VinaCapital
Vietnam Opportunity Fund
Annual Report and Financial Statements
for the year ended 30 June 2018
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Annual Report and Financial Statements
for the year ended 30 June 2018
Section 1 | General Information
General Information
Investment Policy
Historical Financial Information
Finacial Highlights
Chairman’s Statement
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05
06
08
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Section 2 | Investment Manager’s Report
Investment Manager’s Report
Portfolio Results
Portfolio Review
Review of 10 Portfolio Holdings
Market Risks
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Economic & Investment Environment
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Section 3 | Financial Reports & Statements
Board of Directors
Disclosure of Directorships in
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60
Statement of Directors’ Responsibilities
Report of the Audit Committee
Other Public Companies
Directors’ Remuneration Report
Report of the Board of Directors
62
Independent Auditor’s Report
Statement of Financial Position
76
78
82
84
94
Section 4 | Annex
Management and Administration
Notice of Annual General Meeting
128
129
Investment Manager’s ReportFinancial Reports and StatementsAnnex
GENERAL INFORMATION | GENERAL INFORMATION
GENERAL
INFORMATION
VinaCapital Vietnam Opportunity Fund Limited (“the Company” or “VOF”) is
a Guernsey domiciled closed-ended investment company. The Company is
classified as a registered closed-ended Collective Investment Scheme under
the Protection of Investors (Bailiwick of Guernsey) Law, 1987 and is subject to
The Companies (Guernsey) Law, 2008. Prior to March 2016 the Company was a
limited liability company incorporated in the Cayman Islands.
The Company is quoted on the Main Market of the London Stock Exchange
(“LSE”) with a Premium Listing.
The Company does not have a fixed life but the Board has determined that it is
desirable that Shareholders should have the opportunity to review the future
of the Company at appropriate intervals. Accordingly, the Board intends that a
special resolution will be proposed every fifth year that the Company ceases to
continue. If the resolution is not passed, the Company will continue to operate
as currently constituted. If the resolution is passed, the Directors will be
required to formulate proposals to be put to Shareholders to reorganise, unitise
or reconstruct the Company or for the Company to be wound up. The Board
tabled such resolutions in 2008 and 2013 and on both occasions the resolution
was not passed allowing the Company to continue as currently constituted. The
next shareholder vote on the continuation of the Company will be held at the
AGM on 10 December 2018.
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Annual Report 2018 INVESTMENT POLICY |GENERAL INFORMATION
INVESTMENT
POLICY
Investment Objective
The Company’s objective is to achieve medium to
long-term returns through investment either in Vietnam
or in companies with a substantial majority of their assets,
operations, revenues or income in, or derived from, Vietnam.
Investment Policy
All of the Company’s investments will be in Vietnam or in
companies with at least 75% of their assets, operations,
revenues or income in, or derived from, Vietnam at the
time of investment.
No single investment may exceed 20% of the net asset
value (“NAV”) of the Company at the time of investment.
The Company may from time to time invest in other funds
focused on Vietnam. This includes investments in other
funds managed by VinaCapital Investment Management
Limited (the “Investment Manager”). Any investment or
divestment of funds managed by the Investment Manager
will be subject to prior approval by the Board. No more
than 10%, in aggregate, of the value of the Company’s
total assets may be invested in other listed closed-ended
investment funds. The restriction on investment in other
listed closed-ended investment funds does not apply to
investments in closed-ended investment funds which
themselves have published investment policies to invest
no more than 15% of their total assets in other listed
closed-ended investment funds.
The Company may from time to time make co-investments
alongside other investors in private equity, real estate
or similar assets. This includes, but is not restricted to,
co-investments alongside other funds managed by the
Investment Manager.
The Company may gear its assets through borrowings
which may vary substantially over time according to
market conditions and any or all of the assets of the
Company may be pledged as security for such borrowings.
Borrowings are not to exceed 10% of the Company’s total
assets at the time that any debt is drawn down.
From time to time the Company may hold cash or low
risk instruments such as government bonds or cash funds
denominated in either Vietnamese Dong (“VND”) or US
Dollars (“USD”), either in Vietnam or outside Vietnam.
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General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnexVinaCapital Vietnam Opportunity Fund GENERAL INFORMATION | HISTORICAL FINANCIAL INFORMATION
Years ended 30 June
Statement of Income (USD’000)
2014
2015
2016
2017
2018
Total income from ordinary activities
111,510
12,132
119,137
230,366
195,365
Total expenses from ordinary activities
(22,527)
(17,504)
(23,067)
(39,817)
(42,625)
Operating profit/(loss) before income tax
88,983
(5,372)
96,070
190,549
152,740
Income tax expense
Profit/(loss) for the year
Minority interests
-
-
-
-
-
88,983
(5,372)
96,070
190,549
152,740
-
-
-
-
-
Profit/(loss) attributable to ordinary equity holders
88,983
(5,372)
96,070
190,549
152,740
Statement of Financial Position (USD’000)
Total assets
Total liabilities
Net assets
Share information
781,645
723,744
796,386
982,358
1,082,329
10,265
5,080
9,850
32,683
38,897
771,380
718,664
786,536
949,675
1,043,432
Basic earnings/(loss) per share (cents per share)
36.00
(2.00)
45.00
93.00
Basic earnings per share (pence per share)
Share price at 30 June (USD)**
Share price at 30 June (GBP)**
2.50
2.50
30.00
73.00
2.82
2.11
3.82
2.94
77.00
57.00
4.30
3.26
Ordinary share capital (thousand shares)
238,255
219,958
208,646
200,621
194,058
Market capitalisation at 30 June (USD’000)**
595,638
549,894
588,382
766,372
834,449
Market capitalisation at 30 June (GBP’000)**
440,243
589,826
632,629
Net asset value per ordinary share (USD)
3.24
3.27
Net asset value per ordinary share (GBP)**
3.77
2.82
4.73
3.64
5.38
4.07
Ratio
Return on average ordinary shareholders’ funds¹
Ongoing charges excluding incentive fee²
Incentive fee³
Ongoing charges plus incentive fee⁴
6
15.9%
1.7%
1.2%
2.9%
1.0%
1.7%
0.5%
2.2%
12.8%
22.0%
15.3%
1.8%
1.2%
3.0%
1.9%
2.7%
4.6%
1.8%
2.1%
3.9%
Annual Report 2018 HISTORICAL FINANCIAL
INFORMATION*
* Until 1 July 2014, the financial statements were prepared on a consolidated basis. From 1 July 2014, the financial
statements of the Company are prepared on a stand-alone basis in accordance with International Financial
Reporting Standards (“IFRS”) 10.
** Following the change of domicile to Guernsey the Company’s shares are now quoted in Pounds Sterling (“GBP”).
USD NAV per share is translated to GBP using the rate of exchange at 30 June 2016, 30 June 2017 and 30 June
2018 respectively.
1. Calculated as net income divided by the simple average of the opening and ending net asset balances. It does not
take into consideration the accretive effect of the share buyback and dividend payments on a per share basis.
2. Calculated as general and administration expenses divided by average NAV for the year. Ongoing charges have
been prepared in accordance with the Association of Investment Companies (“AIC”) recommended methodology.
3. Calculated as total incentive fee divided by average NAV for the year.
4. Calculated as the sum of general and administration expenses and total incentive fee divided by average NAV for the year.
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General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnexVinaCapital Vietnam Opportunity Fund
GENERAL INFORMATION | FINACIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
1,043.43
Total Net Assets (USD millions)
16.9 %
Increase in NAV
Total Return per share
8
Annual Report 2018 In the year to 30 June 2018, the Company’s NAV per share increased in US Dollar terms by 13.7% to USD5.38, while
the Company’s share price rose by 12.6% to USD4.30, from the same date a year ago. Taking account of dividends
paid in the year to 30 June 2018, the NAV Total Return* was 16.9%.
Total Net Assets (millions)
NAV per share
Increase in NAV per share over the year
Basic and diluted earnings per share
Share price
Increase in share price over the year
Discount to NAV per share**
As at 30 June 2016
USD
As at 30 June 2017
USD
As at 30 June 2018
USD
786.54
949.68
1,043.43
3.77
15.3%
0.45
2.82
12.8%
25.2%
4.73
25.5%
0.93
3.82
35.5%
19.2%
5.38
13.7%
0.77
4.30
12.6%
20.1%
* Calculated as NAV per share as at 30 June 2018 plus dividends per share paid during the year divided by NAV per share
as at 30 June 2017.
** Calculated as NAV per share less share price divided by NAV per share.
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General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnexVinaCapital Vietnam Opportunity Fund GENERAL INFORMATION | CHAIRMAN’S STATEMENT
“Vietnam remains one of the most
attractive investment ‘stories’
available and we believe that the
flexibility offered by VOF’s mandate
combined with a well-resourced
investment team and pipeline
makes it a good choice to exploit
that opportunity.”
10
Annual Report 2018 CHAIRMAN’S
STATEMENT
Dear Shareholder
The year to 30 June 2018 can be split into two halves,
with the benign investment environment which I described
in the Interim Report continuing into January, followed by
a more volatile period in the second half of our financial
year. Following a return of 20.0% over the first six months
of the financial year, the second half saw a decline of 2.6%.
Overall, though, the year was again positive and the NAV
Total Return was 16.9%.
In seeking to achieve the Company’s Investment Objective,
the Investment Manager’s strategy has been:
•
•
•
•
To retain the largest part of the portfolio in listed
assets, as described in the description
of strategy below;
To continue to add to unlisted securities and
private equity investments as and when attractive
opportunities arise;
To continue to reduce holdings in direct real estate
and directly owned operating assets; and
To reduce the discount to Net Asset Value (“NAV”)
at which the Company’s shares trade.
Investment Strategy and Performance
While there has been no change in investment strategy
per se, I would like to emphasise that our equity
investments are largely managed with what is perhaps
best termed a “private equity” approach. Most of our
holdings have historically been acquired as a result of
private equity transactions or as pre-IPO investments of
various types. Taking the overall portfolio today, a large
majority of the NAV is represented by holdings originally
acquired in this way, rather than by buying conventionally
in the listed equity market. Of course, many of these
investments are now listed on the stock exchange, but our
approach to managing and eventually selling these retains
this “private equity” approach. Through this route, the
Company originally acquired sufficiently large positions in
a number of stocks that the Investment Manager has been
able to work with those businesses to develop strategies
aimed at delivering good returns over time. In general,
these positions could not have been built through open
market purchases. Over time, listed assets may have
been sold in the market if valuations were believed to be
high but often have been sold as large blocks of shares
at a premium to investors seeking a strategic stake in
companies. Your Board and Investment Manager believe
that this approach should produce superior investment
returns over the longer term. It may also provide some
protection against general market declines, as investments
are made following the often-prolonged analysis and due
diligence checks typical of private equity and with a focus
on absolute returns rather than on performance relative
to a market index.
The Investment Manager has been successful in reducing
the Company’s exposure to direct real estate and operating
assets, selling six projects during the year under review
for total proceeds of USD40.5 million. As at 30 June the
Company’s holdings had been reduced to three direct real
estate investments and one operating asset, with total
value representing only 3.2% of net assets. During the
year, the remaining holding in Vinaland, another closed
end investment company managed by the Investment
Manager, was sold.
The NAV Total Return achieved was respectable at
16.9%. The portfolio is not managed with reference to
a benchmark index and although the return lagged the
Vietnam Index (“VN Index”), it was ahead of the MSCI
Emerging Markets Index. The Company’s listed equity
holdings outperformed both indices, while the Investment
Manager was successful in deploying capital into some
private investments with strong potential.
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VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnex
GENERAL INFORMATION | CHAIRMAN’S STATEMENT
Dividends
In August 2017 we announced the commencement of a
dividend programme. The Board intends that the Company
will pay a dividend representing approximately 1% of NAV
twice each year, normally declared in March and October.
Two interim dividends, each of 4.8 US cents per share, for 9.6
US cents in total, were paid during the first half of the year
under review (in August and October 2017 respectively). The
9.6 US cents per share paid represented approximately 2% of
the NAV per share as at the last year end, 30 June 2017.
On 27 March 2018, the Board declared an interim dividend
of 5.5 US cents per share in respect of the half year ended
31 December 2017 and declared a second dividend of 5.5 US
cents per share in respect of the year ended 30 June 2018
on 23 October 2018. These two dividends in total represent
approximately 2% of the NAV per share as at the end of the
year under review.
Discount Management
•
•
•
•
changed the domicile to Guernsey;
commenced the payment of dividends;
changed our arrangement with our Investment Manager
so that management of our assets is delegated to a
regulated entity in Vietnam; and
employed additional resources in marketing the
Company’s shares.
We believe that each of these initiatives has had a beneficial
effect on demand for the Company’s shares and that some
investors who previously were not able to buy are now
shareholders; but we continue to strive to make further
progress in narrowing the level of discount.
I am also pleased to report that the Company’s shares were
included in the FTSE250 Index during the financial year.
Our Investment Manager continues to make great efforts
to promote the Company’s shares to existing and potential
investors in key areas of the world, particularly in the UK, in
Continental Europe and, to a limited number of professional
investors only, in the USA.
As at the end of June 2018 the share price discount to NAV
was 20.1%, an increase from the 19.2% at the previous
financial year end and a discount which your Board feels
does not fairly reflect the strong absolute returns which
the Company has made, or its prospects over the medium
and long terms. Over the year, the shares have traded at
discounts in the range 14.2% to 22.0%.
In November 2017 we announced the appointment of
Frostrow Capital LLP as UK Marketing and Distribution
Partner. Frostrow are working closely with our brokers Numis
Securities and UK PR agency Camarco to raise the Company’s
profile. We have experienced some success in an increase in
the number of shares held by self-directed private investors
and by the clients of wealth managers in the UK.
We have a continuing strategy to try to reduce the discount
at which your Company’s shares trade to NAV. Our efforts
to reduce the discount concentrate both in attempting
to increase demand for shares and, where necessary, to
reduce supply by buying back shares. During the year under
review, 6.6 million shares were bought back, representing
3.3% of the shares in issue at the start of the year. Since we
commenced buying back shares in 2011, the Company has
purchased some 130.5 million shares, being 40.2% of shares
in issue before the first buy back.
In attempting to stimulate demand in recent years, we have:
•
changed the Company’s listing venue to the premium
segment of the London Stock Exchange;
Despite these initiatives, the discount remains higher than
the Board deems desirable, and the efforts to reduce it
will continue.
The Board
After the financial year end, Julian Healy was appointed as a
Non-Executive Director of the Company, with effect from 23
July 2018. Julian has been involved in investment in frontier
markets for many years, both as a portfolio manager and
as an investment banker. He has long experience of private
equity investing in developing countries and brings a new
dimension of experience to the VOF Board. He is a Chartered
Accountant by training and began his career with Morgan
Grenfell, moving later to Flemings and then to the European
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Annual Report 2018
Bank for Reconstruction and Development (“EBRD”). We
are delighted that he has joined the Board. He has particular
expertise in complex investments in frontier markets as
well as relevant experience as a board member of operating
businesses, banks and closed-end funds in these regions. He
will be standing for election at the forthcoming AGM and I
urge you to support his appointment.
A full explanation of the mechanism for paying out incentive
fees is set out in Notes 3 and 15 of the annual accounts. In
summary, a capped total amount of USD15.0 million will
be paid out in October 2018, made up of the full amount of
the incentive fee carried forward from the year to 30 June
2017 of USD13.4 million together with USD1.6 million of the
incentive fee earned in the year to 30 June 2018.
Martin Adams, who has been a Director since February 2013,
has indicated his intention to stand down from the Board
so will not stand for re-election at the AGM. Martin has
brought to the Board a deep understanding of the business
environment in Vietnam which will be hard to replicate. He
combines this with extensive knowledge of the closed end
fund world and a forensic attention to investment detail. It is
usual in statements like this to make anodyne remarks about
an outgoing director; but in this case, the Board’s thanks and
appreciation are heartfelt. We really do wish Martin all the
best for the future.
There will be further changes to the membership of the
Board in due course, so that we maintain a balance of
experience of the Company’s affairs and introduce fresh
views as Directors retire. Following the appointment of Mr
Healy and before the retirement of Mr Adams, the number
of Directors has increased to five which, I believe, is the
number of Directors that a company of this size requires. A
consequence of this, however, is that the Company is now
close to the cap on aggregate remuneration of the Board
included in the Articles of Incorporation. In order to make
sure that this cap does not impede the ability of the Board
to maintain a strength of five Directors, at this year’s AGM
under Resolution 13 shareholders will be asked to approve an
increase in the cap on aggregate remuneration of the Board
from USD500,000 to USD650,000. Shareholders should note
that the Board is not proposing to increase the fees paid to
individual directors at this time.
Investment Management Fees
A consequence of the investment performance described
above is that the NAV of the Company’s Capital Markets
pool has remained well ahead of the 8% annual return target
above which incentive fees are earned. For the current year,
an incentive fee of USD25.3 million was earned on the Capital
Markets pool.
The balance of the incentive fee earned in the year to 30
June 2018 has been carried forward as a deferred liability
and may be paid out next year or in subsequent years. Any
payment in future years will, of course, also be subject to
the annual 1.5% of NAV cap. I would note that the Company
has accrued the full quantum of the deferred incentive fee
in the accounts less a discount to reflect the time value of
money and the probability of payment in future years, as
the Board believes that there is a reasonable likelihood that
the NAV per share will continue to advance and that the full
sum will be paid in due course. NAV releases to the market
include this accrual, as does the ongoing charge ratio set
out in these accounts.
No incentive fee was earned on the Direct Real Estate pool.
New Fee Arrangements
There remains downward pressure on fees in the closed
end fund world. The Board entered negotiations with the
Manager to achieve some reduction in the level of fees.
The context in which these discussions have taken place
reflects the fact that the resources required to manage the
fund are extensive and that the majority of the Company’s
assets are managed with the “private equity” approach
discussed earlier.
The Board has now agreed in principle with the Investment
Manager a number of changes to the investment
management and incentive fees, with effect from 1 July
2018. All the changes set out here remain subject to final
confirmation in the Investment Management Agreement:
The base management fee, which was 1.5% of net assets
per annum, has been changed to an annual rate calculated
on the following scale:
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VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnex
GENERAL INFORMATION | CHAIRMAN’S STATEMENT
•
•
•
•
•
1.50% of net assets, levied on the first USD500 million
of net assets
1.25% of net assets, levied on net assets between
USD500 million and USD1,000 million
1.00% of net assets, levied on net assets between
USD1,000 million and USD1,500 million
0.75% of net assets, levied on net assets between
USD1,500 million and USD2,000 million
0.50% of net assets, levied on net assets above
USD2,000 million
•
have remained on the Company’s balance sheet under
the previous structure.
25% of any incentive fee paid will be used by the
Investment Manager to buy shares in the Company
through open market purchases. These shares will be
subject to a minimum holding period.
The Board believes that these changes will deliver significant
cost savings, while retaining a strong incentive for the
Investment Manager to deliver returns to shareholders.
The incentive fee structure has been simplified. For the
period up to 30 June 2018, for the purpose of calculating
any incentive fee the portfolio was split into two pools, the
Capital Markets Pool and the Direct Real Estate Pool. The
annual incentive fee payable to the Investment Manager
was calculated for each Pool as 15% of any increase in NAV
above a hurdle rate of 8% compounded annual return. The
maximum amount that could be paid in respect of either
Pool in any one year was capped at 1.5% of the weighted
average month-end NAV of that pool during that year. Any
incentive fee earned in excess of this 1.5% cap will be paid
out in subsequent years but only to the extent that the NAV
of that pool exceeds the level at which it would have been,
based upon the fees already paid out.
Commencing 1 July 2018, the incentive fee has been
revised as follows:
•
•
• As most of the Direct Real Estate assets have now been
sold, we will no longer split the portfolio into two pools
for calculation of the incentive fees.
The incentive fee rate will be reduced to 12.5% of any
increase in NAV over the hurdle rate.
The hurdle rate for incentive fees will remain
unchanged at an 8% annual compounded rate, based
on the relevant opening net asset values of the two
previous pools.
The cap on incentive fees to be paid out in any year will
remain unchanged at 1.5% of the weighted average of
month end net assets.
If the NAV falls subsequent to a year end in which an
incentive fee was earned and the fee is in excess of the
cap, amounts in excess of the cap will be clawed back
on a last in / first out basis at the rate at which the fees
were earned, thereby releasing accruals which would
•
•
During the course of the Board’s discussion over these
issues, a number of alternative approaches were
considered. In particular, thought was given to whether it
would be possible to set a hurdle which linked the incentive
to outperformance of a market related benchmark. The
conclusion was that, at the moment, benchmarks in the
Vietnamese context are flawed and that the concept of
a market related yardstick held the risk of weakening the
“private equity” approach used to manage the portfolio,
thus changing the way in which the portfolio would be
managed. The Board will of course review the results of
the portfolio over the longer term compared to market
benchmarks in recognition of the fact that shareholders
should rightly expect a better than market performance
from the portfolio to compensate for the level of fees and
the approach taken.
AGM and Discontinuation Vote
This year’s AGM will take place in Guernsey at 11 a.m.
on 10 December 2018 at Aztec Group, Trafalgar Court,
Les Banques, St Peter Port, Guernsey, GY1 3PP. Notice
of the AGM is set out in the Annual Report and Financial
Statements, starting on page 129. Reading fatigue may
mean that many shareholders don’t make it as far as
page 129, but this year I would encourage you to do so.
Most of the resolutions are those which appear at the
AGM every year, but I would like to draw shareholders’
attention in particular to Resolution 14. This concerns the
‘discontinuation’ election.
As you may be aware, every fifth year, shareholders are
asked to vote on whether the Company should continue as
currently constituted. Under our Articles of Incorporation,
this vote will be structured as a special resolution for
14
Annual Report 2018
“discontinuation”, whereby the Company will continue
in operation unless more than 75% of those voting elect
to “discontinue”. This unusual structure means that
shareholders who wish the Company to continue should
vote against the resolution. The Board has considered the
opportunities available to the Company and the resources
and investment track record of the Investment Manager
and are unanimously of the view that the Company should
continue in operation. We therefore recommend that
shareholders vote against Resolution 14 at the AGM as
those Directors who hold shares intend to do themselves.
Change of Administrator, Company Secretary and
Registered Office
Since the Company redomiciled to Guernsey, it has
been administered by Northern Trust International Fund
Administration Services (Guernsey) Limited (“Northern
Trust”) which has also acted as Company Secretary.
Northern Trust has assisted the Company in becoming
established in Guernsey and has been extremely helpful to
the Board. However, there are aspects of the administration
of the Company’s subsidiaries and associates which have
not been possible to consolidate with Northern Trust.
Consequently, after a long deliberation during the year, the
Board has determined to move the administration of the
Company and that of substantially all its subsidiaries and
associates to Aztec Financial Services (Guernsey) Limited
(“Aztec Group”) which will take place with effect from 1
November 2018. From that date, Aztec Group will also
become Company Secretary and the Registered Office of
the Company will move to Aztec Group’s offices.
Outlook
Investment in Emerging Markets can be a volatile experience
for shareholders. The past year has shown how geopolitical
issues in the Developed World can cause problems for
countries like Vietnam. The combination of a more belligerent
trade policy on the part of the US and a trend towards
monetary tightening, however modest, has triggered a
dollar rally and led to a deterioration in sentiment towards
the emerging world. This disillusion is more perception than
reality as economies like Vietnam’s continue to grow very
satisfactorily. There is concern that growth in China will be
hurt by President Trump’s tariffs and that these will have a
domino effect throughout Asian economies. The Chinese
response has been to inject various forms of stimulus into the
domestic economy, amongst which has been a willingness to
allow the Renminbi to weaken. This has brought downward
pressure on the Vietnamese Dong and is the most obvious
real economic effect on the country.
markets in the first quarter of this year to raise capital at high
prices. These issues have caused some market indigestion
and have further increased the concentration of the stock
market. While we would prefer to see a broader, deeper
market develop as the equitisation process rolls on, these
conditions provide managers like ours an opportunity to
seek investments outside the mainstream. These are often
privately negotiated transactions with conditions attached
and may be in private equity structures or in assets closer
to stock market listing. This is an area where the Investment
Manager has done well in the past and where valuations are
lower and growth higher than in the public markets.
In sum, we continue to see exciting opportunities for return
in the Vietnamese market but believe that it will require
research and analysis beyond the conventional to unearth the
real gems.
Vietnam’s economic fundamentals remain robust and
growth is set to continue into the medium term, with
modest inflationary pressure. Valuations are higher than in
the past and as you will read in the Investment Manager’s
report, certain companies took advantage of the rampant
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund Limited
23 October 2018
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VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnex
INVESTMENT MANAGER’S REPORT | INVESTMENT MANAGER’S REPORT
INVESTMENT
MANAGER’S REPORT
This year, the Investment Manager’s review of the portfolio and outlook is followed
by a detailed discussion of Vietnam’s economy from VinaCapital’s Chief Economist.
16
Annual Report 2018 Andy Ho
Managing Director
Michael Kokalari
Chief Economist
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DUMMY |INVESTMENT MANAGER’S REPORTVinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnex INVESTMENT MANAGER’S REPORT | INVESTMENT MANAGER’S REPORT
Portfolio Results
MSCI Emerging Markets index rose by 5.8%, and the MSCI
Frontier Markets index declined by 1.7%, all in USD terms.
VOF ended the Financial Year 2018 (“FY2018”) with
a total NAV of USD1,043.4 million and a total market
capitalisation of USD834.4 million, representing a discount
of 20.1%. During FY2018, VOF’s NAV per share increased
by 13.7% in US Dollar terms and by 11.8% in GBP terms.
Over the previous two financial years to June 2016
and 2017, VOF’s NAV rose by 15.3% and 25.5%
in USD terms, respectively.
VOF paid a total of USD29.9 million in dividends (or 15.1
US cents per share), equivalent to a yield of 3.2% of NAV
per share and 3.9% of share price as at 1 July 2017. During
FY2018 VOF acquired 6.6 million VOF shares at a cost of
USD29.1 million under its share buy-back programme.
Taking into account the dividends paid, the NAV Total
Return for VOF in FY2018 was 16.9%.
VOF’s share price increased by 12.6% in US Dollar terms
and by 10.9% in GBP terms over the 12 months ending
30 June 2018.
Chart: VOF’s NAV per share and share price (USD).
Source: Bloomberg
USD
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The Stock Market
The VN-Index enjoyed a strong increase during the second
half of calendar year 2017 (July to December 2017) and
continued this trend to reach a record 1,204 points on 9
April 2018. The VN-Index then declined to 961 points by
30 June 2018, erasing all of the gains recorded in the first
quarter of 2018 and delivered a slight overall loss of -2.4%
in Vietnam Dong (VND) terms over the first half of 2018.
In summary, and despite the decline from 9 April, the
VN-Index increased significantly over VOF’s financial year,
surpassing the regional average price to earnings ratios
(P/E), as a measure of value, by April 2018 before declining.
The stock market’s significant increase in value in 2017
and in the first three months of 2018 was driven by both
domestic and foreign investors. Economic conditions
were (and continue to be) “ideal” according to our Chief
Economist and attracted growing numbers of international
investors. Businesses delivered earnings per share (EPS)
growth of typically between 15% and 20% in 2017, while
the VND was stable against the US Dollar. In addition,
inflation and interest rates remained low relative to
historical averages. Such ideal factors encouraged
investors to invest in Vietnamese businesses as well as
real estate.
After April 2018, Vietnam’s market became volatile as
foreign investors began to take profits, having enjoyed
significant gains over a very short period. This profit-taking
also came during a period in which the US Dollar was
strengthening. Foreign investors sold equities and VND,
leading to downward pressure both on the stock market
and on the currency.
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Share price
NAV per share
Although VOF does not exclusively focus on public
equities, it is appropriate that investors consider the
comparative returns of relevant indices. During FY2018,
the Vietnam-Index (VN-Index) increased by 22.4%, the
In addition, the Chinese renminbi (CNY) declined
materially as the trade war between China and the US
began. Historically (in 2015) when the CNY materially
declined, the VND has also depreciated. Recent CNY
weakness was indeed another factor exerting downward
pressure on VND denominated assets held by foreign
portfolio investors.
18
Annual Report 2018
In summary, the second quarter of 2018 saw significant
profit-taking from both foreign and domestic investors,
as well as margin calls that reinforced the VN-Index’s
decline. After such a sharp rise, such profit taking was
arguably healthy for the market and undoubtedly created
significant opportunities for investors. Nevertheless,
investor sentiment was driven by external factors that
contributed to the strengthening of the USD, such as
economic volatility in Argentina, Venezuela and Turkey, as
well as an escalating trade war between the US and the
rest of the world. Domestically, although inflation saw
a slight increase to around 4% annualised (as a result of
rising oil and food prices), Vietnam’s economy continues
to be stable and is expected to grow by 7% in 2018, while
listed companies are expected to deliver an average EPS
growth of above 20%.
VN Index vs MSCI EM Index
Source: Bloomberg
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Valuations & Implications for Strategy
The stock market’s volatility from April to the end of
June has made listed equity valuations very attractive,
particularly if we compare them against short-term and
medium-term growth potential. As at 30 June 2018,
the average trailing P/E ratio for the Ho Chi Minh Stock
Exchange (HOSE) was 15.3x (excluding outliers such as
the Vingroup companies, which trade on the basis of
price to book valuations). With EPS growth expected to
be around 20% for 2018, the price to earnings to growth
(PEG) ratio is expected to be below 1.0, suggesting that
stocks are potentially undervalued. Various domestic
and international analysts expect that EPS growth will
average 16% to 18% per annum over the next 2 to 3 years.
Having said that, although GDP is expected to grow by 7%
during 2018, there remains some uncertainty around the
potential further devaluation of the VND against the US
Dollar, and domestic interest rates may rise in the
coming months.
Over the past 24 months, Vietnam’s stock markets have
increased their depth, size, and liquidity, due in part to the
listing of large companies, many of which now have market
capitalisations of over USD1 billion. The total market
capitalisation of Vietnam’s three stock exchanges almost
reached the country’s annual GDP. As more companies
list, we expect the market size and depth to increase with
greater liquidity, which may lead to P/E ratios once again
to be in line with the regional average.
VOF’s NAV Total Return of 16.9% was primarily driven
by the gains in the quoted component of the portfolio
(which included both listed and unlisted equities), which
delivered a gross return¹ of 29.4% compared to a return
of 22.4% from the VN Index. The quoted component of
VOF’s portfolio had a weight of approximately 66% and
the result was that the quoted component’s gross return
contributed a return of 19.4% towards VOF’s total return.
This is 2.5% higher than the total return to shareholders of
16.9% and the difference is attributed to accrued incentive
fees for FY2018 and the performance of other assets
including private equity and direct real estate holdings.
The Investment Manager’s strategy is to continuously seek
opportunities not widely available to public investors.
These private opportunities are still plentiful and enable
VOF to invest a meaningful amount with the optimum
transaction size being, in our view, between USD20 million
and USD40 million. This approach also allows VOF to
acquire positions of a size which may not be generally
available on the open market once a company lists.
Another attribute of these private opportunities is that
they offer VOF a greater range of exit options. VOF
may exit these companies once they undertake an IPO
and list on the local stock exchanges or exit by selling
a meaningful stake to a strategic buyer, commanding a
valuation premium in most circumstances.
1: The gross return is calculated as the return on listed investments,
excluding cash in the portfolio and before any fees or operating expenses.
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INVESTMENT MANAGER’S REPORT | INVESTMENT MANAGER’S REPORT
When market conditions are strong and when the average
trading P/E ratio is above 15x, we find that most of these
private companies will seek to list on the local stock
exchanges as soon as possible. When market conditions
are weak and where the average trading P/E ratio is below
15x, historically we have found that the most attractive
exit path is through a trade sale to a strategic acquirer.
These acquirers tend to value companies, particularly
those in which they can acquire a sizeable stake, at
valuations significantly higher than those for comparable
listed companies. The combination of solid shareholder
protection and the size of VOF’s stake in these privately
negotiated investments, allows VOF to negotiate a
significant premium for its exit to strategic acquirers.
The stock markets’ expansion has led to a marked
increase in the number of investors participating in public
markets. Listed Vietnamese companies are becoming
increasingly investor-friendly, which will make it even
easier for investors to participate. Accordingly, we feel
that there is less of a need for VOF to focus on companies
that are already listed, as we have always felt that widely
available investment opportunities like these tend to
offer less attractive returns over the longer term.
If we take a moment to look at the VOF portfolio through
an alternative lens, one that classifies how we initially
entered the investments that are held in the portfolio
rather than how they are presented by current asset
class, this helps to illustrate our strategy of investing
in opportunities not generally available to the public
market. As at 30 June 2018, VOF’s total NAV of USD
1,043.4 million consisted of assets that were invested
through essentially four paths²:
• Private equity: 42.5% of VOF’ total NAV is the carrying
value of companies that VOF entered through the
private equity route. Investments in this group
include Hoa Phat Group (“HPG”) and Phu Nhuan
Jewelry (“PNJ”) which have subsequently gone to list
on the stock exchange.
• Private placement: 17.6% of VOF’s total NAV is
the carrying value of companies that VOF entered
through a private placement with certain investor
rights. Investments in this group include Coteccons
Construction (“CTD”).
• Equitisation: 25.6% of VOF’s total NAV is the carrying
value of companies that VOF entered through the
equitisation process. Investments in this group
include Vinamilk (“VNM”) and Airports Corporate
of Vietnam (“ACV”).
• Shares purchased on the listed stock market: only
10.6% of VOF’s total NAV is the carrying value of
shares acquired directly on the Ho Chi Minh or Hanoi
Stock Exchanges.
2: The below numbers do not include real estate, cash, receivables and payables.
Typically, VOF will retain investments where we feel that
the investment gains in the coming years can surpass a
minimum hurdle of 15% to 20% per annum. Depending
on the risk profile, if the investment does not have the
potential to expand its P/E to an average level and/or
deliver meaningful EPS growth to surpass the minimum
hurdle, then we will look to exit the holding. At the time
of writing, companies in VOF’s unlisted portfolio are
expected to deliver an average EPS growth of 40% over
the coming year, while the weighted average P/E ratio of
listed companies in the VOF portfolio is 15.3x at the end
of the financial year.
As more institutional investors invest into Vietnam and
Vietnamese businesses expand, Environmental, Social
and Corporate Governance (ESG) related matters have
taken on greater importance. In recent years, we have
witnessed situations in which shareholder value declined
significantly when businesses polluted the environment,
ignored global standards, relocated families from their
land without adequate compensation, or did not adhere
to international best practice with respect to corporate
governance. Using guidelines from development finance
institutions such as the FMO (the Dutch development
bank) and the IFC (the International Finance Corporation),
we have developed a framework to identify ESG risks
at potential investee companies, and help businesses
improve their practices, where appropriate, by
incorporating ESG terms as part of our overall terms of
investment in private opportunities.
20
Annual Report 2018
Portfolio review
Chart: VOF’s portfolio by asset class,
% NAV as at 30 June 2018.
3.2% 0.5%
10.8%
19.4%
Net Asset Value
USD 1,043.4m
66.1%
Capital Markets portfolio
Listed equity
Unlisted equity
Private equity
Hospitality and
Real estate projects
Cash and others
During the financial year, VOF benefited from several major
exits of Direct Real Estate and Operating Assets (DRE)
holdings, which generated USD40.5 million in cash. During
the same period, VOF deployed USD179.5 million in more
than five new opportunities, including the equitisation of
state-owned enterprises (SOE) namely Binh Son Refinery
(BSR) and PV Power (POW), along with other listed stocks and
USD35.3 million in private equity assets.
Total cash available at the Group level at the beginning of
the financial year was slightly more than USD87.1 million
(including short-term deposits) or 9.2% of VOF’s NAV, while
at the end of the financial year this had reduced to USD34.2
million or 3.3% of NAV.
It is important to note that VOF did not participate in a
number of well publicised initial public offerings including
VP Bank (VPB), Vincom Retail (VRE), Vinhomes (VHM) and
Techcombank (TCB) during the financial year. During the
later part of 2017 and into the early months of 2018, we
felt that listed valuations were rich in terms of the average
trailing P/E ratio of over 20x, and we believed that a lot of
companies were advised by their investment bankers to take
full advantage of the market rally to sell their shares and raise
additional capital. Foreign investors, particularly those from
north Asia and the US, were more than eager to participate
in these IPOs, reinforcing the market’s valuation. In hindsight,
many of these positions experienced a significant price
decline of anywhere from 15% to 40% post-IPO and listing.
Participants in these IPOs were by and large open-ended
vehicles and hedge funds where the investment strategies
tend to be more speculative, short term and momentum
driven. Liquidity post-IPO is key to their exit strategies and in
an environment where lock-up periods are rarely applied, this
created significant volatility in what is still a relatively thinly-
traded frontier market.
Private Equity portfolio
Turning to the private equity (PE) portfolio, during FY2018
we evaluated more than 30 opportunities which had a
total potential investment value of over USD500 million.
Of those opportunities, we chose to invest in three deals
totalling USD56.3 million.
In general, the companies which we evaluated are keen to
list on the Ho Chi Minh City or Hanoi stock exchanges as soon
as they can to take advantage of attractive public market
valuations, and some companies in VOF’s private equity
portfolio share the same aspirations. Some private equity
investments like HD Bank (HDB) and Cenland (CRE) which
were made during the past two years have rapidly moved
to listing and are now part of the listed portfolio (CRE listed
post VOF’s financial year end). This leaves PE investments
that are not generally ready to go public and as such, they
tend to have lower valuations, as assessed by valuers and
thus, have led to an unattractive return for the private equity
component. In the past, when public equity valuations were
lower and VOF enjoyed many trade sales of its private equity
holdings, the private equity component delivered solid
returns and at times, even surpassing the listed component
of the portfolio.
If the exit horizon (via an IPO) is beyond one year,
VOF typically seeks and receives the right to (1)
perform financial, legal and ESG due diligence, as well
as (2) obtain some form of minority protection and
performance commitments over the following three
years, with associated financial penalties in the event that
commitments are not met, and (3) participation rights on
the Board of Directors and/or Management.
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INVESTMENT MANAGER’S REPORT | INVESTMENT MANAGER’S REPORT
In addition to the terms that VOF typically negotiates, we
also pursue valuations that are at significant discounts to the
listed equity markets. We aim to invest at P/E ratios of 8x to
12x with commitments to grow earnings at a rate of 20% or
more over the next three years.
Competition for private equity deals continues to increase as
Vietnam develops and the listed markets broaden, providing
improved exit opportunities. International PE investors tend
to invest at ticket sizes of USD100 million (or more) and
normally seek local partners like ourselves as co-investors.
Regional PE investors tend to pursue control deals, while local
PE investors tend to focus on smaller opportunities of USD10
million and below. Therefore, competition for opportunities
in private equity investments where VOF can deploy between
USD20 million and USD40 million is less intense than in
smaller or larger deals.
Of course, given the nature of private equity investing, it is
not all smooth sailing. Many potential investments fall away
after considerable work has been done and sometimes
investments that have been completed have to be unwound.
This year, an investment in Vietnam’s leading chicken and
egg producer, Ba Huan (fair value USD32.7 million), had to
be unravelled shortly after completion because of changes
to the shareholdings of the family members of our partners
that led to a divergence of views about how the business
should be developed. These cases are unfortunate,
but very rare.
Over the next 12 months, we plan to deploy an additional
USD100 million into private equity opportunities, bringing
the PE allocation of VOF’s total NAV to about 20%. It is
important to note that we may not reach the 20% of NAV
target allocation as some of these businesses will look to
complete an IPO in a fairly short period of time following any
investment that we may make.
Notable sector weight changes
Although we do not benchmark ourselves against the
VN-Index or any other indices in terms of sector weight,
given that we approach each investment on a bottom-up
basis, we believe that it may be useful for our shareholders
to understand our sector allocation, and changes in exposure
compared to that of last year.
22
Chart: VOF portfolio by sector allocation,
% NAV, FY2018 and FY2017.
Bonds
Operating assets
Pharmaceuticals
& health care
Agriculture
Utilities
Mining, oil & gas
Industrials
Consumer discretionary
Infrastructure
Financial services
Real estate & construction
Food & beverage
Construction materials
0.0%
5.0%
10.0%
15.0% 20.0% 25.0%
FY2017 %NAV
FY2018 %NAV
•
•
Construction materials: The increase in exposure is
largely due to the share price increase of our largest
holding Hoa Phat Group (“HPG”), whose stock price
increased by 67.1% from 30 June 2017 to 30 June 2018.
Food & beverages: We significantly reduced our
position in Vinamilk (“VNM”) as the share price increased
and we believe that it was fully valued. Nevertheless,
the sector remains the second largest allocation in
VOF’s portfolio after construction materials.
• Real estate & construction: We have divested nearly
all of our direct real estate (“DRE”) holdings, with
recent divestments including VinaSquare, My Gia
Township, Phu Hoi City, Saigon Design Center, Trinity
Garden, and Phong Phu Land. We have invested
some of the proceeds from these DRE divestments
back into real estate sector related companies through
listed and private equity transactions in companies.
Examples include Ricons, via a private equity
investment, and Coteccons Construction (“CTD”)
via a private placement.
Financial services: With the recent investments in Ho
Chi Minh Development Bank (HD Bank, HDB, USD21.5
million) and other banks, VOF increased its exposure
to the financial services sector from 4% in June 2017
to 11% as at the end of June 2018.
•
Annual Report 2018
Sector Return
Sector
Construction materials
Food & beverage
Real estate & construction
Financial services
Infrastructure
Consumer discretionary
Industrials
Mining, Oil & Gas
Utilities
Pharmaceuticals & health care
Agriculture
Hospitality
Cash and others
Table: VOF portfolio by sector, % NAV as at 30 June 2018, sector total return on a gross basis.
% NAV
19.2%
18.3%
15.3%
11.2%
9.2%
8.1%
5.9%
4.2%
2.9%
2.0%
1.9%
1.3%
0.5%
Sector total return
48.3%
-8.9%
7.3%
26.1%
57.8%
37.8%
55.7%
-4.1%
-9.1%
4.3%
-18.4%
15.0%
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VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnex
INVESTMENT MANAGER’S REPORT | INVESTMENT MANAGER’S REPORT
Sectors that were leading contributors to portfolio
return include:
These sectors generated return that well exceed that of
the VN Index’s 22.4% for the year.
Sectors that detracted from portfolio return include:
•
Food and beverage: This sector lost 8.9% and
detracted 1.6% from the portfolio return, largely
coming from International Dairy Products (-36.8%
return due to write downs), and Quang Ngai Sugar
(QNS) (-44.8% return due to share price decline). We
note that since the financial year end, QNS’s share
price has recovered 12% (as at the end of September).
Vinamilk (VNM) was the largest stock in this sector
group and it underperformed the VN-Index during the
year (13.1% return versus the index’s 22.4% return), as
VNM reported poor half year figures that were below
the company’s target for the full year. As mentioned
above, we have reduced our holding in VNM
significantly and our weight in the stock from 13.6% of
NAV at the beginning of 30 June 2017 to 8.5% of NAV
as at 30 June 2018.
Construction materials: This sector delivered a total
return of 48.3% over the year, and was the leading
contributor to the portfolio, contributing 9.3% to
portfolio return. The largest contributor to this sector
was leading steel manufacturer Hoa Phat Group
(HPG) which delivered 68.2% return over the year. We
entered HPG through a private equity investment and
today the company is listed.
Infrastructure: The second highest contributor to
return was from the infrastructure sector, delivering
a total return of 57.8%, and contributing 5.3%
to the portfolio return. Airports Corporation of
Vietnam (ACV) delivered 71.6% return over the year,
accounting almost entirely for the sector gain. Recall
that ACV was an equitisation that we participated
in late 2015 and since have made over six times our
investment cost in less than three years on
this investment.
Industrials: This was the third leading contributor,
delivering a total return of 55.7%, and contributing
3.3% to portfolio return. The largest contributor
to this sector was VietJet Air (VJC) which delivered
103.7% over the financial year.
Consumer discretionary: The fourth largest
contribution was from this sector, delivering 37.8%
total return and contributing 3.1% to portfolio return.
Phu Nhuan Jewelery (PNJ), a leading consumer
company that we entered via private equity means,
delivered 35.5% return over the year. Additionally,
FPT Retail (FRT), a private deal that we entered during
the year and which listed in April 2018 delivered an
82.4% return.
Financial services: The fifth largest contributor
was financial services, a sector in which we have
been increasing our portfolio allocation. The sector
delivered 26.1% total return and contributed 2.9%
to the portfolio return over the year. Leading
contributors were Orient Commercial Bank (OCB)
which delivered an 83.3% return, and HD Bank (HDB)
which delivered 37.2% over the year. Both of these
investments were privately negotiated deals that we
recently entered.
•
•
•
•
•
24
Annual Report 2018
The table below sets out VOF’s top 10 listed equity holdings:
Investee company
1. Hoa Phat Group (HPG)
2. Vinamilk (VNM)
3. Airports Corporation of Vietnam (ACV)
4. Khang Dien House (KDH)
5. Phu Nhuan Jewelry (PNJ)
6. Eximbank (EIB)
7. Vietjet Air (VJC)
8. Quang Ngai Sugar (QNS)
9. Ho Chi Minh Development Bank (HDB)
10. Coteccons Construction (CTD)
Total
Table: Listed equity holdings, % of total NAV as at 30 June 2018
% of NAV
Sector
14.6
Construction materials
Food & beverage
Infrastructure
Real estate & construction
Consumer discretionary
Financial services
Industrials
Food & beverage
Financial services
Real estate & construction
8.5
8.2
7.2
5.5
3.7
3.7
2.8
2.7
2.5
59.4
During FY2018, VOF had between 30 and 40 holdings in its listed portfolio and we would like to highlight a few of the
larger holdings to provide a sense of how they are performing.
25
VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnex INVESTMENT MANAGER’S REPORT | INVESTMENT MANAGER’S REPORT
1. HOA PHAT GROUP (HPG)
LISTED ON HOSE
Hoa Phat Group is Vietnam’s largest steel manufacturer.
HPG holds the leading position in the construction steel
segment, with market share at 23.3% which is significantly
higher than the second-largest company. The company
also holds the leading position in the steel pipe segment
with a 30.2% market share. A fully integrated value chain
operating at maximum capacity generated a gross profit
margin of 21.4%.
HPG’s earnings in the first half of 2018 were USD189.6
million, an increase of 27.4% year on year (“YOY”) on the
back of 25.4% steel revenue growth which was achieved
by a combination of an increase of 9.4% in volume and a
14.6% increase in the average selling price. The main driver
of 2018 growth is expected to be higher selling prices
(11% higher than in 2017) and capacity expansion, which
includes a new steel sheet line (increasing annual capacity
by 400,000 tons). Meanwhile, the construction of the large
new Dung Quat project, an addition of four million tons of
total capacity, remains on track; phase one will add two
million tons of annual capacity for construction steel and is
due to be operational in early 2019.
The current valuation of HPG is 9.1x based on its 2017
actual earnings but with 2018 earnings growth expected
to be over 20%, leading to a forecast 2018 P/E of
approximately 8x. At this multiple, HPG continues to trade
at a significant discount to peers, and we feel that the
stock is undervalued. In comparison, as at 30 June 2018,
the average trailing P/E ratio of the VN Index was between
19x and 20x.
26
INVESTMENT MANAGER’S REPORT | DUMMYAnnual Report 2018
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VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnex INVESTMENT MANAGER’S REPORT | INVESTMENT MANAGER’S REPORT
2. KHANG DIEN HOUSE (KDH)
LISTED ON HOSE
Khang Dien House is one of the best-known property
developers in Ho Chi Minh City (HCMC). The company
has an excellent track record in many town house and
villa projects and owns one of the largest land banks
for residential development in HCMC (400 ha in total
land area). In recent years, KDH has experienced strong
demand for its landed projects in East HCMC in areas
such as Districts 2 and 9, where the infrastructure is
improving quickly. KDH reported net profit growth of 39%
in 2017, driven by the delivery of six projects. Presales
also increased by 53% in value, marked by the launch of
KDH’s first-ever high-rise project called Jamila, which has
867 units and is 100% sold.
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In February 2018, KDH acquired Binh Chanh Investment
and Construction (BCI), a major player in the west of
HCMC, via a share swap. KDH has been actively preparing
to tap into BCI’s low-cost land bank and begins launching
major landed projects as early as 2019. Following the
success of Jamila, KDH will expand further into the
high-rise segment, launching two mid-end apartment
blocks in 2018 with a total of 3,000 units combined.
Considering the affordability and rising demand in
the mid-end market, we expect a strong absorption
in KDH’s upcoming high-rise projects. Furthermore,
KDH’s apartments were of higher construction and
management quality with more competitive prices than
its main competitors. We think that KDH has what it takes
to become the next big player in this particular segment
in the long run.
Management projects 2018 net profit growth to
be above 50%. Profit will be largely driven by the
deliveries of units pre-sold in 2018, including 50% of the
apartments in Jamila. KDH is trading at a 2018 P/E ratio
of 15.2x and a price to book ratio of 1.8x. As at 30 June
2018, KDH accounted for 7.2% of VOF’s total NAV.
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INVESTMENT MANAGER’S REPORT | DUMMYAnnual Report 2018 3. PHU NHUAN JEWELRY (PNJ)
LISTED ON HOSE
Phu Nhuan Jewelry is the largest jewelry company in
Vietnam. The company designs, manufactures and sells
gold, silver, diamond jewelry and watches in Vietnam.
Its proven store expansion strategy continues to be a
success. PNJ is by far the dominant player in its category
with market share of 28%, which is almost the same as
the next three competitors combined.
For the first half of 2018, revenue and earnings continued
to increase strongly at 34% and 37% YOY to USD324
million and USD22.7 million, respectively. PNJ opened
29 new stores during the period, an increase of 26%
YOY. The company targets to open 40 stores in 2018 and
remains on target to reach 500 stores by the end of 2020.
As at 30 June 2018, PNJ has 300 stores in operation.
In April 2018, PNJ’s stock sold off sharply due to some
negative publicity around a judicial matter involving
the husband of PNJ’s chairwoman; however, PNJ’s core
business and Chairwoman were not affected by this legal
issue in any way.
Revenue and earnings are both projected to increase by
over 30% YOY. This will translate to a relatively attractive
valuation of 14.5x P/E, which is a little lower than the
market’s average 2018 forward P/E of 15.2x. As at 30
June 2018, PNJ accounted for 5.5% of VOF’s total NAV.
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INVESTMENT MANAGER’S REPORT | DUMMYAnnual Report 2018 4. VIETJET AIR (VJC)
LISTED ON HOSE
VJC is the leading low-cost airline in Vietnam, amassing 43% market share of
the domestic market in just four years.
For the first half of 2018, the company reported revenue of USD934 million, a
29% increase over the previous year, and profit before tax of USD105 million,
an increase of 25%.
The company achieved a very high load factor of 85% in the first half of
2018. It has a very young fleet of narrow-body Airbus aircraft with an
average age of 2.7 years. Its aircraft utilisation has reached 14.06 block
hours per day thanks to short turnaround times of 30 minutes for domestic
flights. VJC also serves a number of international destinations, and this
year is opening new routes to India, Australia and Japan. VJC operated 94
routes in the second quarter of 2018, including 38 domestic routes and 56
international routes, compared with 37 domestic routes and 36 international
routes in the second quarter of 2017.
For 2018 as a whole the company expects to deliver revenue of over USD1 billion
and core profit of over USD200 million, which indicates an increase of over 30%
and 40% YOY, respectively. The stock was trading at a 12x P/E as at 30 June 2018.
The stock trades on HOSE with high liquidity (over USD2.2 million traded per day).
As at 30 June 2018, VJC accounted for 3.7% of total NAV.
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5. FPT RETAIL (FRT)
LISTED ON HOSE
FPT Retail is the second-largest mobile phone retailer
in Vietnam with an 18% market share and 516 stores
covering all 63 provinces. With two retail chains, FRT
shops and F-studio, and two new initiatives, a consumer
financing programme and a telecommunications
operation, FRT enjoyed a healthy same store sales growth
of 7% in 4Q17 and 10% in 1H18, higher than its local peers.
The retail sales value of smartphones grew by 8% in 2017
and is expected to grow at the same pace in the next
few years, largely due to the currently lower smartphone
penetration in rural areas (68% vs urban 84%), low 3G and
4G subscriptions of 42% and 5%, booming e-commerce
and consumer finance (30% growth).
In the first half of 2018, FRT reported revenue growth of
18% to USD 329 million and profit growth of 30% to USD
6.5 million. The F-Friend program, which offers 0% interest
loans to customers, contributed USD 42 million (+50%
YOY), which was 13% of total revenue.
VOF invested in FRT in August 2017 before it listed on the
HOSE in April 2018. As at 30 June 2018, FRT’s valuation
was attractive at a 2018 P/E 14.6x, which is lower than the
market’s P/E. As at 30 June 2018, FRT accounted for 1.7%
of total NAV.
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INVESTMENT MANAGER’S REPORT | DUMMYAnnual Report 2018 6. AIRPORTS CORPORATION
OF VIETNAM (ACV)
LISTED ON UPCOM
Airports Corporation of Vietnam operates 22 airports
and develops aviation infrastructure in Vietnam. For
the first half of 2018, the company reported revenue of
USD350 million and profit before tax of USD168 million,
representing revenue growth of 20% and profit before tax
growth of 51%. For the full year 2018, we expect revenue
of over USD700 million and profit of over USD200 million,
representing an increase of over 25%.
The stock trades at a substantial premium to other large
cap stocks in Vietnam, but we think that this is justified
given its monopoly position, and the strong secular tail
wind with high airline passenger growth coming from both
international tourists up by 14% to 52.8 million people
in the first half of 2018 and from domestic passengers
who have been attracted by lower ticket prices, greater
convenience and new low-cost airlines, making air travel
the optimal choice.
With a high degree of visibility of earnings and a position
unlikely to be challenged in the next 3-5 years, consensus
targets ACV’s earnings to grow in the 25-30% per annum
range during that period, which is extremely rare for
any company (and unique in large listed companies).
Compared to regional peers such as Thailand Airports,
ACV’s multiples (both on earnings and cash flow) are
almost comparable, but we think that the Vietnamese
aviation industry will grow faster and hence the stock
could trade at a premium once more international
investors take interest. At the moment ACV’s current
valuation is 2018 35x P/E and EV/EBITDA of 17.4, but as the
stock trades on UpCom and liquidity is modest (just over
USD1 million per day), a number of large funds are unable
to access it. As at 30 June 2018, ACV accounted for 8.2% of
VOF’s total NAV.
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7. ORIENT COMMERCIAL BANK (OCB)
OVER THE COUNTER (OTC) TRADED
Established in 1996, OCB currently ranks 17th out of 34 banks in Vietnam
in terms of total assets. The bank has expanded rapidly over the past four
years and delivered outstanding results in 2017 with profit growth of 111%
YOY and return on equity reaching 15%. OCB also strengthened its risk
management practices and became the first Vietnamese bank to comply
fully with the Basel II regulations.
OCB currently has 122 branches nationwide and aspires to become a
leading retail bank targeting affluent individual customers as well as small
and medium-sized enterprises. The bank expects to list on the HOSE before
the end of 2018.
At the end of the first half of 2018, the bank’s total assets stood at USD3.89
billion, up by 25% YOY, while total deposits increased to USD2.81 billion, a
32% YOY rise. Outstanding loans were USD2.27 billion, with non-performing
loans (NPLs) at 2.1% of the total.
OCB expects stellar profit growth to continue in 2018, rising by over 90%
YOY driven by strong credit growth (25% YOY), net interest margin expansion
(+50 bp YOY) and high fee-income growth. During the first half of 2018, the
bank completed 65% of its full-year target with net profit at USD45.5 million,
jumping by 2.6x YOY. Consumer lending is the new growth driver, helping
net interest margin expand by +74 bp. Fee-based income also posted good
growth of 57% YOY due to contributions of bancassurance and transactional
banking activities. OCB realised a profit of around USD28 million from bond
trading in the first half of 2018 when bond prices reached a high point. For
the full year 2018, management targets total operating income of USD200
million and profit of USD68 million, representing increases of over 60%.
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INVESTMENT MANAGER’S REPORT | DUMMYAnnual Report 2018 8. AN CUONG WOOD-WORKING JOINT
STOCK COMPANY (AC)
PRIVATE EQUITY INVESTMENT
VOF and its co-investment partner Deutsche Investitions-und
Entwicklungsgesellschaft mbH (DEG) currently own 19.7% of AC, with VOF’s
effective holding at 12.1%.
AC is the largest interior wood working company in Vietnam, producing
wood-based panels, kitchen cabinets and equipment and other interior home
furnishing components. For the first six months of 2018, the company’s two
key products, Melamine and Laminate panel, were the key growth catalysts,
generating 23.5% and 32.9% YOY growth respectively.
During the first half of 2018, AC delivered USD70.1 million in revenue and
USD9.7 million in net profit, which represent a 23% and 3% increase YOY,
respectively. The cost of preparing the company’s second factory has been a
drag on financial year 2018 profit. In 2018, the company targets revenue of
over USD140 million and net profit of approximately USD20 million, and we
expect earnings growth to improve significantly from 2019.
The opening of a second factory in the fourth quarter of 2018 is expected
to provide capacity for further expansion. With available cash and a steady
positive operating cash flow, the company is confident that its strategy to
increase production capacity will enable it to maintain its leading position in
the industry.
In June 2017, Sumitomo Forestry and AC signed a strategic agreement under
which Sumitomo acquired a portion of AC’s shares. In addition, Sumitomo
also acquired 5% of vendor shares from employees. Sumitomo Forestry is the
leading furniture manufacturer in Japan; the Group also has a Joint Venture
in Vietnam producing material board for wood-based panel products. The
partnership is expected to bring benefits to both parties in terms of supply
and customer network and defines AC as a preferred target for a global
strategic investor to join and participate in the local market.
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INVESTMENT MANAGER’S REPORT | DUMMYAnnual Report 2018 9. INTERNATIONAL DAIRY
PRODUCTS (IDP)
PRIVATE EQUITY INVESTMENT
In November 2014, VOF, along with an investment partner,
acquired 70% of a distressed dairy company called Bavi
(named after the province in which the fresh milk is sourced).
Over the next 18 months up to the middle of 2016, we
renamed the company IDP and embarked on the first phase
of a restructuring process. Our focus was on addressing the
company’s capital structure, fixed assets, and portfolio of
products since this is a distressed investment which was
taking longer to turn around than expected.
During the latter part of this process, IDP tested interest
in its products in China with solid success, although it was
unable to scale up production to supply this export market
until it received the necessary licences, which it finally
obtained in May 2017.
The team made continuous efforts in restructuring IDP in
2017 and 2018. During the first half of 2018, the company
generated revenue growth of 12% while competitors
declined compared to the same period last year. Export
sales and new products have been key drivers of revenue
growth. Various cost savings were applied that returned
the Company to profitability in the middle of the year.
It has been difficult to restructure this business in light
of the competitive nature of the market but our team
continues to focus its efforts on this turnaround. The
valuation of this business has declined from USD31 million
as at June of 2017 to USD25 million as at June 2018.
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INVESTMENT MANAGER’S REPORT | DUMMYAnnual Report 2018 10. THAI HOA INTERNATIONAL HOSPITAL
JOINT STOCK COMPANY (THH)
PRIVATE EQUITY INVESTMENT
VOF currently owns 81.1% of THH, with the remaining stake owned by THH’s
CEO and management team.
THH is the largest private group of general hospitals in Dong Thap province
and the Mekong Delta region, 150 km away from HCMC, with 400 beds in
total. THH has emerged as a high-quality brand in the local market with strong
support from the local Government. The hospital’s CEO is a surgeon and
obstetrician with over 20 years of experience in Tu Du Hospital, the largest
obstetrics hospital Vietnam.
THH owns an operational hospital with a designed capacity of 200 beds, with
over 200 staff including 25 experienced doctors, medical advisors, and highly-
skilled nurses. A second hospital with 200 beds is currently under construction
in Hong Ngu city, 50 km from the existing hospital. It is expected to open
in January 2019. The new hospital enjoys favourable investment conditions
from the Dong Thap People’s Committee including subsidised interest on both
government and commercial loans, low land acquisition costs, and long-term
tax exemptions.
In 2018, THH had approximately 200,000 patient visits, while its occupancy
rate reached 70%. Management expects to deliver revenues of USD7.0 million,
representing 40% YOY growth, and EBITDA of USD2.0 million. With high
demand for good quality healthcare in the Mekong Delta region, the group’s
growth prospects for the next few years look promising.
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Listed Portfolio Review
Our strategy has always been to hold investments in
companies with strong fundamentals as well as valuations
below what we believe to be intrinsic value. With the
appreciation of stock prices in some of our top holdings
(and large caps in general), we have been able to divest
some of the stocks in which fair valuations were reached. In
particular, we have reduced our positions in Hoa Phat Group
(HPG), Vinamilk (VNM), Vietjet (VJC) and Phu Nhuan Jewelry
(PNJ), especially during the second half of our financial year
when, at one point, Vietnam was trading at a trailing P/E as
high as 22x.
This was higher than the regional average and the first time
in over ten years that the market has sustained these levels.
We redeployed the proceeds into several equitisations
and PE deals as well as initiating some new positions in
the listed universe where we think that there are likely to
be opportunities to buy into private placements (PIPE) or
strategic merger and acquisition (M&A) candidates. Even if
such opportunities should not materialise, the valuations by
themselves are appealing in our view. This is especially true
for stocks outside the large cap arena where valuations (of
small and mid-cap companies) are sometimes half or even
a third of their larger peers based on P/E ratios. As a result,
we have increased our holdings from around thirty stocks
to forty and these new holdings now make up a material
percentage of the portfolio. Our top ten positions now
account for 59% of the portfolio, which is down from 82%
last year.
The valuation of the large cap stocks has been high: as
at 30 June 2018 the ten largest stocks in the VN-Index
accounted for approximately 50% of the total market
capitalisation. Two of the largest companies on the stock
market, Vinhomes (“VNM”) (10.3% of the VN-Index) and
Vingroup (“VIC”) (9.7% of the VN-Index) are related and
in combination with another related but smaller company
Vincom Retail (“VRE”) (2.5% of the VN-Index). These three
companies make up 23% of the VN-Index. With a combined
market capitalisation of approximately USD31 billion
outstanding as at 30 June 2018, these companies have a
2018 P/E ratio significantly higher than the market average.
We are index-agnostic and have not held either Vingroup
or Vinhomes. Moreover, our results in the past three to
five years have demonstrated that not holding some of the
largest companies in the Index has not harmed VOF’s return;
on the contrary, our bottom-up and valuation focused
approach to investing has been quite rewarding, with the
listed portfolio gaining an annual return of 27.4% in the last
three years compared with 15.3% for the Index.
Ranking
Ticker
1
2
3
4
5
6
7
8
9
10
VHM
VIC
VNM
VCB
GAS
SAB
TCB
MSN
CTG
BID
Name
Vinhomes
Vingroup
Vietnam Dairy Products
Bank for Foreign Trade of Vietnam
PetroVietnam Gas
Saigon Beer Alcohol Beverage Corp
Vietnam Technological & Commercial
Masan Group Corp
VietinBank
Bank for Investment and Development of Vietnam
Total
Table: Top 10 weighting of VN-Index as at 30 June 18
46
Weight (%)
10.3
9.7
8.4
7.1
5.8
4.9
3.7
3.1
3.1
3.0
59.1
Annual Report 2018 Looking forward, we expect the exceptional returns of
the past two financial years, during which annual average
growth rate was 20%, to be the exception and not the
norm. In addition, with US interest rates on the rise coupled
with the current US administration’s policies focusing on
trade protection, global stock markets may become less
directional and more volatile. With this in mind, we think
that a focus on privately negotiated deals with an emphasis
on valuation will be even more important to generate a good
absolute return, regardless of whether the asset is listed,
non-listed or private equity.
Equitisations of State-Owned Enterprises (SOEs)
and Pre-IPO Investments
In last year’s Annual Report, we wrote that the Government
remains committed to equitising (privatising) SOEs, and
has been pushing companies to complete the process. This
turned out to be the case and at the beginning of 2018 we
saw several large equitisations, especially in the oil & gas
and utilities sectors including Binh Son Refinery (“BSR”),
PV Power (“POW”) and PV Oil (“OIL”). We participated in
the first two due to what we deemed to be low valuations
for what are leading companies and, although the shares
initially appreciated significantly, they have since retreated
to losses in the mid-teens as the market fell in the second
quarter, losing nearly 20%. Nonetheless, we believe that
the share prices of these two companies will recover in the
medium-term as earnings improve and the market stabilises.
We expect the equitisation push to continue in 2019
and 2020, although it is likely that the pace will be slow
until market conditions improve. We believe from the
Government’s perspective, this makes some sense as one
of the objectives is to maximise equitisation proceeds.
However, in our conversations with the Government we
have emphasised that market conditions should not be the
only or even the most important factor in deciding whether
to equitise a company, and that the Government should
largely stick to its overall goal of privatisation as we believe
that this will improve Vietnam’s competitiveness and make
SOEs more efficient. While we think that spacing out large
equitisations so that markets may absorb the issuance can
make sense, putting a complete hold on all equitisations
because the market has fallen from its peak is not a good
idea in the long term.
In terms of Pre-IPO, it is more interesting to explain what we
did not invest in rather than what we did. In the latter case,
we participated in the placement of HD Bank (HDB) which is
one of Vietnam’s leading private banks at a time when banks’
valuations were much more attractive. The investment in
HD Bank returned 37.8% in the financial year 2018. However,
we did not invest in some of the well-publicised IPOs that
occurred later on such as Vinhomes (“VHM”), which had
a USD13 billion market cap and was valued at almost 10x
book value with large numbers of projects many years away
from bringing in cash flow; Vincom Retail (“VRE”) at USD4
billion market cap and 40x earnings; nor did we invest in
Techcombank (“TCB”) – which, at USD5 billion, also ranks
as one of the leading private banks with strong growth
potential, but at almost 3x book value compared with HD
Bank at 2x book value, we believed that these values were
too high.
As all three of these companies are large caps and important
Index constituents, at times we felt as though we were in the
minority by not taking part in these IPOs when many other
investors were talking about them and the sell-side advisors
all had positive research notes citing substantial upside. On
an absolute basis, however, these IPOs have done poorly for
investors who invested in them at the time, as the Vinhomes
and Techcombank IPOs more or less coincided with the
market peak around the end of the first quarter, beginning of
the second quarter. In the case of Techcombank, the shares
have underperformed the market substantially (TCB share
price declined 19% versus -6% decline of the VN Index from
when it listed in early June 2018 to the end of July 2018).
As mentioned earlier, we are disciplined in our valuations
with regards to entry and exits, and even with strong earnings
growth for some companies, valuation is a key consideration
and we will continue to maintain this approach for future
investments regardless of market momentum.
Looking ahead, VOF’s asset allocation strategy in the coming
financial year is as follows:
•
Listed equities: Divest large positions that are fully
valued, with a preference for block sales. We remain
index-agnostic and bottom-up, valuation-driven,
focusing on sectors that we believe offer secular growth
and focusing on the domestic economy.
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•
•
Private placement: This is an area where historically,
similar to equitisation, we have done well. We currently
have several companies in our pipeline that we think may
be ready for investment in the next 12 months.
SOE Equitisations: The pipeline for equitisations is an
ever-changing one with timing uncertain as some SOE
equitisations are delayed or cancelled. In terms of size,
equitisations are usually large so that the dollar amount
that can be disbursed by investors such as VOF is not
a problem: for example, the Government’s planned
sale of a 20% stake in Airport Corporation of Vietnam
(second tranche) would be worth USD1.5 billion based
on current market price. We have already taken part
in SOE equitisations and privately negotiated deals
during the early part of the calendar year, disbursing a
significant amount (approximately USD80 million) into
three investments that potentially will boost portfolio
performance for the rest of the year and beyond.
Market risks
Although market valuations have increased significantly, they
are in-line with the regional peer average and are reasonable
compared to forecast growth rates. We do see some risks
that require monitoring. There have been discussions around
whether the sudden rise in valuation seen in 2017 and early
2018 is similar to the rise in the Vietnamese stock market
seen in 2006 and its subsequent drastic decline. The concern
revolves around potential risks that are perhaps similar and as
a result can lead the current market valuation down a similar
path seen subsequent to 2006. We believe that today’s
market conditions are different and so are the associated
risks. The top three areas of concern for the Vietnamese
market are:
1. External volatility: In early 2018 we witnessed how the
US market and global currency volatility can have a
negative impact on Vietnam’s stock markets, which had
been driven up over the previous few months primarily
on the back of foreign investor flows. External volatility
could force some of these foreign investors to retreat,
putting pressure on Vietnamese markets as well as the
Vietnamese Dong.
2. Margin lending: This currently stands at approximately
USD1.4 billion, or 1.4% of the total market capitalisation
of Vietnam’s three stock exchanges. It has slightly
48
decreased from its all-time high in the first quarter of
2018. Any volatility could have a downward spiral effect
driven by the liquidation of margin lending positions.
Inflation and interest rates: Although this risk is on the
lower side, it is one that we are nevertheless acutely
aware of and monitoring.
3.
We also believe that the Vietnamese stock market today is
more reasonably valued than at its height in 2006 where the
average PE ratio was at times over 30x. The size and depth
of today’s market is significantly larger with over 700 listed
companies. Furthermore, in terms of liquidity, which is driven
by both foreign and domestic investors, it is significantly
higher and thus lessens various market risks relative to 2006.
Earnings growth will drive the market in 2018
In summary, 2018 has thus far been another exciting and
unpredictable year. We estimate the average earnings growth
for Vietnamese listed equities to be around 15-17% per
annum. As the Company’s listed holdings investment strategy
seeks annual returns of at least 15%, we will only hold those
listed equities where we see potential for outperformance
in EPS growth against the average as well as the possibility of
P/E expansion.
Given the remarkable increase in the size and liquidity of
Vietnam’s stock markets over the past two years, we think
that more global investors will recognise Vietnam’s potential
as an attractive place to invest, compared with many other
emerging markets. This trend will increase demand for
Vietnamese listed equities, particularly in larger companies
which tend to enjoy a higher level of liquidity.
The Company has demonstrated its ability over time to move
large blocks of listed equity shares to strategic investors at a
significant premium to the prevailing market price and, in the
past, the Company has enjoyed ample opportunities to divest
stakes where valuations, and effectively the P/E ratios, were
significantly higher than the market prices. We hope to see
more of these transactions in the rest of 2018 and in 2019.
Andy Ho
Managing Director
23 October 2018
Annual Report 2018
ECONOMIC & INVESTMENT ENVIRONMENT |INVESTMENT MANAGER’S REPORT
ECONOMIC &
INVESTMENT ENVIRONMENT
Vietnam’s macro economy was very stable throughout
2017, a trend that has continued into 2018. This was
evidenced by modest inflation, a relatively stable
Vietnamese Dong (VND) exchange rate to the USD,
and steady interest rates. This stability, coupled with
robust yet sustainable GDP growth, significantly raised
international investors’ interest in Vietnam during VOF’s
2018 financial year, and supported Vietnamese stock,
bond, and real estate prices.
GDP growth driven by consumption and manufacturing
Vietnam’s GDP grew by 6.8% in 2017, and we expect the
country’s economy to grow at a comparable pace in 2018,
driven by domestic consumption and by the continued
expansion of manufacturing output. The economy grew by
7.1% YOY in the first half of 2018 in comparison to the first
half of 2017.
GDP Growth (% yoy)
Source: Government Statistics Office of Vietnam
7.65
7.46
7.38
6.79
6.68
6.56
6.28
5.78
5.48
5.15
8.5
7.5
6.5
5.5
4.5
3.5
Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18
Household consumption accounts for nearly two-thirds
of Vietnam’s economy, and grew by approximately 9.5%
in 2017, and at an 8.6% YOY pace in the first half of 2018.
This robust growth contributed over 5 percentage points
to Vietnam’s overall GDP growth rate and was supported
by a record-high level of consumer confidence. Vietnam’s
consumers were the world’s fourth most confident in early
2018, according to market research firm Nielsen.
Manufacturing accounts for 16% of Vietnam’s economy,
and grew by 14.4% in 2017, and at a 13% YOY pace in
the first half of 2018. The strong growth of Vietnam’s
manufacturing sector contributed over 2 percentage
points to Vietnam’s overall GDP growth rate and was
reflected in a near-record high reading of Vietnam’s
Purchasing Manager’s Index (PMI) of 55.7 in June 2018,
which was the highest PMI reading in the Emerging
Markets Asean region.
Manufacturing growth was supported by an 11% rise in
foreign direct investment (FDI) in 2017 to USD11 billion
and 8% YOY growth in the first half of 2018, because
the majority of Vietnam’s FDI inflows are deployed into
increasing the country’s productive capacity. Many FDI-
funded factories produce for export, so robust FDI inflows
and manufacturing output growth also helped to drive an
expansion of Vietnam’s trade surplus from 1.2% of GDP in
2017 to an estimated 2.8% of GDP in the first half of 2018.
Finally, Vietnam’s GDP growth continued to be held
back by the country’s falling oil production. In 2017, oil
production volume fell by 10.8%, which reduced Vietnam’s
GDP growth rate by about 0.5 percentage points, and in
the first half of 2018 production again fell at an 10.9% YOY
rate. Production volume was previously constrained by low
global oil prices (especially in early-2017), but Vietnam’s
oil production is currently being impeded by physical and
other constraints, according to our conversations with
industry executives (note that global oil prices rose by
approximately 60% YOY during VOF’s financial year 2018).
49
VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnex
INVESTMENT MANAGER’S REPORT | ECONOMIC & INVESTMENT ENVIRONMENT
Inflation and interest rates
Vietnam’s policy makers continue to prioritise
macroeconomic stability but surging global oil prices lifted
inflation in most emerging markets, including Vietnam.
The country’s headline Consumer Price Index (CPI) inflation
increased from 2.5% YOY at the end of December 2017
to 4.7% at the end of June 2018, driven by an increase in
the Brent crude oil price from about USD50 per barrel to
USD80. However, core CPI inflation, which strips out the
impact of food and fuel prices, ranged between just 1.2
and 1.5% during VOF’s FY2018.
Headline & Core Inflation
Source: General Statistics Office of Vietnam
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
7
1
-
l
u
J
7
1
-
g
u
A
7
1
-
p
e
S
7
1
-
t
c
O
7
1
-
v
o
N
7
1
-
c
e
D
8
1
-
n
a
J
8
1
-
b
e
F
8
1
-
r
a
M
8
1
-
r
p
A
8
1
-
y
a
M
8
1
-
n
u
J
YoY Inflation
Core Inflation
Higher energy prices also indirectly increase the price of
food, which accounts for 36% of Vietnam’s CPI basket.
Food prices were falling at a 3.1% annualised rate at the
end of December 2017, but food price inflation reached
5% YOY at by the end of June 2018, which boosted the
headline CPI rate by nearly 3 percentage points over that
time. In contrast, medical price inflation fell from a 46%
YOY rate at the end of December 2017 to 13% YOY at the
end of June 2018, which reduced the country’s headline
inflation rate by about 1.7 percentage points,
ceteris paribus.
50
Despite the increase in inflation during the financial
year, deposit and lending interest rates at local banks
were more-or-less unchanged at circa 5-6% for short
term deposits on average (although some smaller banks
paid higher rates to attract deposits), circa 8% lending
rates for short term loans, and 10-11% lending rates for
loans with a one-year maturity.
5-year Government Bond Yield
vs. 1-week Interbank Interest Rate
Source: Bloomberg
6.5
6
5.5
5
4.5
4
3.5
7
6
5
4
3
2
1
3
Jul-16
Sep-16 Dec-16 Mar-17
0
Jun-17 Sep-17 Dec-17 Mar-18 Jun-18
5-year G-bond Yield
1-week Interbank Interest Rate
Furthermore, interbank interest rates and the yields
on Vietnamese Government Bonds (VGBs) were
extraordinarily low in the financial year, despite increasing
inflation. Interbank rates remained below 2% almost
continuously, which helped to drive a 90bp decline in
10Y VGB yields in 2017, and a further 120bp decline to a
trough of just 4% in the first quarter of 2018, before rising
inflation caused 10 year yields to rebound to 4.8% by the
end of June.
The surprisingly low level of interbank interest rates was
partly a by-product of the central bank’s accumulation of
USD13 billion of foreign exchange (FX) reserves in 2017,
and an additional USD11 billion of reserves in the first half
of 2018, bringing the State Bank of Vietnam’s (SBV’s) total
FX reserves up to nearly USD64 billion, or 30% of GDP at
the end of June 2018. Those purchases of USD by the SBV
were only partly “sterilised” by the issuance of T-Bills that
drained excess liquidity from the money market, so much
of the residual liquidity generated by the SBV’s FX reserve
accumulations flowed into the nation’s commercial banks.
Annual Report 2018
The Vietnamese Dong (VND)
In the second quarter of 2018, a 5% surge in the value of
the US Dollar Index (DXY) triggered steep depreciations
in the values of Emerging Market (EM) exchange rates,
and prompted “hot money” capital outflows from most
EM stock and bond markets. The VND depreciated by
just 1.5% against the USD to the end of June 2018, after
having appreciated by 0.3% in 2017. Additionally, Vietnam
attracted USD4.1 billion of foreign indirect investment (FII)
in the first half of 2018, which was an 81% YOY increase
over FII in the first half of 2017, and which was a stark
contrast to the significant stock market outflows that most
of Vietnam’s regional peers endured during the period.
VND Official vs. Unofficial Exchange Rate
Source: Bloomberg. State Bank of Vietnam
23,500
23,000
22,500
22,000
21,500
21,000
4
1
-
n
a
J
4
1
-
r
p
A
4
1
-
l
u
J
4
1
-
t
c
O
5
1
-
n
a
J
5
1
-
r
p
A
5
1
-
l
u
J
5
1
-
t
c
O
6
1
-
n
a
J
6
1
-
r
p
A
6
1
-
l
u
J
6
1
-
t
c
O
7
1
-
n
a
J
7
1
-
r
p
A
7
1
-
l
u
J
7
1
-
t
c
O
8
1
-
n
a
J
8
1
-
r
p
A
8
1
-
l
u
J
Upper band
OTC FX rate
The currencies of India, Indonesia, and the Philippines
depreciated by 6-7% against the USD in the first half of 2018,
while Thailand and China depreciated by nearly 2% over
the same period. EM countries which have current account
deficits and/or are oil importers endured the steepest
depreciations of their currencies in the second quarter
of 2018 (Malaysia is an oil exporter, so its currency was
unscathed by exchange rate volatility). Countries with specific
political or other issues suffered severe depreciations,
including Brazil (-17% in the first half of 2018), Turkey (-21%),
and Argentina (-56%).
Vietnam enjoyed current account surpluses averaging 4.8%
of GDP for each of the past six calendar years. We estimate
that Vietnam’s oil and refined petroleum products imports
account for only about 1-2% of GDP annually, while India,
Thailand, and China import 45-75% of the oil consumed.
However, Thailand enjoys an 8% of GDP current account
surplus thanks to its huge tourism industry, which explains
the relative resilience of its currency in the second quarter
of 2018.The other factor which helped to stem the
depreciation of the VND in the midst of EM FX rate volatility
during the second quarter of 2018 was the central bank’s
public commitment to intervene in the currency market if
the VND depreciates by more than 2%. This was backed up
by an increase in Vietnam’s FX reserves from 2.7 months’
worth of imports at the end of 2016 to about 3.5 months’
of at the end of June 2018 (the IMF, World Bank and others
recommend EMs maintain a minimum of three-months’
worth of FX reserves).
It appears that the Government is targeting FX rate stability
versus the USD in order to encourage capital inflows from
foreign investors, which helps explain why the VND has been
much more stable against the USD in recent years than have
the currencies of Vietnam’s EM Asean peers.
VND vs. EM ASEAN Currencies
Source: Bloomberg.
105%
100%
95%
90%
85%
80%
75%
3
1
-
n
u
J
3
1
-
p
e
S
3
1
-
c
e
D
4
1
-
r
a
M
4
1
-
n
u
J
4
1
-
p
e
S
4
1
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c
e
D
5
1
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r
a
M
5
1
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n
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J
5
1
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p
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S
5
1
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D
6
1
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a
M
6
1
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n
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J
6
1
-
p
e
S
6
1
-
c
e
D
7
1
-
r
a
M
7
1
-
n
u
J
7
1
-
p
e
S
7
1
-
c
e
D
8
1
-
r
a
M
8
1
-
n
u
J
USD vs. VND
EM ASEAN currencies vs. USD
China followed this strategy in the wake of the 1997
Asian Financial Crisis, when it spent copiously to support
the Renminbi at a time when the currencies of other
Asian countries plummeted. The confidence that this
strategy engendered in foreign investors was one factor
that helped encourage an enormous wave of foreign
investment into China in the 2000s.
51
VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnex
INVESTMENT MANAGER’S REPORT | ECONOMIC & INVESTMENT ENVIRONMENT
Structural growth drivers: Emerging middle class and
industrialisation
The property sector
Vietnam’s impressive long-term growth prospects are
supported by the FDI-funded expansion of the country’s
manufacturing base, which is driving export growth and
supporting the emergence of a vibrant middle class. We
estimate that about 20% of Vietnam’s citizens are cur-
rently in the middle class. The Boston Consulting Group,
market-research firm Nielsen and others expect that
proportion to rise to one-third within the next few years,
making Vietnam’s middle class one of the fastest growing
in the world.
The two primary drivers of the emergence of Vietnam’s
middle class are industrialisation and the country’s 3%
urbanisation rate. Only about 36% of Vietnam’s citizens
live in the country’s major cities, (compared with 59% in
China), and Vietnamese urban incomes are nearly double
rural ones, according to the General Statistics Office of
Vietnam (GSO).
Proportion of Urban Population (%)
Note: Urban population refers to people living in urban areas as defined
by national statistical offices. The data are collected and smoothed by
United Nations Population Division.
60
50
40
30
20
10
0
9
9
1
1
9
9
1
2
9
9
1
3
9
9
1
4
9
9
1
5
9
9
1
6
9
9
1
7
9
9
1
8
9
9
1
9
9
9
1
0
0
0
2
1
0
0
2
2
0
0
2
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
Vietnam
China
Industrialisation is a major growth driver because
manufacturing still only contributes about 16% of
Vietnam’s GDP. Manufacturing peaked at approximately
30% of GDP in each of the “Asian Tiger” economies, so
industrialisation is likely to be a major growth driver in
Vietnam for years to come.
52
Vietnam’s residential real estate market remained robust
during the financial year, with modest price increases across
various segments of the market. However, there are some
concerns that a real estate bubble is beginning to form,
which prompted banks to clamp down on property lending
somewhat in 2018, with the result that transaction activity
fell by about 5% YOY in the first half of the year.
Apartment Type
Second Quarter
2018 price USD
per squar metre
Year on
year change
Affordable
Mid-end
Premium
Luxury
988
1,528
2,457
3,947
15%
7%
10%
2%
Source: Jones Lang LaSalle, USD per square metre
The market continues to be primarily driven by mortgage-
funded purchases of new affordable and mid-tier apartments
by emerging middle-class homebuyers. Demand is being
fuelled by demographics (i.e., young homebuyers entering
the workforce and forming families), and by industrialisation
and urbanisation, which are both raising incomes.
We believe that the real estate market is still healthy, despite
frothiness in certain segments, because: 1) demand for
owner-occupied housing by middle-class consumers in HCMC
and Hanoi continues to outstrip supply, and 2) the prices
of affordable and mid-tier housing products are still within
reach of many prospective buyers.
In conclusion, the macro conditions in Vietnam remain
supportive of a healthy and functioning economy both from
a growth and currency stability perspective as well as the
growing middle class, who will drive domestic consumption,
including real estate. This is a key theme of VOF’s investment
strategy, and we are confident that prevailing trends are set
to continue for the foreseeable future.
Michael Kokalari
Chief Economist
23 October 2018
Annual Report 2018
53
DUMMY |INVESTMENT MANAGER’S REPORTVinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Reports and StatementsAnnex FINANCIAL REPORTS & STATEMENTS | VINACAPITAL GROUP
VINACAPITAL
GROUP
Founded in 2003, VinaCapital is one of
Vietnam’s leading investment management
and real estate investment companies with
USD1.8 billion in assets under management
across a range of asset classes, including public
and private equity, real estate, venture capital,
and fixed income. The company manages two
closed-ended funds which trade on the London
Stock Exchange, including VOF, which trades
on the Main Market, and VinaLand Limited
which trades on the AIM. Further, VinaCapital
manages the Forum One - VCG Partners
Vietnam Fund, a leading Vietnam-focused,
open-ended UCITS-compliant fund, and the
Vietnam Equity Special Access Fund, as well
as numerous segregated accounts. On 23 July
2018, VinaLand Limited announced that it had
disposed of substantially all of its assets and it
has begun an orderly wind up.
VinaCapital is a partner with Draper Fisher
Jurvetson in DFJV, a venture capital fund, and
with Warburg Pincus in Lodgis Hospitality
Holdings, a hospitality development platform.
VinaCapital has offices in Ho Chi Minh City,
Hanoi, Danang, and Singapore. The company
has approximately 125 employees, and is the
largest single employer of CFA Charterholders
in Vietnam.
54
Don Lam
Chief Executive Officer
Don Lam is a founding partner of the Investment
Manager and has more than 20 years’ experience in
Vietnam. He has overseen the Investment Manager’s
growth from the manager of a single USD10 million
fund in 2003 into a leading investment management
and real estate development firm in Southeast
Asia, with a diversified portfolio of approximately
USD1.8 billion in assets under management. Before
founding the Investment Manager, Mr Lam was
a partner at PricewaterhouseCoopers (Vietnam),
where he led the corporate finance and management
consulting practices throughout the Indochina
region. Additionally, Mr Lam set up the VinaCapital
Foundation whose mission is to empower the children
and youth of Vietnam by providing opportunities for
growth through health and education projects. He also
is the Vice-Chairman, Global Agenda Council on ASEAN
for the World Economic Forum. He has a degree in
Commerce and Political Science from the University
of Toronto. He is a Chartered Accountant and is a
member of the Institute of Chartered Accountants of
Canada. He also holds a Securities License in Vietnam.
Annual Report 2018 VINACAPITAL MANAGEMENT TEAM | FINANCIAL REPORTS & STATEMENT
Andy Ho
Brook Taylor
Managing Director and Chief Investment Officer
Chief Operating Officer
Andy Ho is Managing Director and Chief Investment
Officer of the Investment Manager, where he oversees
the capital markets, private equity, fixed income and
private equity investment teams. Previously, Mr Ho
was Director of Investment at Prudential Vietnam’s
fund management company, where he managed the
capital markets portfolio and Prudential’s investment
strategy. He has also held management positions
at Dell Ventures (the investment Company of Dell
Computer Corporation) and Ernst & Young. Mr Ho is
a leading authority on capital markets investment,
privatisations, and private equity deals and structures
in Vietnam, where he has led private placement deals
totaling over USD750 million. He holds an MBA from the
Massachusetts Institute of Technology and is a Certified
Public Accountant in the United States.
Brook Taylor is the Chief Operating Officer of the
Investment Manager. Mr Taylor has more than 20
years of management experience, including more than
eight years as a senior partner with major accounting
firms. Previously, he was deputy managing partner
of Deloitte in Vietnam and head of the firm’s audit
practice. He was also managing partner of Arthur
Andersen Vietnam and a senior audit partner at
KPMG. Brook has lived and worked in Vietnam since
1997. Mr Taylor’s expertise spans a broad range of
management and finance areas including accounting,
business planning, audit, corporate finance, taxation,
and risk management. He holds an Executive MBA from
INSEAD, a Bachelor of Commerce and Administration
from Victoria University of Wellington.
VINACAPITAL
MANAGEMENT TEAM
55
VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Reports and StatementsAnnexGeneral Information FINANCIAL REPORTS & STATEMENTS | VINACAPITAL MANAGEMENT TEAM
Loan Dang
Duong Vuong
Deputy Managing Director
Deputy Managing Director
Loan Dang joined VinaCapital in 2005 and is responsible
for the Company’s private equity investments. Ms Dang
has led numerous private equity and private placement
deals for the Company, and holds board positions at
several of the Company’s investee companies. Ms Dang
has previous experience at KPMG Vietnam and Unilever
Vietnam. She has an MBA from the University of Hawaii
and holds an FCCA (UK) fellow membership and a BA
in Finance and Accounting from the University of Economics,
Ho Chi Minh City.
Duong Vuong is responsible for the Company’s listed
and unlisted equity investments. Mr Vuong has over 20
years of investment experience including the last 9 years
in Vietnam. Previously, Mr Vuong was a Research Head
at PXP Vietnam Asset Management where he managed
a team of analysts responsible for producing investment
ideas for all of the firm’s portfolios. Prior to working
in Vietnam, he held various positions including Senior
Investment Analyst for ADIA in Abu Dhabi and Banks
Analyst for Merrill Lynch in London. He is a CFA charter
holder having gained the CFA designation in 2001.
56
Annual Report 2018 Khanh Vu
Investment Director
Michael Kokalari
Chief Economist
With over seven years at VinaCapital, Khanh Vu is
responsible for the Investment Manager’s marketing,
investor relations and communication activities for the
Company. He is also an active member of the fund’s
Investment Committee, involved in deal sourcing,
investment execution and monitoring. Mr Vu has
over 15 years of investment experience, and has been
based in Vietnam for the last four years. Mr Vu has
held managerial positions in corporate finance, asset
management, investment banking, and professional
services. Prior to VinaCapital, he was at Macquarie Bank
based in New York and Sydney, with his last posting on the
buy-side infrastructure asset management team. Prior to
that, he held various positions with Deloitte & Touche and
Arthur Andersen, based in Sydney. Mr Vu holds both a
Master and Bachelor degrees from the University of New
South Wales, Sydney, and a Graduate Diploma of Applied
Finance granted by the Financial Services Institute of
Australia where he is a Fellow.
Michael Kokalari, CFA serves as VinaCapital’s Chief
Economist, and is responsible for providing thought
leadership and technical acumen on a wide range of global
and local macroeconomic issues with a view to maximizing
the firm’s investment performance. Mr Kokalari worked
in Vietnam for eight years, and was previously the Head
of Research at CIMB Securities Vietnam, and the CIO
of Saigon Asset Management. Earlier in his career, Mr
Kokalari was a derivatives trader in Tokyo & London where
he ran multi-billion dollar trading books for Lehman
Brothers, JP Morgan Chase, Credit Suisse First Boston,
Paribas and West LB. Mr Kokalari co-authored the CFA
guide to Credit Derivatives, and was a contributor to
“Risk Management: Foundations for a Changing Financial
World” (published in 2010), along with Nobel Prize
winners Myron Scholes and William Sharpe of Stanford
University. Mr Kokalari holds an MS Engineering in
Computational Mathematics from Stanford University,
an MS Mathematics from Stanford, an MS Management
from the Graduate School of Business at Stanford, and a
BA Mathematics from Clark University, where he was a
Gryphon and Pleiades Scholar.
57
DUMMY |GENERAL INFORMATIONVinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Reports and StatementsAnnexGeneral Information
FINANCIAL REPORTS & STATEMENTS | BOARD OF DIRECTORS
Steven Bates
Martin Adams
Non-executive Chairman
(Independent)
(Appointed 5 February 2013)
Non-executive Director
(Independent)
(Appointed 5 February 2013)
Steve Bates is an experienced investor
in emerging markets, spending
most of his career with the Fleming
Group and its successor JP Morgan
Asset Management, where he led
the emerging markets team. Over
the past 15 years Mr Bates has
continued to manage investments
across the emerging world working
for GuardCap Asset Management and
is also a non-executive director of a
number of investment companies.
He holds an MA in Law from the
University of Cambridge and is a CFA.
Martin Adams has over 35 years
investment and banking experience
in emerging markets, including over
25 years with funds invested in
Vietnam. He currently serves as an
independent director on the boards
of a number of listed and unlisted
funds. Mr Adams holds an MA in
Economic Science from the University
of Aberdeen. Mr Adams will retire
at the conclusion of the AGM on 10
December 2018.
BOARD
OF DIRECTORS
58
Annual Report 2018 Thuy Bich Dam
Huw Evans
Julian Healy
Non-executive Director
(Independent)
(Appointed 7 March 2014)
Non-executive Director
(Independent)
(Appointed 27 May 2016)
Non-executive Director
(Independent)
(Appointed 23 July 2018)
Julian Healy has long and extensive
experience of banking and investment
management in emerging markets
and particularly in Central and
Eastern Europe. He is a Member
of the Institute of Chartered
Accountants in England and Wales. He
also acts as a non-executive director
in a number of other companies.
Huw Evans is a Guernsey resident
and qualified in London as a
Chartered Accountant with KPMG
(then Peat Marwick Mitchell) in
1983. He subsequently worked for
three years in the Corporate Finance
Department of Schroders before
joining Phoenix Securities Limited in
1986. Over the next twelve years he
advised a wide range of companies in
financial services and other sectors
in the UK and overseas on mergers
and acquisitions and more general
corporate strategy. Since moving to
Guernsey in 2005 he has acted as a
Director of a number of Guernsey-
based companies and funds. He
holds an MA in Biochemistry from
Cambridge University.
Ms Thuy Bich Dam began her career
at Vietnam’s Ministry of Science,
Technology and Environment,
responsible for coordinating treaties
between the government and the World
Intellectual Property Organisation
(WIPO) and the European Patent
Office (EPO). From 1996 to 2005, Ms
Dam worked as the Natural Resources
Director of ANZ Investment Bank
(Singapore). Following this, Ms Dam
was appointed as the CEO Vietnam,
CEO Greater Mekong Region and Vice
Chairwoman for the Greater Mekong
Region for ANZ Bank Vietnam over a
span of nearly eight years. Ms Dam was
also the Chief Representative for the
National Australia Bank, Vietnam from
November 2013 to September 2016. She
is currently the President-Designate of
Fulbright University Vietnam. She holds
a Bachelor’s degree in English from
Hanoi University, an MBA Finance from
The Wharton School of Business and
completed the Advanced Management
Program at Harvard Business School.
59
DUMMY |GENERAL INFORMATIONVinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Reports and StatementsAnnexGeneral Information FINANCIAL REPORTS & STATEMENTS | DISCLOSURE OF DIRECTORSHIPS IN OTHER PUBLIC COMPANIES
DISCLOSURE OF DIRECTORSHIPS
IN OTHER PUBLIC COMPANIES LISTED
ON RECOGNISED STOCK EXCHANGES
60
Annual Report 2018 Directorships
Company Name
Steven Bates
The Biotech Growth Trust PLC
British Empire Securities and General Trust plc
F&C Capital & Income Investment Trust plc
Martin Adams
Aberdeen Latin America Income Fund Limited
Vietnam Phoenix Fund Limited
Kubera Cross-Border Fund Limited
Marwyn Value Investors Limited
Thuy Bich Dam
None
Huw Evans
BH Macro Limited
Standard Life Investments Property Income Trust Limited
Julian Healy (appointed 23 July 2018)
Fondul Proprietatea
Stock Exchange
London
London
London
London
Ireland
London
London
London
London
London
61
DUMMY |GENERAL INFORMATIONVinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Reports and StatementsAnnexGeneral Information FINANCIAL REPORTS & STATEMENTS | REPORT OF THE BOARD OF DIRECTORS
REPORT OF THE
BOARD OF DIRECTORS
The Board of Directors (the “Board”) presents its Annual
Report together with the Audited Financial Statements of
the Company for the year ended 30 June 2018.
The Company was incorporated on 22 March 2016 as a
closed-ended investment company with limited liability
under The Companies (Guernsey) Law, 2008. The current
registered office of the Company is PO Box 225, Trafalgar
Court, Les Banques, St Peter Port, Guernsey, GY1 3QL. Prior
to that date the Company was incorporated in the Cayman
Islands as an exempted company with limited liability.
On 30 March 2016, the Company’s shares were admitted
to the Main Market of the LSE with a Premium Listing.
Prior to that date, the Company’s shares were traded on
the AIM market of the LSE.
Directors will be required to formulate proposals to be
put to Shareholders to reorganise, unitise or reconstruct
the Company or for the Company to be wound up. The
Board tabled such a special resolution in 2008 and in
2013 and on both occasions it was not passed, allowing
the Company to continue as currently constituted. The
next special resolution on the life of the Company will be
held at the AGM on 10 December 2018.
Investment Policy and Valuation Policy
The Company’s investment objective and investment
policy are set out on page 5. The valuation policy can be
found in note 2 to the Financial Statements.
Performance
The Company’s investments continue to be managed by
the Investment Manager.
The Chairman’s Statement and the Investment Manager’s
Report provide details of the Company’s activities and
performance during the year.
Principal Activities
Through its investments in subsidiaries and associates,
the Company’s objective is to achieve medium to
long-term returns through investment either in Vietnam
or in companies with a substantial majority of their assets,
operations, revenues or income in, or derived from, Vietnam.
Life of the Company
The Company does not have a fixed life but the Board
considers it desirable that Shareholders should have
the opportunity to review the future of the Company
at appropriate intervals. Accordingly, the Board intends
that a special resolution will be proposed every fifth year
that the Company ceases to continue. If the resolution
is not passed, the Company will continue to operate as
currently constituted. If the resolution is passed, the
The key performance indicators (“KPIs”) used to measure
the progress of the Company during the year include:
•
•
•
the movement in the Company’s NAV;
the movement in the Company’s share price; and
discount of the share price in relation to the NAV.
Information relating to the KPIs can be found in the
Financial Highlights section on page 6 to 9.
Environmental, Social and Governance Matters
Environmental, Social and Corporate Governance (“ESG”)
issues are a key element of the Investment Manager’s
investment process. The Investment Manager has an
established framework to identify ESG risks at potential
investee companies and help businesses improve their
62
Annual Report 2018
practices where necessary. International experts are
regularly used by the Investment Manager both in
assessing companies and, in some cases, in advising on
terms of investment for private opportunities.
Risk Management
The Board considers risk management to be a function
of its Audit Committee and a review of whose operations
is set out on pages 78 to 81. On the specific question of
risk management, the Audit Committee reviews at each
of its meetings the risks and uncertainties faced by the
Company in the form of a risk matrix and heat map. For
the purposes of making the Viability Statement, the
Board has undertaken a robust review of the principal
risks and uncertainties facing the Company including
those that would threaten its business model, future
performance, solvency or liquidity. Those principal
risks are described in the table below together with a
description of the mitigating actions taken by the Board.
Vietnamese Market Risk
Mitigating Action
The Board is regularly briefed on political and economic
developments by the Investment Manager. The
Investment Manager publishes a monthly report on
the Company which includes information and comment
on macroeconomic and, where relevant, political
developments in Vietnam.
Description
Opportunities for the Company to invest in Vietnam have
come about through the liberalisation of the Vietnamese
economy. Were the pace or direction of change to the
economy to alter in the future, the interests of the
Company could be damaged.
Changes in the equilibrium of international trade caused,
for example, by imposition of tariffs could affect the
Vietnamese economy and the companies in which the
Company is invested.
The economy could also be affected by any escalation in
geopolitical tensions in the region and elsewhere.
Furthermore, the performance of the Vietnamese Stock
Exchanges has been particularly strong over recent
reporting periods as there has been significantly more
domestic and international demand for stock than has
been available. If this trend were to reverse, the values
of Vietnamese equities could fall significantly from their
current levels.
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Changing investor sentiment
Description
As a Company investing mainly in Vietnam, changes in
investor sentiment towards Vietnam and/or frontier
markets may lead to the Company becoming unattractive
to investors leading to reduced demand for its shares and
a widening discount.
Mitigating Action
The Investment Manager has an active Investor Relations
programme, keeping shareholders and other potential
investors regularly informed on Vietnam in general and
on the Company’s portfolio in particular. At each Board
meeting the Board receives reports from the Investment
Manager, from the Broker and from the UK Marketing
and Distribution partner, Frostrow Capital LLP, and is
updated on the composition of, and any movements in,
the shareholder register. The Board also communicates
regularly with major shareholders directly, independent of
the Investment Manager.
In 2016, 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 as wide an audience of
investors as possible.
In seeking to make the Company attractive to investors
seeking an income the Board has resolved to pay
regular dividends.
In seeking to close the discount, the Board has also
approved and implemented an extensive share buy-back
programme, the details of which are set out on page 117.
Investment Performance
Description
The performance of the Company’s investment
portfolio could be poor, either absolutely or in relation
to the Company’s peers.
Mitigating Action
The Board monitors the allocation of the Company’s
portfolio to the various classes of assets and receives
regular reports on the performance of the portfolio and
on those underlying assets. The Investment Manager
attends all Board meetings and the Board visits Vietnam
for more detailed meetings, including with investee
companies, twice each year.
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Annual Report 2018 Fair Valuation
Mitigating Action
The Board reviews the valuation of the listed and unlisted
investment portfolio with the Investment Manager each
quarter and focuses in particular on any unexpected or
sharp movements in market prices.
In relation to the principal real estate and private equity
investments, the Board has appointed independent
external valuers in order to assist in determining fair
values of the significant investments in accordance with
international financial reporting standards.
In addition, PricewaterhouseCoopers CI LLP (the “External
Auditor”) reviews the portfolio valuations as part of the
half year review and audits the valuations at the year end.
Description
The risks associated with the fair valuation of the
portfolio could result in the NAV of the Company
being misstated.
The quoted companies in the portfolio are valued at
market price but many of the holdings are of a size which
would make them difficult to liquidate at these prices in
the ordinary course of market activity.
The unlisted securities are valued at their prices on UPCoM
or using quotations from brokers, but many of the holdings
are of a size which would make them difficult to liquidate at
these prices in the ordinary course of market activity.
The fair valuation of private equity investments is carried
out according to international valuation standards but
the investments are not readily liquid and may not be
immediately realisable at the stated carrying values.
The fair valuation of the direct real estate and operating
asset investments is carried out in a manner consistent
with international real estate valuation guidelines and
processes. However, the assets are also illiquid (and may
be part of joint ventures) which could make a sale difficult
at the stated carrying valuations.
The values of the Company’s underlying investments are,
in the main, denominated in Vietnamese Dong 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
Description
The Investment Management Agreement requires the
Investment Manager to provide competent, attentive
and efficient services to the Company. If the Investment
Manager was not able to do this or if the Investment
Management Agreement were terminated, there could
be no assurance that a suitable replacement could be
found in Vietnam and, under those circumstances, the
Company would suffer.
Mitigating Action
The Board maintains close contact with the Investment
Manager and key personnel of the Investment Manager
attend each Board meeting. The Board visits the
Investment Manager and meets key individuals in
Vietnam twice each year.
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Operational
Description
The Company is dependent on third parties for the
provision of all systems and services (in particular, those
of the Investment Manager and the Administrator) and
any control failures or gaps in these systems and services
could result in a loss or damage to the Company.
Mitigating Action
The Board receives regular reports from the Investment
Manager on its internal policies, controls and risk
management. It also receives an annual assurance
from the Investment Manager on the adequacy and
effectiveness of their internal controls. The Investment
Manager has appointed Ernst & Young LLP (“EY LLP”) as
its internal auditor and the Board has direct unfettered
access to EY LLP for any purpose. In addition, EY LLP
report regularly to the Board on their findings. The Board
has sought to ensure segregation of functions during
the year through the appointment of Northern Trust
International Fund Administration Services (Guernsey)
Limited (“Northern Trust” or the “Administrator”) as
independent administrator, and Standard Chartered Bank
as custodian for those assets which can be held by a third
party custodian. Further details of the internal controls
which are in place are set out on page 72.
Legal and Regulatory
Description
Failure to comply with relevant regulation and legislation
in Vietnam, Guernsey or the UK may have an impact on
the Company.
Although there are anti-bribery and corruption policies
in place at the Company, the Investment Manager and all
other service providers, the Company could be damaged
and suffer losses if any of these policies were breached.
Mitigating Action
The laws and regulations in Vietnam are at an early
stage of development and are not well established. The
Investment Manager maintains a risk and compliance
department which monitors compliance with local laws
and regulations as necessary. Locally based external
lawyers (typically members of major international law
firms) are engaged to advise on portfolio transactions
where necessary. As to its non-Vietnamese regulatory
and legal responsibilities, the Company is administered
in Guernsey by Northern Trust which reports to the
Board at each Board meeting on Guernsey compliance
matters and more general issues applicable to Guernsey
companies listed on the LSE. In addition, from time to
time the Board uses external experts to advise on
specific matters.
The Investment Manager and other service providers
confirm to the Board at least annually that they maintain
anti-bribery and corruption policies and disclose if there
have been any breaches of these policies.
66
Annual Report 2018 Dividend Policy
On 17 August 2017, the Company announced a change to
its dividend policy and declared its first dividend.
The Board now intends that the Company will pay a
dividend representing approximately 1% of NAV twice
each year, normally declared in March and October.
Discount Management
The Board will continue to operate the share buyback
programme in an effort to ensure that the share price
more closely reflects the underlying NAV per share. While
no public announcement has been made in terms of the
target percentage discount or the volume of funds to be
allocated to buybacks, the Board considers the current
discount to be too high.
The Board will continue to retain responsibility for setting
the parameters for the discount management policy, for
overseeing the management of the buyback programme
and for ensuring that its policy is implemented. The
Board intends to continue to seek to narrow the discount
through the continued use of share buybacks. The Board’s
objective is to achieve a narrowing of the discount in
a manner that is sustainable over the longer term. The
Board and the Investment Manager intend to consult
regularly with Shareholders with a view to assessing and
improving the effectiveness of the buyback programme.
Further comments on the buyback programme are set out
in the Chairman’s Statement.
Refer to note 11 for details of share buybacks during the
year under review.
Corporate Governance Statement
To comply with the UK Listing Regime, the Company
must comply with the requirements of the UK Corporate
Governance Code issued in 2016 (the “UK Code”). The
Company is also required to comply with the Guernsey
Code of Corporate Governance (the “Guernsey Code”).
The Company is a member of the Association of
Investment Companies (the “AIC”) and by complying
with the AIC Code of Corporate Governance (“AIC Code”)
is deemed to comply with both the UK Code and the
Guernsey Code.
The Board has considered the principles and
recommendations of the AIC Code by reference to the AIC
Corporate Governance Guide for Investment Companies
(“AIC Guide”). The AIC Code, as explained by the AIC Guide,
addresses all the principles set out in the UK Code, as well
as setting out additional principles and recommendations
on all of the principles that are of specific relevance to
Investment Companies.
The Board considers that reporting against the principles
and recommendations of the AIC Code, and by reference
to the AIC Guide (which incorporates the UK Code),
will provide clear information to Shareholders. To
ensure ongoing compliance with these principles the
Board receives and reviews a report from the Company
Secretary, at each quarterly meeting, identifying whether
the Company is in compliance and recommending any
changes that are necessary.
Except as disclosed within this report, the Board is of the
view that throughout the year ended 30 June 2018 the
Company complied with the recommendations of the
AIC Code and the relevant provisions of the UK Code. Key
issues affecting the Company’s corporate governance
responsibilities, how they are addressed by the Board and
application of the AIC Code are presented below.
The UK Code includes provisions relating to the role of the
chief executive, executive Directors’ remuneration, the
need for an internal audit function and whistle-blowing
policy which are not considered by the Board to be
relevant to the Company, being an externally managed
investment company with a Board formed entirely of
non-executive Directors. The Company has therefore not
reported further in respect of these provisions.
The UK code was recently revised and, at the time of
writing this report, proposed revisions to the AIC Code are
subject to consultation. The Directors intend to report on
the Company’s compliance with the revised codes in the
annual report for the year ending 30 June 2019.
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Board Composition
The Board consists of five non-executive Directors, each
of whom is independent of the Investment Manager. No
member of the Board is a Director of another investment
company managed by the Company’s Investment
Manager, nor has any Board member been an employee
of the Company, its Investment Manager or any of its
service providers.
The Board has considered whether a Senior Independent
Director (“SID”) should be appointed. However, as the
Board is small and comprises entirely non-executive
directors, the Board has determined that the appointment
of a SID is not currently necessary.
The Board reviews the independence of the Directors at
least annually.
The Company is committed to ensuring that any vacancies
arising are filled by the most qualified candidates. The
Board has not adopted a formal diversity policy, but
acknowledges the benefits of greater diversity. It remains
committed to ensuring that the Company’s Directors bring
a wide range of skills, knowledge, experience, backgrounds
and perspectives to the Board. The Board does not feel
that it would be appropriate to set diversity targets as all
appointments are made on merit, in the context of the
skills, knowledge and experience that are needed for the
Board to be effective. Part of the remit of the Board’s
Nomination Committee is, before any new appointment is
recommended, evaluating the balance of skills, knowledge,
experience and diversity within the Board.
The Board believes that each Director has appropriate
qualifications, industry experience and expertise to guide the
Company and that the Board as a whole has an appropriate
balance of skills, experience and knowledge. The Directors’
biographies can be found on pages 58 and 59.
Re-election of Directors
The principle set out in the UK Code is that Directors should
submit themselves for annual re-election and in any event
as soon as it is practical after their initial appointment to
the Board. It is a further requirement that non-executive
Directors are appointed for a specific period. The Board
has adopted a formal policy requiring that Directors should
stand down at the AGM following the ninth anniversary of
their initial appointment.
Mr. Adams has indicated his intention to step down from
the Board so will not put himself forward for re-election at
the AGM on 10 December 2018.
Mr. Healy, who was appointed as a Director on 23 July
2018, will stand for election at the AGM.
The individual performance of each Director standing for
election or re-election has been evaluated by the other
members of the Board and a recommendation will be
made that Shareholders vote in favour of their election or
re-election at the AGM on 10 December 2018.
Board Proceedings
The Board meets regularly throughout the year and
representatives of the Investment Manager are in
attendance, when appropriate, at each meeting and most
Committee meetings. The Chairman encourages open
debate to foster a supportive and co-operative approach
for all participants.
The Board is responsible for strategy and has established
an annual programme of agenda items under which it
reviews the objectives and strategy for the Company at
each meeting.
The Board, at its regular meetings, undertakes reviews of:
key investment and financial data, revenue projections
and expenses, analyses of asset allocation, transactions,
share price and NAV performance, marketing and
shareholder communication strategies, the risks associated
with pursuing the investment strategy, peer company
information and industry issues.
The Board has agreed a schedule of matters specifically
reserved for decision by the Board. This includes
establishing the investment objectives, strategy and
benchmarks, the permitted types or categories of
investments, the markets in which transactions may be
undertaken, the level of permitted gearing and borrowings,
68
Annual Report 2018 the amount or proportion of the assets that may be
invested in any category of investment or in any one
investment, and the Company’s treasury and share
buyback policies.
The Investment Management Agreement between the
Company and the Investment Manager sets out the limits
of the Investment Manager’s authority, beyond which
Board approval is required. The Board has also agreed
detailed investment guidelines with the Investment
Manager, which are considered at each Board meeting.
throughout the year, and the number of meetings held
during the year, are shown in the table on page 71.
A summary of the duties of each of the Committees is
provided below. The terms of reference are available
on the Company’s website https://vof.vinacapital.com.
Audit Committee
The Audit Committee, which meets at least three times
a year, comprises all of the Directors and is chaired by
Mr Evans.
Representatives of the Investment Manager attend each
meeting of the Board to address questions on specific
matters and to seek approval for specific transactions
which the Investment Manager is required to refer to
the Board.
The Audit Committee is responsible for monitoring the
process of production and ensuring the integrity of the
Company’s Financial Statements and advises the Board
whether the Annual Report and Financial Statements are
fair, balanced and understandable.
The Board has delegated discretion to the Investment
Manager to exercise voting powers on its behalf, other than
for contentious or sensitive matters which are referred to
the Board.
At Board meetings the Directors are given key information
on the Company’s regulatory and statutory requirements
as they arise, including information on the role of the
Board, matters reserved for its decision, the terms of
reference for the Board Committees, the Company’s
corporate governance practices and procedures and
the latest financial information. It is the Chairman’s
responsibility to ensure that the Directors have sufficient
knowledge to fulfil their role and Directors are encouraged
to participate in training courses where appropriate.
The Directors have access to the advice and services of the
Company Secretary, who is responsible to the Board for
ensuring that Board procedures are followed. The Company
Secretary is also responsible for ensuring good information
flows between all parties.
Board Committees
There are four Board committees in operation: Audit
Committee, Management Engagement Committee,
Remuneration Committee and Nomination Committee.
The chairmanship and membership of each Committee
One of the responsibilities of the Audit Committee is
to oversee the relationship with the External Auditor.
In discharging its responsibility to oversee the External
Auditor’s independence, the Audit Committee considers
whether any other engagements provided by the
External Auditor will have an effect on, or perception
of, compromising the External Auditor’s independence
and objectivity. The provision of services in addition to
external audit must be specific and approved by the Audit
Committee Chairman.
The Audit Committee is also responsible for recommending
to the Board the valuation of investments. In seeking to
determine the fair value of the Company’s real estate and
private equity investments, the Committee reviews the
reports of independent valuation specialists as well as
reviewing the Investment Manager’s valuation process.
Each individual valuation is reviewed in detail and,
where an Independent Valuer has been retained, their
recommendation may be accepted or modified. Refer to
note 3 to the Financial Statements for further information
on the valuation of investments held by the Company.
A report of the Audit Committee detailing responsibilities
and activities is presented on pages 78 to 81. The Audit
Committee Chairman presents the Committee’s findings to
the Board at the next Board meeting following a meeting of
the Audit Committee.
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Management Engagement Committee
The Management Engagement Committee comprises all
of the Directors and is chaired by Mr. Adams. Following
Mr. Adams’ retirement at the AGM on 10 December 2018,
Mr. Healy will chair the Committee. The Committee’s
responsibilities include; reviewing the performance of the
Investment Manager under the Investment Management
Agreement and considering any variation to the terms of
the agreement. The Management Engagement Committee
also reviews the performance of the Company Secretary,
Corporate Brokers, Custodian, Administrator and Registrar
and any matters concerning their respective agreements
with the Company.
During the year, the Management Engagement
Committee oversaw the selection of Aztec Group to
replace Northern Trust as administrator of the Company
and oversaw the negotiations with the Investment
Manager on the revised fees which will operate from 1
July 2018.
Remuneration Committee
The Remuneration Committee comprises all of the
Directors and is chaired by Ms. Dam. The Committee’s
responsibilities include; recommending to the Board the
policy for the remuneration of the Company’s Chairman,
the Audit Committee Chairman and the remaining
non-executive Directors, and reviewing the ongoing
appropriateness and relevance of the remuneration
policy; determining the individual remuneration of
each non-executive Director; agreeing the policy for
authorising Directors’ expense claims; and the selection
and appointment of any remuneration consultants who
advise the Committee. The Directors’ Remuneration
Report is presented on pages 82 and 83.
Nomination Committee
The Nomination Committee comprises all of the
Directors and is chaired by Mr. Bates. The Committee’s
responsibilities include; reviewing the structure, size and
composition of the Board and making recommendations
to the Board in respect of any changes; succession
planning for the Chairman and the remaining
non-executive Directors; making recommendations to
the Board concerning the membership and chairmanship
of the Board committees; identifying and nominating
for the approval of the Board candidates to fill
Board vacancies; and, before any new appointment
is recommended, evaluating the balance of skills,
knowledge, experience and diversity within the Board
and preparing an appropriate role description.
During the year, the Nominations Committee oversaw
the search for a new director, which was carried out
by Stephenson Executive Search Limited and, after
interviewing a number of candidates, recommended the
appointment of Julian Healy to the Board which took
place on 23 July 2018.
Board and Committee Meetings
During the year ended 30 June 2018, the number of
scheduled Board and Committee meetings attended by
each Director was as follows:
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Annual Report 2018 Number of meetings
Attendance
Steven Bates ¹
Martin Adams ²
Thuy Bich Dam ³
Huw Evans 4
Board
meetings
Audit
Committee
meetings
Management
Engagement
Committee
meetings
Nomination
Committee
meetings
Remuneration
Committee
meetings
4
4
4
4
4
4
4
4
4
4
2
2
2
2
2
1
1
1
1
1
1
1
1
1
1
1. Steven Bates is Chairman of the Board and the Nomination Committee.
3. Thuy Bich Dam is Chairman of the Remuneration Committee.
2. Martin Adams is Chairman of the Management Engagement Committee.
4. Huw Evans is the Chairman of the Audit Committee.
In addition to the scheduled meetings noted above, several
ad hoc meetings of the Board were held during the year
which were attended by those Directors available at the time.
Appointment of new Directors
For new appointments to the Board, nominations are
sought from the Directors and from other relevant parties,
and when appropriate, independent search consultants
are appointed. Candidates are then interviewed by the
Nomination Committee. The Board has a breadth of
experience relevant to the Company, and the Directors
believe that any changes to the Board’s composition can
be managed without undue disruption. An induction
programme is provided for newly-appointed Directors.
Board Performance
The Board has a formal process to evaluate its own
performance and that of its Chairman annually. The
Chairman leads the assessment which covers the
functioning of the Board as a whole, the effectiveness
of the Board Committees and the independence of each
Director. The Chairman absents himself from the Board’s
review of his effectiveness as the Company Chairman.
During the year ended 30 June 2018, the review considered
the Board’s objectives and how the contributions made
individually and collectively to Board meetings helped the
Company to achieve its objectives.
The Board is satisfied that the structure, mix of skills
and operation of the Board continue to be effective and
relevant for the Company.
The Board recognises that the provisions of the UK Code
require a FTSE 350 company to facilitate an external
evaluation of the Board every three years. The Company
has only recently been admitted to this index and the Board
will consider the most appropriate time for the first external
evaluation in 2019.
The Board must ensure that the Annual Report and
Financial Statements taken as a whole are fair, balanced and
understandable and provide the information necessary for
Shareholders to assess the Company’s performance, business
model and strategy. In seeking to achieve this, the Directors
have set out the Company’s investment objective and policy
and explain how the Board and its delegated Committees
work and how the Directors review the risk environment
within which the Company operates and set appropriate risk
controls. Furthermore, throughout the Annual Report the
Board has sought to provide further information to enable
Shareholders to understand the Company’s business and
financial performance.
Policy to combat fraud, bribery, corruption and tax evasion
The Board has adopted a formal policy to combat fraud,
bribery and corruption. Furthermore, the Board has zero
tolerance to the criminal facilitation of tax evasion. These
policies apply to the Company and to each of its Directors.
Further, the policies are shared with each of the Company’s
service providers, each of which confirms its compliance
annually to the Board.
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FINANCIAL REPORTS & STATEMENTS | REPORT OF THE BOARD OF DIRECTORS
Internal Controls and Risk
(i) Risk
The Company’s risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by
the Audit Committee and considered by the Board at each
scheduled meeting. The Board believes that the Company has
adequate and effective systems in place to identify, mitigate
and manage the risks to which it is exposed.
(ii) Management System
The Investment Manager’s Enterprise Risk Management
(“ERM”) framework provides a structured approach
to managing risk across all of its managed funds by
establishing a risk management culture through education
and training, formalised risk management procedures,
defining roles and responsibilities with respect to
managing risk, and establishing reporting mechanisms to
monitor the effectiveness of the framework. The Audit
Committee works closely with the Investment Manager
on the application and review of the ERM framework to
the Company’s risk environment. During the year the ERM
framework was also reviewed by EY LLP, as internal auditor
of the Investment Manager.
Regular risk assessments and reviews of internal controls
are undertaken by the Audit Committee in the context of
the Company’s investment policy. The reviews cover the
strategic, investment, operational and financial risks facing
the Company. In arriving at its judgement of the risks which
the Company faces, the Board has considered the Company’s
operations in light of the following factors:
•
•
•
•
the nature and extent of risks which it regards as
acceptable for the Company to bear within its overall
business objective;
the threat of such risks becoming reality;
the Company’s ability to reduce the incidence and
impact of risk on its performance; and
the cost to the Company and benefits related to the
Company of third parties operating the relevant controls.
(iii) Internal Control Assessment Process
Responsibility for the establishment and maintenance of
an appropriate system of internal control rests ultimately
with the Board. However, the Board is dependent on the
72
Investment Manager and other service providers to achieve
this and a process has been established which seeks to:
•
•
•
•
•
Review the risks faced by the Company and the controls
in place to address those risks
Identify and report changes in the risk environment
Identify and report changes in the operational controls
Identify and report on the effectiveness of controls and
errors arising
Ensure no override of controls by the Investment
Manager or Administrator or any other service providers.
The key procedures which have been established to provide
effective internal financial controls are as follows:
•
•
•
•
•
investment management is provided by the Investment
Manager. The Board is responsible for the overall
investment policy and monitors the investment
performance, actions and regulatory compliance of the
Investment Manager at regular meetings;
accounting for the Company by Northern Trust with
accounting for the subsidiaries the responsibility of the
Investment Manager;
the provision of fund administration by Northern Trust;
custody of listed and unlisted assets is undertaken by
Standard Chartered Bank;
the Management Engagement Committee monitors
the contractual arrangements with each of the service
providers and their performance under these contracts;
• mandates for authorisation of investment transactions
and expense payments are set by the Board and
documented in the Investment Management Agreement;
the Board receives financial information produced by the
Investment Manager on a regular basis. Board meetings
are held at least four times a year to review such
information; and
actions are taken to remedy any significant failings
or weaknesses, if identified. No significant failings or
weaknesses were identified during the year.
•
•
(iv) Internal Audit Function
The Investment Manager has appointed EY LLP as its internal
auditor and the Board has direct unfettered access to EY
LLP for any purpose. In addition, EY LLP reports regularly to
the Board on their findings. The Management Engagement
Committee has reviewed the need for an internal audit
Annual Report 2018 function for the Company itself. The Management
Engagement Committee has concluded that the systems and
procedures employed by the Investment Manager and the
Administrator, including their own internal audit functions,
currently provide sufficient assurance that a sound system
of internal control, which safeguards the Company’s assets,
is maintained. An internal audit function specific to the
Company is therefore considered unnecessary.
Directors’ Dealings
The Company has adopted a Code of Directors’ Dealings
in Securities.
Relations with Shareholders
A detailed analysis of the substantial Shareholders of
the Company is provided to the Directors at each Board
meeting. The Chairman and representatives of the
Investment Manager are available to meet shareholders to
discuss strategy and to understand their issues and concerns
and, if appropriate, to discuss corporate governance issues.
The results of such meetings are reported at the following
Board meeting.
Regular reports from the Company’s brokers on investor
sentiment and industry issues are submitted to the Board.
Shareholders wishing to communicate with the Chairman,
or any other member of the Board, may do so by writing to
the Company, for the attention of the Company Secretary,
at the Registered Office. The Directors welcome the views
of all Shareholders and place considerable importance on
communications with them.
The Company aims to provide Shareholders with a full
understanding of the Company’s investment objective, policy
and activities, its performance and the principal investment
risks by means of informative Annual and Half Year reports.
This is supplemented by the publication by the Investment
Manager of a monthly fact sheet and a weekly estimate of
NAV per share.
The Company’s website, https://vof.vinacapital.com, is
updated regularly with the monthly factsheets and provides
useful information about the Company including the
Company’s financial reports and announcements.
The Annual General Meeting of the Company provides a
forum for Shareholders to meet and discuss issues with the
Directors of the Company.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act,
the Company registered with the US Internal Revenue Service
(“IRS”) as a Guernsey reporting Foreign Financial Institution
(“FFI”), received a Global Intermediary Identification Number
(GUHZUZ.99999.SL.831), and can be found on the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global standard
developed for the automatic exchange of financial account
information developed by the Organisation for Economic
Co-operation and Development (“OECD”), which has been
adopted in Guernsey and which came into effect on 1
January 2016.
The Company made its latest report for CRS to the Director of
Income Tax in June 2018.
The Board ensures that the Company is compliant with
Guernsey regulations and guidance in this regard.
Share Capital and Treasury Shares
The number of shares in issue at the year end is disclosed in
note 11 to the Financial Statements.
Directors’ Interests in the Company
As at 30 June 2018 and 30 June 2017, the interests of the
Directors in shares of the Company are as follows:
Share held as at
30 June 2018
Share held as
at 30 June 2017
25,000
25,000
-
-
35,000
-
-
-
17,500
-
Steven Bates
Martin Adams
Thuy Bich Dam
Huw Evans
Julian Healy
(appointed
23 July 2018)
There have been no changes to any holdings between 30 June 2018
and the date of this report.
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FINANCIAL REPORTS & STATEMENTS | REPORT OF THE BOARD OF DIRECTORS
Substantial Shareholdings
As at 30 June 2018 and 30 September 2018, the Directors are aware of the following Shareholders with holdings of more
than 3% of the ordinary shares of the Company:
Shareholder
State Street Nominees Limited
The Bank of New York (Nominees) Limited
Euroclear Nominees Limited
Citibank Nominees (Ireland) Limited
Vidacos Nominees Limited
Nortrust Nominees Limited
HSBC Global Custody Nominee (UK) Limited
Aurora Nominees Limited
Chase Nominees Limited
Lynchwood Nominees Limited
Credit Suisse Client Nominees (UK) Limited
Hargreaves Lansdown (Nominees) Limited
30 June 2018
30 September 2018
Number of
ordinary shares
Percentage of
issued share
capital
Number of
ordinary shares
Percentage of
issued share
capital
21,405,939
20,932,354
20,109,012
14,635,183
14,249,785
12,534,797
12,247,223
10,305,039
7,709,092
7,443,516
7,150,000
6,492,275
11.03%
10.79%
10.36%
7.54%
7.34%
6.46%
6.31%
5.31%
3.97%
3.84%
3.68%
3.35%
21,568,818
21,215,686
19,033,590
14,308,510
17,692,731
12,850,149
12,060,185
9,963,404
7,634,755
7,435,338
7,150,000
6,294,119
11.37%
11.19%
10.04%
7.55%
9.33%
6.78%
6.36%
5.25%
4.03%
3.92%
3.77%
3.32%
Annual General Meeting (“AGM”)
Going Concern and Viability Statement
The Company’s next AGM will be held in Guernsey at
the offices of Aztec Group at 11:00 a.m. on 10 December
2018. The Notice of Meeting is set out at the back of the
Annual Report.
Ongoing Charges
Ongoing charges are the recurring expenses incurred by
the Company excluding one-off expenses. Ongoing charges
for the years ended 30 June 2018 and 30 June 2017 have
been prepared in accordance with the AIC’s recommended
methodology. The ongoing charges excluding incentive fees
for the year ended 30 June 2018 were 1.8% (30 June 2017:
1.9%). Ongoing charges including incentive fees for the year
ended 30 June 2018 were 3.9% (30 June 2017: 4.6%).
The Company is exposed to a number of principal risks
and uncertainties as listed on pages 62 to 66 and, as
noted, the Directors monitor and assess these risks on a
regular basis. The Directors confirm that their assessment
of the principal risks facing the Company is robust and,
for the purposes of complying with the Code, that they
have assessed the viability of the Company over the three
years to 30 June 2021. The Directors consider this period
sufficient given the inherent uncertainty of the investment
world and the specific issues which the Company faces in
investing in Vietnam.
An additional factor which the Directors have considered is
the discontinuation vote which will be put to shareholders
at the AGM on 10 December 2018. In seeking to ensure
74
Annual Report 2018 that shareholders retain confidence in the Company, the
Investment Manager meets regularly with shareholders
and has an active investor relations programme. In
addition, the Chairman communicates independently with
significant shareholders. The Directors cannot predict the
outcome of the discontinuation vote but have no present
indication that the vote will be passed and, in making the
viability statement, have assumed that the Company will
continue to operate in its present form beyond the AGM.
The Directors, having considered the above risks and
other factors, have a reasonable expectation that the
Company will be able to continue in operation and meet
its liabilities as they fall due over the three-year period of
their assessment.
After making enquiries and given the nature of the
Company and its investments, the Directors are also
satisfied that there are no material uncertainties and that it
is appropriate to continue to adopt the going concern basis
in preparing these Financial Statements.
Subsequent Events after the Reporting Date
The Company and Investment Manager have agreed in
principle changes to the management fees which, when
finalised, will be back dated so as to be effective from 1 July
2018. For further details, refer to the Chairman’s Statement
on page 13 to 14.
On 23 October 2018, the Board declared a dividend of 5.5
US cents per share.
On behalf of the Board
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund Limited
23 October 2018
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FINANCIAL REPORTS & STATEMENTS | STATEMENT OF DIRECTORS’ RESPONSIBILITIES
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
The Directors are responsible for preparing Financial
Statements in accordance with IFRS and The Companies
(Guernsey) Law, 2008 for each financial period which
give a true and fair view of the state of affairs of the
Company and of its profit or loss for that period.
International Accounting Standard 1 – Presentation of
Financial Statements requires that financial statements
present fairly for each financial period the Company’s
financial position, financial performance and cash flows.
This requires the faithful representation of the effects of
transactions, other events and conditions in accordance
with the definitions and recognition criteria for assets,
liabilities, income and expenses set out in the International
Accounting Standards Board’s (“IASB”) “Framework for
the preparation and presentation of financial statements”.
In virtually all circumstances a fair presentation will be
achieved by compliance with all applicable IFRS.
Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions. The Directors are also
responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial
position of the Company and to ensure that the Financial
Statements have been prepared in accordance with The
Companies (Guernsey) Law, 2008 and IFRS. They are also
responsible for safeguarding the assets of the Company
and hence taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the oversight of the
maintenance and integrity of the corporate and financial
information in relation to the Company’s website; the work
carried out by the auditors does not involve consideration
of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to
the financial statements since they were initially presented
on the website.
In preparing the Financial Statements the Directors are
required to:
•
•
•
ensure that the Financial Statements comply with the
Memorandum & Articles of Incorporation and IFRS;
select suitable accounting policies and apply them
consistently;
present information including accounting policies, in
a manner that provides relevant, reliable, comparable
and understandable information;
• make judgements and estimates that are reasonable
•
•
and prudent;
prepare the Financial Statements on the going
concern basis, unless it is inappropriate to presume
that the Company will continue in business; and
provide additional disclosures when compliance
with the specific requirements of IFRS is insufficient
to enable users to understand the impact of particular
transactions, other events and conditions on the
Company’s financial position and financial performance.
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Annual Report 2018 DUMMY |SECTION 1
The Directors confirm that they have complied with these
requirements in preparing the Financial Statements.
Directors’ Statement
Responsibility Statement of the Directors in Respect of
the Financial Statements
The Directors consider that the Annual Report and
Financial Statements, taken as a whole, is fair, balanced
and understandable and provides information necessary
for shareholders to assess the Company’s position,
performance, business model and strategy. Each of the
Directors confirms to the best of each person’s knowledge
and belief that:
a. The Financial Statements have been prepared in
accordance with IFRS and give a true and fair view of
the assets, liabilities, financial position and profit or
loss of the Company as at and for the year ended 30
June 2018.
b. The Annual Report includes a fair review of the
development and performance of the business
and the position of the Company, together with a
description of the principal risks and uncertainties
that the Company faces as required by DTR 4.1.8R and
DTR 4.1.11R
So far as each of the Directors is aware, there is no
relevant audit information of which the Company’s
External Auditor is unaware, and each Director has taken
all the steps they ought to have taken as a Director to
make themselves aware of any relevant audit information
and to establish that the Company’s External Auditor is
aware of that information. In the opinion of the Board,
the Annual Report and Financial Statements taken as a
whole, are fair, balanced and understandable and provides
the information necessary to assess the Company’s
performance, business model and strategy.
On behalf of the Board
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund Limited
23 October 2018
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FINANCIAL REPORTS & STATEMENTS | REPORT OF THE AUDIT COMMITTEE
REPORT OF THE
AUDIT COMMITTEE
On the following pages, we present the Report of the
Audit Committee (the “Committee”) for the year ended
30 June 2018, setting out the Committee’s structure
and composition, principal duties and key activities
during the year. As in previous years, the Committee
has reviewed the Company’s financial reporting, the
independence and effectiveness of the External Auditor
and the internal control and risk management systems
of the service providers.
Structure and Composition
The Committee is chaired by Mr. Evans. All other Directors
of the Company are members of the Committee. Mr. Healy
joined the Committee on his appointment to the Board on
23 July 2018.
Appointment to the Committee is for a period of up to three
years which may be extended for two further three year
periods provided that the majority of the Committee remain
independent of the Investment Manager.
The Committee conducts formal meetings at least three
times a year. The table on page 71 sets out the number
of Committee meetings held during the year ended 30
June 2018 and the number of such meetings attended by
each committee member. The External Auditor is invited
to attend those meetings at which the annual and interim
reports are considered. The External Auditor and the
Committee meet together every year without the presence
of either the Administrator or the Investment Manager and
at other times if the Committee deems this to be necessary.
Principal Duties
The role of the Committee includes:
• monitoring the integrity of the published Financial
Statements of the Company and advising the Board
78
•
on whether, taken as a whole, the Annual Report
and Financial Statements are (i) fair, balanced and
understandable and (ii) provide the information
necessary for shareholders to assess the Company’s
performance, business model and strategy;
reviewing and reporting to the Board on the significant
issues and judgements made in the preparation of the
Company’s Annual Report and Financial Statements,
having regard to matters communicated by the External
Auditor, significant financial returns to regulators and
other financial information;
• monitoring and reviewing the quality and effectiveness
of the External Auditor and their independence
and making recommendations to the Board
on their appointment, reappointment, replacement
and remuneration;
carrying out a robust assessment of the principal
risks facing the Company and including in the Annual
Report and Financial Statements a description of those
risks and explaining how they are being managed or
mitigated; and
recommending valuations of the Company’s
investments to the Board.
•
•
The complete details of the Committee’s formal duties
and responsibilities are set out in the Committee’s
Terms of Reference, which can be obtained from the
Company’s Administrator.
External Auditor
PricewaterhouseCoopers CI LLP (“PwC CI”) was
appointed as the External Auditor with effect from
24 May 2016 following the change of domicile of the
Company from the Cayman Islands to Guernsey. Prior to
this date PricewaterhouseCoopers Hong Kong was the
External Auditor.
Annual Report 2018
The independence and objectivity of the External Auditor
is reviewed by the Committee, which also reviews the
terms under which the External Auditor is appointed
to perform any non-audit services. The Committee
has established policies and procedures governing the
engagement of the External Auditor to provide non-audit
services. These are that the External Auditor may not
provide a service which:
•
•
•
•
places them in a position to audit their own work;
creates a mutuality of interest;
results in the External Auditor functioning as a
Manager or Employee of the Company; and
puts the External Auditor in the role of Advocate of
the Company.
The audit and any non-audit fees proposed by the External
Auditor each year are reviewed by the Committee taking
into account the Company’s structure, operations and
other requirements during the period and the Committee
makes recommendations to the Board.
The Committee has examined the scope and results of the
external audit, its cost effectiveness and the independence
and objectivity of the External Auditor, with particular
regard to non-audit fees, and considers PwC CI, as External
Auditor, to be independent of the Company.
Key Activities
The following sections discuss the principal assessments
made by the Committee during the year:
Significant Financial Statement Issues
Valuation of Investments:
The fair value of the Company’s investments at 30 June
2018 was USD1,067.5 million accounting for 98.6% of the
Company’s assets (30 June 2017: USD974.6 million and
99.2%, respectively).
In relation to the listed and unlisted investments, the
Committee satisfied itself that the Investment Manager
has used the appropriate market values as at the
Statement of Financial Position date.
In relation to the real estate and private equity
investments, the Committee ensured that the Investment
Manager and, where relevant, the Independent Valuer
have applied appropriate valuation methodologies.
Members of the Committee meet the Independent Valuer
and the Investment Manager at least annually to discuss
the valuation process. The Committee gains comfort in
the valuations produced by reviewing the methodologies
used. The methodologies and valuations were discussed
and subsequently approved by the Committee in meetings
with the Independent Valuer and the Investment Manager
in July and October 2018.
The Board regularly reviews the movement in valuations
year on year including sensitivity factors affecting
the valuations.
Calculation of incentive fee and determination of the fair
value of the liability
The Committee reviewed the calculation of the incentive
fee, which is set out in Notes 3 and 15(b) of the Financial
Statements. For the year ended 30 June 2018, an incentive
fee of USD25.3 million was earned by the Investment
Manager on the performance of the Capital Markets Pool.
The Committee took steps to ensure that the calculation
was independently verified as well as holding discussions
with the External Auditor to assess the level of audit work
performed on the completeness and accuracy of the
calculation and whether in their view the methodology
applied was in accordance with the Investment
Management Agreement.
The maximum incentive fee that can be paid in any given
year in respect to either the Capital Markets Pool or the
Direct Real Estate Pool is 1.5% of the weighted average
NAV of that Pool at the Statement of Financial Position
date. Any incentive fees earned in excess of this 1.5%
cap may be paid out in subsequent years only to the
extent that the NAV of the relevant Pool (as adjusted to
take account of cash flows such as dividends, share buy
backs and cash transferred between pools) exceeds what
the NAV would have been on 30 June 2018 had the fee
equalled the 1.5% cap. The amount of incentive fee which
will be paid out immediately is set at USD15.0 million by
the operation of the 1.5% cap and which is carried on the
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FINANCIAL REPORTS & STATEMENTS | REPORT OF THE AUDIT COMMITTEE
balance sheet as a current liability. This amount comprises
USD13.4 million brought forward from the year ended 30
June 2017 and USD1.6 million earned for the year ended
30 June 2018.
In respect of the balance of USD23.7 million incentive
fee earned for the year ended 30 June 2018 but not
immediately paid out, the Committee concluded that
it is probable that this will be paid out in subsequent
accounting years but not before 31 October 2019. In
determining the fair value of this deferred liability, the
Committee discounted the USD23.7 million to USD20.8
million to reflect the time value of money and the
probability of payment.
Effectiveness of the Audit
The Committee held formal meetings with PwC CI before
the start of the audit to discuss formal planning, to discuss
any potential issues and to agree the scope that would
be covered and, after the audit work was concluded, to
discuss the significant issues which arose.
The Committee considered the effectiveness and
independence of PwC CI by using a number of measures,
including but not limited to:
• Reviewing the audit plan presented to them before
the start of the audit;
• Reviewing and challenging the audit findings report
including variations from the original plan;
• Reviewing any changes in audit personnel; and
• Requesting feedback from both the Investment
Manager and the Administrator.
Following this evaluation, the Committee was satisfied that
there had been appropriate focus and challenge on the
significant and other key areas of audit risk and assessed
the quality of the audit process to be good.
Audit fees and Safeguards on Non-Audit Services
The table below summarises the remuneration paid by the
Company to PwC CI and to other PwC member firms for
audit and non-audit services during the years ended 30
June 2018 and 30 June 2017.
Year ended
30 June 2018
USD’000
Year ended
30 June 2017
USD’000
297
94
-
391
295
92
54
441
Audit and
assurance services
- Annual audit
- Interim review
Non-audit
services
Total
The Committee considers PwC CI to be independent of
the Company. Further, the Committee has obtained PwC
CI’s confirmation that the services provided by other PwC
member firms to the wider VinaCapital organisation do
not prejudice its independence.
Internal Control
At each of its meetings during the year, the Committee
reviewed the Investment Manager’s internal control
report and, during the year, met EY LLP, the internal
auditor appointed by the Investment Manager, to discuss
the control environment and the outcome of their review
of the Investment Manager’s internal controls. The
Committee also reviewed the externally prepared Service
Organisation Control (“SOC1”) report on the control
environment in place at the Administrator.
Conclusion and Recommendation
On the basis of its work carried out over the year, and
assurances given by the Investment Manager and the
Administrator, the Committee is satisfied that the
Financial Statements appropriately address the critical
judgements and key estimates (both in respect of the
amounts reported and the disclosures). The Committee
is also satisfied that the significant assumptions used
for determining the value of assets and liabilities have
been appropriately scrutinised and challenged and are
sufficiently robust. At the request of the Board, the
Committee considered and were satisfied that the 30
June 2018 Annual Report and Financial Statements were
fair, balanced and understandable and that they provided
80
Annual Report 2018
the necessary information for Shareholders to assess the
Company’s performance, business model and strategy.
PwC CI reported to the Committee that no material
misstatements were found in the course of its work.
Furthermore, both the Investment Manager and the
Administrator confirmed to the Committee that they
were not aware of any material misstatements including
matters relating to the presentation of the Financial
Statements. The Committee confirms that it is satisfied
that PwC CI has fulfilled its responsibilities with diligence
and professional scepticism.
Following the review process on the effectiveness of the
independent audit and the review of audit and non-audit
services, the Committee has recommended that PwC CI be
reappointed for the coming financial year.
For any questions on the activities of the Committee
not addressed in the foregoing, a member of the Audit
Committee will be available to attend the AGM to respond
to such questions.
Huw Evans
Audit Committee Chairman
23 October 2018
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FINANCIAL REPORTS & STATEMENTS | DIRECTORS’ REMUNERATION REPORT
GENERAL INFORMATION | DUMMY
DIRECTORS’
REMUNERATION REPORT
Introduction
An ordinary resolution for the approval of the Directors’
remuneration report will be put to the Shareholders at the
AGM to be held on 10 December 2018.
Policy on Directors’ Fees
The Board’s policy is that the remuneration of the
independent non-executive Directors should reflect
the experience and time commitment of the Board as a
whole, and is determined with reference to comparable
organisations and available market information each year.
Independent Directors’ Fees
The fees for the independent Directors are determined
within the limit set out in the Company’s Articles of
Incorporation, which provide that the aggregate total
remuneration paid to independent Directors shall not
exceed USD500,000 (or such higher amount as may
be approved by the Company in a general meeting)
in respect of any 12-month period. At the AGM on 10
December 2018 a resolution will be put to shareholders
to increase the maximum aggregate total remuneration
to USD650,000. While there is no current intention to
increase the remuneration paid to individual directors,
an increase in the total will allow the number of Directors
to be increased to five, and provide flexibility in planning
future appointments to the Board, for example allowing an
overlap between the appointment of one director and the
retirement of another.
The policy is to review the fee rates periodically, although
such a review will not necessarily result in any changes.
For the year ended 30 June 2018, Directors’ remuneration
remained the same as the previous year, being USD90,000
for the Chairman and USD75,000 for the independent
Directors, with USD5,000 for membership of the Audit
Committee and USD15,000 for chairmanship of the same.
There are no long term incentive schemes provided by the
Company and no performance fees are paid to Directors.
82
Annual Report 2018 Directors’ Emoluments for the Year
The Directors over the past two years have received the following emoluments in the form of fees:
Year ended
Steven Bates
Martin Adams
Thuy Bich Dam
Julian Healy (appointed 23 July 2018)
Huw Evans*
Michael Gray (retired 21 December 2016)
Annual fee
USD
30 June 2018
USD
30 June 2017
USD
95,000
80,000
80,000
80,000
90,000
-
95,000
80,000
80,000
-
90,000
-
95,000
80,000
80,000
-
85,452
43,151
345,000
383,603
* Appointed Audit Committee Chairman following Michael Gray’s retirement.
On behalf of the Board
Thuy Bich Dam
Chair
Remuneration Committee
23 October 2018
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FINANCIAL REPORTS & STATEMENTS | INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S
REPORT
Report on the audit
of the financial statements
Our opinion
Material uncertainty related to going concern
In our opinion, the financial statements give a true and
fair view of the financial position of VinaCapital Vietnam
Opportunity Fund Limited (the “Company”) as at 30 June
2018, and of its financial performance and its cash flows
for the year then ended in accordance with International
Financial Reporting Standards and have been properly
prepared in accordance with the requirements of The
Companies (Guernsey) Law, 2008.
What we have audited
The Company’s financial statements comprise:
•
•
•
•
•
The statement of financial position as at 30 June 2018;
The statement of comprehensive income for the year
then ended;
The statement of changes in equity for the year
then ended;
The statement of cash flows for the year then ended;
The notes to the financial statements, which include a
summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (“ISAs”). Our responsibilities under
those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements
section of our report.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for
our opinion.
We draw your attention to the discontinuation vote
disclosures in the Chairman’s Statement on pages 74
and 75, the going concern disclosures in the Report of
the Directors on page 74 and to the basis of preparation
disclosures in note 2 to the financial statements. These
note that the Articles of Association of the Company
require the directors to put forward a special resolution
every fifth year requiring shareholders to vote in general
meeting on whether the Company should continue
as currently constituted. Should this discontinuation
resolution be passed by the shareholders at the general
meeting on 10 December 2018, then the directors
would be required to formulate proposals to be put to
shareholders to reorganise, unitise or restructure the
Company or for the Company to be wound up.
Our opinion is not modified in respect of this matter.
Independence
We are independent of the Company in accordance with
the ethical requirements that are relevant to our audit of
the financial statements of the Company, as required by
the Crown Dependencies’ Audit Rules and Guidance, and
we have fulfilled our ethical responsibilities in accordance
with these requirements.
Our audit approach
Context
The Company is a Guernsey domiciled closed-ended
investment company trading on the London Stock
Exchange’s Main Market and is managed by a related
party, VinaCapital Investment Management Limited (the
“Investment Manager”).
84
Annual Report 2018 The Company is not required to prepare consolidated
financial statements, however it is structured as a group
and therefore key aspects of our audit approach have
been framed in our role as the lead engagement team
using component auditors from other PwC network firms.
The Company, investing through its direct and indirect
subsidiaries and associates, is a diversified investment
fund focussing on capital markets, private equity and
real estate investment opportunities in Vietnam. All
such subsidiary and associate investments are ultimately
held at fair value and reflected by the Company on its
Statement of Financial Position as “Financial assets at fair
value through profit or loss”. Each year we focus our audit
work primarily on the valuation of these investments in
subsidiaries and associates accounted for at fair value
and the calculation of incentive fees payable to the
Investment Manager.
OVERVIEW
Materiality
• Overall materiality was USD10.4 million (2017: USD9.5
million) which represents 1% of net assets (2017: 1%
of net assets).
Audit scope
•
•
The principal activity of the Company comprises
investing in a diversified portfolio of investments
in Vietnam (referred to as “underlying investments”)
through a structure of intermediate holding companies.
In establishing the overall approach to the Company’s
audit, we determined the type of work that needed
to be performed by us, as the lead engagement team,
or by component auditors from other PwC network
firms. Where the work was performed by component
auditors, we determined the level of involvement
we needed to have in the audit work at those
components to be able to conclude whether sufficient
appropriate audit evidence had been obtained as
a basis for our opinion on the Company’s financial
statements as a whole.
Materiality
Key Audit
Matters
Audit
Scope
• We tailored the audit scope taking into account the
type of underlying investments held, the accounting
processes and controls operated by the Company and
the overall market to which the Company is exposed
through its underlying investments.
• We conducted our audit of the financial statements
from the financial information and records provided
by Northern Trust International Fund Administration
Services (Guernsey) Limited (“the Administrator”)
to whom the Board of Directors has delegated the
provision of administrative functions. Our audit
also relied on key financial records provided by the
Investment Manager.
Key audit matters
• Valuation of financial assets at fair value through
profit or loss
Calculation of incentive fee
•
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VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Reports and StatementsAnnexGeneral Information FINANCIAL REPORTS & STATEMENTS | INDEPENDENT AUDITOR’S REPORT
Overall
Company
materiality
How we
determined it
Rationale for
the materiality
benchmark
USD10.4 million (2017: USD9.5 million)
1% of net assets (2017: 1% of net assets)
We believe that net assets is the most
appropriate benchmark because this is
the key metric of interest to investors. It
is also a generally accepted measure used
for companies in this industry.
We agreed with the Audit Committee that we would
report to them misstatements identified during our
audit above USD520,000 (2017: USD475,000), as well
as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our
professional judgment, were of most significance in our
audit of the financial statements of the current period.
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.
Audit scope
As part of designing our audit, we determined materiality
and assessed the risks of material misstatement in the
financial statements. In particular, we considered where
the directors made subjective judgements; for example, in
respect of significant accounting estimates that involved
making assumptions and considering future events that are
inherently uncertain. As in all of our audits, we also addressed
the risk of management override of internal controls,
including among other matters, consideration of whether
there was evidence of bias that represented a risk of material
misstatement due to fraud.
We tailored the scope of our audit in order to perform
sufficient work to enable us to provide an opinion on the
financial statements as a whole, taking into account the
structure of the Company, the accounting processes and
controls, and the industry in which the Company operates.
Materiality
The scope of our audit was influenced by our application
of materiality. An audit is designed to obtain reasonable
assurance whether the financial statements are free from
material misstatement. Misstatements may arise due to
fraud or error. They 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.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall
Company materiality for the financial statements as a whole
as set out in the table below. These, together with qualitative
considerations, helped us to determine the scope of our audit
and the nature, timing and extent of our audit procedures
and to evaluate the effect of misstatements, both individually
and in aggregate on the financial statements as a whole.
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Annual Report 2018
Key audit matter
How our audit addressed the Key audit matter
Valuation of financial assets
at fair value through profit or loss
As detailed in notes 3 and 8 to the financial statements,
the Company’s financial assets at fair value through profit
or loss amount to USD1,067.5 million as at 30 June 2018
(2017: USD974.6 million) and comprise the Company’s
holdings in direct and indirect subsidiaries and associates,
investing in a pool of capital markets, private equity and
real estate investment opportunities in Vietnam.
We focused on this balance as it represents the principal
element of the net asset value as disclosed on the
Statement of Financial Position as at 30 June 2018 as well
as being a key contributor to the Company’s performance
during the year.
The fair value disclosed has been determined based on
the fair value of (1) the underlying capital markets, private
equity and real estate investments held and (2) the other
residual net assets within subsidiaries and associates
as at 30 June 2018. Further details, including the risks
considered are as follows:
a. Valuation of underlying listed and unlisted capital
markets investments
As at 30 June 2018 the listed and unlisted portion
of the capital markets portfolio was fair valued
at USD892.7 million (2017: USD698.5 million),
representing 83.6% (2017: 71.7%) of the Company’s
total financial assets at fair value through profit or
loss. The fair value of these investments is based
upon the quoted market prices per the relevant Stock
Exchange at the close of trading on 30 June 2018, or
where applicable, relevant and reliable broker quotes
at this date.
There is a risk that the fair valuation of the capital
markets portfolio may be materially misstated as
a result of the incorrect application of period end
market prices or exchange rates to USD or incorrect
judgements as to the underlying liquidity of the
capital markets portfolio and the consequent reliance
1. We updated and reconfirmed our understanding and
evaluation of management’s processes and internal
controls in so far as they apply to investment valuations,
the valuation models used and the areas where
significant judgements and estimates are made;
2. We attended relevant valuation meetings to understand
and observe the Company’s process of challenging and
approving the valuations prepared by the Investment
Manager and those prepared by the independent
valuation experts engaged by management;
3. Confirmed the Company’s ownership of the direct
and indirect subsidiaries and associates by obtaining
confirmations from the independent appointed
registered agents;
4. On a sample basis, agreed the additional contributions
made by the Company to its directly held subsidiaries
and associates as well as the return of capital received by
the Company from these entities to relevant supporting
agreements and similar legal documentation;
5. For the valuation of underlying listed and unlisted capital
markets investments, we have performed the following:
•
•
Independently re-priced all of the listed and unlisted
capital markets investments which are traded in
active markets to the quoted market prices per the
relevant Stock Exchange at the close of trading on 30
June 2018;
For those capital market investments fair valued by
management using broker quotes, we challenged
management to justify their use of specific brokers,
their independence and competence to provide
that quotation. Additionally, we also sighted the
original broker quotes received by management to
substantiate the prices used at 30 June 2018 and
performed our own assessment of the brokers’
independence, objectivity and competence as well
as assessing the authenticity of the documentation
from the brokers;
• Recalculated the fair values to USD, where required,
by independently verifying to external sources the
use by management of appropriate exchange rates;
• Obtained confirmation from the Custodian of all
capital markets investments held at the period end
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on the closing quoted market prices. There is also a
risk that in fair valuing the unlisted capital markets
investments, that inappropriate broker quotes may be
used which are not indicative of prices at which the
investments could be traded at in the market.
and agreed these to the Company’s records; and
• Reviewed the trading volumes to assess whether
these supported the use of the quoted market price
as a basis for the year end fair values.
b. Valuation of underlying real estate and private
equity investments
6. For the valuation of underlying listed and unlisted capital
markets investments, we have performed the following:
As at 30 June 2018 the underlying real estate and
private equity investments were fair valued at
USD145.6 million (2017: USD137.6 million), representing
13.6% (2017: 14.1%) of the Company’s total financial
assets at fair value through profit or loss.
These investments are valued on bases considered
most appropriate by the Directors, including:
Real estate investments
•
Property valuations provided by independent
specialist appraisers. These valuations are based
on judgements and assumptions as to the local
market which are subject to uncertainty and might
result in valuations which differ materially from
those that would have been achieved in an actual
disposal of the underlying real estate investment as
at 30 June 2018.
• Valuation experts were engaged by management
to review the findings of the independent specialist
appraisers. The valuation experts combined their
findings with the residual net assets of the relevant
holding companies and reviewed and opined on the
overall real estate investment projects’ fair value;
• Recent transaction prices or counter-signed sales
purchase agreements due to complete post
year-end where completion has subsequently
taken place;
• Other methodologies including internal
desktop valuations;
• Management then adjusting these real estate
valuations for the relevant holding companies’
residual net assets.
• Obtained and reviewed the final property
valuation reports prepared and issued by specialist
independent appraisers;
•
• Obtained and reviewed the final reports issued by
management’s valuation experts to the Board so
as to understand the assumptions, judgements
and valuation methodologies adopted to
determine fair value;
Engaged internal PwC valuation experts to provide
audit support reviewing and concluding on the
fair valuations of the private equity investments.
The PwC valuation experts (a) reviewed the
appropriateness of valuation methodologies
and approaches and (b) reviewed and commented
on the computation of the discounted cash
flow valuation models which were adopted
by management’s valuation experts, including
significant assumptions such as cash flow
projections, discount rates and terminal
growth rates;
• Obtained satisfactory explanations when
challenging the assumptions made by the
independent specialist appraisers, valuation
experts and management in the applicable
valuation models;
Tested the mathematical accuracy of the valuation
models and verified the significant inputs into
the models by agreement to third party sources
where applicable;
•
• Discussions and meetings were held with
•
management’s valuation experts to assess their
final valuation reports;
Confirmed and assessed the independence,
objectivity and competence of the real estate
specialist appraisers and management’s
valuation experts;
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Annual Report 2018
Private equity investments
•
Fair values determined by valuation experts
engaged by management using industry standard
private equity valuation techniques adjusted for
the relevant holding companies’ residual net assets.
There is a risk that the fair valuation of the real
estate and private equity investments may be
materially misstated as these fair values rely on the
proper determination of an appropriate valuation
methodology, the use of judgemental inputs as
well as the skill and knowledge of the independent
specialists and experts engaged by management to
develop and opine on these model based valuations.
There is also the inherent risk that the Investment
Manager or the Board may unduly influence the
independent specialists and experts in
their determination of the fair valuations for
these investments.
C. Valuation of other residual net assets
Other residual net assets held as a component
of financial assets at fair value through profit or loss
comprise cash and cash equivalents USD19.3 million
(2017: USD29.6 million) and other assets net of other
liabilities of USD9.9 million (2017: USD108.9 million).
There is a risk that the fair valuation of the other
residual net assets held within the direct and indirect
subsidiaries and associates may be materially
misstated arising from the omission of relevant assets
or liabilities or the inclusion of non-existent other
assets or liabilities.
•
For certain underlying real estate investments,
agreed the fair value to counter-signed sales
purchase agreements and assessed the impact of
any completion conditions precedents to fair value
as at the year-end;
• Where management has used acquisition cost for
recently acquired private equity investments as
a basis for their fair valuations, assessed whether
changes or events subsequent to the relevant
acquisition would imply a change in fair value;
Attended Audit Committee meetings and also read
Audit Committee papers and minutes of meetings
where the fair valuations provided by management
and management’s valuation experts were
discussed and agreed; and
Performed investment existence procedures directly
with investee companies to confirm the existence
and ownership of underlying investee companies
holding the real estate investments as well as the
private equity investments held.
•
7.
For the valuation of underlying real estate and private
equity investments, we have performed the following:
• Obtained and agreed independent bank
onfirmations for all intermediate subsidiaries
and associates;
• Agreed a sample of material balances of other assets
•
and liabilities to supporting documentation such as
signed agreements; and
Performed searches for unrecorded liabilities
through testing of subsequent payments, ensuring
that none of these payments related to unrecorded
liabilities existing as at 30 June 2018.
We have concluded that the valuation of Financial assets
at fair value through profit or loss is within a reasonable
range. Additionally the valuation is supported by
the available evidence with significant assumptions
and valuation methodologies used assessed as being
appropriate and reasonable.
The results of our procedures identified no material errors
in the fair valuation of Financial assets at fair value through
profit or loss.
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Calculation of incentive fee
The incentive fee comprises amounts accrued and
payable to the Investment Manager, as calculated
in accordance with the Investment Management
Agreement, to compensate for services provided in a
way which aligns the remuneration with the Company’s
investment performance.
As at 30 June 2018, the Company has accrued for USD35.9
million (2017: USD23.3 million) of total incentive fees
payable to the Investment Manager split as to USD15.1
million (2017: USD11.2 million) payable as a current
liability with the balance of USD20.8 million (2017:
USD12.1 million) payable after one year. The balance of
USD 20.8 million (2017: USD12.1 million) payable after one
year represents the portion of the incentive fee payable
in excess of a cap where the Investment Manager and the
Board have determined, that based on future investment
performance, it is probable that this will remain payable to
the Investment Manager in late 2019 or thereafter.
The calculation of the incentive fee per the Investment
Management Agreement produced an absolute incentive
fee payable of USD25.3 million (2017: USD24.6 million)
based on the historic performance of the Company for
the year to 30 June 2018. This is different to the total
incentive fee of USD35.9 million (2017: USD23.3 million)
accrued for in the financial statements at the year end due
to the existence of a cap on the immediate payment of the
incentive fee per the Investment Management Agreement.
This cap defers the payment of the current and certain
prior period portions of the absolute incentive fee to later
accounting periods where those potential future payments
are contingent on the future performance of the Company.
Therefore as disclosed in note 3, management must
exercise judgement when determining the amount of the
incentive fee which is recognised for payment after one
year from 30 June 2018 and this balance is discounted.
The incentive fee calculation, including the recognition and
measurement of the portion of the incentive fee payable
after one year, is based on relatively complex calculations
90
Our audit work performed to assess the accuracy and
judgements made by management in determining the
accrual of the incentive fee for the year ended 30 June
2018 included:
• We obtained the analysis and calculation performed
by management to support the calculation of the
absolute amount of the incentive fee and examined
the Investment Management Agreement to ensure
that the methodology adopted for the calculation
of the absolute amount for the year ended 30 June
2018 was in accordance with that agreement;
• We tested the absolute amount of the incentive fee
attributable to the Investment Manager based on the
terms in the Investment Management Agreement;
• We reviewed whether the capital markets pool
NAV and direct real estate pool NAV utilised in the
absolute calculation, including their allocations
were consistent with the audited balances per the
financial statements;
• We assessed the reasonableness of the Company’s
recognition of the incentive fee in excess of the
cap as at 30 June 2018 payable after one year,
including the measurement thereof, through
review of management’s methodology, inputs and
assumptions as to the future. Our review included (a)
obtaining satisfactory explanations when challenging
the assumptions made, particularly in relation to the
assessment of future payments and discount rate
used and (b) testing the mathematical accuracy of
the model and verifying the inputs into the model
by agreeing them to third party sources where
applicable and;
• We discussed our work with the Board as an
area where critical estimates and judgements
were exercised.
We did not identify any material differences as a result
of this testing. The assumptions used by management in
recognising and measuring the incentive fee accrued were
considered to be appropriate and reasonable based on the
evidence we obtained.
Annual Report 2018 with a number of data inputs and assumptions, which
increases the risk of error or manipulation. The mechanics
surrounding the cap are more fully explained in notes 3
and 15(b) to the financial statements.
We focused on the accuracy and judgements made by
management in the determination and estimation of the
total accrual for the incentive fee as at 30 June 2018 due
to the complexity of its calculation, the judgements and
estimates required for the portion of the incentive fee
recognised as due after one year and the related party
nature of the balance.
Other information
The directors are responsible for the other information.
The other information comprises all the information
included in the Annual Report and Financial Statements
(but does not include financial statements and our auditor’s
report thereon).
Other than as specified in our report, our opinion on
the financial statements does not cover the other
information and we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information identified
above 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.
Responsibilities of the directors for the financial
statements
internal control as the directors determine is necessary to
enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters
relating to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
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 an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with ISAs 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 these
financial statements.
The directors are responsible for the preparation of
financial statements that give a true and fair view in
accordance with International Financial Reporting
Standards, the requirements of Guernsey law and for such
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional
scepticism throughout the audit. We also:
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VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Reports and StatementsAnnexGeneral Information FINANCIAL REPORTS & STATEMENTS | INDEPENDENT AUDITOR’S REPORT
•
Identify and assess the risks of material misstatement
of the financial statements, whether due to fraud
or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
•
•
• Obtain an understanding of internal control relevant
to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness
of the Company’s internal control.
Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use
of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions
that may cast significant doubt on the Company’s
ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related
disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future
events or conditions may cause the Company to cease
to continue as a going concern.
Evaluate the overall presentation, structure and
content of the financial statements, including the
disclosures, and whether the financial statements
represent the underlying transactions and events in a
manner that achieves fair presentation.
•
We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with
a statement that we have complied with relevant
92
ethical requirements regarding independence, and to
communicate with them all relationships and other
matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of
most significance in the audit of the financial statements
of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in
our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public
interest benefits of such communication.
Report on other legal and regulatory requirements
Under The Companies (Guernsey) Law, 2008 we are
required to report to you if, in our opinion:
• we have not received all the information and
•
•
explanations we require for our audit;
proper accounting records have not been kept; or
the financial statements are not in agreement
with the accounting records.
We have no exceptions to report arising from
this responsibility.
We have nothing to report in respect of the following
matters which we have reviewed:
•
the directors’ statement set out on pages 74 and 75
in relation to going concern. As noted in the directors’
statement, the directors have concluded that it is
appropriate to adopt the going concern basis in
preparing the financial statements. The going concern
basis presumes that the Company has adequate
resources to remain in operation, and that the
directors intend it to do so, for at least one year from
the date the financial statements were signed. As part
of our audit we have concluded that the directors’ use
of the going concern basis is appropriate. However,
because not all future events or conditions can be
Annual Report 2018
•
•
predicted, these statements are not a guarantee as to
the Company’s ability to continue as a going concern;
the directors’ statement that they have carried out
a robust assessment of the principal risks facing the
Company and the directors’ statement in relation to
the longer-term viability of the Company. Our review
was substantially less in scope than an audit and
only consisted of making inquiries and considering
the directors’ process supporting their statements;
checking that the statements are in alignment with the
relevant provisions of the UK Corporate Governance
Code; and considering whether the statements are
consistent with the knowledge acquired by us in the
course of performing our audit; and
the part of the Corporate Governance Statement
relating to the Company’s compliance with the ten
further provisions of the UK Corporate Governance
Code specified for our review.
This report, including the opinion, has been prepared for
and only for the members as a body in accordance with
Section 262 of The Companies (Guernsey) Law, 2008 and
for no other purpose. We do not, in giving this opinion,
accept or assume responsibility for any other purpose or
to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by
our prior consent in writing.
John Roche
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
23 October 2018
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FINANCIAL REPORTS & STATEMENTS | STATEMENT OF FINANCIAL POSITION
STATEMENT OF
FINANCIAL POSITION
94
GENERAL INFORMATION | DUMMYAnnual Report 2018 Total assets
Financial assets at fair value through profit or loss
Receivables
Cash and cash equivalents
Total assets
Total liabilities
Accrued expenses and other payables
Deferred incentive fees
Total liabilities
Equity
Share capital
Retained earnings
Total Shareholders’ equity
Total liabilities and equity
Net asset value, USD per share
Net asset value, GBP per share
Notes
30 June 2018
USD’000
30 June 2017
USD’000
8
10
6
12
15(b)
11
17
1,067,462
974,581
-
14,867
265
7,512
1,082,329
982,358
18,089
20,808
38,897
427,351
616,081
1,043,432
20,546
12,137
32,683
456,419
493,256
949,675
1,082,329
982,358
5.38
4.07
4.73
3.64
The Financial Statements on pages 95 to 126 were approved by the Board of Directors on 23 October 2018 and signed on
its behalf by:
Steven Bates
Chairman
Huw Evans
Director
The accompanying notes are an integral part of these Financial Statements.
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FINANCIAL REPORTS & STATEMENTS | STATEMENT OF FINANCIAL POSITION
STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2018
Note
Balance at 1 July 2016
Profit for the year
Total comprehensive income
Transactions with Shareholders
Shares repurchased
Balance at 30 June 2017
For the year ended 30 June 2018
Balance at 1 July 2017
Profit for the year
Total comprehensive income
Transactions with Shareholders
Shares repurchased
Dividends paid
Balance at 30 June 2018
Share
capital
USD’000
483,829
-
-
Retained
earnings
USD’000
302,707
190,549
190,549
Total
Equity
USD’000
786,536
190,549
190,549
(27,410)
456,419
-
493,256
(27,410)
949,675
456,419
-
-
493,256
152,740
152,740
949,675
152,740
152,740
11
9
(29,068)
-
-
(29,915)
(29,068)
(29,915)
427,351
616,081
1,043,432
The accompanying notes are an integral part of these Financial Statements.
96
Annual Report 2018 STATEMENT OF COMPREHENSIVE INCOME
Dividend income
Net gains on financial assets at fair value through profit or loss
General and administration expenses
Finance cost
Incentive fee
Other income
Operating profit
Profit before tax
Corporate income tax
Profit for the year
Year ended
Notes
13
14
15(a)
15(b), 18
3, 15(b), 18
30 June 2018
USD’000
30 June 2017
USD’000
79,796
115,569
(18,868)
(1,315)
(22,442)
-
31,168
198,919
(16,548)
-
(23,269)
279
152,740
190,549
152,740
190,549
16
-
-
152,740
190,549
Total comprehensive income for the year
152,740
190,549
Earnings per share
- basic and diluted (USD per share)
- basic and diluted (GBP per share)
17
0.77
0.57
0.93
0.73
All items were derived from continuing activities.
The accompanying notes are an integral part of these Financial Statements.
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STATEMENT OF CASH FLOWS
Operating activities
Profit before tax
Adjustments for:
Dividend income
Net gains on financial assets
at fair value through profit or loss
Finance cost
Change in receivables
Change in accrued expenses and other payables
Dividend receipts
Net cash inflow from operating activities
Investing activities
Purchases of financial assets at fair value through profit or loss
Return of capital from financial assets at fair value through profit or loss
Sale of financial assets at fair value through profit or loss
Net cash generated from investing activities
Financing activities
Purchases of shares into treasury
Dividends paid
Net cash used in financing activities
Net change in cash and cash equivalents for the year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes are an integral part of these Financial Statements.
Year ended
Notes
30 June 2018
USD’000
30 June 2017
USD’000
152,740
190,549
(79,796)
(31,168)
14
(115,569)
(198,919)
1,315
-
(41,310)
(39,538)
265
11,201
79,796
49,952
4,812
22,833
31,168
19,275
(277,930)
(223,412)
293,458
217,963
-
15,528
(28,210)
(29,915)
(58,125)
7,355
7,512
14,867
19,526
14,077
(27,410)
-
(27,410)
5,942
1,570
7,512
8
8
11
9
6
6
98
Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS
1. General information
2. Summary of significant accounting policies
VinaCapital Vietnam Opportunity Fund Limited (“the
Company”) was incorporated on 22 March 2016 as a
closed-ended investment company with limited liability
under The Companies (Guernsey) Law, 2008. Prior to that
date the Company was incorporated in the Cayman Islands
as an exempted company with limited liability.
The Company is classified as a registered closed-ended
Collective Investment Scheme under the Protection of
Investors (Bailiwick of Guernsey) Law 1987 and is subject to
the Companies (Guernsey) Law, 2008.
The Company’s objective is to achieve medium to long-term
returns through investment either in Vietnam or in companies
with a substantial majority of their assets, operations,
revenues or income in, or derived from, Vietnam.
On 30 March 2016, the Company’s shares were admitted
to the Main Market of the London Stock Exchange (“LSE”)
with a Premium Listing under the ticker symbol VOF. Prior
to that date, the Company’s shares were traded on the AIM
market of the LSE.
The Company does not have a fixed life but the Board has
determined that it is desirable that Shareholders should
have the opportunity to review the future of the Company
at appropriate intervals. Accordingly, the Board intends
that every fifth year a special resolution will be proposed
that the Company ceases to continue. If the resolution
is not passed, the Company will continue to operate as
currently constituted. If the resolution is passed, the
Directors will be required to formulate proposals to be
put to Shareholders to reorganise, unitise or reconstruct
the Company or for the Company to be wound up. The
Board tabled such resolutions in 2008 and 2013 and on
both occasions the resolution was not passed, allowing the
Company to continue as currently constituted. The next
shareholder vote on the continuation of the Company will
be held at the AGM on 10 December 2018.
The Financial Statements for the year ended 30 June 2018
were approved for issue by the Board on 23 October 2018.
The principal accounting policies applied in the
preparation of these Financial Statements are set out
below. These policies have been consistently applied to all
years presented, unless otherwise stated.
Statement of Compliance
The Financial Statements have been prepared in accordance
with IFRS, which comprise standards and interpretations
approved by the IASB together with applicable legal and
regulatory requirements of Guernsey Law.
2.1 Basis of preparation
The Financial Statements have been prepared using the
historical cost convention, as modified by the revaluation
of financial assets at fair value through profit or loss, and
financial liabilities at fair value through profit or loss.
The Financial Statements have been prepared on a going
concern basis.
The preparation of Financial Statements in conformity
with IFRS requires the use of certain critical accounting
estimates. It also requires judgement to be exercised in
the process of applying the Company’s accounting policies.
The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates
are significant to the Financial Statements, are disclosed
in note 3.
2.2 Going concern
The Directors believe that, having considered the Company’s
investment objective (see Investment Policy on page 2),
financial risk management and associated risks (see note
20 to the Financial Statements on pages 121 to 126) and in
view of the liquidity of investments, the income deriving
from those investments and its holding in cash and cash
equivalents, the Company has adequate financial resources
and suitable management arrangements in place to continue
as a going concern for at least twelve months from the date
of approval of these Financial Statements.
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The next shareholder vote on the discontinuation of the
Company will be held at the AGM on 10 December 2018.
The Directors cannot predict the outcome of the vote but
have no present indication that the vote will be passed or
that it would, therefore, be inappropriate to prepare the
financial statements on the going concern basis.
2.3 Changes in accounting policy and disclosures
a) Changes in accounting policy
The accounting policies adopted are consistent with those
of the previous financial year.
b) New standards, amendments and interpretations
No new standards, amendments or interpretations,
effective for the first time for the financial year beginning
on or after 1 July 2017, as listed below, have had a material
impact on the Company.
- IAS 12 – Income Taxes
- IAS 7 – Statement of Cash Flows
- Annual improvements 2014-2016 cycle
c) New standards, amendments and interpretations issued
but not yet effective
Certain new accounting standards and interpretations
have been published that are not mandatory for 30 June
2018 reporting periods and have not been early adopted
by the Company. The Company’s assessment of the impact
of these new standards, amendments and interpretations
is set out below.
- IFRS 9 Financial Instruments (Effective 1 January 2018)
- IFRS 15 Revenue from Contracts with Customers
(Effective 1 January 2018)
IFRS 9 ‘Financial Instruments’ addresses the classification,
measurement and derecognition of financial assets
and liabilities. It replaces the multiple classification
and measurement models in IAS 39 and is effective for
reporting periods beginning on or after 1 January 2018.
measured at amortised cost if the objective of the business
model is to hold the financial asset for the collection
of the contractual cash flows and the contractual cash
flows under the instrument solely represent payments
of principal and interest (SPPI). A debt instrument is
measured at fair value through other comprehensive
income if the objective of the business model is to hold
the financial asset both to collect contractual cash flows
from SPPI and to sell. All other debt instruments must be
recognised at fair value through profit or loss. An entity
may however, at initial recognition, irrevocably designate
a financial asset as measured at fair value through profit
or loss if doing so eliminates or significantly reduces a
measurement or recognition inconsistency. Derivative and
equity instruments are measured at fair value through
profit or loss unless, for equity instruments not held for
trading, an irrevocable option is taken to measure at fair
value through other comprehensive income.
On adoption of IFRS 9 the Company’s investment portfolio
will continue to be classified as at fair value through profit
or loss. Other financial assets which are held for collection
will continue to be measured at amortised cost with no
material impact expected from application of the new
impairment model. As a result, the adoption of IFRS 9 is
not expected to have a material impact on the Company’s
financial statements.
Financial assets currently measured at amortised cost
are: cash and cash equivalents, management fee rebates
receivable and other receivables. These instruments are
solely payments of principal and interest and will continue
to be held at amortised cost under IFRS 9.
Financial liabilities currently valued at amortised cost are
accrued expenses and other payables and will continue to
be measured at amortised cost.
The standard also replaces the incurred loss model in IAS
39 with an expected credit loss impairment model.
Classification and measurement of debt assets will be
driven by the entity’s business model for managing
the financial assets and the contractual cash flow
characteristics of the financial assets. A debt instrument is
Based on the Company’s initial assessment, changes to the
impairment model are not expected to have a material
impact on the financial statements of the Company as the
financial assets are measured at fair value through profit
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Annual Report 2018 or loss and the impairment requirements do not apply to
such instruments and the effect on financial assets held at
amortised cost is immaterial.
The Standard is effective 1 January 2018 and will be adopted
for the financial year ending 30 June 2019.
the dates of the transactions or valuation where items are
re-measured. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are
recognised in the Statement of Comprehensive Income.
IFRS 15 ‘Revenue from Contracts with Customers’ was
published in May 2016 and specifies how and when to
recognise revenue as well as requiring entities to provide
users of financial statements with more informative and
relevant disclosures. The standard provides a single,
principles based five-step model to be applied to all contracts
with customers. IFRS 15 is effective for annual reporting
periods beginning on or after 1 January 2018. Material
revenue streams have been reviewed and it is not anticipated
that there will be a material impact on timing of, recognition
or gross up for principal/agent considerations. There will be
no material impact on the Company’s financial statements.
There are certain other current standards, amendments
and interpretations that are not relevant to the
Company’s operations.
2.4 Subsidiaries and associates
The Company meets the definition of an Investment Entity
within IFRS 10 and therefore does not consolidate its
subsidiaries but measures them instead at fair value through
profit or loss.
Any gain or loss arising from a change in the fair value of
investments in subsidiaries and associates is recognised in the
Statement of Comprehensive Income.
Refer to note 3 for further disclosure on accounting for
subsidiaries and associates.
2.5 Foreign currency translation
a) Functional and presentation currency
The functional currency of the Company is the United States
dollar (“USD”). The Company’s Financial Statements are
presented in USD.
b) Transactions and balances
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at
Non-monetary items measured at historical cost are
translated using the exchange rates at the date of the
transaction. Non-monetary items measured at fair value
are translated using the exchange rates at the date when
the fair value was determined.
2.6 Financial assets
2.6.1 Classification
The Company classifies its financial assets in the following
categories: at fair value through profit or loss and loans
and receivables. The classification depends on the purpose
for which the financial assets were acquired.
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include
financial assets that are either classified as held for trading
or are designated to be carried at fair value through
profit or loss at inception. Financial assets at fair value
through profit or loss held by the Company comprise listed
and unlisted securities, investments in subsidiaries and
associates and bonds.
(b) Loans and receivables
Loans and receivables are non-derivative financial
assets with fixed or determinable payments that are
not quoted in an active market. The Company’s loans
and receivables comprise “Receivables” in the Statement
of Financial Position.
2.6.2 Initial measurement, recognition, de-recognition
and measurement
Receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less any provisions for impairment.
Purchases or sales of financial assets are recognised on the
date on which the Company commits to purchase or sell
the asset.
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Financial assets carried at fair value through profit or loss
are initially recognised at fair value, and transaction costs
are expensed in the Statement of Comprehensive Income.
Financial assets are derecognised when the rights to
receive cash flows from the investments have expired or
have been transferred and the Company has transferred
substantially all risks and rewards of ownership. Financial
assets at fair value through profit or loss are subsequently
carried at fair value. Loans and receivables are
subsequently carried at amortised cost using the effective
interest method less any provisions for impairment.
Gains or losses arising from changes in the fair value
of the “financial assets at fair value through profit
or loss” category are presented in the Statement of
Comprehensive Income within “net gains on financial
assets at fair value through profit or loss” in the period in
which they arise. Dividend income from financial assets
at fair value through profit or loss is recognised in the
Statement of Comprehensive Income when the Company’s
right to receive payments is established.
2.7 Impairment of assets
The Company assesses at the end of each reporting period
whether there is objective evidence that a financial asset
is impaired. A financial asset is impaired and impairment
losses are incurred only if there is objective evidence
of impairment as a result of one or more events that
occurred after the initial recognition of the asset (a ‘loss
event’) and that loss event (or events) has an impact on
the estimated future cash flows of the financial asset that
can be reliably estimated.
Evidence of impairment may include indications that
the debtor is experiencing significant financial difficulty,
default or delinquency in interest or principal payments,
the probability that they will enter bankruptcy or other
financial reorganisation, and where observable data
indicate that there is a measurable decrease in the
estimated future cash flows, such as changes in arrears or
economic conditions that correlate with defaults.
For the loans and receivables category, the amount of the
loss is measured as the difference between the asset’s
carrying amount and the present value of estimated future
cash flows (excluding future credit losses that have not
102
been incurred) discounted at the financial asset’s original
effective interest rate. The carrying amount of the asset
is reduced and the amount of the loss is recognised in
the Statement of Comprehensive Income. If a loan has
a variable interest rate, the discount rate for measuring
any impairment loss is the current effective interest rate
determined under the contract. As a practical expedient,
the Company may measure impairment on the basis of an
instrument’s fair value using an observable market price.
If, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised
(such as an improvement in a debtor’s credit rating), the
reversal of the previously recognised impairment loss is
recognised in the Statement of Comprehensive Income.
2.8 Cash and cash equivalents
In the Statement of Cash Flows, cash and cash equivalents
includes deposits held at call with banks, other short-term
highly liquid investments with original maturities of three
months or less and bank overdrafts. In the Statement
of Financial Position, bank overdrafts are shown within
borrowings in current liabilities.
2.9 Share capital
Ordinary shares are classified as equity. Share capital
includes the nominal value of ordinary shares that have
been issued and any premiums received on the initial
issuance of shares. Incremental costs directly attributable
to the issue of new ordinary shares or options are shown
in equity as a deduction, net of tax, from the proceeds.
Where the Company purchases its equity share capital
(treasury shares), the consideration paid, including any
directly attributable incremental costs (net of income
taxes) is deducted from equity attributable to the
Company’s equity holders.
Where such treasury shares are subsequently reissued,
any consideration received, net of any directly attributable
incremental transaction costs and the related income tax
effects, is included in equity attributable to the Company’s
equity holders.
Annual Report 2018 2.10 Trade payables
Trade payables are obligations to pay for goods or services
that have been acquired in the ordinary course of business
from suppliers.
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the
effective interest method.
2.11 Revenue recognition
The Company recognises revenue when the amount of
revenue can be reliably measured; when it is probable that
future economic benefits will flow to the entity; and when
specific criteria have been met for each of the Company’s
activities, as described below.
Dividend income is recognised when the right to receive
payment is established.
2.12 Operating expenses
Operating expenses are accounted for on an accrual basis.
2.13 Related parties
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or
operational decisions. Enterprises and individuals that
directly, or indirectly through one or more intermediary,
control, or are controlled by, or under common control
with, the Company, including subsidiaries and fellow
subsidiaries are related parties of the Company. Associates
are individuals owning directly, or indirectly, an interest
in the voting power of the Company that gives them
significant influence over the entity, key management
personnel, including directors and officers of the Company,
the Investment Manager and their close family members.
In considering related party relationships, attention is
directed to the substance of the relationship and not
merely the legal form.
2.14 Segment reporting
In identifying its operating segments, management
follows the subsidiaries’ sectors of investment which are
based on internal management reporting information.
The operating segments by investment portfolio include:
capital markets, real estate projects and operating
assets, private equity and cash (including cash and cash
equivalents, bonds, and short-term deposits).
Each of the operating segments is managed and monitored
individually by the Investment Manager as each requires
different resources and approaches. The Investment
Manager assesses segment profit or loss using a measure
of operating profit or loss from the underlying investment
assets of the subsidiaries. Expenses and liabilities which
are common to all segments are allocated based on each
segment’s share of total assets.
2.15 Offsetting financial instruments
Financial assets and liabilities are offset, and the net amount
is reported in the statement of financial position, when
there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis
or realise the asset and settle the liability simultaneously.
The legally enforceable right must not be contingent on
future events, and it must be enforceable in the normal
course of business and in the event of default, insolvency or
bankruptcy of the company or the counterparty.
2.16 Dividend distribution
Dividend distribution to the Company’s shareholders
is recognised as a liability in the Company’s financial
statements and disclosed in the Statement of Changes in
Equity in the period in which the dividends are approved
by the Board.
3. Critical accounting estimates and judgements
3.1 Critical accounting estimates and assumptions
(a) Fair value of subsidiaries and associates and their
underlying investments
The Company holds its investments through a number
of subsidiaries and associates which were established
for this purpose. At the end of each half of the financial
year, the fair values of investments in subsidiaries and
associates are reviewed and the fair values of all material
investments held by these subsidiaries and associates are
assessed. As at 30 June 2018, 100% (30 June 2017: 100%)
of the financial assets at fair value through profit and loss
relate to the Company’s investments in subsidiaries and
associates that have been fair valued in accordance with
the policies set out below.
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The underlying investments include listed and unlisted
securities, private equity and real estate assets. Where
an active market exists (for example, for listed securities),
the fair value of the subsidiary or associate reflects the
valuation of the underlying holdings. Where no active
market exists, valuation techniques are used.
active market, fair value is the average quoted price at
the close of trading obtained from a minimum sample of
five reputable securities companies at the reporting date.
Other relevant measurement bases are used if broker
quotes are not available or if better and more reliable
information is available.
The fair values of the principal real estate and private
equity investments are estimated by a qualified
independent professional services firm (the “Independent
Valuer”). The valuations by the Independent Valuer are
prepared using a number of approaches such as adjusted
net asset valuations, discounted cash flows, income-
related multiples and price-to-book ratios.
The estimated fair values provided by the Independent
Valuer are used by the Audit Committee as the primary
basis for estimating the fair value of the principal real estate
and private equity investments for recommendation to
the Board. Information about the significant judgements,
estimates and assumptions that are used in the valuation of
the investments is discussed below.
The shares of the subsidiaries and associates are not
publicly traded; return of capital to the Company can only
be made by divesting the underlying investments of the
subsidiaries and associates. As a result, the carrying value
of the subsidiaries and associates may not be indicative of
the value ultimately realised on divestment.
As at 30 June 2018 and 30 June 2017, the Company
classified its investments in subsidiaries and associates as
Level 3 within the fair value hierarchy, because they are
not publicly traded, even when the underlying assets may
be readily realisable.
The carrying amounts of the investments in subsidiaries
and associates are referred to in note 8. The sensitivity
analysis of these investments is shown in note 20(c).
(i) Valuation of assets that are traded in an active market
The fair values of listed securities and government
bonds are based on quoted market prices at the close of
trading on the reporting date. The fair values of unlisted
securities which are traded on UPCoM are based on
published prices at the close of business on the reporting
date. For other unlisted securities which are traded in an
(ii) Valuation of assets that are not traded in an
active market
The fair value of assets that are not traded in an
active market (for example, private equities and real
estate where market prices are not readily available)
is determined by using valuation techniques. For the
principal investments, at each year end the Independent
Valuer uses its judgement to select a variety of methods
and make assumptions that are mainly based on market
conditions existing at each reporting date. The valuations
may vary from the actual prices that would be achieved
in an arm’s length transaction at the reporting date. Refer
to note 20(c) which sets out a sensitivity analysis of the
significant unobservable inputs used in the valuations of
the private equity and real estate assets.
(iii) Valuation of investments in private equities
The Company’s underlying investments in private equities
are fair valued using discounted cash flow and market
comparison methods. The projected future cash flows are
driven by management’s business strategies and goals
and its assumptions of growth in gross domestic product
(“GDP”), market demand, inflation, etc. For the principal
investments, the Independent Valuer selects appropriate
discount rates that reflect the level of certainty of the
quantum and timing of the cash flows.
(iv) Valuation of real estate and operating assets
A number of the Company’s real estate investments
have been held in joint ventures with VinaLand Limited
(“VinaLand”), another company managed by the
Investment Manager. In these cases, VinaLand held a
controlling stake in the joint ventures and therefore
exercised control over the investments. As both
companies are managed by the same Investment Manager,
each company’s investment objectives for each property
have generally been the same. VinaLand has been
pursuing the disposal of substantially all of its assets and is
now beginning an orderly wind up.
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Annual Report 2018
At each year end the fair values of the principal underlying
real estate properties are based on valuations by
specialised appraisers. These valuations are based on
certain assumptions which are subject to uncertainty and
might result in valuations which differ materially from the
actual results of a sale. The estimated fair values provided
by the specialist appraisers are used by the Independent
Valuer as the primary basis for estimating fair value of the
Company’s subsidiaries and associates that hold these
properties in accordance with accounting policies set out
in note 2.4.
In conjunction with making its judgement for the fair value
of the Company’s principal underlying real estate and
operating assets, the Independent Valuer also considers
information from a variety of other sources including:
a. current prices in an active market for properties of
similar nature, condition or location;
b. current prices in an active market for properties of
c.
different nature, condition or location (or subject
to different lease or other contracts), adjusted to
reflect those differences;
recent prices of similar properties in less active
markets, with adjustments to reflect any changes
in economic conditions since the date of the
transactions that occurred at those prices;
d. ecent developments and changes in laws and
regulations that might affect zoning and/or the
Company’s ability to exercise its rights in respect to
properties and therefore fully realise the estimated
values of such properties;
e. discounted cash flow projections based on estimates
of future cash flows, derived from the terms of
external evidence such as current market rents,
occupancy and room rates, and sales prices for
similar properties in the same location and condition,
and using discount rates that reflect current market
assessments of the uncertainty in the amount and
timing of the cash flows; and
recent compensation prices made public by the local
authority in the province where the property
is located.
f.
(b) Incentive Fee
For the purpose of calculating any incentive fee for the
year to 30 June 2018 the portfolio was split into two pools,
the Capital Markets Pool and the Direct Real Estate Pool.
The Direct Real Estate Pool included directly owned real
estate assets. The Capital Markets Pool incorporated all
other investments, including listed and unlisted securities
and private equity. The annual incentive fee payable to
the Investment Manager was calculated for each Pool
as 15% of any increase in NAV above a hurdle rate of 8%
compound annual return. However, the maximum amount
that could be paid in respect of either Pool in any one year
was capped at 1.5% of the weighted average month-end
NAV of that pool during that year. Any incentive fee earned
in excess of this 1.5% cap will be paid out in subsequent
years but only to the extent that the NAV exceeds the level
at which it would have been, based upon the fees already
paid out. The excess fees and any incentive fees earned in
subsequent years are paid out on a FIFO basis providing
that the total amount of fees paid out in respect of any
financial year does not exceed the 1.5% cap.
At the end of each financial period, the Board makes a
judgement in considering the total amount of any accrued
incentive fees which are likely to be paid in subsequent
years. In determining the fair value of the liability at a
balance sheet date the Board may apply a discount to
reflect the time value of money and the probability and
phasing of payment. An annualised discount rate of 8% has
been applied to the deferred liability.
Any incentive fees payable within 12 months are classified
within Accrued expenses and other payables on the
Statement of Financial Position. Additional incentive fees
payable in subsequent years are classified as deferred
incentive fees on the Statement of Financial Position.
Accrued incentive fees are sensitive to key inputs one being
the application of a discount rate annualised at 8% which is
used as described above to reflect the time value of money
and the probability and phasing of payment. The actual
amount of the deferred incentive fee paid in future is also
dependent on the weighted average NAV not decreasing
below the NAV calculated at 30 June 2018. The deferred
incentive fee as at 30 June 2018 will be paid in full by 31
October 2020 assuming that the NAV calculated at 30 June
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FINANCIAL REPORTS & STATEMENTS | STATEMENT OF FINANCIAL POSITION
2018 remains unchanged. Any decline in NAV will reduce
the amount of the deferred liability paid in the future.
As a consequence, the Company does not consolidate its
subsidiaries and accounts for them at fair value through
profit or loss.
(b) Judgements about active and inactive markets
The Board considers that the Ho Chi Minh Stock Exchange,
the Hanoi Stock Exchange and UpCOM are active markets
for the purposes of IFRS 13. Consequently, the prices
quoted by those markets for individual shares as at the
balance sheet date can be used to estimate the fair value
of the Company’s underlying investments.
Notwithstanding the fact that these stock exchanges can
be regarded as active markets, the size of the Company’s
holdings in particular stocks in relation to daily market
turnover in those stocks would make it difficult to conduct
an orderly transaction in a large number of shares on
a single day. However, the Board considers that, if the
Company were to offer a block of shares for sale, the price
which could be achieved in an orderly transaction is as
likely to be at a premium to the quoted market price as
at a discount.
Consequently, when taken across the whole portfolio of
the Company’s underlying quoted investments, the Board
considers that using the quoted prices of the shares on the
various active markets is a reasonable determination of
the fair value of the securities.
For further details of the incentive fees earned and
accrued at the year end please refer to note 15 (b) on
page 118, and note 18 on page 119.
The Company and Investment Manager have agreed in
principle changes to the management fees which, when
finalised, will be back dated so as to be effective from
1 July 2018. For further details, refer to the Chairman’s
Statement on pages 13 and 14.
3.2 Critical judgements in applying the Company’s
accounting policies
(a) Eligibility to qualify as an investment entity
The Company has determined that it is an investment
entity under the definition of IFRS 10 as it meets the
following criteria:
a) The Company has obtained funds from investors for
the purpose of providing those investors with investment
management services;
b) The Company’s business purpose is to invest funds
solely for returns from capital appreciation, investment
income or both; and
c) The performance of investments made by the Company
are substantially measured and evaluated on a fair
value basis.
The Company has the typical characteristics of an
investment entity:
•
•
•
•
it holds more than one investment;
it has more than one investor;
it has investors that are not its related parties; and
it has ownership interests in the form of equity or
similar interests.
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Annual Report 2018
4. Segment analysis
There have been no changes from prior periods in the measurement methods used to determine reported segment
profit or loss.
Segment information can be analysed as follows:
Statement of Comprehensive Income
Year ended 30 June 2018
Dividend income
Net gains/(losses) on financial assets at fair value
through profit or loss
General and administration expenses (note 15)
Finance cost (note 18)
Incentive fee (note 18)
Other income
Profit before tax
Year ended 30 June 2017
Dividend income
Net gains/(losses) on financial assets at fair value
through profit or loss
General and administration expenses (note 15)
Incentive fee (note 18)
Other income
Profit before tax
Capital
markets*
USD’000
Real estate
and Operating
Assets
USD’000
Private equity
USD’000
Total
USD’000
69,794
110,558
(16,398)
(1,315)
(22,442)
-
10,002
15,290
-
(10,279)
(528)
(1,942)
-
-
-
-
-
-
79,796
115,569
(18,868)
(1,315)
(22,442)
-
140,197
24,764
(12,221)
152,740
31,168
162,100
(14,151)
(23,269)
279
156,127
-
-
43,739
(6,920)
(1,047)
(1,350)
-
-
-
-
31,168
198,919
(16,548)
(23,269)
279
42,692
(8,270)
190,549
* Capital markets include listed securities and bonds as well as unlisted securities that are valued at their prices on UPCoM or using quotations from brokers.
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Statement of Financial Position
Audited
As at 30 June 2018
Financial assets at fair value through
profit or loss
Receivables
Cash and cash equivalents
Total assets
Total liabilities
Accrued expenses and
other payables
Deferred incentive fees
Total liabilities
Net asset value
Audited
As at 30 June 2017
Financial assets at fair value through
profit or loss***
Receivables
Cash and cash equivalents
Total assets
Total liabilities
Accrued expenses and
other payables
Deferred incentive fees
Total liabilities
Net asset value
Capital
markets*
USD’000
Real estate and
Operating Assets
USD’000
Private equity
USD’000
Other net
assets**
USD’000
Total
USD’000
892,656
33,442
112,189
29,175
1,067,462
-
-
-
-
-
-
892,656
33,442
112,189
-
-
-
-
-
-
-
-
-
892,656
33,442
112,189
-
14,867
44,042
18,089
20,808
38,897
5,145
Capital
markets*
USD’000
Real estate and
Operating Assets
USD’000
Private equity
USD’000
Other net
assets**
USD’000
-
14,867
1,082,329
18,089
20,808
38,897
1,043,432
Total
USD’000
698,538
57,373
80,242
138,428
974,581
-
-
-
-
-
-
265
7,512
265
7,512
698,538
57,373
80,242
146,205
982,358
-
-
-
-
-
-
-
-
-
20,546
20,546
12,137
32,683
12,137
32,683
949,675
698,538
57,373
80,242
113,522
* Capital markets include listed as well as unlisted securities and bonds.
** Other net assets of USD29.1 million (30 June 2017: USD138.4 million) include cash and cash equivalents and other net assets of the subsidiaries
and associates at fair value.
*** USD10 million has been reclassified from other net assets to private equity in relation to the IDP loan.
108
Annual Report 2018 5. Interests in subsidiaries and associates
There is no legal restriction to the transfer of funds from the BVI or Singapore subsidiaries to the Company. Cash held
in directly-owned as well as indirectly-owned Vietnamese subsidiaries and associates is subject to restrictions imposed
by co-investors and the Vietnamese government and therefore it cannot be transferred out of Vietnam unless such
restrictions are satisfied. As at 30 June 2018, the restricted cash held in these Vietnamese subsidiaries and associates
amounted to USD0.8 million (30 June 2017: USD1.9 million).
5.1 Directly-owned subsidiaries
The Company had the following directly-owned subsidiaries as at 30 June 2018 and 30 June 2017:
Subsidiary
Country of
incorporation
Nature of the business
Vietnam Investment Property
Holdings Limited
British Virgin
Islands (“BVI”)
Holding company for listed,
unlisted securities
30 June 2018
% of
Company
interest
30 June 2017
% of
Company
interest
100.00
100.00
Vietnam Investment Property
Limited
Vietnam Ventures Limited
Vietnam Investment Limited
Asia Value Investment Limited
BVI
BVI
BVI
BVI
Vietnam Master Holding 2 Limited
BVI
VOF Investment Limited
VOF PE Holding 5 Limited
Visaka Holdings Limited*
Portal Global Limited
Windstar Resources Limited
Allright Assets Limited
Vietnam Enterprise Limited
BVI
BVI
BVI
BVI
BVI
BVI
BVI
Holding company for listed,
and unlisted securities
Holding company for listed,
unlisted securities and real
estate
Holding company for listed,
unlisted securities and real
estate
Holding company for listed,
and unlisted securities
Holding company for listed
securities
Holding company for listed,
unlisted securities, real estate,
hospitality and private equity
Holding company for listed
securities
Holding company for
investments
Holding company for unlisted
securities
Holding company for listed
securities
Holding company for
investments
Holding company for listed,
unlisted securities
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
-
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
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FINANCIAL REPORTS & STATEMENTS | STATEMENT OF FINANCIAL POSITION
Subsidiary
Country of
incorporation
Nature of the business
30 June 2018
% of
Company
interest
30 June 2017
% of
Company
interest
-
-
100.00
100.00
100.00
-
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
Holding company for investments
Holding company for investments
Holding company for listed securities
Holding company for private equity
Holding company for private equity
Holding company for investments
Holding company for unlisted
securities
Holding company for investments
Holding company for private equity
Holding company for investments
Holding company for investments
Holding company for investments,
listed securities and real estate
Holding company for listed securities
100.00
Holding company for listed securities
Holding company for investments
-
100.00
Holding company for listed securities
100.00
100.00
100.00
-
-
VOF PE Holding 3 Limited*
Vinaland Heritage Limited*
Sharda Holdings Limited
Hospira Holdings Limited
Navia Holdings Limited
Halico Investment Holding Limited*
Foremost Worldwide Limited
Rewas Holdings Limited
Allwealth Worldwide Limited
Longwoods Worldwide Limited
VinaSugar Holdings Limited
Belfort Worldwide Limited
Preston Pacific Limited
Liva Holdings Ltd**
Vietnam Master Holding 1 Limited
Victory Holding Investment
Limited***
Fraser Investment Holdings
Pte. Limited
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
Singapore
Holding company for listed securities
100.00
100.00
Hawke Investments Pte Limited**
Singapore
Holding company for investments
SE Asia Master Holding 7 Pte Limited
Singapore
Holding company for investments
Turnbull Holding Pte. Ltd.
Singapore
Holding company for investments
Vietnam Opportunity Fund II Pte. Ltd.
Singapore
Holding company for investments
VTC Espero Limited
Singapore
Holding company for investments
-
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
* Visaka Holdings Limited, VOF PE Holding 3 Limited, Vinaland Heritage Limited and Halico Investment Holding Limited were sold during the year
ended 30 June 2018.
** Liva Holdings Ltd and Hawke Investments Pte Limited became subsidiaries of Belfort Worldwide Limited during the year ended 30 June 2018.
*** Victory Holding Investment Limited was an indirect subsidiary of Rewas Holdings Limited in the prior year and changed ownership to become a
direct subsidiary of VOF in the current financial year.
110
Annual Report 2018 5.2 Indirect interests in subsidiaries
The Company had the following indirect interests in subsidiaries at 30 June 2018 and 30 June 2017:
Indirect subsidiary
Country of
incorporation
Nature of the
business
Immediate
Parent
PA Investment
Opportunity II Limited
Victory Holding
Investment Limited*
Vietnam Hospitality
Ltd***
Liva Holdings Ltd**
BVI
BVI
BVI
BVI
Holding company for
investments
Vietnam Enterprise
Limited
Holding company for
listed securities
Holding company for
investments
Rewas Holdings Limited
VOF Investment Limited
Holding company for
investments
Belfort Worldwide
Limited
30 June 2018
% of
Company’s
indirect
interest
30 June 2017
% of
Company’s
indirect
interest
100.00
100.00
-
-
100.00
100.00
100.00
-
Abbott Holding Pte.
Limited
Singapore
Holding company for
private equity
Hospira Holdings Limited
100.00
100.00
Hawke Investments Pte
Limited**
Singapore
Holding company for
investments
Belfort Worldwide
Limited
Indochina Ceramic
Singapore Pte. Ltd**
Indochina Building
Supplies Pte. Ltd***
IDS Building Materials
Pte. Ltd***
Menzies Holding Pte.
Ltd
Thai Hoa International
Hospital JSC
Howard Holdings Pte.
Limited
International Dairy
Products JSC
Whitlam Holding Pte.
Limited
American Home
Vietnam Co. Ltd**
BIVI Investments
Corporation
Singapore
Singapore
Singapore
Singapore
Vietnam
Singapore
Vietnam
Singapore
Vietnam
Vietnam
Holding company for
private equity
Belfort Worldwide
Limited
Holding company for
private equity
Holding company for
private equity
VOF Investment Limited
VOF Investment Limited
Holding company for
investments
Belfort Worldwide
Limited
Medical and
healthcare services
Abbott Holding Pte.
Limited
Holding company for
private equity
Allwealth Worldwide
Limited
Milk, yoghurt and
dairy products
Howard Holdings Pte.
Limited
Holding company for
private equity
Navia Holdings Limited
Construction
materials
Indochina Ceramic
Singapore Pte. Ltd
100.00
100.00
-
-
-
-
100.00
100.00
100.00
100.00
81.07
80.56
55.97
61.26
75.00
80.56
49.38
61.26
100.00
100.00
Holding company for
investments
VOF Investment Limited
100.00
100.00
* Victory Holding Investment Limited was an indirect subsidiary of Rewas Holdings Limited in the prior year and changed ownership to become a
direct subsidiary of VOF in the current financial year.
** Entities became subsidiaries of Belfort Worldwide Limited during the year.
*** Entities were sold during the year.
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5.3 Direct interests in associates
The Company had the following directly-owned associates as at 30 June 2018 and 30 June 2017:
Associate
Country of
incorporation
Nature of the business
Allwealth Asia Ltd
Sunbird Group Ltd
Vietnam Property Holdings Limited
Avante Global Limited
Pacific Alliance Land Limited
VinaCapital Commercial Center
Private Limited*
BVI
BVI
BVI
BVI
BVI
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Singapore
Holding company for real estate
Mega Assets Pte. Limited
Singapore
Holding company for real estate
SIH Real Estate Pte. Limited
Singapore
Holding company for real estate
VinaLand Eastern Limited
Singapore
Holding company for real estate
30 June
2018
% of
Company
interest
30 June 2017
% of
Company
interest
35.00
25.00
25.00
25.00
25.00
12.75
25.00
25.00
25.00
35.00
25.00
25.00
25.00
25.00
12.75
25.00
25.00
25.00
* The Company had an indirect interest of less than 20% with its associate VinaLand at year-end. The Company considered its co-investments with
VinaLand to be indirect associates because, as part of the co-investment strategy, the Company could exert significant influence on these entities.
112
Annual Report 2018 5.4 Indirect interests in associates
The Company had the following indirect interests in associates at 30 June 2018 and 30 June 2017:
Indirect associate
Country of
incorporation
Nature of the
business
VinaCapital Commercial
Center Private Limited (*)
BVI
Real estate
investment
SIH Investment Limited (**)
Singapore
Avila Co. Ltd. (*) (**)
Vietnam
Holding company
for investment
Real estate
investment
Ba Huan Joint Stock
Company
Vietnam
Private equity
investment
Housing And Urban
Development Corporation
Vietnam
Hung Vuong Corporation
Vietnam
Mega Assets Company
Limited (**)
Vietnam
Phong Phu Investment and
Development (**)
Vietnam
Phu Hoi City Company (*)
(**)
Thang Loi Textile Garment
Joint Stock Company
Vietnam
Vietnam
VinaAlliance Company
Limited (*) (**)
Vietnam
VinaCapital Commercial
Center Private Limited (*)
Vietnam
Vinh Thai Urban
Development Corporation
(*) (**)
Vietnam
Real estate
investment
Real estate
investment
Real estate
investment
Real estate
investment
Real estate
investment
Real estate
investment
Real estate
investment
Real estate
investment
Real estate
investment
Company’s subsidiary
or associate holding
direct interest in the
associate
VinaCapital
Commerical Center
Private Limited
Sunbird Group Limited
Vietnam Investment
Property
Holdings Limited
Hawke Investments
Pte Limited
VOF Investment
Limited
VOF Investment
Limited
Mega Assets Pte.
Limited
Vietnam Ventures
Limited
VinaLand Eastern
Limited
Vietnam Enterprise
Limited, VOF
Investment Limited
and BIVI Investments
Corporation
Pacific Alliance Land
Limited
VinaCapital Commerical
Center Private Limited
30 June 2018
% of
Company’s
indirect
interest
30 June 2017
% of
Company’s
indirect
interest
12.75
12.75
-
-
25.00
16.18
33.77
-
25.75
25.75
33.24
33.24
-
-
-
34.17
25.00
30.00
17.50
34.00
-
15.50
12.75
12.75
VTC Espero Limited
-
17.75
These associates may have commitments under investment agreements to acquire and develop, or make additional investments in investment
properties and leasehold land in Vietnam.
* The Company had an indirect interest of less than 20% with its associate VinaLand at year-end. The Company considered its co-investments with
VinaLand to be indirect associates because, as part of the co-investment strategy, the Company could exert significant influence on these entities.
** These entities were sold or liquidated during the year.
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5.5 Financial risks
The Company owns a number of subsidiaries and
associates for the purpose of holding investments in
listed and unlisted securities, debt instruments, private
equity and real estate. The Company, via these underlying
investments, is subject to financial risks which are further
disclosed in note 20. The Investment Manager makes
investment decisions after performing extensive due
diligence on the underlying investments, their strategies,
financial structure and the overall quality of management.
6. Cash and cash equivalents
30 June 2018
USD’000
30 June 2017
USD’000
Cash at banks
14,867
7,512
As at the Statement of Financial Position date, cash and
cash equivalents were denominated in USD.
The Company’s overall cash position including cash held
in directly held subsidiaries as at 30 June 2018 was
USD34.2 million (30 June 2017: USD37.1 million). Please
refer to note 8 for details of the cash held by the
Company’s subsidiaries.
7. Financial instruments by category
Loans and
receivables
USD’000
Financial assets
at fair value
through profit
or loss
USD’000
Total
USD’000
7. Financial instruments by category (continue)
Total
USD’000
Loans and
receivables
USD’000
Financial
assets at
fair value
through
profit or loss
USD’000
-
974,581
974,581
265
7,512
7,777
7,777
-
-
265
7,512
974,581
982,358
974,581
982,358
As at
30 June 2017
Financial assets
at fair value
through profit
or loss
Receivables
Cash and cash
equivalents
Total
Financial assets
denominated in:
- USD
As at 30 June 2018 and 2017, the carrying amounts of all
financial liabilities approximate their fair values.
8. Financial assets at fair value through profit or loss
Financial assets at fair value through profit and loss
comprise the Company’s investments in subsidiaries and
associates. The underlying assets and liabilities of the
subsidiaries and associates at fair value are included with
those of the Company in the following table.
1,067,462
1,067,462
Cash and cash equivalents
Ordinary shares – listed
Ordinary shares – unlisted*
Government bonds
-
Private equity**
-
-
14,867
Real estate projects and
operating assets
Short-term bank deposit
Other assets, net of liabilities**
1,067,462
1,082,329
1,067,462
1,082,329
30 June 2018
USD’000
30 June 2017
USD’000
19,317
690,659
201,997
-
112,188
29,577
554,459
103,744
40,335
80,242
33,442
57,373
-
9,859
1,067,462
50,000
58,851
974,581
-
-
14,867
14,867
14,867
As at
30 June 2018
Financial assets
at fair value
through profit
or loss
Receivables
Cash and cash
equivalents
Total
Financial assets
denominated in:
- USD
114
Annual Report 2018
* Unlisted Securities include OTC (over-the-counter) traded securities,
and unlisted securities publicly traded on UPCoM (Unlisted Public
on the sale of any investments based on the likelihood of
an event arising and the amount that may become payable.
Companies Market) of the Hanoi Stock Exchange.
** USD10 million has been reclassified from other assets to private
equity in relation to the IDP loan.
The major underlying investments held by the direct
subsidiaries and indirect subsidiaries and associates of the
Company were in the following industry sectors.
30 June 2018
USD’000
30 June 2017
USD’000
257,924
200,428
117,244
19,841
73,371
20,902
275,016
135,115
39,934
23,512
32,482
9,756
172,674
174,051
Consumer goods
Construction
Financial services
Agriculture
Energy, minerals and petroleum
Pharmaceuticals
Real estate
Retailers
Infrastructure
Industrials
Government bonds
There have been no changes in the classification of
financial assets at fair value through profit or loss shown
as Level 3 during the year ended 30 June 2018.
Changes in Level 3 financial assets at fair value through
profit or loss
The fair value of the Company’s investments in subsidiaries
and associates are estimated using approaches as
described in note 3.1. As observable prices are not
available for these investments, the Company classifies
them as Level 3 fair values.
The following table presents the changes in level 3 items
for the years ended 30 June 2018 and 30 June 2017 for
recurring fair value measurements:
30 June 2018
USD’000
30 June 2017
USD’000
17,674
96,472
61,756
-
-
Opening balance
974,581
789,739
60,127
Purchases
277,930
223,412
45,825
40,335
Return of capital*
(300,618)
(217,963)
Sales
-
(19,526)
As at 30 June 2018, an underlying holding, Hoa Phat,
within financial assets at fair value through profit or loss
amounted to 14.6% of the net asset value of the Company
(30 June 2017: 13.2%). As at 30 June 2018, Vietnam Dairy
Products, another underlying holding within financial
assets at fair value through profit or loss amounted to
8.5% of the net asset value of the Company (30 June 2017:
13.6%). There were no other holdings that had a value
exceeding 10% of the net asset value of the Company as at
30 June 2018 or 30 June 2017.
During the year, capital has been returned to the Company
as underlying investments in the subsidiaries/associates
have been realised.
Net gains for the year, net
(note 14)
115,569
198,919
1,067,462
974,581
Year ended
30 June 2018
USD’000
30 June 2017
USD’000
Total unrealised gains for
the year included in:
Profit
115,569
196,578
Total unrealised profit for
the year
115,569
196,578
When determining the fair values of financial assets at
fair value through profit or loss the Company takes into
account the potential for warranty or other claims arising
*The above balance of USD300.1 million includes a non-cash amount of
USD7.2 million. This relates to a refundable cash deposit received in the
prior year on the disposal of property through an associate in which the
Company has 25% interest.
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FINANCIAL REPORTS & STATEMENTS | STATEMENT OF FINANCIAL POSITION
9. Dividends
On 17 August 2017, the Company announced a change in its dividend policy and declared its first dividend.
The Board now intends that the Company will pay a dividend representing approximately 1% of NAV twice each year,
normally declared in March and October.
The dividends paid in the reporting period were as follows:
Dividend rate
per share
(cents)
Net dividend
payable
(USD’000)
Record date
Ex-dividend date
Pay date
First interim dividend
Second interim dividend
Third interim dividend
4.8
4.8
5.5
9,573
25 August 2017
24 August 2017
27 September 2017
9,527
3 November 2017
2 November 2017
1 December 2017
10,815
6 April 2018
5 April 2018
27 April 2018
29,915
A dividend of 5.5 US cents per share in respect of the year ended 30 June 2018 was declared on 23 October 2018. The
dividend is payable on 30 November 2018 to shareholders on record at 2 November 2018.
Under the Companies (Guernsey) Law, 2008, the Company can distribute dividends from capital and revenue reserves,
subject to the net asset and solvency test. The net asset and solvency test considers whether a company is able to pay its
debts when they fall due, and whether the value of a company’s assets is greater than its liabilities. The Board confirms
that the Company passed the net asset and solvency test for each dividend paid.
10. Receivables
Receivables from the Investment Manager on management fees rebate
Loan
30 June 2018
USD’000
30 June 2017
USD’000
-
-
-
259
6
265
The Company exited Indochina Food Industries Pte. Ltd (“ICF”) through the sale of 100% of VinaSugar Holding Limited in
2012 at USD28.45 million. As at 30 June 2018 and 30 June 2017, the Buyer has paid USD19.75 million with USD8.7 million
remaining outstanding. In June 2014, the Company approved a loan of USD2.9 million to ICF to provide immediate relief
for the business. Together with the existing receivable of USD8.7 million, the total USD11.6 million was receivable and has
been fully impaired. See note 20(a) for further details.
116
Annual Report 2018 11. Share capital
The Company may issue an unlimited number of shares, including shares of no par value or shares with a par value. Shares
may be issued as (a) shares in such currencies as the Directors may determine; and/or (b) such other classes of shares in such
currencies as the Directors may determine in accordance with the Articles and the Companies Law and the price per Share at
which shares of each class shall first be offered to subscribers shall be fixed by the Board. The minimum price which may be paid
for a share is USD0.01. The Directors will act in the best interest of the Company and the Shareholders when authorising the
issue of any shares.
Issued capital
30 June 2018
30 June 2017
Number of shares
USD’000
Number of shares
USD’000
Issued and fully paid at 1 July
211,346,258
491,301
211,346,258
491,301
Cancellation of treasury shares
-
-
-
-
Issued and fully paid at year end
211,346,258
491,301
211,346,258
491,301
Shares held in treasury
(17,288,000)
(63,950)
(10,725,000)
(34,882)
Outstanding shares at year end
194,058,258
427,351
200,621,258
456,419
Treasury shares
Opening balance at 1 July
Shares repurchased during the year
Closing balance at year end
30 June 2018
30 June 2017
Number of shares
USD’000
Number ofshares
USD’000
10,725,000
6,563,000
17,288,000
34,882
29,068
63,950
2,700,000
8,025,000
10,725,000
7,472
27,410
34,882
In October 2011, the Board first sought and obtained shareholder approval to implement a share buyback programme.
The share buyback programme was approved again at subsequent general meetings of the Company.
During the year ended 30 June 2018, 6.6 million shares were repurchased at a cost of USD29.1 million of which USD0.8
million was payable at year end (see note 12).
12. Accrued expenses and other payables
Management fees payable to the Investment Manager (note 18)
Incentive fees payable to the Investment Manager (note 18)
Payables to other related parties (note 18)
Shares repurchased payable (note 11)
Other payables
30 June 2018
USD’000
30 June 2017
USD’000
1,321
15,086
-
858
824
1,461
11,187
7,160
-
738
18,089
20,546
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All accrued expenses and other payables are short-term
in nature. Therefore, their carrying values are considered
a reasonable approximation of their fair values. Further
details on the payables to other related parties are
disclosed in note 18.
13. Dividend income
Dividend income
Year ended
30 June 2018
USD’000
30 June 2017
USD’000
79,796
79,796
31,168
31,168
The above table sets out dividends received by the
Company from its subsidiaries. These represent
distributions of income received as well as the proceeds of
disposals of assets by subsidiaries, and do not reflect the
dividends earned by the underlying investee companies.
During the year, the subsidiaries received a total amount
of USD18.2 million in dividends from their investee
companies (30 June 2017: USD15.9 million).
14. Net gains on financial assets at fair value through
profit or loss
15(B). Incentive fee
For the year ended 30 June 2018, an incentive fee of
USD25.3 million was earned by the Investment Manager
on the performance of the Capital Markets Pool. The
deferred liability carried forward from 30 June 2017 was
USD13.4 million resulting in a total incentive fee accrued of
USD38.7 million as at 30 June 2018. The amount which will
be paid out immediately was reduced to USD15.0 million
by the operation of the 1.5% cap as at 30 June 2018.
The Audit Committee has concluded that it is probable
that the remaining balance of USD23.7 million will be
paid out in subsequent accounting years. Payment of this
balance will not be before 31 October 2019. In determining
the fair value of this liability the Board has discounted
USD23.7 million to USD20.8 million to reflect the time
value of money and the probability of payment.
Further explanation is included in note 3.1(b).
The Company and Investment Manager have agreed in
principle changes to the management fees which, when
finalised, will be back dated so as to be effective from
1 July 2018. For further details, refer to the Chairman’s
Statement on pages 13 and 14.
Year ended
30 June 2018
USD’000
30 June 2017
USD’000
16. Income tax expense
The Company has been granted Guernsey tax exempt
status in accordance with The Income Tax (Exempt Bodies)
(Guernsey) Ordinance 1989 (as amended).
The majority of the subsidiaries are domiciled in the BVI
and so have a tax exempt status whilst the remaining
subsidiaries are established in Vietnam and Singapore and
are subject to corporate income tax in those countries.
The income tax payable by these subsidiaries is taken into
account in determining their fair values in the Statement
of Financial Position.
Financial assets at fair value
through profit or loss:
- Gains from the realisation
of financial assets, net
- Unrealised gains, net
Total
-
2,341
115,569
115,569
196,578
198,919
15(A). General and administration expenses
Year ended
30 June 2018
USD’000
30 June 2017
USD’000
16,339
345
1,048
1,136
18,868
13,388
384
1,770
1,006
16,548
Management fees (note 18(a))
Directors’ fees
Custodian, secretarial and
other professional fees
Others
118
Annual Report 2018
17. Earnings per share and net asset value per share
18. Related parties
(a) Basic
Basic earnings per share is calculated by dividing the
profit from operations of the Company by the weighted
average number of ordinary shares in issue during the year
excluding ordinary shares purchased by the Company and
held as treasury shares (note 11).
Year ended
30 June 2018
30 June
2017
Profit for the year (USD’000)
152,740
190,549
Weighted average number of
ordinary shares in issue
Basic earnings per share (USD
per share)
197,831,370
205,174,967
0.77
0.93
(b) Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding
to assume conversion of all dilutive potential ordinary
shares. The Company has no category of potentially
dilutive ordinary shares. Therefore, diluted earnings per
share is equal to basic earnings per share.
(c) NAV per share
NAV per share is calculated by dividing the net asset value
of the Company by the number of outstanding ordinary
shares in issue as at the reporting date excluding ordinary
shares purchased by the Company and held as treasury
shares (note 11). NAV is determined as total assets less
total liabilities.
30 June 2018 30 June 2017
Net asset value (USD'000)
1,043,432
949,675
Number of outstanding
ordinary shares in issue
Net asset value per share (USD
per share)
194,058,258 200,621,258
5.38
4.73
Investment Manager’s Fees
(a) Management fees
The Investment Manager receives a fee at an annual rate
of 1.5% of the NAV, payable monthly in arrears.
Total management fees for the year amounted to USD16.3
million (30 June 2017: USD13.4 million), with USD1.3
million (30 June 2017: USD1.5 million) in outstanding
accrued fees due to the Investment Manager at the
reporting date.
(b) Incentive fees
As described in note 15(b), as at 30 June 2018, a total
incentive fee of USD38.7 million (30 June 2017: USD24.6
million) was accrued on the current year and prior year
performance of the Capital Markets Pool. The amount
which will be paid out immediately was restricted to
USD15.0 million by the operation of the cap as at 30
June 2018 and this amount is accounted for in Accrued
expenses and other payables in the Statement of Financial
Position (30 June 2017: USD11.2 million).
The remaining balance of USD23.7 million which
represents the excess over the cap and may be payable
in subsequent years was accrued for as at year-end as
Deferred incentive fees in the Statement of Financial
Position. This amount has been discounted at an
annualised rate of 8% to reflect the time value of money
and the probability of payment and has been recorded
with a fair value of USD20.8 million in the Statement of
Financial Position (30 June 2017: USD12.1 million).
(c) Modifications to the fee structure
The Company and Investment Manager have agreed in
principle changes to the management fees which, when
finalised, will be back dated so as to be effective from
1 July 2018. For further details, refer to the Chairman’s
Statement on page 8.
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Directors’ Remuneration
The Directors who served during the past two years
received the following emoluments in the form of fees:
As at 30 June 2018, Stephen Westwood, the Consultant
of the Company owned 6,000 shares (30 June 2017: nil
shares) in the Company.
Year ended
Annual fee
USD
30 June 2018
USD
30 June 2017
USD
As at 30 June 2018, the Investment Manager owned 235,342
shares (30 June 2017: 235,342 shares) in the Company.
95,000
95,000
95,000
(e) Other balances with related parties
Steven
Bates
Martin
Adams
Thuy Bich
Dam
Julian Healy
(appointed
23 July
2018)
80,000
80,000
80,000
80,000
80,000
80,000
80,000
-
-
Huw Evans*
90,000
90,000
-
-
Michael
Gray
(retired 21
December
2016)
85,452
43,151
345,000
383,603
* Appointed Audit Committee Chair following the retirement of Mr. Gray.
No Directors’ fees were outstanding at the year-end (30
June 2017: Nil).
Receivables from the
Investment Manager on
management fees rebate
Payables to the Investment
Manager on expenses paid
on behalf of the Company*
Deposit from disposal of
property**
Certain underlying investments
jointly managed by the
Investment Manager
- Vietnam Infrastructure Limited
- VinaLand Limited
30 June
2018
USD’000
30 June
2017
USD’000
-
259
414
248
-
7,160
-
-
-
277
4,115
4,392
(d) Shares held by related parties
* Expenses reimbursed to the Investment Manager relating to marketing
expenses, logistic and travelling expenses for board meetings.
Shares held
as at 30 June
2018
Shares held
as at 30 June
2017
** Refundable cash deposit received from VinaLand Limited relating to
disposal of property through an associate in which the Company has
25,000
25,000
25% interest.
-
-
-
-
35,000
17,500
-
-
(f) Controlling party
In the opinion of the Directors on the basis of
shareholdings advised to them, the Company has no
immediate nor ultimate controlling party.
Steven Bates
Martin Adams
Thuy Bich Dam
Huw Evans
Julian Healy (appointed 23
July 2018)
120
Annual Report 2018
19. Commitments
In the past, the Company’s indirect real estate associates
had a broad range of commitments under investment
licenses which they had received for real estate projects
jointly invested with VinaLand and other agreements
which they had entered into, to acquire and develop or
make additional investments in investment properties and
leasehold land in Vietnam. These projects were disposed
of during the year ended 30 June 2018 and accordingly
there are no commitments in place. The total commitment
amount as at 30 June 2017 was USD36.3 million of which
the Company’s share was USD10.8 million.
20. Financial risk management
(a) Financial risk factors
The Company has set up a number of subsidiaries and
associates for the purpose of holding investments in listed
and unlisted securities, debt instruments, private equity
and real estate in Vietnam and overseas with the objective
of achieving medium to long-term capital appreciation and
providing investment income. The Company accounts for
these subsidiaries as financial assets at fair value through
profit or loss.
The Company’s overall risk management programme
focuses on the unpredictability of financial markets and
seeks to minimise potentially adverse effects on the
Company’s financial performance. The Company’s risk
management is coordinated by the Investment Manager
which manages the distribution of the assets to achieve
the investment objectives.
There have been no significant changes in the
management of risk or in any risk management policies
during the financial year to 30 June 2018.
The Company is subject to a variety of financial risks:
market risk, credit risk and liquidity risk.
(i) Market risk
Market risk comprises price risk, foreign exchange risk and
interest rate risk. Market risk is the risk that the fair value
or future cash flows of a financial instrument will fluctuate
because of changes in market prices, interest rates
and / or foreign exchange rates.
Price risk
Price risk is the risk that the value of an instrument will
fluctuate as a result of changes in market prices, whether
caused by factors specific to an individual investment, its issuer,
or factors affecting all instruments traded in the market.
The investments are subject to market fluctuations
and the risk inherent in the purchase, holding or selling
of investments and there can be no assurance that
appreciation or maintenance in the value of those
investments will occur.
The Company’s subsidiaries and associates invest in listed
and unlisted equity securities and are exposed to market
price risk of these securities.
The majority of the underlying equity investments are
publicly traded on either of Vietnam’s stock exchanges, the
Ho Chi Minh Stock Exchange or the Hanoi Stock Exchange.
All securities investments present a risk of loss of capital. This
risk is managed through the careful selection of securities
and other financial instruments within specified limits and
by holding a diversified portfolio of listed and unlisted
instruments. In addition, the performance of investments held
by the Company’s subsidiaries is monitored by the Investment
Manager on a regular basis and reviewed by the Board of
Directors on a quarterly basis.
Market price sensitivity analysis
If the prices of the listed securities had increased/
decreased by 10%, the Company’s financial assets held at
fair value through profit or loss would have been higher/
lower by USD69.1 million (30 June 2017: USD56.5 million).
The Company’s associates invest in a number of real
estate projects. The fair values of the underlying
properties have a direct impact on the fair values
of these investments in associates. The Investment
Manager closely monitors indicators that may affect
property valuations. The Board of Directors reviews
these valuations every half year.
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FINANCIAL REPORTS & STATEMENTS | STATEMENT OF FINANCIAL POSITION
See note 20(c) for a sensitivity analysis of the fair values
of real estate properties and private equity.
Depending on the development stage of a project
and its associated risks, the Independent Valuer uses
discount rates in the range from 15% to 16% and
terminal growth rates of 3% to 5% (30 June 2017: 15% to
17% and 3% to 5%, respectively).
Foreign exchange risk
The Company makes investments in USD and receives income
and proceeds from sales in USD. As such, at the Company
level, there is minimal foreign exchange risk. Nevertheless,
investments are made in entities which are often exposed
to the VND, and these entities are therefore sensitive to the
exchange rate of the VND against USD. On a ‘look-through’
basis, therefore, the Company is exposed to movements in
the exchange rate of the VND against the USD.
Interest rate risk
The Company’s exposure to interest rate risk is limited as
its cash balance at year-end is minimal. In addition, the
Company does not have interest-bearing loans, receivables
or payables.
(ii) Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or
commitment it has entered into with the Company.
The Company’s maximum credit exposure without taking
into account any collateral held, is limited to the carrying
amount of cash and receivables at year end.
a) Financial assets that are neither past due nor impaired
With the exception of the receivables disclosed in note
20 (ii)(b), the cash and receivables of the Company and
its subsidiaries and associates as at 30 June 2018 and
2017 are neither past due nor impaired. Cash and the
majority of receivables that are neither past due nor
impaired are held with banks with high quality external
credit ratings. Credit risk for cash and receivables is
considered to be limited.
b) Financial assets that are past due and impaired
At 30 June 2018 and 2017, USD11.6 million of receivables
of VOF relating to the sale of a direct investment were fully
impaired. In determining the impairment the Directors
have made judgements as to whether there is observable
data available indicating that there has been a significant
change to the debtor’s ability to pay. The Investment
Manager is also investigating the collateral against which
the receivables may be secured and whether mechanisms
exist to recover value from the collateral. Refer to Note 10.
for further details of the receivable impaired.
c) Financial assets that are past due but not impaired
At 30 June 2018 and 2017, the Company did not hold any
other assets that were past due but not impaired.
(iii) Liquidity risk
Liquidity risk is the risk that the Company may not be
able to generate sufficient cash resources to settle its
obligations in full as they fall due or can only do so on
terms that are materially disadvantageous.
Listed securities held by the Company’s subsidiaries are
considered readily realisable, as the majority are listed on
Vietnam’s stock exchanges.
At the year end, the Company’s non-derivative financial
liabilities have contractual maturities which are
summarised in the table below. The amounts in the table
are the contractual undiscounted cash flows.
122
Annual Report 2018 Payables to related parties (note 12)
Deferred incentive fee
Shares repurchased payable (note 12)
Other payables (note 12)
30 June 2018
30 June 2017
Within 12
months
USD’000
16,407
Over 12
months
USD’000
Within 12
months
USD’000
-
19,808
-
858
824
20,808
-
-
-
-
738
Over 12
months
USD’000
-
12,137
-
-
18,089
20,808
20,546
12,137
The Company manages its liquidity risk by investing predominantly in securities through its subsidiaries that it expects to be able
to liquidate within 12 months or less. The following table analyses the expected liquidity of the assets held by the Company:
Cash and cash equivalents
Receivables
Financial assets at fair value
through profit or loss
30 June 2018
30 June 2017
Within 1 months
USD’000
Over 12 months
USD’000
Within 12 months
USD’000
Over 12 months
USD’000
14,867
-
983,122
-
-
84,340
7,512
265
846,454
-
-
128,127
997,989
84,340
854,231
128,127
(b) Capital management
The Company’s capital management objectives are:
•
•
•
To ensure the Company’s ability to continue as a
going concern;
To provide investors with an attractive level of
investment income; and
To preserve a potential capital growth level.
The Company is not subject to any externally imposed capital
requirements. The Company has engaged the Investment
Manager to allocate the net assets in such a way so as to
generate a reasonable investment return for its Shareholders
and to ensure that there is sufficient funding available for the
Company to continue as a going concern.
Capital as at the year-end is summarised as follows:
30 June 2018
USD’000
30 June 2017
USD’000
1,043,432
949,675
Net assets attributable to
equity shareholders
(c) Fair value estimation
The table below analyses financial instruments carried at
fair value, by valuation method. The different levels have
been defined as follows:
•
•
•
Level 1: Quoted prices (unadjusted) in active markets
for identical assets or liabilities;
Level 2: Inputs other than quoted prices included
within Level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly
(that is, derived from prices); and
Level 3: Inputs for the asset or liability that are
not based on observable market data (that is,
unobservable inputs).
There are no financial liabilities of the Company which
were carried at fair value through profit or loss as at 30
June 2018 and 30 June 2017.
The level into which financial assets are classified is
determined based on the lowest level of significant input
to the fair value measurement.
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Financial assets measured at fair value in the Statement of Financial Position are grouped into the following fair value hierarchy:
As at 30 June 2018
Financial assets at fair value through profit or loss
1,067,462
1,067,462
As at 30 June 2017
Financial assets at fair value through profit or loss
974,581
974,581
Level 3
USD’000
Total
USD’000
The Company classifies its investments in subsidiaries and associates as Level 3 because they are not publicly traded,
even when the underlying assets may be readily realisable. There were no transfers between the Levels during the year
ended 30 June 2018 and 30 June 2017.
If these investments were held at the Company level, they would be presented as follows:
As at 30 June 2018
Cash and cash equivalents
Ordinary shares – listed
– unlisted*
Private equity
Real estate projects and operating assets
Other assets, net of liabilities
As at 30 June 2017
Cash and cash equivalents
Ordinary shares – listed
– unlisted*
Government bonds
Private equity**
Real estate projects and operating assets
Short-term bank deposit
Other assets, net of liabilities**
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
19,317
690,659
153,110
-
-
-
-
-
48,887
-
-
-
-
-
-
19,317
690,659
201,997
112,188
112,188
33,442
9,859
33,442
9,859
863,086
48,887
155,489
1,067,462
29,577
554,459
103,555
40,335
-
-
50,000
-
-
-
189
-
-
-
-
-
-
-
-
-
80,242
57,373
-
58,851
29,577
554,459
103,744
40,335
80,242
57,373
50,000
58,851
777,926
189
196,466
974,581
* Unlisted securities are valued at their prices on UPCoM or using quotations from brokers.
** USD10 million has been reclassified from other assets to private equity in relation to the IDP loan.
124
Annual Report 2018
Investments whose values are based on quoted market
prices in active markets, and are therefore classified
within Level 1, include actively traded equities on Ho Chi
Minh City Stock Exchange, Hanoi Stock Exchange
or UPCoM at the Statement of Financial Position date.
The Company does not adjust the quoted price for
these instruments.
Bonds are valued based on the price and yield of the
latest transaction of that bond found on a recognised
formal stock exchange, Bloomberg or Reuters. If the
price of a VND denominated bond found on a recognised
formal stock exchange, Bloomberg or Reuters is greater
than +/-1% of the previous day’s closing price, the
valuation is based on the average price and average
yield obtained from three reputable bond brokerage
companies. The reason for this is that the recorded
transaction may be a bond repo transaction, which may
not reflect the fair market value of such bonds.
Financial instruments which trade in markets that are not
considered to be active but are valued based on quoted
market prices and dealer quotations are classified within
Level 2. These include investments in OTC equities. As
Level 2 investments include positions that are not traded
in active markets, valuations may be adjusted to reflect
illiquidity and/or non-transferability, which are generally
based on available market information.
Private equities, real estate and operating assets, and
other assets that do not have an active market are
classified within Level 3. The Company uses valuation
techniques to estimate the fair value of these assets
based on significant unobservable inputs as described in
note 3.2.
Set out below is the sensitivity analysis on the significant
unobservable inputs used in the valuation of Level 3
investments as at 30 June 2018.
Level 3 – Range of unobservable inputs
(probability-weighted average)
Segment
Valuation
technique
Valuation
(USD’000)
Discount
rate
Cap
rate
Terminal
growth
rate
Selling
price per
unit
(USD)
Sensitivities in
selling price per unit
(USD’000)
Sensitivities in discount rates and cap rates/
terminal growth rate (USD’000)
Operating
real estate
projects
Discounted
cash flows
13,328*
15%
14.5%
N/A
N/A
N/A
Private
Discounted
equity
cash flows
68,290*
15% - 16%
N/A
3% - 5%
N/A
N/A
Change in discount rate
Change in
cap rate
Change in
terminal
growth rate
-1%
0%
1%
-1% 14,014
13,477
12,982
0% 13,851
13,328
12,845
1% 13,703
13,192
12,720
Change in discount rate
-1%
0%
1%
-1% 70,786
65,444
60,898
0% 74,332
68,290
63,214
1% 84,527
73,484
64,342
* The difference between the balance of USD33.4 million reflected as Level 3 real estate projects and operating assets on page 124 to the above
balance of USD13.3 million, and the difference between the balance of USD112.2 million reflected as Level 3 private equity on page 124 to the above
balance of private equity of USD68.3 million, is due to the fact that different valuation methodologies are used in the Level 3 valuations which reflect
observable inputs such as an SPA or desktop valuation.
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FINANCIAL REPORTS & STATEMENTS | STATEMENT OF FINANCIAL POSITION
Set out below is the sensitivity analysis on the significant unobservable inputs used in the valuation of
Level 3 investments as at 30 June 2017.
Level 3 – Range of unobservable inputs
(probability-weighted average)
Segment
Valuation
technique
Valuation
(USD’000)
Discount
rate
Cap
rate
Terminal
growth
rate
Selling
price per
unit
(USD)
Sensitivities in selling
price per unit (USD’000)
Sensitivities in discount rates and cap rates/
terminal growth rate (USD’000)
Real estate
projects
Direct
comparison
19,720*
N/A
N/A
N/A 240 - 860
Change in sales price per
square metre
-10%
0%
10%
16,590
19,720
22,850
N/A
Operating
real estate
projects
Discounted
cash flows
11,818*
15%
14.5%
N/A
N/A
N/A
Private
equity
Discounted
cash flows
71,803*
15% - 17%
N/A
3% - 5%
N/A
N/A
Change in
cap rate
Change in discount rate
-1%
0%
1%
-1% 12,491
11,963
11,476
0% 12,333
11,818
11,343
1% 12,189
11,686
11,221
Change in discount rate
-1%
0%
1%
Change in
terminal
growth
rate
-1% 74,671
68,428
63,080
0% 78,828
71,803
65,855
1% 89,297
77,481
67,609
* The difference between the balance of USD57.3 million reflected as
21. Subsequent events
Level 3 real estate projects and operating assets on page 97 to the above
balance of USD31.5 million, and the difference between the balance of
USD80.2 million reflected as Level 3 private equity on page 97 to the above
balance of private equity of USD71.8 million, is due to the fact that different
valuation methodologies are used in the Level 3 valuations which reflect
observable inputs such as an SPA or desktop valuation. USD10 million has
been reclassified from other net assets to private equity in relation to the
IDP loan.
Specific valuation techniques used to value the Company’s
underlying investments include:
• Quoted market prices or dealer quotes;
• Use of discounted cash flow technique to present value
the estimated future cash flows;
• Other techniques, such as the latest market transaction price.
This Annual Report and Financial Statements were approved
by the Board on 23 October 2018. Subsequent events have
been evaluated until this date.
The Company and Investment Manager have agreed in
principle changes to the management fees which, when
finalised, will be back dated so as to be effective from 1 July
2018. For further details, refer to the Chairman’s Statement
on page 8.
On 23 October 2018, the Board declared a dividend of 5.5 US
cents per share.
126
Annual Report 2018 127
VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Reports and StatementsAnnexGeneral Information ANNEX | MANAGEMENT & ADMINISTRATION
MANAGEMENT
& ADMINISTRATION
Directors
Steven Bates
Martin Adams
Thuy Bich Dam
Huw Evans
Julian Healy (appointed 23 July 2018)
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3PP
Channel Islands
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Channel Islands
Investment Manager
VinaCapital Investment Management
Limited
PO Box 309
Ugland House
Grand Cayman KY1-1104
Cayman Islands
Administrator and Corporate Secretary
Until 31 October 2018:
Northern Trust International Fund
Administration Services (Guernsey)
Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Channel Islands
With effect from 1 November 2018:
Aztec Financial Services
(Guernsey) Limited
PO Box 656
128
Corporate Broker
Numis Securities Limited
The London Stock Exchange Building
10 Patemoster Square
London EC4M 7LT
United Kingdom
Custodian
Standard Chartered Bank (Vietnam)
Limited
Unit 1810-1815, Keangnam Hanoi
Landmark Tower
Pham Hung Road
Me Tri Ward
Nam Tu Liem District
Hanoi, 1000 , Vietnam
Registrar
Computershare Investor Services
(Guernsey) Limited
1st Floor, Tudor House
Le Bordage, St Peter Port
Guernsey GY1 1DB
Channel Islands
Independent Auditors
PricewaterhouseCoopers CI LLP
PO Box 321
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey GY1 4ND
Channel Islands
Investment Advisor’s Offices
VinaCapital Investment Management
Limited JSC
17th Floor, Sun Wah Tower
115 Nguyen Hue Blvd, District 1
Ho Chi Minh City, Vietnam
UK Marketing and Distribution Partner
Frostrow Capital LLP
25 Southampton Buildings
London WC2A 1AL
United Kingdom
Investment Manager’s Offices:
Ho Chi Minh City
17th Floor, Sun Wah Tower,
115 Nguyen Hue Blvd., District 1,
Ho Chi Minh City, Vietnam
Phone: +84-28 3821 9930
Fax: +84-28 3821 9931
Hanoi
5th Floor, Sun City Building,
13 Hai Ba Trung Street,
Hoan Kiem Dist, Hanoi, Vietnam
Phone: +84-24 3936 4630
Fax: +84-24 3936 4629
Singapore
6 Temasek Boulevard,
42-01 Suntec Tower 4,
Singapore 038986
Phone: +65 6332 9081
Fax: +65 6333 9081
Annual Report 2018
NOTICE OF 2018 ANNUAL GENERAL MEETING |ANNEX
NOTICE OF 2018 ANNUAL
GENERAL MEETING
THIS DOCUMENT IS IMPORTANT
AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt about the contents of this document or the action you should take, you should consult
immediately your stockbroker, bank manager, solicitor, accountant or other financial adviser, authorised under the
Financial Services and Markets Act 2000 (as amended).
If you have sold or otherwise transferred all of your Ordinary Shares in VinaCapital Vietnam Opportunity Fund Limited,
please send this document and Form of Proxy, as soon as possible, to the purchaser or transferee or to the stockbroker,
bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.
VINACAPITAL VIETNAM OPPORTUNITY FUND LIMITED
Notice of annual general meeting
Notice is hereby given that the 2018 Annual General Meeting of the Company will be held at the offices of Aztec Group, East
Wing, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3PP on 10 December 2018 at 11.00 a.m. (The “Meeting”).
The Board unanimously recommends that shareholders vote in favor of all resolutions, except in the case of Special
Resolution 14 (Agenda item O), which the Board unanimously recommends that shareholders vote AGAINST.
Resolution on
Form of Proxy
Agenda
A. To elect the Chairman of the Meeting.
Ordinary Resolution 1
B. To receive and adopt the Annual Report and Financial Statements of the Company for
the year ended 30 June 2018.
Ordinary Resolution 2
C. To receive and adopt the Directors’ Remuneration Report.
The Board recommends that shareholders vote IN FAVOUR of this resolution
The Board recommends that shareholders vote IN FAVOUR of this resolution
Ordinary Resolution 3
D. To re-elect PricewaterhouseCoopers CI LLP as Auditor of the Company until the
conclusion of the next Annual General Meeting.
Ordinary Resolution 4
E.
To authorise the Board of Directors to determine the Auditor’s remuneration.
The Board recommends that shareholders vote IN FAVOUR of this resolution
The Board recommends that shareholders vote IN FAVOUR of this resolution
129
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ANNEX | NOTICE OF 2018 ANNUAL GENERAL MEETING
Ordinary Resolution 5
F.
To re-elect Steven Bates following his retirement in accordance with Article 20.3 of the
Articles of Incorporation of the Company as a Director of the Company.
The Board recommends that shareholders vote IN FAVOUR of this resolution
Ordinary Resolution 6
G. To re-elect Thuy Dam following her retirement in accordance with Article 20.3 of the
Articles of Incorporation of the Company as a Director of the Company.
The Board recommends that shareholders vote IN FAVOUR of this resolution
Ordinary Resolution 7
H. To re-elect Huw Evans following his retirement in accordance with Article 20.3 of the
Articles of Incorporation of the Company as a Director of the Company.
The Board recommends that shareholders vote IN FAVOUR of this resolution
Ordinary Resolution 8
I.
To elect Julian Healy following his appointment as a Director of the Company on
23 July 2018 in accordance with Article 20.2 of the Articles of Incorporation of the
Company.
The Board recommends that shareholders vote IN FAVOUR of this resolution
Ordinary Resolution 9
J.
To receive and approve the Company’s Dividend Policy as contained within the
Annual Report and Financial Statements of the Company for the year ended 30 June
2018.
The Board recommends that shareholders vote IN FAVOUR of this resolution
Special Business
Ordinary Resolution 10
K.
That, the Company be generally and, subject as hereinafter appears, unconditionally
authorised in accordance with section 315 of the Companies Law to make market
acquisitions (within the meaning of section 316 of the Companies Law) of its issued
Ordinary Shares, provided that:
i.
The maximum number of Ordinary Shares hereby authorised to be
purchased shall be that number of Ordinary Shares up to 14.99 per cent.
of the Company’s issued Ordinary Shares (excluding Treasury Shares)
in issue as at 10 December 2018;
ii. The minimum price which may be paid for an Ordinary Share is USD0.01;
iii. The maximum price which may be paid for an Ordinary Share will not exceed the
higher of (a) 5 per cent. above the average of the middle market quotations (as
derived from the Official List) for the 5 consecutive dealing days ending on the
dealing day immediately preceding the date on which the purchase is made; and
(b) the higher of the price quoted for the last independent trade and the highest
current independent bid as stipulated by Article 3(2) of the EU Buy-back and
Stabilisation Regulation (No. 1052 of 2016);
iv. Any Ordinary Shares purchased may be cancelled or held in treasury;
v. The authority hereby conferred shall expire at the conclusion of the Company’s
next Annual General Meeting, or, if earlier, on 10 March 2020 (unless previously
renewed, revoked or varied by the Company by ordinary resolution) save that
the Company may make a contract to acquire Ordinary Shares under this
authority before its expiry which will or may be executed wholly or partly after
its expiration and the Company may make an acquisition of Ordinary Shares
pursuant to such a contract.
The Board recommends that shareholders vote IN FAVOUR of this resolution
130
Annual Report 2018 Ordinary Resolution 11
L.
THAT the Directors of the Company be and are generally and unconditionally authorised
to exercise all powers of the Company to issue Ordinary Shares up to a maximum number
representing 10% of the issued ordinary share capital of the Company, such authority to
expire at the conclusion of the Company’s next Annual General Meeting or, if earlier, on 10
March 2020 (save that the Company may prior to the expiry of such period make any offer
or agreement which would or might require such Ordinary Shares to be issued after such
expiry and the directors of the Company may issue such Ordinary Shares in pursuance of
any such offer or agreement as if the authority conferred hereby had not expired).
Extraordinary Resolution 12
M. THAT the pre-emption rights granted to Shareholders pursuant to Article 5.2 of the
The Board recommends that shareholders vote IN FAVOUR of this resolution
Articles of Incorporation of the Company shall not apply in respect of the issue of up to
10% of the issued ordinary share capital of the Company, such authority to expire at the
conclusion of the Company’s next Annual General Meeting or, if earlier, on 10 March
2020 (save that the Company may prior to the expiry of such period make any offer or
agreement which would or might require such Ordinary Shares to be issued (or sold
from treasury) after such expiry and the directors of the Company may issue (or sell from
treasury) such Ordinary Shares in pursuance of any such offer or agreement as if the
authority conferred hereby had not expired), unless such resolution is previously revoked
by the Company’s shareholders by further Extraordinary Resolution.
The Board recommends that shareholders vote IN FAVOUR of this resolution
N. To amend the aggregate amount of fee that may be payable to the Directors (including
fees, if any, due to the Directors for attendance at meetings of any committee of
the Board) so that aggregate fees for all of the Board collectively shall not exceed
USD650,000 in any financial year.
The Board recommends that shareholders vote IN FAVOUR of this resolution
Ordinary Resolution 13
Special Resolution 14
O. THAT the Company ceases to continue as currently constituted
The Board recommends that shareholders vote AGAINST this resolution
P. Any Other Business.
By Order of the Board
For and on behalf of
Northern Trust International Fund Administration
Services (Guernsey) Limited
As Secretary
23 October 2018
Notes
A member of a company is entitled to appoint another person as their proxy to exercise all or any of their rights to attend and to speak and vote
at a meeting of the company. A member may appoint more than one proxy in relation to a meeting, provided that each proxy is appointed to
exercise the rights attached to a different share or shares held by them. A proxy need not also be a member of the company.
Details of how to appoint the Chairman of the Meeting or another person as proxy using the Proxy Form are set out in the notes to the Proxy
Form. The requisite form is attached hereto and must be lodged with the Company’s Registrars at: The Pavilions, Bridgwater Road, Bristol, BS99
6ZY at least 48 hours before the time of the Meeting.
131
VinaCapital Vietnam Opportunity Fund General InformationFinancial Reports and StatementsAnnexInvestment Manager’s Report
ANNEX | ANNUAL GENERAL MEETING
ANNUAL GENERAL
MEETING
The following information to be discussed at the
forthcoming Annual General Meeting is important
and requires your immediate attention. If you are in
any doubt about the action that you should take, you
should seek advice from your stockbroker, bank manager,
solicitor, accountant or other financial adviser authorised
under the Financial Services and Markets Act 2000
(as amended).
If you have sold or transferred all of your Ordinary Shares
in the Company, you should pass this document and
Form of Proxy as soon as possible to the purchaser or
transferee, or to the stockbroker, bank or other agent
through whom the sale or transfer was effected, for
onward transmission to the purchaser or transferee.
Resolutions relating to the following items of special
business will be proposed at the forthcoming Annual
General Meeting:
Ordinary Resolution 10 (Agenda Item K)
- (Authority to buy back ordinary shares)
any imbalance between supply and demand for the
Company’s shares.
Under the Listing Rules of the Financial Conduct
Authority, the maximum price payable by the Company
for each Ordinary Share is the higher of (i) 105% of the
average of the middle market quotations of the Ordinary
Shares for the five dealing days prior to the date of the
market purchase and (ii) the higher of the price quoted
for the last independent trade and the highest current
independent bid as stipulated by Article 3(2) of the EU
Buy-back and Stabilisation Regulation (No. 1052 of 2016).
The Directors are seeking authority to purchase up to
14.99% of the Ordinary Shares in issue as at the latest
practicable date prior to the publication of this notice.
This authority, unless renewed at an earlier general
meeting, will expire at the conclusion of next year’s
Annual General Meeting or, if earlier, on 10 March 2020.
Purchases of Ordinary Shares will be made within
guidelines established from time to time by the Board and
only in accordance with the Companies Law, the Listing
Rules and the Disclosure and Transparency Rules.
The resolution seeks authority to renew the authority
granted to Directors enabling the Company to purchase
its own Ordinary Shares. The Directors will only consider
repurchasing shares in the market if they believe this to
be in shareholders’ interests and as a means of correcting
Ordinary Resolution 11 (Agenda Item L)
– (Authority to issue shares)
This resolution seeks authority for the Directors to issue
Ordinary Shares up to a maximum number representing
132
INVESTMENT MANAGER’S REPORT | DUMMYAnnual Report 2018 10% of the Company’s issued ordinary share capital
excluding treasury shares at the date of this notice.
The Directors will only use this authority when, in their
opinion, it is in the best interests of the Company to
issue shares. This authority will expire at the conclusion
of next year’s Annual General Meeting or, if earlier,
on 10 March 2020.
Extraordinary Resolution 12 (Agenda Item M)
- (Authority to disapply pre-emption rights)
Pursuant to the Articles of Incorporation, Directors
require specific authority from shareholders before
issuing new shares or selling shares out of treasury for
cash without first offering them to existing shareholders
in proportion to their holdings. This resolution empowers
the Directors to issue new shares or to sell shares held
by the Company in treasury, otherwise than to existing
shareholders on a pro rata basis, in respect of up to 10%
of the Company’s issued ordinary share capital excluding
treasury shares at the date of this notice. Unless renewed
at a general meeting prior to such time, this authority will
expire at the conclusion of next year’s Annual General
Meeting of the Company or, if earlier, on 10 March 2020.
The Directors will only use this authority when, in their
opinion, it is in the best interests of the Company to
issue shares.
Ordinary Resolution 13 (Agenda Item N)
– (Directors Remuneration)
This ordinary resolution seeks authority to amend
the maximum aggregate amount of fees that may be
payable to the Directors to USD650,000 in any financial
year. While there is no current intention to increase the
remuneration paid to individual directors, an increase
in the total will allow the number of Directors to be
increased to five, and provide flexibility in planning future
appointments to the Board, for example allowing an
overlap between the appointment of one director and the
retirement of another.
Special Resolution 14 (Agenda Item O)
– (Life of the Company)
The Company does not have a fixed life but the Board has
determined that it is desirable that Shareholders should
have the opportunity to review the future of the Company
at appropriate intervals. Accordingly, the Board intends
that a special resolution will be proposed every fifth year
that the Company ceases to continue. If the resolution
is not passed, the Company will continue to operate as
currently constituted. If the resolution is passed, the
Directors will be required to formulate proposals to be
put to Shareholders to reorganise, unitise or reconstruct
the Company or for the Company to be wound up. The
Board tabled such resolutions in 2008 and 2013 and on
both occasions the resolution was not passed allowing the
Company to continue as currently constituted.
RECOMMENDATION
The Board considers that a vote FOR the Resolutions 1 to 13 and a vote AGAINST Resolution 14
to be proposed at the forthcoming Annual General Meeting to be in the best interest of
the Company and the members as a whole, and recommends that members vote FOR the
Resolutions 1 to 13 and a vote AGAINST Resolution 14 to be proposed at the forthcoming
Annual General Meeting.
133
VinaCapital Vietnam Opportunity Fund General InformationFinancial Reports and StatementsAnnexInvestment Manager’s Report Ho Chi Minh City
17th Floor, Sun Wah Tower
115 Nguyen Hue Blvd., District 1
Ho Chi Minh City, Vietnam
Phone: +84-28 3821 9930
Fax:
+84-28 3821 9931
Hanoi
5th Floor, Sun City Building
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Hoan Kiem Dist., Hanoi, Vietnam
Phone: +84-24 3936 4630
Fax:
+84-24 3936 4629
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6 Temasek Boulevard
#42-01 Suntec Tower 4
Singapore 038986
Phone: +65 6332 9081
Fax:
+65 6333 9081
https://vof.vinacapital.com