash appears to be stronger than in many other frontier and flows and income flows, with reference to operational, emerging economies. - Continuation vote in 2023: business, market, currency, liquidity, interest rate and credit risk associated in financial instruments set out in note 3 (Financial Instruments and Associated Risks) and The Fund has a formal continuation vote in 2023 and it is note 4 (Operating Segments) of the financial statements the current intention of the Board to table a continuation on pages 60 to 64. The statistical modelling is used to resolution at the 2023 Annual General meeting. quantify these risks, which ensures that the Company holds sufficient financial assets and capital to mitigate the - Operations: impact of these risks. 2021 was another year of significant operational change caused by the COVID-19 pandemic. During parts of 2021 there were strict lockdowns enforced in Vietnam, disruption - Incomes and expenses: to travel domestically and internationally, and Directors of • The Company has a portfolio that generates the Investment Manager and staff of the Market Research investment income through dividends payments. subsidiary of the Investment Manager being infected The cash dividends received can be used to partially with the virus. The Board ensured that the Investment offset the Company’s on-going expenses. In the year Manager and other service providers had effective Business under review, total on-going expenses were covered Continuity protocols and plans in place. The smooth 0.43 times by investment income. In the following operation of the Company through the various restrictions year, the current investment income is forecast to and lockdowns brought about by COVID-19 have reassured cover 0.48 times the amount of on-going expenses. In the Board that operationally speaking the Company is very the stress-tested scenario with significant declines in robust and can, if necessary, operate effectively without cash dividends forecasted, the investment income is the need for physical meetings or an office presence. The forecast to cover 0.39 times on-going expenses. Board, Investment Manager, Administrator, and other • The Company maintains a cash buffer of approximately service providers have all demonstrated that they can work 3.4% of NAV to help meet on-going expenses. effectively and efficiently despite, in many cases, working remotely for parts of the year. 42 GovernanceAnnual Report 2022Directors’ Report (continued) Viability Statement (continued) Given the adequate levels of cover set out above, the cash buffer, the liquidity levels and the overall portfolio risk, the Board has reasonable expectation that the Company can continue in operation and meet its liabilities over the forecast period. The Company’s viability depends on the global economy and markets continuing to function. The Board has also considered the possibility of a wide-ranging collapse in corporate earnings and/or the market value of listed securities. To the latter point, it should be borne in mind that a significant proportion of the Company’s expenses are in investment management fees linked to the level of net assets of the Company, which are therefore variable in nature and would naturally reduce if the market value of the Company’s assets were to fall. In order to maintain viability, the Company has robust risk controls as set out in the Directors’ Report and the risk management and control framework have the objectives of monitoring and reducing the likelihood and impact of operational risks including poor judgement in decision-making, risk-taking that exceeds the levels agreed by the Board, human error, or control processes being deliberately ignored. In this context, the Board considers that the prospects for economic activity will remain such that the investment objective, policy and strategy of the Company will be viable for the foreseeable future and through a period of at least three years from 30 June 2022. Key Performance Indicators (“KPIS”) To ensure the Company meets its objectives the Board evaluates the performance of the Investment Manager at least at each quarterly Board meeting and takes into the following performance indicators: • • NAV – reviews the performance of the portfolio Discount to NAV – and reviews the average discount for the Company’s share price against its peer group. Share Capital and Share Buy-Backs An active discount control mechanism to address the imbalance between the supply of and demand for ordinary shares using share buy backs is employed by the Broker and monitored by the Board. At the Annual General Meeting (“AGM”) of the Company held on 1 November 2021, the Company was granted the general authority to purchase in the market up to 14.99% of the ordinary shares in issue. This authority will expire at the AGM to be held in November 2022. In the year ended 30 June 2022 661,084 ordinary shares had been bought back and cancelled under the Company’s share buyback programme. A further 12,737,184 ordinary shares were bought back following the Company’s tender offer in September 2021. Since the year-end and up to 29 September 2022, being the latest practicable date prior to publication of the report, the Company bought back and cancelled 205,195 ordinary shares. Share Buy-Backs to the Year-Ended 30 June 2022 Opening balance at 1 July Share issued during the year Shares repurchased during the year Tender Offer 30 June 2022 30 June 2021 Number of Shares 42,623,935 - (661,084) (12,737,184) USD’000 60,474 - (2,655) (56,884) Number of Shares 50,814,865 - (605,681) (7,585,249) USD’000 81,832 - (1,180) (20,178) Closing balance at 30 June 29,225,667 935 42,623,935 60,474 43 GovernanceAnnual Report 2022Substantial Share Interests The following shareholders owned 5% or more of the shares in issue of the Company, as stated on the share register as at 30 June 2022. Shareholder Lynchwood Nominees Limited Citibank Nominees (Ireland) Designated Activity Company The Bank of New York (Nominees) Limited Vidacos Nominees Limited Hargreaves Lansdown (Nominees) Limited Chase Nominees Limited Euroclear Nominees Limited Interactive Investor Services Nominees Limited Number of ordinary shares Percentage of total shares in issue 5,889,152 5,438,957 2,821,510 2,603,438 1,747,238 1,650,120 1,605,934 1,451,443 20.2 18.6 9.7 8.9 6.0 5.6 5.5 5.0 Notification of Shareholdings In the year to 30 June 2022 the Company received notifications in accordance with Chapter 5 of the DTR (which covers the acquisition and disposal of major shareholdings and voting rights), of the following changes to voting rights by shareholders of the Company. It should be noted that for non-UK issuers, the thresholds prescribed under DTR 5.1.2 for notification of holdings commence at 5% of total voting rights, however notifications received below 5% have been received and are Shareholder Number of voting rights Percentage of total voting rights as at announcement date Announcement date De Pury Pictet Turrettini & Cie SA City of London Investment Management Company Limited Euroclear Nominees Limited City of London Investment Management Company Limited EdenTree Investment Management 0 3,225,163 5,198,113 2,963,123 1,489,431 0 10.9 17.5 10.0 5.1 18 August 2021 15 September 2021 21 September 2021 17 December 2021 01 June 2022 Since 30 June 2022 the Company has not received DTR 5.1.2 notifications of holdings. 44 GovernanceAnnual Report 2022Statement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements The Directors are responsible for preparing the Annual The Directors are responsible for the maintenance and Report and Financial Statements in accordance with integrity of the corporate and financial information applicable law and regulations. included on the Company’s website. Legislation in Guernsey governing the preparation and dissemination of Company law requires the Directors to prepare financial financial statements may differ from legislation in other statements for each financial year. Under that law they are jurisdictions. required to prepare the financial statements in accordance with International Financial Reporting Standards as The Directors who hold office at the date of approval adopted by the EU and applicable law. Under company law of this Director’s Report confirm that so far as they are the Directors must not approve the financial statements aware, there is no relevant audit information of which the unless they are satisfied that they give a true and fair view Company’s auditor is unaware, and that each Director has of the state of affairs of the Company and of its profit or taken all the steps he ought to have taken as a Director to loss for that period. make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of In preparing these financial statements, the Directors are that information. required to: Compliance with Disclosure and Transparency • • • • • select suitable accounting policies and then apply them Directive consistently; make judgements and estimates that are reasonable, We confirm that to the best of our knowledge: relevant and reliable; state whether applicable accounting standards have • the financial statements, prepared in accordance with been followed, subject to any material departures the International Financial Reporting Standards as disclosed and explained in the financial statements; adopted by the EU (“IFRS”), give a true and fair view assess the Company’s ability to continue as a going of the assets, liabilities, financial position and profit or concern, disclosing, as applicable, matters related to loss of the Company; and going concern; and • the Directors’ Report includes a fair review of the use the going concern basis of accounting unless they development and performance of the business and either intend to liquidate the Company or to cease the position of the issuer, together with a description operations, or have no realistic alternative but to do so. of the principal risks and uncertainties that they face. The Directors are responsible for keeping proper We consider the Annual Report and Financial Statements accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to accuracy at any time the financial position of the Company assess the Company’s position and performance, business and enable them to ensure that its financial statements model and strategy. comply with the Companies (Guernsey) Law, 2008. They are responsible for such internal control as they determine is For and on behalf of the Board necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard Hiroshi Funaki the assets of the Company and to prevent and detect Chairman fraud and other irregularities. 30 September 2022 45 GovernanceAnnual Report 202246 GovernanceAnnual Report 2022Annual Report 2022 Financial Statements Independent Auditor’s Report to the Members of VietNam Holding Limited Our opinion is unmodified We have audited the financial statements of VietNam Holding Limited (the “Company”), which comprise the statement of financial position as at 30 June 2022, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. In our opinion, the accompanying financial statements: • • • give a true and fair view of the financial position of the Company as at 30 June 2022, and of the Company’s financial performance and cash flows for the year then ended; are prepared in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”); and comply with the Companies (Guernsey) Law, 2008. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to public interest entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Key audit matters: our assessment of the risks of material misstatement Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matter was as follows (unchanged from 2021): The risk Our response Valuation of Investments in Basis: Our audit procedures included: securities at fair value The Company’s investment portfolio $120,957,996; (2021: $193,108,385) trading on the Vietnamese stock consists of listed equity securities Internal Controls: We evaluated the design and exchange (the “Investments”). These implementation of the key control Refer to page 37 to 38 of the Audit Investments, carried at a fair value, over the valuation of Investments. and Risk Committee report, note are valued by the Company based on 2d accounting policies and note 12 disclosures quoted prices in an active market for that instrument. Risk: Use of KPMG Specialists: We engaged our own valuation specialist to independently price 100% of Investments to third party pricing The valuation of investments, due sources. to their magnitude in the context of the financial statement as a whole, is considered to be the area which has Assessing disclosures: considered We the Company’s the greatest effect on our overall audit disclosures (see notes 2b and 2d) in strategy and allocation of resources in relation to the use of estimates and planning and completing our audit. judgements regarding the valuation of investments and the Company’s investment valuation policies and fair value disclosures in note 12 “Fair Value Information” for compliance with IFRS. 47 Our application of materiality and an overview of the scope of our audit Materiality for the financial statements as a whole was set at $2,576,000, determined with reference to a benchmark of net assets of $128,822,167, of which it represents approximately 2.0% (2021: 2.0%). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Performance materiality for the Company was set at 75% (2021: 75%) of materiality for the financial statements as a whole, which equates to $1,932,000. We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk. We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding $128,000, in addition to other identified misstatements that warranted reporting on qualitative grounds. Our audit of the Company was undertaken to the materiality level specified above, which has informed our identification of significant risks of material misstatement and the associated audit procedures performed in those areas as detailed above. Going concern The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern for at least a year from the date of approval of the financial statements (the “going concern period”). In our evaluation of the directors’ conclusions, we considered the inherent risks to the Company’s business model and analysed how those risks might affect the Company’s financial resources or ability to continue operations over the going concern period. The risk that we considered most likely to affect the Company’s financial resources or ability to continue operations over this period was availability of capital to meet operating costs and other financial commitments. We considered whether this risk could plausibly affect the liquidity in the going concern period by comparing severe, but plausible downside scenarios that could arise from this risk against the level of available financial resources indicated by the Company’s financial forecasts. We considered whether the going concern disclosure in note 2(b) to the financial statements gives a full and accurate description of the directors’ assessment of going concern. Our conclusions based on this work: • • • we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate; we have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for the going concern period; and we have nothing material to add or draw attention to in relation to the directors’ statement in the notes to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Company’s use of that basis for the going concern period, and that statement is materially consistent with the financial statements and our audit knowledge. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Company will continue in operation. 48 Financial StatementsAnnual Report 2022Independent Auditor’s Report to the Members of VietNam Holding Limited (continued) Fraud and breaches of laws and regulations – ability to detect Identifying and responding to risks of material misstatement due to fraud To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: • • • enquiring of management as to the Company’s policies and procedures to prevent and detect fraud as well as enquiring whether management have knowledge of any actual, suspected or alleged fraud; reading minutes of meetings of those charged with governance; and using analytical procedures to identify any unusual or unexpected relationships. As required by auditing standards, we perform procedures to address the risk of management override of controls, in particular the risk that management may be in a position to make inappropriate accounting entries. On this audit we do not believe there is a fraud risk related to revenue recognition because the Company’s revenue streams are simple in nature with respect to accounting policy choice, and are easily verifiable to external data sources or agreements with little or no requirement for estimation from management. We did not identify any additional fraud risks. We performed procedures including • • Identifying journal entries and other adjustments to test based on risk criteria and comparing any identified entries to supporting documentation; and incorporating an element of unpredictability in our audit procedures. Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our sector experience and through discussion with management (as required by auditing standards), and from inspection of the Company’s regulatory and legal correspondence, if any, and discussed with management the policies and procedures regarding compliance with laws and regulations. As the Company is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements. The Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. The Company is subject to other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or impacts on the Company’s ability to operate. We identified financial services regulation as being the area most likely to have such an effect, recognising the regulated nature of the Company’s activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. 49 Financial StatementsAnnual Report 2022In addition, as with any audit, there remains a higher risk of non-detection of fraud, as this may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Disclosures of emerging and principal risks and longer term viability We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge. we have nothing material to add or draw attention to in relation to: • • • the directors’ confirmation within the Viability Statement (page 41 - 43) that they have carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity; the emerging and principal risks disclosures describing these risks and explaining how they are being managed or mitigated; the directors’ explanation in the Viability Statement (page 41 - 43) as to how they have assessed the prospects of the Company, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We are also required to review the Viability Statement, set out on page 41 - 43 under the Listing Rules. Based on the above procedures, we have concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge. Corporate governance disclosures We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate governance disclosures and the financial statements and our audit knowledge. Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements and our audit knowledge: • • • the directors’ statement that they consider that theannual report and financial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess theCompany’s position and performance, business model and strategy; the section of theannual report describing the work of the Audit Committee, including the significant issues that the audit committee considered in relation to the financial statements, and how these issues were addressed; and the section of theannual report that describes the review of the effectiveness of theCompany’s risk management and internal control systems. 50 Financial StatementsAnnual Report 2022Independent Auditor’s Report to the Members of VietNam Holding Limited (continued) Corporate governance disclosures (continued) We are required to review the part of Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in this respect. We have nothing to report on other matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion: • • • the Company has not kept proper accounting records; or the financial statements are not in agreement with the accounting records; or we have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the purpose of our audit. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 45, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. The purpose of this report and restrictions on its use by persons other than the Company’s members as a body This report is made solely to the Company’s members, as a body, in accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Andrew J. Salisbury For and on behalf of KPMG Channel Islands Limited Chartered Accountants and Recognised Auditors Guernsey 30 September 2022 51 Financial StatementsAnnual Report 2022Statement of Financial Position As at 30 June 2022 Assets Non-current assets Notes 2022 USD 2021 USD Investments at fair value through profit or loss 3 120,957,996 193,108,385 Total non-current assets 120,957,996 193,108,385 Current assets Cash and cash equivalents Prepayments Accrued dividends and interest Receivables on sale of investments 8,160,681 6,031,337 - 58,772 9,290 30,153 - 1,239,041 Total current assets 8,219,453 7,309,821 Total assets Equity Share capital Reserve for own shares Retained earnings Total equity Liabilities Payables on purchase of investments Accrued expenses Total liabilities 129,177,449 200,418,206 5 5 166,645,041 166,645,041 (165,709,783) (106,170,790) 127,886,909 135,606,219 128,822,167 196,080,470 - 3,905,824 355,282 431,912 355,282 4,337,736 Total equity and liabilities 129,177,449 200,418,206 The financial statements on pages 52 to 69 were approved by the Board of Directors on 30 September 2022 and were signed on its behalf by Hiroshi Funaki Philip Scales Chairman of the Board of Directors Chairman of the Audit and Risk Committee The accompanying notes on pages 56 to 69 form an integral part of these financial statements. 52 Financial StatementsAnnual Report 2022Statement of Comprehensive Income For the year ended 30 June 2022 Notes 2022 USD 2021 USD Dividend income from equity securities at fair value through profit or loss 1,811,555 2,390,216 Net gain/(loss) from investments at fair value through profit or loss 7 (5,211,105) 100,730,119 Net foreign exchange (loss)/gain Interest income from investments at fair value through profit or loss Other income Net investment gain/(loss) Investment management fees Advisory fees Directors’ fees and expenses Custodian fees Administrative and accounting fees Audit fees Other expenses (67,666) - - (1,896) 694,162 163,128 (3,467,216) 103,975,729 2,737,804 2,438,087 15,715 385,292 152,863 216,939 71,428 672,053 111,579 328,690 146,875 219,271 78,758 498,581 8 8 9 10 Total operating expenses 4,252,094 3,821,841 Income/(loss) for the year (7,719,310) 100,153,888 Other comprehensive income - - Total comprehensive income/(loss) for the year (7,719,310) 100,153,888 Basic and diluted earnings per share 14 (0.24) 2.19 The accompanying notes on pages 56 to 69 form an integral part of these financial statements. 53 Financial StatementsAnnual Report 2022Statement of Changes in Equity For the year ended 30 June 2022 Share capital USD Reserve for own shares USD Retained earnings USD Total USD Balance at 1 July 2020 166,645,041 (84,813,068) 35,452,331 117,284,304 Total comprehensive income for the year Change in net assets attributable to shareholders Total comprehensive income for the year Transactions in shares Repurchase of own shares Total transactions in shares - - - - - - 100,153,888 100,153,888 100,153,888 100,153,888 (21,357,722) (21,357,722) - - (21,357,722) (21,357,722) Balance at 30 June 2021 166,645,041 (106,170,790) 135,606,219 196,080,470 Balance at 1 July 2021 166,645,041 (106,170,790) 135,606,219 196,080,470 Total comprehensive loss for the year Change in net assets attributable to shareholders Total comprehensive loss for the year Transactions in shares Repurchase of own shares Total transactions in shares - - - - - - (7,719,310) (7,719,310) (7,719,310) (7,719,310) (59,538,993) (59,538,993) - - (59,538,993) (59,538,993) Balance at 30 June 2022 166,645,041 (165,709,783) 127,886,909 128,822,167 The accompanying notes on pages 56 to 69 form an integral part of these financial statements. 54 Financial StatementsAnnual Report 2022Statement of Cash Flows For the year ended 30 June 2022 Notes 2022 USD 2021 USD Cash flows from operating activities Total comprehensive income/(loss) for the year (7,719,310) 100,153,888 Adjustments to reconcile total comprehensive income/(loss) to net cash from operating activities: Dividend income Interest income (1,811,555) (2,390,216) - (694,162) Net loss/(gain) from investments at fair value through profit or loss 7 5,211,105 (100,730,119) Net foreign exchange loss Purchase of investments Proceeds from sale of investments Changes in working capital 67,666 1,896 (78,323,705) (87,370,357) 145,262,989 110,054,346 Decrease/(increase) in receivables on sale of investments 1,239,041 (1,239,041) (Decrease)/increase in payables on purchase of investments (3,905,824) 3,728,278 (Decrease)/increase in accrued expenses Decrease/(increase) in prepayments Dividends received Interest received Net cash from operating activities Cash flows used in financing activities Repurchase of own shares (76,630) 146,408 9,290 (9,290) 1,690,983 2,392,036 91,953 786,115 61,736,003 24,829,782 (59,538,993) (21,357,722) Net cash used in financing activities (59,538,993) (21,357,722) Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of exchange rate fluctuations on cash held 2,197,010 3,472,060 6,031,337 2,561,173 (67,666) (1,896) Cash and cash equivalents at end of the year 8,160,681 6,031,337 The accompanying notes on pages 56 to 69 form an integral part of these financial statements. 55 Financial StatementsAnnual Report 2022Notes to the Financial Statements For the year ended 30 June 2022 1. The Company VietNam Holding Limited (the “Company”) is a closed-end investment company that was incorporated in the Cayman Islands on 20 April 2006 as an exempted company with limited liability under registration number 166182. On 25 February 2019, the Company, via a process of cross-border continuance, transferred its legal domicile from the Cayman Islands to Guernsey and was registered as a closed-ended company limited by shares incorporated in Guernsey with registered number 66090. On 8 March 2019 the Company’s ordinary shares were cancelled from trading on AIM and admitted to the Premium segment of the official list of the UK Listing Authority (“Official List”) and trading on the main market of the London Stock Exchange (“Main Market”). On the same date the Company’s shares were admitted to listing and trading on the Official List of The International Stock Exchange (“TISE”). The investment objective of the Company is to achieve long-term capital appreciation by investing in a diversified portfolio of companies that have high growth potential at an attractive valuation. At the Extraordinary General Meeting held on 31 October 2018 the Shareholders voted in favour of the continuance resolution, authorising the Company to operate in its current form through to the 2023 Annual General Meeting when a similar resolution will be put forward for Shareholders’ approval. Dynam Capital, Ltd has been appointed as the Company’s Investment Manager and is responsible for the day-to-day management of the Company’s investment portfolio in accordance with the Company’s investment policies, objectives and restrictions. Sanne Group (Guernsey) Limited is the Company’s administrator. Standard Chartered Bank (Singapore) Limited and Standard Chartered Bank (Vietnam) Limited are the custodian and the sub-custodian respectively. Standard Chartered Bank (Singapore) Limited is also the sub-administrator. The registered office of the Company is De Catapan House, Grange Road, St Peter Port, Guernsey, GY1 2QG. 2. Significant Accounting Policies (a) Statement of compliance These financial statements, which give a true and fair view, have been prepared in accordance with the International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and comply with the Companies (Guernsey) Law, 2008. (b) Basis of preparation The financial statements are presented in United States dollars (“USD”), which is the Company’s functional currency. The financial statements have been prepared on a going concern basis, applying the historical cost convention, except for the measurement of investments at fair value through profit or loss. Going concern The Directors have reasonable expectations and are satisfied that the Company has adequate resources to continue its operations and meet its commitments for the foreseeable future and they continue to adopt the going concern basis for the preparation of the financial statements. In making this statement, the Directors confirm the Company’s forecasts and projections have been stress tested taking into account the potential for (i) asset value declines, (ii) declines in cash dividends from equities held in the portfolio and (iii) share buybacks and tender offers. The Directors note that the underlying liquidity of Vietnamese stocks has increased over the last twelve months with average daily traded volumes increasing by as much as 5x the level of the prior year. The Directors also note that the portfolio is composed of a higher percentage of larger and more liquid stocks than in the prior year. Lastly, the Directors note that at year-end the portfolio 56 Financial StatementsAnnual Report 2022Notes to the Financial Statements For the year ended 30 June 2022 (continued) 2. Significant Accounting Policies (continued) is comprised of cash and quoted stocks only. The Company’s liquidity position, taking into account cash held and with the ability to sell underlying assets to meet share buybacks, tenders and to meet the operating costs of the Company, shows that the Company is able to operate with appropriate liquidity and be able to meet its liabilities as they fall due. The fund has a formal continuation vote in 2023 and it is the current intention of the Board to table a continuation resolution at the 2023 Annual General meeting. The Directors therefore have a reasonable expectation that the Company will have adequate resources to continue its operations for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. Critical accounting estimates and judgements The preparation of financial statements in accordance with IFRS as adopted by the European Union requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimated and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Functional currency The Company’s shares were issued in USD and the listing of the shares on the Main Market and TISE is in USD. The performance of the Company is measured and reported to the investors in USD, although the primary activity of the Company is to invest in the Vietnamese market. The Board considers the USD as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. Fair value of financial instruments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at each reporting date. (c) Foreign currency translation Transactions in foreign currencies other than the functional currency are translated at the applicable rates on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated to USD at the applicable rates on the year-end date. Foreign currency exchange differences arising on translation and realised gains and losses on disposals or settlements of monetary assets and liabilities are included in the Statement of Comprehensive Income. Foreign currency exchange differences relating to investments at fair value through profit or loss are included in the realised and unrealised gains and losses on those investments within “Net gain/(loss) from investments at fair value through profit or loss” on the Statement of Comprehensive Income. All other foreign currency exchange differences relating to other monetary items, including cash and cash equivalents, are included in net foreign exchange gains and losses in the Statement of Comprehensive Income. (d) Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. 57 Financial StatementsAnnual Report 2022(i) Classification In accordance with IFRS 9, the Company classifies its financial assets and financial liabilities at initial recognition into the categories of financial assets and financial liabilities discussed below. Financial assets The Company classifies its financial assets as subsequently measured at amortised cost or measured at fair value through profit or loss on the basis of both: • • The entity’s business model for managing the financial assets The contractual cash flow characteristics of the financial assets Financial assets measured at amortised cost A financial asset is measured at amortised cost if it is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company includes in this category accrued income, cash and cash equivalents and receivables on sale of investments. Financial assets measured at fair value through profit or loss (“FVTPL”) A financial asset is measured at fair value through profit or loss if: (a) Its contractual terms do not give rise to cash flows on specified dates that are solely payments of principal and interest (SPPI) on the principal amount outstanding; or (b) It is not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell; or (c) At initial recognition, it is irrevocably designated as measured at FVTPL when doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. The Company measures all its investments at FVTPL. (ii) Recognition and initial measurement Financial assets and liabilities at fair value through profit or loss are recognised initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument. Other financial assets and liabilities are recognised on the date they are originated. Financial assets and financial liabilities at fair value through profit or loss are recognised initially at fair value, with transaction costs recognised in the Statement of Comprehensive Income. Financial assets or financial liabilities not at fair value through profit or loss are recognised initially at fair value plus transaction costs that are directly attributable to their acquisition or issue. (iii) Subsequent measurement After initial measurement, the Company measures financial instruments which are classified as FVTPL at fair value. Subsequent changes in the fair value of those financial instruments are recorded in net gain or loss on financial assets and liabilities at FVTPL in the Statement of Comprehensive Income. Interest and dividends earned or paid on these instruments are recorded separately in interest income or expense and dividend income in the Statement of Comprehensive Income. (iv) Derecognition A financial asset is derecognised when the Company no longer has control over the contractual rights that comprise that asset. This occurs when the rights are realised, expire or are surrendered. 58 Financial StatementsAnnual Report 2022 Notes to the Financial Statements For the year ended 30 June 2022 (continued) 2. Significant Accounting Policies (continued) Financial assets that are sold are derecognised, and the corresponding receivables from the buyer for the payment are recognised on the trade date, being the date the Company commits to sell the assets. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired. (v) Fair value measurement ‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk. When available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The Company measures instruments quoted in an active market at the last traded price. If there is no quoted price in an active market, then the Company uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would consider in pricing a transaction. The Company recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred. Any increases or decreases in fair value are recognised in the Statement of Comprehensive Income as an unrealised gain or loss from investments at FVTPL. (vi) Impairment of financial assets At each reporting date, the Company measures the loss allowance on financial assets carried at amortised cost at an amount equal to the lifetime expected credit losses if the credit risk has increased significantly since initial recognition. If, at the reporting date, the credit risk has not increased significantly since initial recognition, the Company measures the loss allowance at an amount equal to 12-month expected credit losses. The expected credit losses are estimated using a provision matrix based on the Company’s historical credit loss experience adjusted for factors that are specific to the accounts receivables, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and exposure at the default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information. (vii) Cash and cash equivalents Cash comprises current deposits with banks. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. (e) Offsetting Financial assets and liabilities are offset and the net amount is reported in the Statement of Financial Position when, and only when, the Company has a legally enforceable right to set off the recognised amounts and the transactions are intended to be settled on a net basis or simultaneously, e.g. through a market clearing mechanism. (f) Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. 59 Financial StatementsAnnual Report 2022Repurchase, disposal and reissue of share capital (treasury shares) Where the Company purchases its own share capital, the consideration paid, which includes any directly attributable costs, is recognised as a deduction from equity shareholders’ funds through the Company’s reserves for own shares. The reserves for own shares represents share capital which can be reissued in the future or subsequently cancelled. When such shares are subsequently sold or re-issued to the market any consideration received, net of any directly attributable incremental transaction costs, is recognised as an increase in equity shareholders’ funds through the reserve of own shares account. The Directors have cancelled all the shares repurchased during the current and the previous year. (g) Tax Tax expense comprises current tax. Current tax is recognised in the Statement of Comprehensive Income except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. The Company is a tax resident in Guernsey and is subject to the standard rate of 0% on taxable income. The Company is liable to Vietnamese transactional tax of 0.1% (2021: 0.1%) on the sales proceeds of the onshore sale of equity investments. The related taxes on onshore sales proceeds are accounted for at net amount in the Statement of Comprehensive Income. (h) Interest income and expense Interest income and expense is recognised in the Statement of Comprehensive Income using the effective rate method. The effective interest rate method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument – or, when appropriate, a shorter period – to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Directors estimate cash flows considering all contractual terms of the financial instrument but do not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. (i) Dividend income Dividend income is recognised in the Statement of Comprehensive Income on the date on which the right to receive payment is established. For listed equity securities, this is usually the ex-dividend date. Dividend income from equity securities designated as at fair value through profit or loss is recognised in the Statement of Comprehensive Income as a separate line item. (j) Fee and commission expense Fees and commission expenses are recognised in the Statement of Comprehensive Income as the related services are performed. (k) Earnings per share The Company presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. 3. Financial Instruments and Associated Risks Financial assets of the Company include investments at fair value through profit or loss, cash and cash equivalents, receivables on sale of investments, and accrued dividends and interest. Financial liabilities comprise payables on purchase of investments and accrued expenses. Accounting policies for financial assets and liabilities are set out in note 2. 60 Financial StatementsAnnual Report 2022Notes to the Financial Statements For the year ended 30 June 2022 (continued) 3. Financial Instruments and Associated Risks (continued) The Company’s investment activities expose it to various types of risk that are associated with the financial instruments and the markets in which it invests. The most important types of financial risk to which the Company is exposed are market risk (which includes price risk, currency risk, and interest rate risk), credit risk and liquidity risk. Asset allocation is determined by the Company’s Investment Manager who manages the distribution of the assets to achieve the investment objectives. Divergence from target asset allocations and the composition of the portfolio is monitored by the Investment Manager. Market risk Market risk is the risk that the value of a financial asset will fluctuate as a result of changes in market prices (e.g. interest rates, foreign exchange rates, equity prices and credit spreads) whether or not those changes are caused by factors specific to the individual asset or factors affecting all assets in the market. The Company is exposed to market risk within its investments purchased in the Vietnamese market. The overall market positions are monitored continuously by the Investment Manager and at least quarterly by the Board. The Company’s investments in securities are exposed to market risk and are disclosed by the following generic investment types: 2022 2021 Fair value in USD % of net assets Fair value in USD % of net assets Investments in listed securities 120,957,996 93.90 193,108,385 98.48 Investments in unlisted securities — — - - 120,957,996 93.90 193,108,385 98.48 At 30 June 2022, a 5% reduction in the market value of the portfolio would have led to a reduction in NAV and profit or loss of USD 6,047,900 (2021: USD 9,655,419). A 5% increase in market value would have led to an equal and opposite effect on NAV and profit or loss. Currency risk The Company may invest in financial instruments and enter into transactions denominated in currencies other than its functional currency. Consequently, the Company is exposed to risks that the exchange rate of its currency relative to other currencies may change and have an adverse effect on the value of the Company’s financial assets or liabilities denominated in currencies other than USD. The Company’s net assets are calculated every month based on the most up to date exchange rates while the general economic and foreign currency environment is continuously monitored by the Investment Manager and reviewed by the Board at least once each quarter. The Company may enter into arrangements to hedge currency risks if such arrangements become desirable and practicable in the future in the interest of efficient portfolio management. 61 Financial StatementsAnnual Report 2022As at 30 June 2022, the Company had the following foreign currency exposures: Vietnamese Dong Pound Sterling Swiss Franc Euro Fair value 2022 USD 2021 USD 128,235,094 632,133 163 4,497 195,378,974 3,903 2,628 54,097 128,871,887 195,439,602 At 30 June 2022, a 5% reduction in the value of the Vietnamese Dong, Pound Sterling, Swiss Franc, Euro versus the US Dollar would have led to a reduction in NAV and profit or loss of USD 6,411,755 (2021: USD 9,768,949), USD 31,607 (2021: USD 195), USD 8 (2021: USD 131) and USD 225 (2021: USD 2,705) respectively. A 5% increase in value would have led to an equal and opposite effect. Interest rate risk Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The majority of the Company’s financial assets are non-interest-bearing. Interest-bearing financial assets and interest- bearing financial liabilities mature or reprice in the short-term, no longer than twelve months. As a result, the Company is subject to limited exposure to interest rate risk due to fluctuations in the prevailing levels of market interest rates. Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered with the Company. At 30 June 2022, the following financial assets were exposed to credit risk (including settlement risk): cash and cash equivalents, receivables on sale of investments and accrued dividends and interest. The total amount of financial assets exposed to credit risk amounted to USD 8,219,453 (2021: USD 7,300,531). Substantially all the assets of the Company are held by the Company’s custodian, Standard Chartered Bank (Singapore) Limited. Bankruptcy or insolvency of the custodian may cause the Company’s rights with respect to cash and securities held by the custodian to be delayed or limited. The Company monitors its risk by monitoring the credit quality and financial positions of the custodian the Company uses. As at 30 June 2022, the Company’s custodian, Standard Chartered Bank (Singapore) Limited, was rated as A by Standard and Poor’s, A1 by Moody’s and A+ by Fitch (2021: A by Standard and Poor’s, A1 by Moody’s and A+ by Fitch). Financial assets subject to IFRS 9’s impairment requirements The Company’s financial assets subject to the expected credit loss model within IFRS 9 are cash and cash equivalents, and short-term receivables, including accrued dividends and interest, and receivables on sale of investments. As at 30 June 2022, the total of cash and cash equivalents, and short-term receivables was USD 8,219,453 (2021: USD 7,300,531). The Directors assessed the lifetime expected credit loss as at 30 June 2022 and concluded it to be immaterial (2021: loss immaterial). There is not considered to be any concentration of credit risk within these assets. No assets are considered impaired and no amounts have been written off in the year. All short-term receivables are expected to be received in three months or less. An amount is considered to be in default if it has not been received 30 days after it is due. 62 Financial StatementsAnnual Report 2022 Notes to the Financial Statements For the year ended 30 June 2022 (continued) 3. Financial Instruments and Associated Risks (continued) Liquidity risk The Company, a closed-end investment company, invests in companies through listings on the Vietnam stock exchanges. There is no guarantee however that the Vietnam stock exchanges will provide liquidity for the Company’s investments. The Company’s overall liquidity risks are monitored on at least a quarterly basis by the Board. The Company is a closed-end investment company so Shareholders cannot repurchase their shares directly from the Company. The Board has considered that there may be periods of time when parts of the portfolio are prone to higher liquidity risk, but is satisfied overall that the fixed liabilities of the Company can be met by income or from selling sufficient marketable securities even at periods of higher illiquidity. Payables on purchase of investments and accrued expenses are generally payable within one year. The table below summarises the maturity profile of the Company’s financial assets and liabilities based on contractual undiscounted receipts and payments: On demand USD 0 to 1 month USD 1 to 3 months USD Over 3 months to 5 years USD No fixed maturity USD Total USD 2022 Cash and cash equivalents Investment at fair value through profit and loss Accrued dividends 8,160,681 — — Total financial assets 8,160,681 Accrued expenses Total financial liabilities 2021 — — — — — — — — — — 58,772 58,772 355,282 355,282 Cash and cash equivalents Investment at fair value through profit and loss Accrued dividends Receivables on sale of investments 6,031,337 — — — — — — 1,239,041 — — 30,153 — — — — — 120,957,996 — 8,160,681 120,957,996 58,772 — 120,957,996 129,177,449 — — — — — — — — 355,282 355,282 — 193,108,385 — — 6,031,337 193,108,385 30,153 1,239,041 Total financial assets 6,031,337 1,239,041 30,153 — 193,108,385 200,408,916 Payables in purchase of investments Accrued expenses Total financial liabilities — — — 3,905,824 — — 431,912 3,905,824 431,912 — — — — — — 3,905,824 431,912 4,337,736 4. Operating Segments An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. The Company is engaged in a single segment of business, being investment in Vietnam. The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company. The key measure of performance used by the Board to assess the Company’s performance and to allocate resources is the total return on the Company’s NAV calculated as per the prospectus. 63 Financial StatementsAnnual Report 2022Information on gains and losses derived from investments are disclosed in the Statement of Comprehensive Income. The Company is domiciled in Guernsey, Channel Islands. Entity wide disclosures are provided as the Company is engaged in a single segment of business, investing in Vietnam. In presenting information on the basis of geographical segments, segment investments and the corresponding segment net investment income arising thereon are determined based on the country of domicile of the respective investment entities. In line with the Company’s investment policy, the Company may invest: • • • up to 25% of its NAV (at the time of investment) in companies with shares traded outside of Vietnam if a majority of their assets and/or operations are based in Vietnam; up to 20% of its NAV (at the time of investment) in direct private equity investments; and up to 20% of its NAV (at the time of investment) in other listed investment funds and holding companies which have the majority of their assets in Vietnam. As of 30 June 2022, no individual investment exceeded 20% of the net assets attributable to Shareholders (2021: none). All of the Company’s investments in securities at fair value are in Vietnam as at 30 June 2022 and 30 June 2021. All of the Company’s investment income can be attributed to Vietnam for the years ended 30 June 2022 and 30 June 2021. 5. Share Capital Ordinary shares of USD 1 each Pursuant to its redomiciliation to Guernsey, the Company re-registered with an authorised share capital of USD 200,000,000 divided into 200,000,000 shares of a nominal or par value of USD 1.00 each. In line with the Company’s new Articles of Incorporation, the Company may from time to time repurchase all or any portion of the shares held by the Shareholders upon giving notice of not less than 30 calendar days. On 8 March 2019 the Company’s ordinary shares were cancelled from trading on AIM and admitted to the Premium segment of the Official List and trading on the Main Market. On the same date the Company’s shares were admitted to listing and trading on the TISE. 2022 No. of shares 2021 No. of shares Total shares issued and fully paid (after repurchases and cancellations) at beginning of the year Shares issued upon exercise of warrants during the year Shares cancellation 42,623,935 — (13,398,268) 50,814,865 — (8,190,930) Repurchased and reserved for own shares At beginning of the year During the year Shares reissued to ordinary shares Shares cancellation 29,225,667 42,623,935 — (13,398,268) — 13,398,268 — (8,190,930) — 8,190,930 Total outstanding ordinary shares with voting rights 29,225,667 42,623,935 As a result, as at 30 June 2022 the Company has 29,225,667 (2021: 42,623,935) ordinary shares with voting rights in issue (excluding the reserve for own shares), and Nil (2021: Nil) are held as reserve for own shares. Reserve for own shares Reserve for own shares are the Company’s own shares which had been repurchased. The amount represents share capital which can be reissued in the future or subsequently cancelled. All reserves are available for distribution subject to a solvency assessment. 64 Financial StatementsAnnual Report 2022Notes to the Financial Statements For the year ended 30 June 2022 (continued) 5. Share Capital (continued) During the year ended 30 June 2022 the Company repurchased and cancelled 661,084 ordinary shares (2021: 605,681 ordinary shares) under the Company’s share buyback programme (representing 1.6% of the ordinary shares outstanding at 1 July 2021) at a weighted average NAV discount of 21.3%. This resulted in a 0.25% accretion to NAV per share. The Company repurchased and cancelled a further 12,737,184 shares during the year ended 30 June 2022 following a tender offer for 30% of the Company’s ordinary shares at a 2% discount to the prevailing NAV per share as at 31 August 2021 (2021: 7,585,249 ordinary shares). Total ordinary shares repurchased and cancelled during the year were 13,398,268 (2021: 8,190,930). Holders of ordinary shares are entitled to attend, speak and vote at general meetings of the Company. Each ordinary share (excluding shares in treasury) earns one vote. Treasury shares do not carry voting rights. Capital Management The Company does not have any externally imposed capital requirements. The Company’s general intention is to reinvest the capital received on the sale of investments. However, the Board may from time to time and at its discretion, either use the proceeds of sales of investments to meet the Company’s expenses or distribute them to Shareholders. Alternatively, the Company may repurchase its own ordinary shares with such proceeds from Shareholders pro rata to their shareholding upon giving notice of not less than 30 calendar days to Shareholders (subject always to applicable law) or repurchase ordinary shares at a price not exceeding the last published NAV per share. 6. Net Assets Attributable to Shareholders Total equity of USD 128,822,167 (2021: USD 196,080,470) represents net assets attributable to Shareholders. NAV per share as at 30 June 2022 is USD 4.408 (2021: USD 4.600). 7. Net (Loss)/Gain from Investments at Fair Value through Profit or Loss Realised (loss)/gain on disposal of investments Realised foreign currency gain/(loss) Unrealised (loss)/gain on investments at fair value through profit or loss Unrealised foreign currency (loss)/gain 2022 USD 2021 USD 50,172,287 253,204 (54,419,413) (1,217,183) 15,275,568 (326,765) 84,667,613 1,113,703 (5,211,105) 100,730,119 8. Related Party Transactions Investment management fees The Company entered into a new investment management agreement with Dynam Capital, Ltd on 26 June 2018. The agreement was amended and restated on 8 October 2018 and further amended and restated on 1 October 2020. The Board and the Investment Manager agreed to modify the management fee (previously on a sliding scale of 1.5% per annum on NAV below USD 300 million, 1.25% per annum on NAV between USD 300 – USD 600 million, and 1.0% per annum on NAV above USD 600 million) effectively from 1 November 2020. 65 Financial StatementsAnnual Report 2022Pursuant to the agreement the Investment Manager is entitled to receive a monthly management fee, paid in the manner set out as below: • • • On the amount of the Net Asset Value of the Company up to but excluding USD 300 million, one-twelfth of 1.75%; On the amount of the Net Asset Value of the Company between and including USD 300 million up to and including USD 600 million, one-twelfth of 1.5%; and On the amount of the Net Asset Value of the Company that exceeds USD 600 million, one-twelfth of 1%. The management fee accruing to the Investment Manager for the year ended 30 June 2022 was USD 2,737,804 (2021: USD 2,438,087). An amount of USD 200,421 (30 June 2021: USD 273,919) was outstanding as at 30 June 2022. Directors’ fees and expenses The Board determines the fees payable to each Director, subject to a maximum aggregate amount of USD 350,000 (2021: USD 350,000) per annum being paid to the Board as a whole. The Company also pays reasonable expenses incurred by the Directors in the conduct of the Company’s business including travel and other expenses. The Company pays for directors and officers liability insurance coverage. The charges for the year for the Directors’ fees were USD 317,859 (2021: USD 313,443) and expenses were USD 67,433 (2021: USD 15,247). The total Directors’ fees and expenses for the year were USD 385,292 (2021: USD 328,690). As at 30 June 2022, USD 9,012 (2021: 8,250) of Directors’ fees were outstanding. Directors’ ownership of shares As at 30 June 2022, Directors held 44,920 ordinary shares in the Company (2021: 48,861) as listed below. Hiroshi Funaki Sean Hurst Philip Scales 19,887 5,312 10,077 Shares Shares Shares (disposed of 6,756 shares during the year and purchased a further 6,000 shares during the year) (disposed of 5,206 shares and purchased a further 3,300 shares during the year) (disposed 3,273 shares and purchased a further 3,350 shares during the year) Damien Pierron 4,644 Shares (disposed 3,606 shares and purchased 3,350 shares during the year) Saiko Tajima 5,000 Shares Mr. Funaki is also a Director of Discover Investment Company which holds 1,405,776 ordinary shares in the Company representing 4.81% of the issued share capital. Discover Investment Company disposed of 916,905 shares during the year. Mr Craig Martin, Chairman of the Investment Manager holds 59,686 shares in the Company. During the year he participated in the tender offer tendering 26,887 shares and repurchased a further 5,000 shares during the year. 9. Custodian Fees Custodian fees are charged at a minimum of USD 12,000 (2021: USD 12,000) per annum and received as a fee at 0.08% on the assets under administration (“AUA”) per annum. Custodian fees comprise safekeeping fees, transaction fees, money transfer fees and other fees. Safekeeping of unlisted securities up to 20 securities is charged at USD 12,000 (2021: USD 12,000) per annum. Transaction fees, money transfers fees and other fees are charged on a transaction basis. The charges for the year for the Custodian fees were USD 152,863 (2021: USD 146,875), of which USD 13,000 (2021: USD 16,000) were outstanding at year end. 66 Financial StatementsAnnual Report 2022Notes to the Financial Statements For the year ended 30 June 2022 (continued) 10. Administrative and Accounting Fees In accordance with the new Administration Agreement between the Company and Sanne Group (Guernsey) Limited (the “Administrator”) dated 7 October 2019, the Administrator is entitled to receive a fee of 0.08% per annum of NAV up to USD 100,000,000, 0.07% of NAV thereafter subject to a minimum fee of USD 140,000 per annum. The administration fees are accrued monthly and are payable quarterly in advance. The charges for the year for Administration fees were USD 139,207 (2021: USD 138,460), of which USD 1,130 (2021: USD 2,693) were outstanding at year end. The Sub-Administrator receives a fee as consideration for the services provided to the Company at such rates as may be agreed in writing from time to time between the Company and the Sub-Administrator. The charges for the year for Administration fees were USD 77,731 (2021: USD 80,810), of which USD 5,303 (2021: USD 8,070) were outstanding at year end. Total administrative and accounting fees for the year were USD 216,938 (2021: USD 219,271). 11. Controlling Party The Directors are not aware of any ultimate controlling party as at 30 June 2022 or 30 June 2021. 12. Fair Value Information For certain of the Company’s financial instruments not carried at fair value, such as cash and cash equivalents, accrued dividends, other receivables, receivables/payable upon sales/purchase of investments and accrued expenses, the amounts approximate fair value due to the immediate or short-term nature of these financial instruments. Other financial instruments are measured at fair value through profit or loss. Fair value estimates are made at a specific point in time, based on market conditions and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. • • Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. This level includes listed equity securities on exchanges (for example, Ho Chi Minh Stock Exchange). Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e., as prices) or indirectly (i.e., derived from prices). This level includes instruments valued using: quoted prices for identical or similar instruments in markets that are considered less than active; quoted market prices in active markets for similar instruments; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data. Level 3: Inputs that are not based on observable market data (i.e., unobservable inputs). This level includes all • instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. 67 Financial StatementsAnnual Report 2022The table below analyses financial instruments measured at fair value at the reporting date by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the Statement of Financial Position. All fair value measurements below are recurring. Level 1 USD Level 2 USD Level 3 USD Total USD 2022 Financial assets classified at fair value upon initial recognition Investments in securities 120,957,996 2021 Financial assets classified at fair value upon initial recognition Investments in securities 193,108,385 There were no transfers between levels during the year. — — — 120,957,996 — 193,108,385 The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Assessing whether an input is significant requires judgement including consideration of factors specific to the asset or liability. Moreover, if a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that fair value measurement is a Level 3 measurement. There are no level 3 assets held at 30 June 2022 (2021: Nil). 13. Classifications of Financial Assets and Liabilities The table below provides a breakdown of the line items in the Company’s Statement of Financial Position to the categories of financial instruments. 2022 Cash and cash equivalents Investment in securities at fair value Accrued dividends Accrued expenses 2021 Cash and cash equivalents Investment in securities at fair value Accrued dividends Receivables on sale of investments Payables in purchase of investments Accrued expenses Fair value through Profit or loss USD Loans and receivables USD Other liabilities USD Total carrying amount USD — 120,957,996 — 8,160,681 — 58,772 120,957,996 8,219,453 — — — — 8,160,681 120,957,996 58,772 129,177,449 — — — — 355,282 355,282 355,282 355,282 — 193,108,385 — — 6,031,337 — 30,153 1,239,041 193,108,385 7,300,531 — — — — 6,031,337 193,108,385 30,153 1,239,041 200,408,916 — — — — — — 3,905,824 431,912 3,905,824 431,912 4,337,736 4,337,736 68 Financial StatementsAnnual Report 2022Notes to the Financial Statements For the year ended 30 June 2022 (continued) 14. Earnings Per Share The calculation of basic and diluted earnings per share at 30 June 2022 was based on the total comprehensive loss for the year attributable to Shareholders of USD 7,719,310 (2021: Income of USD 100,153,888) and the weighted average number of shares outstanding of 31,987,327 (2021: 45,761,268). 15. New and Amended Standards and Interpretations (i) Standards and amendments to existing standards effective 1 July 2021 The Board of Directors has assessed the impact, or potential impact, of all new standards and amendments to existing standards. In the opinion of the Board of Directors, there are no mandatory new standards and amendments applicable in the current year that had any material effect on the reported performance, financial position, or disclosures of the Company. (ii) Standards effective after 30 June 2022 that have been early adopted by the Company There are no standards effective after 30 June 2022 that are relevant to the Company. 16. Events After the Reporting Date From 1 July 2022 to the date of signing these financial statements, there were no material events that require disclosures and/ or adjustments in these financial statements. 69 Financial StatementsAnnual Report 2022Alternative Performance Measures (“APMs”) Discount or Premium The amount, expressed as a percentage, by which the ordinary share price is either higher (premium) or lower (discount) than the NAV per ordinary share. NAV per ordinary share (pence) Ordinary share price (pence) Discount Page 30 June 2022 1 1 1 a b ((b-a)/a) 363.0 309.5 14.7% Ongoing charges Ongoing charges have been calculated in accordance with the Association of Investment Companies (the “AIC”) recommended methodology by taking the regularly incurred annual operating expenses of running the Company expressed as a percentage of average NAV. The ongoing charges for the year ended 30 June 2022 were 2.74%. Average NAV Operating expenses Ongoing charges a) Average NAV Page 1 1 1 30 June 2022 USD 155,041,007 4,242,306 2.74% a b b/a Calculated using twelve monthly closing average NAV for the year ended 30 June 2022. b) Operating expenses Total annual expenses incurred by the Company less the cost of project and one-off expenses i.e. non-recurring expenses. Total annual expenses Less: non-recurring expenses Operating expenses Page 53 USD 4,252,094 (9,788) c d b=c+d 4,242,306 70 Financial StatementsAnnual Report 2022Corporate Information Directors Mr. Hiroshi Funaki Mr. Sean Hurst Mr. Philip Scales Mr. Damien Pierron Ms. Saiko Tajima Investment Manager Dynam Capital, Ltd De Catapan House Grange Road St Peter Port Guernsey GY1 2QG Registered Office, Company Secretary and Administrator Sanne Group (Guernsey) Limited De Catapan House Grange Road St Peter Port Guernsey GY1 2QG Auditor KPMG Channel Islands Limited Glategny Court Glategny Esplanade St Peter Port Guernsey GY1 1WR Market Researcher Dynam Consultancy and Services Company Limited Floor 12, Deutsches Haus, 33 Le Duan, Ben Nghe Ward, District 1 Ho Chi Minh City, Vietnam Corporate Broker and Financial Adviser finnCap Ltd. One Bartholomew Close London EC1A 7BL (Nominated Adviser (AIM) until transference to LSE Main Market) Sub-Administrator, Custodian and Principal Bankers Registrar Standard Chartered Bank (Singapore) Limited Computershare Investor Services (Guernsey) Limited 1st Floor, Tudor House Le Bordage St Peter Port Guernsey GY1 1DB 7 Changi Business Park Crescent Level 3, Securities Services Singapore 486028 UK Legal Adviser Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH Guernsey Legal Adviser Carey Olsen (Guernsey) LLP Carey House Les Banques St Peter Port Guernsey GY1 4BZ 71 Financial StatementsAnnual Report 2022

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