VIETNAM OPPORTUNITY FUND€¦ · will continue and that Vietnam will grow in stature and importance...
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VIETNAM OPPORTUNITY FUND ANNUAL REPORT 2007
Transcript of VIETNAM OPPORTUNITY FUND€¦ · will continue and that Vietnam will grow in stature and importance...
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VIETNAM OPPORTUNITY FUND ANNUAL REPORT 2007
ContentsOverview 4
Chairman’s Statement 7
State of the Economy 11
Investment Environment 12
Portfolio Performance Summary 14
Portfolio Highlights 16
Feature Investments 18
Consolidated Financial Statementsand Auditors’ Report 22
Board of Directors 24
Report of the Board of Directors 26
Auditors’ Report 29
Consolidated Balance Sheet 30
Consolidated Statement of Changes in Equity 32
Consolidated Statement of Income 33
Consolidated Statement of Cash Flows 34
Note to the consolidated financial statements 35
Directory 62
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“Vietnam is undergoing exciting and unprecedented change: an annual growth rate of over 8% (the second fastest in the world); an increasingly progressive government; a hardworking and educated workforce; and new laws, regulations and WTO accession. The case for investment in Vietnam has never been stronger.”
Mr. Don Lam - CEO, VinaCapital Group
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VOF DETAILS
Size of fund: USD 822 (NAV as of 30 June 2007)
Term of fund: Vote every 5 years to wind up fund
Maximum investment: 20% of NAV in any one project
Geographic focus: Vietnam, Cambodia, Laos and China - at least 70% invested in Vietnam
Fund structure: Cayman company listed on London Stock Exchange (AIM)
Auditor: Grant Thornton (Vietnam)
Nominated Advisor: Grant Thornton Corporate Finance (UK)
Custodian: HSBC Trustee
Lawyers: Lawrence Graham (UK) Baker and McKenzie (Vietnam) Maples & Calder (Cayman Islands)
Broker: LCF Rothschild
Manager: VinaCapital Investment Management Limited Team of 150 investment professionals
Management fee: 2% of NAV Incentive fee of 20% of total increase of the NAV over a hurdle rate of 8% compound annual returns with high watermark and catch up.
VOF Overview
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Vietnam Opportunity Fund (VOF) is a closed-end fund listed on the London Stock Exchange’s AIM board (VOF.L). Launched in 2003, VOF is one of the largest and most successful Vietnam funds, with NAV increasing over 225% since its inception. The fund managers focus on key growth sectors of the domestic economy, seeking to capitalise on their broad network of local business leaders and government officials to realise sustainable capital appreciation and provide attractive levels of return for investors.
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Chairman’s Statement
Dear Shareholders,
We are pleased to present the annual financial statements of the Vietnam Opportunity Fund (AIM: VOF.L) for the year ended 30 June 2007.
The Vietnamese economy has been bolstered by Vietnam’s admission to the World Trade Organisation and it’s hosting of the APEC heads meeting in late 2006. Real gross domestic product has maintained its growth rate above 8% for the last ten years with 2006 closing at an increase of 8.2%. Industrial production, exports and retail sales are all increasing as the domestic sector flourishes in the new open commercial environment and the country continues to attract an ever increasing level of foreign investment, in healthy competition with China, India and other South East Asian countries.
Economic growth and growing investor confidence in Vietnam energised share prices and propelled the Vietnamese Stock Index to the number one position (146% increase in 2006) in terms of global stock market returns. Significant growth has been felt in other sectors of the economy, with land prices in particular doubling and even tripling in many areas.
We are very pleased to report that VOF has been in a prime position to benefit from these opportunities.The Company raised an additional USD 304 million in January 2007 through the issuance of 128 million new shares. Once again the offer was over-subscribed and scaling was applied. Most of the funds raised had already been fully invested before the end of the financial year, necessitating the launch of VOF Round 7 fund raising in October 2007.
Since 30 June 2006 the net asset value per share has increased from USD 2.00 to USD 3.28 (an increase of 64%) and earnings per share has risen from USD 0.76 to USD 1.34 (an increase of 76%).
The accelerated equitisation of State Owned Enterprises and listing of private enterprises were catalysts which have driven the diversification of the Company’s investment portfolio during the year. The Company acquired significant stakes in a number of very attractive businesses which are expected to provide solid investment returns over the next few years. At 30 June 2007 the investment portfolio was comprised of over 80 listed and over-the-counter trade securities spread across most major industrial sectors. The Company also held stakes in over 10 real estate projects and 6 private companies.
Whilst there will always be challenges, we remain extremely confident that the reforms being undertaken in Vietnam will continue and that Vietnam will grow in stature and importance within the global arena. We believe that VOF will continue to be well positioned to seize the opportunities which arise from these changes and that the Company will continue to perform well.
Thank you for your continued support.
Dr Jonathan ChoiChairmanVietnam Opportunity Fund19 November 2007
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8%
OVER THE NEXT 5 YEARS VIETNAM’S GDP GROWTH IS EXPECTED TO CONTINUE TO EXCEED Rush hour traffic in Ho Chi Minh city
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Ho Chi Minh City at night.
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State of the EconomyVietnam’s GDP continues to grow with increasing vitality. According to official estimates, real GDP grew by 7.9% on an annual basis in the first half of 2007, compared with 7.4% in the first half of 2006. This was led by the continued expansion of the industry and construction sector and the services sector. Rapid growth was spurred by the diversification of the industrial base into more manufacturing products, booming construction activities and strong textile and garment exports; which has proved resilient in the face of a liberalised global trading environment.
A further acceleration of the growth pace is expected in the second half of 2007, with a growth rate forecast at 8.5% for the whole of 2007, which is consistent with the official target. This will be fueled by a surge in the growth of the services sector, particularly tourism and financial services. With business sentiment and consumer confidence remaining buoyant, private investment outlays and consumer spending continue to support Vietnam’s economic expansion prompted by the post-WTO environment.
WTO membership has also given rise to favourable developments which are ushering Vietnam more fully toward a market economy rapidly integrated into the global economy, for example:
° The adoption of business laws, like the new Unified Enterprise Law and Investment Law, which help to create a level playing field for both foreign and local investors.
° The emergence of a strong domestic economy on account of a robust and fast growing private sector; which has begun to surpass the State sector in industrial production.
° The openness of the Vietnamese economy, with total trade (exports plus imports) accounting for more than 150% of GDP, ranking second after Malaysia in the region.
° The foreign direct and indirect investment capital flow has continued to swell. FDI recorded more than USD 5 billion in the first half and is expected to more than double that in the second half to reach USD 18-20 billion for 2007, compared with USD 12 billion for 2006.
However, the above capital influxes have also led to increasing imports, predominantly machinery and equipment. The worsening trade deficit (expected to surpass USD 10 billion in 2007) and intensified inflationary pressures are linked with the sharp increase in money supply.
A dark spot on the horizon has emerged as inflation has increased dramatically during 2007, with the CPI rising by 5.2% in the first six months. Inflationary pressures became notable through the sharp rise of food and imported fuel prices (which account for the bulk of the CPI index), the latter reflecting the impact of avian flu, blue ear pig disease and a global increase in grain prices, stemming partly from strong food demand by neighbouring China. Upward price pressures have been fed through to other productive sectors, especially the construction material and services sectors. Inflation is expected to continue to increase in the second half due to further rises in fuel prices and monetary expansion; the whole year level for 2007 might double the 6.6% rate seen last year.
Inflation is now a major concern for the Government, which faces a difficult policy choice.
The Government has initiated some measures to tame inflation. These include: decreasing import duties; tightening monetary policy; and allowing the local currency to appreciate slightly. Further considerations which seem to be on the anti-inflation agenda include: a tighter monetary policy to absorb excess liquidity; tax measures to calm down real estate speculative fever; and a more flexible exchange rate policy to reduce the pressure on the State Bank to buy foreign currencies.
Medium Term outlook
Over the next five years, real economic growth should be maintained in the range of 8%-8.5% yearly, slightly below the government target of 9%, on account of the containing impact of the anti-inflation policies on medium-term growth. We expect that the strong performance of the economy will continue to be led by exports, but these will also be supported by robust domestic demand.
With a young population (60% currently below the age of 25), there will emerge a strong domestic economy with a young and wealthy middle-class which will give rise to booming retail spending and business and a fast growing consumer sector, hence the need for more shopping centres.
The fast rising equity and real estate markets accompanied by the rapid development of the banking sector will also help to transform the informal sector more deeply into a monetised economy. FDI is expected to swell to annual flows of USD 15-20 billion for the next few years in light of the vigour of the Vietnamese economy and the “newly found” attractiveness of its business environment. This FDI influx will strongly stimulate demand for new real estate projects, especially for high-end residential, office spaces, and hotels.
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Investment EnvironmentDespite record asset prices and excellent returns across all investment sectors over the last year, Vietnam’s fast growing economy is expected to continue to provide excellent investment opportunities for a number of years to come. VOF remains perfectly positioned to both identify and capitalise on these opportunities through its investments in capital markets (both listed and over-the-counter), private equity and real estate.
Listed securities
At 30 November 2007 there were approximately 220 companies listed on the Ho Chi Minh Stock Exchange and the Hanoi Stock Trading Centre. Their combined market capitalisation is approximately USD 25 billion, with an average daily turnover of approximately USD 60 million.
After increasing 147% in 2006 the Vietnam Index has drifted since April, essentially taking a much needed break until company earnings catch up. Half year results to June 2007 indicated that company earnings had been growing satisfactorily, but this failed to ignite the market as the Government delayed the equitisation of several major State-owned enterprises and moved to implement reforms to quell speculation across a range of investment sectors. The most significant of these changes being restricting banks’ exposure to securities lending to 3% (effective from 1 January 2008) and implementing a capital gains tax on securities trading and real estate (effective from 1 January 2009). The much anticipated equitisation of Vietcombank is set for late 2007. This is an important step for the Vietnamese Government as it will help to reconfirm their commitment to the equitisation of the major State companies and should trigger the Vietnam Index to move in a positive direction.
Despite several challenges, the medium term future for listed securities seems very positive. The drift in the markets over the last six months has lead to a levelling in the PEG (Price Earnings to Growth) ratio, which for a number of blue chip companies is now very close to, or less than, 1:1. Therefore, some equities now seem far more reasonably priced than they have been for some time; despite the fact that they are still trading at PE (Price Earnings) multiples above 20x. With shares now more reasonably priced, growing GDP, the equitisation of major corporations, and improved company performance, listed securities should continue to perform well over the medium term. Vietnam was recently added to the MSCI Frontier index, positive news for the country’s stocks.
Over the counter securities
The over the counter (OTC) market is an unregulated market comprising of several thousand securities in companies (many of which are equitised State-
owned companies) that have not applied, or not yet been admitted to, the Ho Chi Minh or Hanoi stock exchanges. Originally operating in the bars and cafes in Ho Chi Minh City and Hanoi, most transactions are now brokered through the 50 or so securities companies now operating in Vietnam. The total OTC market capitalisation is estimated to be approximately USD 50 billion. OTC stocks tend to trade at a 20% to 30% discount to listed securities.
The OTC market is not for the faint hearted. Historically, with little or no information available about individual companies or trading activity, market rumours abound. The market also suffers from a shortage of liquidity, often resulting in significant price movements over short periods. These problems have become all the more evident over the last few months as OTC share prices have tended to drift downward as the market has moved out of favour with local investors.
The authorities have recognised the potential problems in the operation of such an unregulated market and have recently implemented several new measures to protect investors. These have included regulations that require larger OTC companies to: register with the State Securities Commission; distribute financial information to shareholders; and move to the main exchanges over the next few years.
The proposed reforms of the OTC market should improve the quality of this market. However, despite these changes, the market will continue to be plagued by poor liquidity for all but a few of its leading stocks. Proper analysis and careful selection of companies will be critical over the next six months, as the overall OTC market is unlikely to grow until there is a pick-up in the listed sector.
Private equity
Historically there has not been a lot of private equity opportunities in Vietnam, and those that have been available have tended to be small (less than USD 5 million). This now seems to be changing as the market develops.
The most significant drivers of change in this sector have been Vietnam’s economic growth and reform of the private sector, particularly the new Enterprise Law. As a consequence there is now a growing number of privately-owned medium sized companies (with turnover of between USD 30 million to USD 100 million), where in the past there had been none (as all sectors were dominated by State corporations). The owners of companies in these sectors are increasingly recognising the value that private equity managers can bring to their companies and as a result we expect a growing number of private equity deals in Vietnam over the next few years.
Traders in action in Hanoi
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Real estate
The State owns all land in Vietnam and thus occupiers of land, both local and foreign, are tenants (albeit very long term tenants). Many investors view the State’s ownership of all land as an unacceptable investment risk, despite the fact that these conditions are similar to many developed countries (for example, Hong Kong, where most land is leasehold). Furthermore, over the last five years the Government has made considerable progress in land reform, to the extent that many Vietnamese companies and individuals now have quasi land ownership. The reforms have also benefited foreign investors to the extent that foreign investors’ rights regarding land in Vietnam are far superior to a fair number of neighbouring ASEAN countries. There are also rumours that foreign individuals will be granted the same rights as Vietnamese nationals for selected properties. It’s fair to say that these reforms are highly progressive.
Regulatory changes, a strong domestic economy and a bright outlook for the future have combined to drive real estate markets to record highs over the last year. With many property values doubling and even tripling in the space of 12 months, such returns cannot continue indefinitely. However, despite the Government’s attempt to quash speculation, there are a number of factors which should mean that higher property prices and strong returns will continue; at least for the medium term. These factors include: 1. A current shortage of quality office space and
hotel rooms in Hanoi and Ho Chi Minh City, and no additional significant capacity becoming available within the next three years.
2. Changing demographics and growing domestic purchasing power which will result in growing demand for residential developments.
3. The growing tourism sector.
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PortfolioPerformance SummaryDuring the financial year VOF’s total assets increased from USD 259 million to USD 822 million. Adjusting for new capital raisings, this represents a 64% increase in the net asset value per share; a 37% compounded annual growth rate since the inception of the Company.
The Company raised an additional USD 304 million in January 2007 through the issuance of 128 million new shares. At the end of June 2007 most of these funds had already been invested, with only 13% of total assets held in cash and cash equivalents available for investment. The swift investment of these funds and a pipeline of investment opportunities exceeding USD 100 million necessitated the launch of VOF Round 7 in October 2007. A further USD 272 million was raised during that offering and will be quickly put to work.
At June, VOF’s portfolio comprised of investments in capital markets 66% (2006: 57%), real estate 17% (2006: 21%), private equity 3% (2006: 9%) and cash 13% (2006: 13%). The slight increase in the weighting of the capital markets portfolio is a consequence of the strong performance of Vietnam’s capital markets over the year. We expect that this swing will be addressed as we execute the latter half of our strategy which is to trim assets that have recently gone public and recycle the cash into privately negotiated pre-listed investment opportunities. Further, the capital market allocation should also decline as we place more emphasis on private equity deals over the next year, where there is an increasing number of medium to large private companies emerging.
The capital markets component of the VOF portfolio continues to represent the bulk of VOF assets and generate the greatest level of income. This reflects our strategy at the beginning of the year to focus on privately negotiated pre-IPO or over-the-counter deals with a view that these assets will list in 6 to 12 months. Since making these investments, many of these shares have listed on the Vietnam stock market, a market that has come to be internationally recognised for its potential growth since Vietnam joined the WTO. These investments are typically done at a considerable discount to the market value or OTC prices.
Although levels of investment in real estate have declined as a proportion of total funds invested, the overall investment has increased substantially from USD 58 million to USD 161 million. VOF continues to exercise its pre-emptive rights to 25% of real estate projects undertaken by its sister fund, VinaLand Limited. In June the VOF recorded USD 33 million of equity gains and property revaluations in the real estate portfolio, representing a very good return from this portfolio.
Only a small amount of investment income was recorded in the private equity portfolio. This is because these assets are normally equity accounted or carried at cost, due to the lack of a market for such investments. This treatment means that the real value of these investments may not be fully reflected in the financial statements. If they were sold we would expect to generate quite a sizable gain on these investments.
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During the year VOF shares have consistently traded on the London Stock Exchange’s AIM Board at a premium to the net asset value; peaking in January 2007 at well over USD 4.00 per share.
VOF shares are now amongst the most traded securities on the London Stock Exchange’s AIM Board with an average daily turnover now exceeding USD 8 million. They are also the most liquid Vietnam focused securities listed on an international stock exchange. As a consequence of this, the Company’s shareholder base has widened considerably over the last year; with strong representation across a wide range of investors spanning Europe, the Americas and Asia.
VOF PORTFOLIO BY SECTOR AS OF 30 JUNE 07
3.28
3.41
0. 90
1. 40
1. 90
2. 40
2. 90
3. 40
3. 90
3. 90
US$
Sep-
03
Jun-
07
Mar-
07
Dec-
06
Sep-
06
Jun-
06
Mar-
06
Dec-
05
Sep-
05
Jun-
05
Mar-
05
Dec-
04
Sep-
04
Jun-
04
Mar-
04
Dec-
03
NAV per Share Share Price
NAV PER SHARE AND SHARE PRICE PERFORMANCE BY QUARTER
Capital markets
Real estate
Private equity
Cash
Capital markets
Real estate
Private equity
Cash
Income 2006 Income 2007
Total asset 2006 Total asset 2007
71%
3%
25%
1%
13%
9%
21%
57%
2%
9%
89%
13%
3%
17%
66%
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Portfolio Highlights
Top 10 listed
Top 10 OTC
Company Industry Cost ofInvestment(USD ‘000)
Shares heldby VOF
(‘000)
%Stake
MarketValue
(USD ‘000)
P/E2007
Vinamilk (VNM)
Reetech (REE)
Kinh Do (KDC)
Tan Tao Industrial (ITA)
Hau Giang Pharma (DHG)
Can Don Hydropower (SJD)
Bao Minh Insurance (BMI)
Pha Lai Thermal (PPC)
Domesco Medicine (DMC)
Transimex (TMS)
Dairy
Engineering
Confectionary
Infrastructure
Pharmaceutical
Energy
Insurance
Energy
Pharmaceutical
Freight
36,118
22,311
13,937
10,783
6,380
15,316
8,785
12,952
8,367
4,994
7,298
6,184
3,067
2,800
759
6,382
3,147
3,146
1,447
1,468
4.4
10.8
8.5
4.0
9.5
24.5
4.2
1.0
10.5
22.6
81,409
57,485
44,853
20,823
20,473
17,006
14,041
12,476
10,311
5,730
35.1x
33.6x
35.2x
35.5x
39.5x
18.6x
49.4x
20.8x
24.6x
24.3x
Company Industry Cost ofInvestment(USD ‘000)
Shares heldby VOF
(‘000)
%Stake
MarketValue
(USD ‘000)
P/E2007
Hoa Phat Group
PVFCCo
Tay Ninh Rubber
Masan
Doruco
VinaCafe
Vinaconex
Kido’s Ice cream
Minh Hai
Halico
Manufacturing
Energy
Rubber
Manufacturing
Rubber
Food & Beverage
Construction
Confectionary
Seafood
Food & Beverages
47,119
26,258
6,943
2,429
5,335
4,123
3,283
892
6,149
5,296
10,560
8,000
1,600
1,666
1,600
100
1,900
1,320
1,240
970
8.0%
2.1%
5.3%
14.7%
4.0%
10.4%
1.3%
22.0%
10.0%
20.0%
50,064
32,722
13,535
10,325
9,023
8,141
8,125
6,585
6,109
6,011
23.0x
31.3x
20.3x
16.4x
18.2x
18.9x
25.9x
28.4x
16.5x
7.5x
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Top private equity
Top 10 real estate
Company Industry Cost ofInvestment
%Stake
MarketValue
Zedex Minerals
Axiom Mining
Olympus Pacific Minerals
IBS
Pho 24
International School, HCMC
AA Decor
Mining
Mining
Mining
Construction
Food & Beverage
Education
Furniture
8,334
9,112
4,952
2,956
2,349
1,602
526
20.0%
7.8%
21.1%
100.0%
30.0%
35.0%
5.1%
11,427
11,397
8,620
n/a
n/a
n/a
n/a
Project Investment Type
Hilton Hanoi
Indotel (Sofitel Metropole)
Guoman Hotel
Omni Hotel
Century 21 project
Hung Vuong Corp
SCREC
Kinh Do Real Estate
Saigon Water Park project
A&B Office Building
Hotel
Hotel
Hotel
Hotel
Mixed use
Mixed use
Apartments
Investment Company
Residential
Office Building
Cost ofInvestment(USD ‘000)
5,738
5,106
4,786
6,210
8,202
4,858
5,943
5,237
3,616
6,700
% Stake
28.9%
17.5%
18.5%
17.5%
20.5%
30.0%
100.0%
30.0%
100.0%
50.1%
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Feature Investments
Mr. Don Lam - CEO, VinaCapital (on left) and Mr. Andy Ho - Head of Investment, VinaCapital.
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Ho Chi Minh City-based Vinamilk produces a wide range of dairy products and beverages that accounts for 75% of the domestic market. Vinamilk’s main business lines include: the production and trading of milk powder, cereal with milk powder, condensed milk, fresh milk; production and trading of cakes, soybean milk, carbonated water, pure water and fresh fruit juice; trading industrial foods and equipment and materials.
Vinamilk has entered into a joint venture with South African SABMiller, the second largest brewery company in the world by volume, and together they formally opened a brewery in My Phuoc II Industrial Zone which is situated in Binh Duong Province with a capacity of 100 million litres per year. SAB Miller will utilise Vinamilk’s nationwide distribution network. Vinamilk has also recently increased its financial investments in Bourbon Tay Ninh, VF1 and Bao Viet Bank and Tien Son Milk Factory.
Vietnam Dairy Products (Vinamilk)
Hoa Phat Group Joint Stock Company was the first private company established just after the implementation of the Enterprise Law, in August 1992. Hoa Phat is emerging as Vietnam’s leading private industrial group, operating mainly in steel production. The group activities cover manufacturing and distribution of many types of equipment and machinery for the construction and mining industry. It has over 5,000 staff and workers.
The Hoa Phat officially listed its shares on the Ho Chi Minh City Stock Exchange (HoSE) in November 2007, offering 132 million shares to investors.
Hoa Phat is currently constructing a new cement factory and a cast iron and steel factory. Total investment for the cement factory is USD 37.5 million, while total investment for the cast iron and steel factory is more than USD 62.5 million.
Hoa Phat Group
81.4 million 50.0 million
USD 468 million USD 323 millionUSD 468 million USD 321 million
USD 53.12 million USD 21 millionUSD 45.68 million USD 12.56 million
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Pho 24 is Vietnam’s most successful domestic restaurant chain, having grown from a single location in 2003 into a 64 branch chain spanning Vietnam, as well as Indonesia, the Philippines and Singapore. The restaurant offers a set range of ‘Pho’ (or noodle soups) which is the national Vietnamese dish. The company opened an additional three branches during the last quarter. Pho 24’s aggressive expansion remains on plan and the chain should have 80 domestic venues opened by the end of 2008.
VOF currently hold a 32.5% interest in Pho 24, which was purchased in August 2006 and October 2007 at a cost of USD 3.55 million.
Refrigeration Electrical Engineering Corporation (REE) was a State-owned company established in 1977. In 1993, REE became the first equitised company in Vietnam. Its main business activities include: M&E engineering and contracting for industrial, commercial and civil projects; manufacturing of Reetech air-conditioners, home appliances, electrical panels and industrial mechanical products; developing and operating real estate and investing in joint-stock companies and banks. REE’s shares are listed on HoSE.
E-Town 3 with a total construction area of 16,300m2 has just completed its land clearance phase. The company plans to start construction at the end of 2007 and complete at the end of 2008. REE has many other projects in the pipeline which are still in the process of obtaining construction licences.
REE has begun construction on its E-town 4 office building, with a total construction area of 18,800m2, in August, which is also expected to be completed in 2008.
Pho 24 Refrigeration Electrical Engineering Corporation
7.02 million 22.3 million
62.5 million 51.5 million
15.3 million 13.9 million
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The Sofitel Metropole Hotel is located in the centre of Vietnam’s capital city, Hanoi. It is a 5 star French colonial style hotel which covers a site area of 7,468m2. The Sofitel Metropole Hotel first opened its doors in 1901. Throughout the Metropole’s rich history it has seen service as the residence for official visitors to the country following Vietnam’s independence in the 1950s, and during the American war as the base for journalists and diplomats. The hotel recently converted office space into 80 additional five-star rooms. The total investment in the Sofitel Metropole Hotel to date is USD 5.7 million. VOF currently holds a 28.8% stake in this project.
Sofitel Metropole Hotel
The A&B office building is a 25 storey Grade B+ office building which is currently under construction. Although still 2 years from completion this will be one of the next completed office buildings in Ho Chi Minh City’s CBD area. The site area covers 1,832m2 and is situated on the corner of Le Lai and Nguyen Thi Nghia Street, next to the 5 star New World Hotel. The location is excellent with good proximity to the central business district, local amenities and facilities such as a central city park, restaurants and hotels. The total amount of investment to date is USD 6.7 million. VOF currently own 50.1% of the A&B Joint Stock Company with Saigon Tourist (25%) and A&B Limited (24.9%).
A&B Office Building
* Under construction
CostCost 5.7 million 6.7 million
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$822Consolidated financial statements and auditors’ report
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million
$822Net asset value at 30 June 2007 (USD 3.28 per share)
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Board of Directors
From left to right: Mr. William Vanderfelt - Mr. Philip S.R. Skevington - Mr. Jonathan Choi - Mr. Horst Geicke - Mr. Bernard C. Grigsby
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HORST GEICKE, DIRECTOR
Mr. Geicke is Chairman and Co-Founder of VinaCapital Group Limited, the immediate parent company of the Investment Manager, and has resided in Asia for 25 years. He has over 22 years of operating and investing experience in the region, having made several financial and strategic investments in Vietnam, including the establishment of a manufacturing plant for his family business which is headquartered in Hong Kong, and establishing the Vietnam Opportunity Fund in 2003. Mr. Geicke also co-founded the Pacific Alliance fund management group, which has more than USD 1.5 billion in assets under management. Mr. Geicke was the President of the German Chamber of Commerce in Hong Kong for four years and in 2005 became the president of the European Chamber of Commerce in Hong Kong. He is a founding and active Director of the Hong Kong-Thailand Business Council. He is a member of the Hong Kong-EU Business Cooperation Committee and a past member of the Trade and Industry advisory panel of the government of the Hong Kong Special Administrative Region from 2004 to 2006. Mr. Geicke is a director of Vietnam Opportunity Fund, VinaLand, Vietnam Infrastructure Limited, ARC Capital Holdings Limited and Pacific Alliance Asia Opportunity Fund Limited, five AIM traded investment companies. He is also a director of the Omni Saigon Hotel, Hilton Hanoi Opera and Sofitel Metropole Hotel Hanoi, as well as several other listed and private companies in Asia and the USA. Mr. Geicke has a Master degree in Economics and Business Law from the University of Hamburg, Germany.
JONATHAN CHOI, CHAIRMAN
Mr. Choi is the President of the Sun Wah Group, a financial services, technology, infrastructure and foodstuff conglomerate. He is also Chairman of Kingsway International Holdings, a Toronto listed company, and SW Kingsway, a Hong Kong listed investment bank and fund manager. Mr. Choi is also the Vice Chairman of the Chinese General Chamber of Commerce in Hong Kong and a member of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC) of the People’s Republic of China. Mr. Choi has been an active investor in Vietnam since 1971.
WILLIAM VANDERFELT, DIRECTOR
Mr. Vanderfelt has over 30 years of experience as Managing Partner of Petercam, the leading Benelux investment bank, in charge of Institutional Research and Sales. Mr. Vanderfelt is an experienced fund investor and acts as a board director of several listed funds. He is a passionate proponent of good corporate governance and will help the Company ensure that it maintains best practice in its corporate governance.
PHILIP S.R. SKEVINGTON, DIRECTOR
Mr. Skevington has nearly two decades of experience as an executive in the international banking and financial services industry. He worked in Asia for Standard Chartered Bank for over sixteen years. From 2002 to 2004 he was based in Hanoi as the Chief Executive Officer for Standard Chartered’s operations in Vietnam, Cambodia and Laos. He has also worked for the bank in Hong Kong, South Korea, Indonesia, the Philippines and Singapore and is now an independent consultant. Mr. Skevington holds a Bachelor of Arts from Durham University, a Bachelor of Science in Financial Services from Manchester Business School and is an Associate of the UK Chartered Institute of Bankers.
BERNARD (‘BEN’) C. GRIGSBY, DIRECTOR
Mr. Grigsby has more than three decades of experience as a senior and board level executive in the international capital markets and financial services industry.Mr. Grigsby retired from the Swiss Re-Insurance Group in December 2005, and currently serves as a non-executive director of JP Morgan Fleming Japan Smaller Companies Investment Trust Plc, Tudor BVI Global Fund Ltd., The Raptor Global Fund Ltd., Corney & Barrow Group Limited, and is a member of the Board of Trustees of Washington & Lee University, amongst other interests. Mr. Grigsby joined Swiss Re in 2001 as the inaugural Chief Executive of Swiss Re Financial Products and served as the Joint Chief Executive and then as Vice Chairman of Swiss Re Capital Management and Advisory. He also held positions as Chairman of Swiss Re Capital Markets Limited and Swiss Re Capital Markets (Japan) Corporation as well as Vice Chairman of Fox-Pitt, Kelton Limited, amongst other Swiss Re appointments. Previously, Mr. Grigsby was the Joint Chief Executive of Tokai Bank Europe Plc from 1995 to 2001, and spent eight years with the Barclays Group from 1987, managing businesses in New York, Tokyo, and London. A dual USA and UK citizen born in Virginia, Mr. Grigsby graduated in economics and psychology from Washington & Lee University.
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The Board of Directors submits its report together with the audited consolidated financial statements of Vietnam Opportunity Fund Limited (“the Company”) and its subsidiaries (together “the Group”) for the year ended 30 June 2007.
The GroupVietnam Opportunity Fund Limited is incorporated in the Cayman Islands as a company with limited liability. The registered office of the Company is PO Box 309GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands.
Particulars of the Group’s principal subsidiaries and associates are set out in notes 7 and 11.
Principal activitiesThe Company’s principal activity is to undertake various forms of investment in Vietnam, Cambodia, Laos and Southern China. The Company mainly invests in listed and unlisted companies, debt instruments, assets and other opportunities with the objective of achieving medium to long-term capital appreciation and providing investors with an attractive level of investment income.
The principal activities of the subsidiaries are financial services, property investment, hospitality management and retailing. Other particulars of the subsidiaries are set out in notes 7 and 11 to the consolidated financial statements.
Results and dividendsThe results of the Group for the year ended 30 June 2007 and the state of its affairs as at that date are set out in the consolidated financial statements on pages 30 to 61.The Board of Directors do not recommend the payment of a dividend.
DirectorsThe directors of the company during the year were as follows: Name Position Appointed/resigned onJonathan Choi Chairman 29 July 2003Horst Geicke Director 14 March 2003William Vanderfelt Director 10 December 2004Robert Knapp Director 29 July 2003/ 1 July 2006Bernard Grigsby Director 16 October 2006Philip Skevington Director 16 October 2006
AuditorsThe Group’s auditors, Grant Thornton (Vietnam) Ltd., have expressed their willingness to accept re-appointment.
Subsequent eventsOn 9 October 2007, the Company announced its intention to raise USD 200 million by way of a placement of approximately 54 million new Ordinary Shares at a price of USD 3.68 per share (“the Placement”). The closing date for subscriptions for the Placement was 14 November 2007. On 15 November 2007 the Company announced that the capital raising had been significantly over-subscribed and that the Placement would be increased to approximately 77 million new Ordinary Shares for a consideration of approximately USD 285 million. At the date of this report the allotment of shares is still pending. After allotment an application will be made to begin trading the new Ordinary Shares on the London Stock Exchange’s Alternative Investment Market.
Report ofthe Board of Directors
27
Directors’ interest in the CompanyAs at 30 June 2007, the interests of the Directors in the shares, underlying shares and debentures of the Company were as follows:
No. of shares Approximate % of holdingHorst Geicke 1,775,000 0.7%Jonathan Choi 1,500,000 0.598%Philip Skevington 10,000 0.004%Bernard Grigsby 100,000 0.040%
At the date of this report there had been no further changes in the above holdings.
Directors’ responsibility in respect of the consolidated financial statementsThe Board of Directors is responsible for ensuring that the consolidated financial statements are properly drawn up so as to give a true and fair view of the financial position of the Group as at 30 June 2007 and of the results of its operations and its cash flows for the year ended on that date. When preparing the financial statements, the Board of Directors is required to:
(i) adopt appropriate accounting policies which are supported by reasonable and prudent judgements and estimates and then apply them consistently;
(ii) comply with the disclosure requirements of International Financial Reporting Standards or, if there have been any departures in the interest of true and fair presentation, ensure that these have been appropriately disclosed, explained and quantified in the financial statements;
(iii) maintain adequate accounting records and an effective system of internal control;
(iv) prepare the financial statements on a going concern basis unless it is inappropriate to assume that the Group will continue its operations in the foreseeable future; and
(v) control and effectively direct the Group in all material decisions affecting its operations and performance and ascertain that such decisions and/or instructions have been properly reflected in the financial statements.
The Board of Directors is also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Board of Directors confirms that the Group has complied with the above requirements in preparing the consolidated financial statements.
Statement by the Board of DirectorsIn the opinion of the Board of Directors, the accompanying consolidated balance sheet, statement of income, statement of changes in equity and statement of cash flows, together with the notes thereto, have been properly drawn up and give a true and fair view of the financial position of the Group as at 30 June 2007 and the results of its operations and cash flows for the year ended 30 June 2007 in accordance with International Financial Reporting Standards.
On behalf of the Board of DirectorsChairman Ho Chi Minh City, Vietnam19 November 2007
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29
Auditors’ report
To the Shareholders Vietnam Opportunity Fund Limited
We have audited the accompanying consolidated balance sheet of Vietnam Opportunity Fund Limited and its subsidiaries (“the Group”) as of 30 June 2007, and the related consolidated statements of income, changes in equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. These consolidated financial statements are the responsibility of the Group’s management.
Management’s responsibility for the consolidated financial statementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend upon the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements give a true and fair view of the financial position of Vietnam Opportunity Fund Limited and its subsidiaries as of 30 June 2007, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. GRANT THORNTON (VIETNAM) LTD.Ho Chi Minh City, VietnamDate: 19 November 2007
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Notes 30 June 2007 30 June 2006
Assets
Non-current
Investment property 8 15,124,235 -
Property, plant and equipment 9 3,026,951 4,274,135
Investment properties under development 10 3,967,424 2,271,821
Investments in associates 11 69,176,640 23,844,581
Other long term investments 12 1,954,485 9,183,209
Loan receivables 13 41,459,674 19,659,480
Prepayments for operating leases 14 1,971,024 2,109,491
Other non-current assets 129,210 1,375,513
Goodwill 15 1,752,688 1,719,231
138,562,331 64,437,461
Current
Inventories 16 4,755,153 4,319,823
Receivables from related parties 33 1,019,604 -
Trade and other receivables 17 26,113,564 8,445,696
Financial assets at fair value through profit and loss 18 624,575,488 168,032,453
Held to maturity investments 19 47,940,593 -
Deposits for acquisitions of investments 20 10,442,162 -
Cash and cash equivalents 21 71,376,594 32,706,460
786,223,158 213,504,432
Total assets 924,785,489 277,941,893
Consolidated balance sheet
Unit: USD
31
Consolidated balance sheet
Notes 30 June 2007 30 June 2006
Equity
Equity attributable to shareholders
Share capital 22 2,506,483 1,226,572
Additional paid-in capital 23 459,150,780 164,950,181
Revaluation reserve 24 17,716,945 -
Translation reserve (663,801) (34,084)
Retained earnings 342,954,144 78,787,207
821,664,551 244,929,876
Minority interests 22,137,688 14,084,467
Total equity 843,802,239 259,014,343
Liabilities
Current
Payables to related parties 33 4,790,326 -
Trade and other payables 25,33 75,016,283 17,476,172
Borrowings - 118,772
Other liabilities 1,176,641 1,332,606
Total liabilities 80,983,250 18,927,550
Total equity and liabilities 924,785,489 277,941,893
Net asset per share (USD per share) 3.278 1.997
Unit: USD
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Consolidated statementof changes in equity
Equity attributable to equity holders of the Group Minority
interests
Total
equityShare capital Additional paid-in
capital
Translation
reserve
Revaluation
reserve
Retained
earnings
1 July 2005 751,547 91,634,442 - - 3,854,607 - 96,240,596
Currency translation - - (34,084) - - - (34,084)
Profit for the year ended
30 June 2006- - - - 74,932,600 522,792 75,455,392
Total gains/(losses) for the year - - (34,084) - 74,932,600 522,792 75,421,308
Issue of new shares 475,025 73,315,739 - - - - 73,790,764
Acquisition of
subsidiaries
- - - - - 13,561,675 13,561,675
30 June 2006/1 July 2006 1,226,572 164,950,181 (34,084) 78,787,207 14,084,467 259,014,343
Currency translation - - (629,717) - - - (629,717)
Profit for the year ended
30 June 2007- - - - 264,166,937 1,195,667 265,362,604
Total gains/(losses) for the year - - (629,717) - 264,166,937 1,195,667 264,732,887
Issue of new shares 1,279,911 294,200,599 - - - - 295,480,510
Acquisition of subsidiaries - - - - - 6,857,554 6,857,554
Revaluation reserves - - - 17,716,945 - - 17,716,945
30 June 2007 2,506,483 459,150,780 (663,801) 17,716,945 342,954,144 22,137,688 843,802,239
Unit: USD
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Consolidated statement of income
Note Year ended 30 June 2007 Year ended 30 June 2006
Revenue 9,451,988 14,218,400
Cost of sale (8,118,799) (9,614,287)
Gross profit 1,333,189 4,604,113
Other income 26 3,581,928 14,167,754
Administration expenses 27 (86,353,598) (26,343,605)
Other operating expenses (691,983) (116,191)
Other net changes in fair value on financial assets
at fair value through profit or loss28 315,206,185 78,236,372
Gain on fair value adjustments of investment properties 1,124,235 -
Profit from operations 234,199,956 70,548,443
Financial income 29 13,266,332 4,893,303
Finance costs (3,142,073) (371,372)
Share of profit gain (losses) of associates, net 21,038,389 385,018
31,162,648 4,906,949
Profit before tax 265,362,604 75,455,392
Income tax 30 - -
Net profit 265,362,604 75,455,392
Attributable to shareholders 264,166,937 74,932,600
Attributable to minority interests 1,195,667 522,792
Earnings per share – basic and diluted
(USD per share) 31 1.34 0.76
Unit: USD
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Unit: USD
Consolidated statement of cash flows
Year ended 30 June 2007 Year ended 30 June 2006
Operating activities
Net profit before tax 265,362,604 75,455,392
Adjustment for:
Depreciation and amortisation 635,302 492,004
Reversal of impairment loss (232,360) -
Impairment loss 593,728 -
Gain on revaluation of financial assets (255,441,202) (62,112,662)
Gain on disposal of financial assets (59,764,983) (16,123,710)
Gain on revaluation of investment properties (1,124,235) -
Share of associates’ profits (21,038,389) (385,018)
Negative goodwill (2,984,094) (13,685,855)
Unrealised foreign exchange losses 2,276,911 201,202
Interest and dividend income (13,007,466) (4,664,935)
Net loss before changes in working capital (84,724,184) (20,823,582)
Change in trade and other receivables (3,351,412) (3,433,015)
Change in inventory (435,330) -
Change in trade and other payables (2,772,556) 18,014,659
(91,283,482) (6,241,938)
Investing activities
Interest received 7,376,864 1,579,775
Dividends received 5,687,464 2,477,631
Purchases of property, plant and equipment and other non-current assets (1,650,986) (2,667,274)
Acquisition of a subsidiary, net of cash (2,716,323) (1,666,751)
Purchases of financial assets (319,786,440) (116,109,932)
Proceeds from disposals of financial assets 179,896,126 48,786,145
Proceeds from disposals of investments and fixed assets 2,770 -
Proceeds from loans repaid 177,033 -
Loans provided (34,513,402) (19,659,480)
(165,526,894) (87,259,886)
Financing activities
Proceeds from shares issued 295,480,510 73,790,764
295,480,510 73,790,764
Net increase in cash and cash equivalents for the year 38,670,134 (19,711,060)
Cash and cash equivalents at the beginning of the year 32,706,460 52,417,520
Cash and cash equivalents at end of the year 71,376,594 32,706,460
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Notes to the consolidated financial statements
1 General information
Vietnam Opportunity Fund Limited is a limited liability company incorporated in the Cayman Islands. The registered office of the Company is PO Box 309GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands. The Company’s primary objective is to undertake various forms of investment in Vietnam, Cambodia, Laos and Southern China. The Company is listed on the London Stock Exchange’s Alternative Investment Market under the ticker symbol VOF. The principle activities of its subsidiaries are set out in Note 7 to the financial statements.
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) (including International Accounting Standards (IAS)) as developed and published by the International Accounting Standards Board (IASB). The financial statements for the year ended 30 June 2007 were approved for issue by the Board of Directors on 19 November 2007.
2 Adoption of new and amended standards and interpretations
The IASB and the International Financial reporting Interpretations Committee have issued various standards and interpretations with an effective date after the date of this financial information. The Group has not elected for early adoption of the standards and interpretations that have been issued as they are not yet effective. The most relevant for the Group are amended IAS 1 “Presentation of the Financial Statements” (effective for annual periods beginning on or after 1 January 2007), IFRS 7 “Financial Instruments: Disclosures” (effective for annual periods beginning on or after 1 January 2007) and IFRS 8 “Operating Segments” (effective for annual periods beginning on or after 1 January 2009).
Upon adoption of amended IAS 1, the Group will disclose its capital management objectives, policies and procedures in each annual financial report and will have its capital movements and other gains and losses presented separately in the statement of changes in equity and statement of recognised income and expenses. Upon adoption of IFRS 7, the Group will disclose additional information about its financial instruments, their significance and the nature and extent of risks to which they give rise. More specifically, the Group will be required to disclose the fair value of its financial instruments and its risk exposure in greater detail. There will be no impact on reported income or net assets. Upon adoption of IFRS 8, the Group will disclose segmental information when evaluating performance and deciding how to allocate resources to operations.
The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the financial statements in the period of initial application.
3 Summary of significant accounting policies
3.1 Basis of presentation
The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarised below. These policies have been consistently applied to all the years presented unless otherwise stated.
The financial statements have been prepared using the historical cost convention, as modified by the revaluation of investment property, leasehold land and certain financial assets and financial liabilities, the measurement bases of which are described in the accounting policies below.
The preparation of financial statements in accordance with IFRS requires the use of certain accounting estimates and assumptions. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 4 to the consolidated financial statements.
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3.2 Basis of consolidation
The consolidated financial statements of the Company for the year ended 30 June 2007 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interests in associates and jointly controlled entities.
3.3 Subsidiaries
Subsidiaries are all entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from their activities. In assessing control, potential voting rights that presently are exercisable or convertible, along with contractual arrangements, are taken into account. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are excluded from consolidation from the date that the control ceases.
In addition, acquired subsidiaries are subject to application of the purchase method. This involves the revaluation at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their revalued amounts, which are also used as the basis for subsequent measurement in accordance with the Group’s accounting policies. Goodwill represents the excess of acquisition cost over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Negative goodwill is immediately allocated to the statement of income as at the acquisition date. All inter-company balances and significant inter-company transactions and resulting unrealised profits or losses (unless losses provide evidence of impairment) are eliminated on consolidation.
A minority interest represents the portion of the profit or loss and net assets of a subsidiary attributable to an equity interest that is not owned by the Group. It is based upon the minority’s share of post-acquisition fair values of the subsidiary’s identifiable assets and liabilities, except where the losses applicable to the minority in the subsidiary exceed the minority interest in the equity of that subsidiary. In such cases, the excess and further losses applicable to the minority are taken to the consolidated statement of income, unless the minority has a binding obligation to, and is able to, make good the losses. When the subsidiary subsequently reports profits, the profits applicable to the minority are taken to the consolidated statement of income until the minority’s share of losses previously taken to the consolidated statement of income is fully recovered.
Changes in ownership interests in a subsidiary that do not result in gaining or losing control of the subsidiary are accounted for using the parent entity method of accounting whereby the difference between the consideration paid and the proportionate change in the parent entity’s interest in the carrying value of the subsidiary’s net assets is recorded as additional goodwill. No adjustment is made to the carrying value of the subsidiary’s net assets as reported in the consolidated financial statements.
3.4 Associates and jointly controlled entities
Associates are those entities over which the Group is able to exert significant influence, generally accompanying a shareholding of between 20% to 50% of voting rights, but which are neither subsidiaries nor investments in joint ventures. In the consolidated financial statements, investments in associates are initially recorded at cost and subsequently accounted for using the equity method.
A jointly controlled entity is a contractual arrangement whereby two or more parties undertake an economic activity where the strategic, financial and operating decisions relating to the activity require the unanimous consent of the venturers.
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Under the equity method, the Group’s interest in an associate or jointly controlled entity is carried at cost and adjusted for the post-acquisition changes in the Group’s share of the associate’s or jointly controlled entity’s net assets less any identified impairment loss, unless it is classified as held for sale or included in a disposal group that is classified as held for sale. The consolidated statement of income includes the Group’s share of the post-acquisition, post-tax results of the associate or jointly controlled entity for the year, including any impairment loss on goodwill relating to the investment in associate or jointly controlled entity recognised for the year.
When the Group’s share of losses in an associate or jointly controlled entity equals or exceeds its interest in the associate or jointly controlled entity, the Group does not recognise further losses, unless it has legal or constructive obligations, or made payments, on behalf of the associate or jointly controlled entity.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate or jointly controlled entity recognised at the date of acquisition is recognised as goodwill. The cost of acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group, plus any costs directly attributable to the investment.
Goodwill is included within the carrying amount of an investment and is assessed for impairment as part of the investment. After the application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investments in its associates and jointly controlled entities. At each balance sheet date, the Group determines whether there is any objective evidence that an investment in an associate or jointly controlled entity is impaired. If such indications are identified, the Group calculates the amount of impairment as being the difference between the recoverable amount of the associate or jointly control entity and its respective carrying amount.
Unrealised gains on transactions between the Group and its associates and jointly controlled entities are eliminated to the extent of the Group’s interest in an associate or jointly controlled entity. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
3.5 Functional and presentation currency
The consolidated financial statements are presented in United States Dollars (USD) (“the presentation currency”). The financial statements of each consolidated entity are prepared in either USD or the currency of the primary economic environment in which the entity operates (“the functional currency”), which for most investments is Vietnamese Dong. USD is used as the presentation currency because it is the primary basis for the measurement of the performance of the Group (specifically changes in the Net Asset Value of the Group) and a large proportion of significant transactions of the Group are denominated in USD.
3.6 Foreign currency translation
In the individual financial statements of the consolidated entities, transactions arising in currencies other than the reporting currency of the individual entity are translated at exchange rates in effect on the transaction dates. Monetary assets and liabilities denominated in currencies other than the reporting currency of the individual entity are translated at the exchange rates in effect at the balance sheet date. Translation gains and losses and expenses relating to foreign exchange transactions are recorded in the statement of income.
In the consolidated financial statements all separate financial statements of subsidiaries, if originally presented in a currency different from the Group’s presentation currency, are converted into USD. Assets and liabilities are translated into USD at the closing rate of the balance sheet date. Income and expenses are converted into the Group’s presentation currency at the average rates over the reporting period. Any differences arising from this translation are charged to the currency translation reserve in equity.
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3.7 Revenue recognition
Goods and services rendered
Revenue from sale of goods and provision of services is recognised in the combined statement of income when the significant risks and rewards of ownership have been transferred to the buyer or the services have been provided. No revenue is recognised if there are significant uncertainties regarding the ultimate receipt of the proceeds or the reasonable estimation of the associated costs of the sale, or the possibility of the return of the goods.
Rental income
Rental income from investment property is recognised in the statement of income on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income.
Interest income
Interest income is recognised on an accrual and, if applicable, effective yield basis.
Dividend income
Dividend income is recorded when the Group’s right to receive the dividend is established.
3.8 Expense recognition
Borrowing costs
Borrowing costs, comprising interest and related costs, are recognised as an expense in the period in which they are incurred, except for borrowing costs relating to the construction of property, plant and equipment and investment property under development, which are capitalised as a cost of the related assets.
Operating lease payments
Payments made under operating leases are recognised in the statement of income on a straight-line basis over the term of the lease. Lease incentives received are recognised in the statement of income as an integral part of the total lease expense.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
3.9 Intangible assets
Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Expenditure on internally generated goodwill and brands is recognised in the statement of income as an expense when incurred.
Amortisation
Amortisation is charged to the statement of income on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:
Software 3 to 5 years
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3.10 Goodwill
Goodwill represents the excess of the cost of acquisition of subsidiary companies and associated companies over the Group’s share of the fair value of their identifiable net assets at the date of acquisition.
Goodwill is recognised at cost less any accumulated impairment losses. The carrying value of goodwill is subject to an annual impairment review and whenever events or changes in circumstances indicate that it may not be recoverable. An impairment charge will be recognised in the statement of income when the results of such a review indicate that the carrying value of goodwill is impaired (see accounting policy 3.18).
Negative goodwill represents the excess of the Group’s interest in the fair value of identifiable net assets and liabilities over cost of acquisition. It is recognised directly in the statement of income at the date of acquisition.
Gains and losses on disposal of an entity include the carrying amount of goodwill relating to the entity disposed of.
3.11 Investment property
Investment properties are properties owned or held under finance lease to earn rentals or capital appreciation, or both, or held for a currently undetermined use. Property held under operating leases (including leasehold land) that would otherwise meet the definition of investment property is classified as investment property on a property by property basis. If a leased property does not meet this definition it is recorded as an operating lease.
Investment properties are stated at fair value. Two independent valuation companies, with appropriately recognised professional qualifications and recent experience in the location and category being valued, value each property each year. On the valuation date, the fair value is estimated assuming that there is an agreement between a willing buyer and a willing seller in an arm’s length transaction after proper marketing; wherein the parties had each acted knowledgeably, prudently and without compulsion. The valuations are prepared based upon direct comparison with sales of other similar properties in the area and the expected future discounted cash flows of a property using a yield that reflects the risks inherent in those cash flows. Valuations are reviewed and approved by the Valuation Committee of the Board of Directors. The Valuation Committee may adjust valuations if there are factors that the external independent valuers have not considered in their determination of a property’s fair value.
Any gain or loss arising from a change in fair value is recognised in the income statement. Rental income from investment property is accounted for as described in the accounting policy 3.7.
When an item of property, plant and equipment is transferred to investment property following a change in its use, any differences arising at the date of transfer between the carrying amount of the item immediately prior to transfer and its fair value is recognised directly in equity if it is a gain. Upon disposal of the item the gain is transferred to retained earnings. Any loss arising in this manner is recognised in the statement of income immediately.
Properties where more than 10% of the property is occupied by the Group for the production or supply of goods and services, or for administration purposes, is accounted for as property, plant and equipment (see accounting policy 3.13).
3.12 Investment property under development
Property that is being constructed or developed for future use as investment property is classified as investment property under development (development projects) and stated at cost until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property. At the date of transfer, the difference between fair value and cost is recorded as income in the consolidated statement of income.
All costs directly associated with the purchase and construction of a property, and all subsequent capital expenditures for the development qualifying as acquisition costs are capitalised.
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Borrowing costs are capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalisation of borrowing costs continues until the assets are substantially ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost financed out of general funds, to the average rate.
3.13 Property, plant and equipment
Owned assets
All property, plant and equipment, except buildings, are stated at cost less accumulated depreciation and impairment losses (see accounting policy 3.18). The cost of self-constructed assets includes the cost of materials, direct labour, overheads and the initial estimate of the costs of dismantling and removing the items and restoring the site on which they are located.
Buildings are revalued to fair value in accordance with the methods set out in accounting policy 3.11. Any surplus arising on the revaluation is recognised in a revaluation reserve within equity, except to the extent that the surplus reverses a previous revaluation deficit on the building charged to the statement of income, in which case a credit to that extent is recognised in the statement of income. Any deficit on revaluation is charged in the statement of income except to the extent that it reverses a previous revaluation surplus on a building, in which case it is taken directly to the revaluation reserve.
If an investment property is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its deemed cost for subsequent accounting.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
Leased assets
Leases under the terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Property, plant and equipment and investment property acquired by way of a finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.
Subsequent expenditure
The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. The carrying values of any parts replaced as a result of such replacements are expensed at the time of replacement. All other costs associated with the maintenance of property, plant and equipment are recognised in the statement of income as incurred.
Depreciation
Depreciation is charged to the statement of income on a straight-line basis over the estimated useful lives of property, plant and equipment, and major components that are accounted for separately. The estimated useful lives are as follows:
41
Leasehold improvements 5 to 20 years
Plant, machinery and equipment 5 to 10 years
Office furniture and fittings 4 to 9 years
Motor vehicles 5 to 10 years
Assets held under finance leases which do not transfer title to the assets to the Group at the end of the lease are depreciated over the shorter of the estimated useful lives shown above and the term of the lease.
3.14 Property held for sale
Property intended for sale in the ordinary business or property developed for sale is classified as trading property and is accounted for as inventory. Leasehold land upon which trading properties are constructed, or are in the process of construction, is classified as investment property.
Property held for sale is stated at the lower of cost and net realisable value. Cost includes development costs and other direct costs attributable to the properties concerned until they reach a saleable state. Net realisable value represents the estimated selling price in the ordinary course of business less all estimated costs of completion and the estimated costs necessary to make the sale.
3.15 Leases
Leases under the terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases (see accounting policy 3.13).
Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases. Where the Group has the use of an asset held under an operating lease, payments made under the lease are charged to the statement of income on a straight line basis over the term of the lease. Prepayments for operating leases represent property held under operating leases where a portion, or all, of the lease payments have been paid in advance, and the properties cannot be classified as an investment property.
3.16 Financial assets
Financial assets, other than hedging instruments, are divided into the following categories: loans and receivables; financial assets at fair value through profit or loss; available-for-sale financial assets; and held-to-maturity investments.
Management determines the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired. Where allowed and appropriate, management re-evaluates this designation at each reporting date. The designation of financial assets is based on the investment strategy set out in the Group’s Admission Document to the London Stock Exchange’s Alternative Investment Market, dated 24 September 2003.
All financial assets are recognised when, and only when, the Group becomes a party to the contractual provisions of the instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at a fair value through profit or loss, directly attributable transaction costs.
Derecognition of financial assets occurs when the rights to receive cash flows from the investments expires or are transferred and substantially all of the risks and rewards of ownership have been transferred. At each balance sheet date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exits, any impairment loss is determined and recognised based on the classification of the financial assets.
The Group’s financial assets consist primarily of listed and unlisted equities, bonds, loans and receivables.
42
Loans and receivables
All loans and receivables, except trustee loans, are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition these are measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss. The Group’s trade and most other receivables fall into this category of financial instruments. Discounting, however, is omitted where the effect of discounting is immaterial.
Significant receivables are considered for impairment on a case-by-case basis when they are overdue at the balance sheet date or when objective evidence is received that a specific counterparty will default.
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 by the entity to be carried at fair value through profit or loss upon initial recognition. By definition, all derivative financial instruments that do not qualify for hedge accounting fall into this category. Other financial assets at fair value through profit or loss held by the Company include listed and unlisted securities and trustee loans.
Any gain or loss arising from derivative financial instruments is based on changes in fair value, which is determined by direct reference to active market transactions or using industry standard valuation techniques where no active market exists.
Financial assets at fair value through profit and loss includes trustee loans to banks and other parties where the Group receives interest and other income on the loans calculated based on the proceeds from the sales of specific assets held by the counterparties. Fair value is determined based on the expected future discounted cash flows from each loan.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are subsequently measured at fair value. Gains and losses arising from changes in their fair values are recognised directly in equity, except for impairment losses, until the financial asset is derecognised, at which time the cumulative gain or loss previously recognised in equity would be recognised in the statement of income.
For available for sale investment in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition.
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities. Investments are classified as held-to-maturity if it is the intention of the Group to hold them until maturity. The Group currently holds bonds which fall within this category of financial assets.
Held-to-maturity investments are subsequently measured at amortised cost using the effective interest rate method. In addition, if there is objective evidence that the investment has been impaired, the financial asset is measured at the present value of estimated cash flows. Any changes to the carrying amount of the investment are recognised in the statement of income.
43
3.17 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost includes all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Financing costs are not taken into consideration. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses.
3.18 Impairment of assets
The Group’s goodwill; intangible assets; operating lease prepayments; property, plant and equipment; property held for development; and interests in associates and jointly controlled entities are subject to impairment testing.
For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill in particular is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management controls the related cash flows.
All individual assets or cash generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised as an expense immediately for the amount by which the asset’s carrying amount exceeds its recoverable amount unless the relevant asset is carried at a revalued amount under the Group’s accounting policy, in which case the impairment loss is treated as a revaluation decrease according to that policy. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets.
3.19 Income taxes
Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in the statement of income.
Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss.
Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantially enacted at the balance sheet date. Most changes in deferred tax assets or liabilities are recognised as a component of tax expense in the statement of income. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to equity are charged or credited directly to equity.
44
3.20 Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand as well as short term highly liquid investments such as money market instruments and bank deposits with an original maturity term of not more than three months.
3.21 Equity
Share capital is determined using the nominal value of shares that have been issued. Additional paid in capital includes any premiums received on the initial issuance of the share capital. Any transaction costs associated with the issuing of shares are deducted from additional paid-in capital, net of any related income tax benefits.
Currency translation differences on net investment in foreign operations are included in the translation reserve.
Retained earnings include all current and prior period results as disclosed in the consolidated statement of change in equity.
3.22 Financial liabilities
The Group’s financial liabilities include trade and other payables and other liabilities.
Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest related charges are recognised as an expense in finance costs in the statement of income.
Trade payables are recognised initially at their fair value and subsequently measured at amortised cost, using the effective interest rate method.
Borrowings are raised for support of long term funding of the Group’s investments. They are recognised at fair value.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
3.23 Provisions, contingent liabilities and contingent assets
Provisions are recognised when present obligations will probably lead to an outflow of economic resources from the Group that can be reliably estimated. A present obligation arises from the presence of a legal or constructive obligation that has resulted from past events. Provisions are not recognised for future operating losses.
Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Long term provisions are discounted to their present values, where the time value of money is material.
All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate of Group’s management.
The Group does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the rare circumstance where there is a liability that cannot be recognised because it cannot be measured reliably.
45
A contingent asset is a possible asset that arises from past events that’s existence will be confirmed by uncertain future events beyond the control of the Group. The Group does not recognise contingent assets but discloses their existence when inflows of economic benefits are probable, but not virtually certain.
3.24 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. Parties are considered to be related to the Group if:
1. directly or indirectly, a party controls, is controlled by, or is under common control with the Group; has an interest in the Group that gives it significant influence over the Group; or has joint control over the Group;
2. a party is a jointly-control entity;
3. a party is an associate; or
4. a party is a member of the key management personnel of the Group.
3.25 Segment reporting
An investment segment is a group of assets that are subject to risks and returns that are different from those of other business segments.
A geographical segment is a particular economic environment that is subject to risks and return that are different from those of segments operating in other economic environments.
4 Critical accounting estimates and judgements
When preparing the financial statements the Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:
Fair value of investment properties and buildings
The investment properties and buildings of the Group are stated at fair value in accordance with the accounting policies. The fair values of investment properties and buildings have been determined by independent professional valuers including: CB Richard Ellis; Chesterton Petty; Jones Lang LaSalle; and Sallmanns. These valuations are based on certain assumptions, which are subject to uncertainty and might materially differ from the actual results.
Impairment of trade and other receivables
The Group’s management determines the provision for impairment of trade and other receivables on a regular basis. This estimate is based on the credit history of its customers and prevailing market conditions.
Fair value of financial instruments
The fair value of financial instruments that are not traded in an active market (for example, unlisted securities) is determined by using industry standard valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date.
Impairment of assets
The Group’s goodwill; intangible assets; operating lease prepayments; property, plant and equipment; property held for development; and interests in associates and jointly controlled entities are subject to impairment testing in accordance with the accounting policy stated in note 3.18.
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5 Comparative figures
Certain figures for the year ended 30 June 2006, which are included in this year’s financial statements for comparative purposes, have been reclassified to conform to current year’s presentation. The only reclassification is detailed under Note 18.
6 Segment reporting
Segment information is presented in respect to the Group’s investment and geographical segments. The primary format, investment segment, is based on the investment manager’s management and monitoring of investments. Investments are allocated into four main segments: capital markets, private equity, real estate (including real estate related loans) and cash (including term deposits and bonds). The Group’s secondary reporting format, geographical segments, includes Vietnam and the Asia Pacific region.
To determine the geographical segments for financial instruments the following rules have been applied:° Listedshares−placeofprimarylisting;° Unlistedshares−placeofincorporationoftheissuer;° Privateequity−placeofincorporationoftheissuer;° Realestate−locationofproperty;and° Cash−placeofdeposit.
7 Subsidiaries
Acquisition of subsidiary
On 1 September 2006, the Group acquired a further 15.1% interest in A&B Development Joint Stock Company (“A&B JSC”), which is incorporated in Vietnam. This acquisition increased the Group’s beneficial ownership in A&B JSC to 50.1%, thus making A&B JSC a subsidiary of the Group. The total cost of the first and second acquisitions
2007 2006
Vietnam Asia Pacific Total Vietnam Asia Pacific Total
Income
Capital markets 314,861,357 9,195,521 324,056,878 79,467,427 - 79,467,427
Private equity 633,498 - 633,498 28,215,962 - 28,215,962
Real estate 32,677,849 - 32,677,849 3,410,148 - 3,410,148
Cash 2,993,678 3,307,154 6,300,832 390,615 416,695 807,310
351,166,382 12,502,675 363,669,057 111,484,152 416,695 111,900,847
Total assets
Capital markets 582,938,856 31,444,000 614,382,856 158,266,146 - 158,266,146
Private equity 26,015,369 - 26,015,369 24,258,637 - 24,258,637
Real estate 161,212,244 - 161,212,244 58,209,806 - 58,209,806
Cash 121,626,453 1,548,567 123,175,020 36,352,550 854,754 37,207,304
891,792,922 32,992,567 924,785,489 277,087,139 854,754 277,941,893
Unit: USD
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A&B JSC’s net income since acquisition date is nil due to the fact that it has not yet started commercial activities.
Negative goodwill amounting to USD 2,984,094 has been recognised in the statement of income for the year ended at 30 June 2007.
Current assets USD Current liabilities USD
Cash and cash equivalents 2,134
Trade and other receivables 132,740 Trade and other payables 375,726
134,874 375,726
Non-current assets Non-current liabilities
Plant, property and equipment 118,492 Long term loans -
Investment property 14,000,000 Other non-current liabilities -
14,118,492 -
14,253,366 375,726
Name Place of incorporation/
operations
Nominal value of issued share capital/registered
capital USD
Percentage interestheld by the Group
Principal activities
Asia Value Investment Ltd BVI 50,000 100% Investment
Vietnam Enterprise Ltd BVI 50,000 100% Investment
Vietnam Investment Property Ltd BVI 50,000 100% Investment
Vietnam Investment Property Holdings Ltd BVI 50,000 100% Investment
Vietnam Investment Ltd BVI 50,000 100% Investment
Vietnam Ventures Ltd BVI 50,000 100% Investment
VOF Investment Ltd BVI 50,000 100% Investment
Vina QSR Limited BVI 50,000 100% Investment
Indochina Building Supplies Pte Ltd Singapore 3,384,000 100% Building materials
American Home Limited Vietnam 23,400,000 75% Building materials
Indotel Limited Singapore 3,480,000 57.7% Hospitality
SDM Nederland 22,000 57.7% Investment
Pegasus Leisure Limited BVI 2,475,000 100% Property
Saigon Water Park Vietnam 3,536,000 70% Property
A&B JSC Vietnam 1,476,254 50.1% Property
Significant subsidiaries
were USD 1,250,147 and USD 2,718,457, respectively, which were settled in cash. The fair values of the A&B JSC’s assets and liabilities acquired on 1 September 2006 were:
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2007 2006
1 July - -
Acquisition of subsidiary 14,000,000 -
Net gain on fair value adjustments 1,124,235 -
30 June 15,124,235 -
Investment property acquired during the year reflects the fair value of leasehold land held by A&B JSC, a subsidiary acquired during the year (Note 7).
The net gain on fair value adjustments of investment properties relates to the revaluation of the leasehold land for Vista Villas, which was revalued on 30 June 2007 by an independent professional qualified valuer: CB Richard Ellis Ltd.
9 Property, plant and equipment
Leasehold improvements
Plant and machinery
Equipment Furniture and fixtures
Vehicles Total
Historical cost
1 July 2006 6,494,670 15,758,629 5,601,730 555,829 406,660 28,817,518
New purchases 17,906 - 814 1,909 - 20,629
Acquisition of subsidiary 7,019 - - 2,964 - 9,983
Disposals (6,676) - (12,115) (4,495) (13,872) (37,158)
Write offs (98,866) - (95,674) - - (194,540)
Translation differences (211,437) (600,363) (48,255) (12,567) 3,529 (869,093)
30 June 2007 6,202,616 15,158,266 5,446,500 543,640 396,317 27,747,339
Accumulated depreciation
1 July 2006 (3,451,677) (15,513,900) (4,729,282) (465,327) (383,197) (24,543,383)
Charge for the year (240,599) (44,920) (267,394) (16,646) (3,929) (573,488)
Disposals 5,177 - 10,844 4,126 13,872 34,019
Impairment loss - - (593,728) - - (593,728)
Write offs 98,866 - 95,674 - - 194,540
Translation differences 98,033 591,301 40,739 17,038 14,541 761,652
30 June 2007 (3,490,200) (14,967,519) (5,443,147) (460,809) (358,713) (24,720,388)
Net book value
1 July 2006 3,042,993 244,729 872,448 90,502 23,463 4,274,135
30 June 2007 2,712,416 190,747 3,353 82,831 37,604 3,026,951
Unit: USD8 Investment properties
49
2007 2006
1 July 2,271,821 -
Additional costs incurred 1,691,974 2,271,821
Translation differences 3,629 -
30 June 3,967,424 2,271,821
Including:
Vista Villas project 632,933 96,551
A&B Tower project 922,563 -
Binh Trieu apartment project 1,761,209 1,529,753
Marie Curie Suites project 645,517 645,517
Others 5,202 -
Total 3,967,424 2,271,821
11 Investments in associates
2007 2006
1 July 23,844,581 9,854,600
Addition from acquisition of associates 9,869,179 13,437,970
Share of associates’ profits (losses), net 21,038,389 552,011
Reversal of impairment losses (*) 232,360 -
Share of associates’ change in revaluation reserves 17,716,945 -
Transferred to financial assets at fair value through profit or loss (**) (1,544,411) -
Dividends received (1,980,403) -
30 June 69,176,640 23,844,581
(*): Reversal of impairment losses represents the reversal of a previously recorded impairment loss in S.E.M Thong Nhat Hotel Metropole.
(**): During the year, following an issue of shares by an associate, the Group’s share in this associate reduced and the Group lost its influence over the entity. As the entity ceased to be an associate of the Group, shares in this entity have been classified as a financial asset as at fair value through profit or loss in the consolidated balance sheet.
Unit: USD
Unit: USD
10 Investment properties under development
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The closing balance as at 30 June 2007 consists of: USD
Hung Vuong Corporation 9,702,863
International School of Ho Chi Minh City 1,842,126
Kinh Do Property Limited 5,196,765
Phong Phu Investment Development Ltd 767,675
T.D Corporation 1,114,464
Saigon Golf 1,250,234
S.E.M Thong Nhat Hotel Metropole 32,319,651
Pho Viet 2,348,946
Subsidiaries of Vinaland Ltd 14,633,916
Total 69,176,640
Particulars of operating associates and their summarised financial information, extracted from their audited/unaudited and/or management accounts as at 30 June 2007 are as follows:
Country of
incorporation/
operation
Equity
interest
held %
Principle
activity
Assets Liabilities Revenue Profit/ (loss)
Hung Vuong Corporation Vietnam 33.30 Property 52,191,109 28,349,384 - 13,480,247
International School
of Ho Chi Minh CityVietnam 35.00 Education 10,717,385 7,712,093 10,660,266 1,716,751
Kinh Do Property Limited Vietnam 23.33 Property 28,649,159 7,246,902 - (253,900)
Phong Phu Investment
Development LtdVietnam 30.00 Investment 4,258,533 2,855,795 5,863 35,472
T.D Corporation Vietnam 30.00 Hospitality 3,866,677 568,168 - -
Saigon Golf Vietnam 20.00 Hospitality 8,142,163 - 18,836 18,836
S.E.M Thong Nhat
Hotel MetropoleVietnam 28.83 Hospitality 49,703,194 23,025,165 7,245,852 3,876,640
Pho Viet JV Vietnam 30.00Food
& Beverages80,081 217 - (16,289)
Vietnam Property Holding Ltd BVI 25.00 Property 121,837,673 93,930,554 43,768 27,971,132
Prosper Big Ltd BVI 25.00 Property 59,012,584 37,092,620 3,079 21,889,428
VinaCapital Danang Resorts Ltd BVI 25.00 Property 12,898,847 4,351,997 - 7,096,375
Cypress Assets Ltd BVI 25.00 Property 8,575,030 486,681 545 (45,334)
Roxy Assets Ltd BVI 25.00 Property 39,435,308 34,649,896 - -
VinaCapital Long An Industry Ltd BVI 25.00 Property 1,542,373 1,555,843 - (13,570)
Greenstar Global Ltd BVI 25.00 Property 15,561,249 15,574,348 - (13,198)
Standbrook Global Ltd BVI 25.00 Property 26,441,111 26,515,946 - (74,839)
Unit: USD
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Unit: USD
Unit: USD
12 Other long term investments
2007 2006
Non-listed equity shares 1,201,446 6,407,928
Convertible notes - 2,022,242
Other 753,039 753,039
1,954,485 9,183,209
Investments in non-listed equity shares that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition.
13 Loan receivables
2007 2006
Loans to associates 39,740,231 17,567,292
Loans to minority shareholders 1,719,443 1,915,154
Other - 177,034
41,459,674 19,659,480
Loans to associates are unsecured, interest free and are repayable by end of 2012. The loans are carried at amortised costs at the balance sheet date. Details of loans to associates as at 30 June 2007 are as follows:
VinaCapital Danang Resorts Ltd 1,450,500
Cypress Assets Limited 2,133,557
Prosper Big Investment Limited 8,189,923
VinaCapital Long An Industry Ltd 316,801
Greenstar Global Limited 3,890,178
Vietnam Property Holding Ltd 11,477,105
Roxy Assets Limited 4,785,758
Hung Vuong Corporation 7,496,409
39,740,231
Unit: USD
52
2007 2006
1 July 2,109,491 2,226,682
Translation differences (80,025) (58,749)
Charge for the year (58,442) (58,442)
30 June 1,971,024 2,109,491
14 Prepayments for operating leases
17 Trade and other receivables
Prepayments for operating leases relates to the land occupied by American Home, a subsidiary of the Group, until 2024. The prepayment is allocated to the statement of income over the life of the lease.
15 Goodwill
2007 2006
1 July 1,719,231 -
Additions 33,457 1,719,231
30 June 1,752,688 1,719,231
During the year the Group acquired a further 10,000 ordinary shares of Indotel Limited. The parent entity method has been applied to account for this transaction. The additional goodwill of USD 33,457 arising from this transaction has been recorded in the Group’s balance sheet.
Annual impairment tests were performed for goodwill and no impairment loss is considered necessary during the year.
16 Inventories
As at 30 June 2007, the USD 4,755,153 of inventory on hand (30 June 2006: USD 4,319,823) included: finished goods of USD 1,775,000, raw materials of USD 1,736,000, and tools and supplies of USD 808,823, held by American Home, a subsidiary of the Group.
2007 2006
Trade receivables 1,576,967 1,234,156
Prepayments to customers 34,212 2,266
Short term loan receivables 19,725,450 2,312,174
Other receivables 4,551,615 4,897,100
Other current assets 225,320 -
26,113,564 8,445,696
Unit: USD
Unit: USD
Unit: USD
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Unit: USD
Unit: USD
Short term loan receivables comprise of the following short term loans to associates that are interest free and have no fixed term of repayment:
Vietnam Property Holding Limited 9,614,267
Standbrook Limited 7,460,000
Phong Phu Textile 2,651,183
Total 19,725,450
As all trade and other receivables are short term in nature their carrying value is considered a reasonable approximation of their fair value as at balance sheet date.
18 Financial assets held at fair value through profit and loss
2007 2006
Designated at fair value through profit or loss:
Financial assets in Vietnam
Ordinary shares – listed 310,146,231 90,345,054
Ordinary shares – unlisted 269,583,793 69,943,334
Government bonds 759,172 4,500,844
Corporate bonds 3,098,661 -
Loan contracts at fair value through profit and loss (*) 9,543,326 3,243,221
Financial assets in countries other than Vietnam
Ordinary shares – listed 31,444,305 -
Total designated at fair value through profit or loss at inception 624,575,488 168,032,453
Total financial assets at fair value through profit or loss 624,575,488 168,032,453
(*) The Group provides loans to banks and other parties and receives interest on the loans calculated based upon the proceeds from the sales of specific property assets owned by the counterparties. Last year, these loans were presented under investment property, but have been reclassified and presented as loan contracts at fair value through profit and loss in the current year to more accurately reflect the appropriate nature of these assets. The prior year comparative financial information has been adjusted to reflect this change.
19 Held-to-maturity investments
Held-to-maturity investments represent term deposits at local banks and bonds. The average deposit term is six months.
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Unit: USD
Unit: USD
Unit: USD
20 Deposits for acquisitions of investments
2007 2006
Deposits for bid participation 3,208,527 -
Deposits for investment projects 7,233,635 -
10,442,162 -
21 Cash and cash equivalents
2007 2006
Cash on hand 68,810 -
Cash at bank 71,307,784 32,706,460
71,376,594 32,706,460
22 Share capital
2007 2006
Number of shares USD Number of shares USD
Authorised:
Ordinary shares of USD0.01 each 500,000,000 5,000,000 500,000,000 5,000,000
Issued and fully paid:
At 1 July 122,657,202 1,226,572 75,154,654 751,547
New shares issued 127,991,212 1,279,911 47,502,548 475,025
At 30 June 250,648,414 2,506,483 122,657,202 1,226,572
23 Additional paid-in capital
Additional paid in capital represents the excess of consideration received over the par value of share issued.
2007 2006
1 July 164,950,181 91,634,442
Additional paid-in capital during the year 294,200,599 73,315,739
30 June 459,150,780 164,950,181
55
Unit: USD
Unit: USD
Unit: USD
24 Revaluation reserve
2007 2006
1 July - -
Additions:
Sofitel Metropole Hanoi Hotel 17,347,158 -
Hilton Hanoi Opera Hotel 369,787 -
30 June 17,716,945 -
The Group’s share of valuation gains resulting from the revaluation of subsidiaries’ and associates’ properties have been recorded directly in the Group’s revaluation reserve under shareholders’ equity.
25 Trade and other payables
2007 2,006
Trade payables 3,162,553 1,243,358
Performance and management fees payable 70,195,399 15,933,024
Other accrued liabilities 103,252 109,631
Other payables 1,555,079 190,159
75,016,283 17,476,172
As all trade and other payables are short term in nature, their carrying values are considered a reasonable approximation of their fair values as at balance sheet date.
26 Other income
Included in other income of USD 3,581,928 is negative goodwill of USD 2,984,084 with respect to the acquisition of A&B JSC. The detailed disclosure is contained within Note 7.
27 Administration expenses
2007 2006
Performance fees 68,850,611 15,495,436
Management fees 12,012,053 4,348,661
Professional fees 407,477 440,418
General administration expenses 4,178,784 4,813,138
Other expenses 904,673 1,245,952
86,353,598 26,343,605
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28 Other net changes in fair value on financial assets at fair value through profit or loss
2007 2006
Unrealised 255,441,202 62,112,662
Realised 59,764,983 16,123,710
315,206,185 78,236,372
29 Financial income
2007 2006
Dividend and interest income 13,007,466 4,750,991
Other income 258,866 142,312
13,266,332 4,893,303
30 Corporate income tax
Vietnam Opportunity Fund Limited is domiciled in the Cayman Islands. Under the current laws of the Cayman Islands, there is no income, State, corporation, capital gains or other taxes payable by the Company.
The majority of the Group’s associates are domiciled in the British Virgin Islands (BVI) and so have a tax exempt status. Some of the subsidiaries are established in Singapore and have offshore operations in Vietnam. The income from these offshore operations is also tax exempt. A small number of subsidiaries are established in Vietnam and are subject to corporate income tax in Vietnam, however no provision for corporate income tax has been made for these Vietnamese subsidiaries of the Group for the year ended 30 June 2007 as they either incurred losses, have unutilised tax holidays, or have sufficient carry-forward tax losses to offset any taxable income.
Under the law of Vietnam, tax losses can be carried forward to offset with future taxable income for five years from the year the loss incurred. The amount of unrecognised deferred tax assets of USD 307,390 relating to losses carried forward has not been recorded due to uncertainties as to their recoverability.
31 Earnings per share(a) BasicBasic earnings per share are calculated by dividing the profit attributable to shareholders of the Group by the weighted average number of ordinary shares on issue during the year.
2007 2006
Profit attributable to equity holders of the company (USD) 264,166,937 74,932,600
Weighted average number of ordinary shares on issue 197,318,742 98,905,928
Basic earnings per share (USD per share) 1.34 0.76
Unit: USD
Unit: USD
Unit: USD
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Unit: USD
(b) DilutedDiluted 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 Group has no category of dilutive potential ordinary shares. Therefore, diluted earnings per share are equal to basic earnings per share.
32 Directors’ remuneration
The emoluments paid or payable to the directors during the year were as follows:
2007 2006 Remarks
Jonathan Choi 20,000 20,000
Horst Geicke 20,000 20,000
William Vanderfelt 20,000 20,000
Robert Knapp - 20,000 Resigned 1 July 2007
Bernard Grigsby 14,167 - Appointed 16 October 2006
Philip Skevington 14,167 - Appointed 16 October 2006
88,334 80,000
33 Related party transactions
Management fees
The Group is managed by VinaCapital Investment Management Limited (the “Investment Manager”), an investment management company incorporated in the British Virgin Islands (“BVI”), under a management agreement dated 24 September 2003 (the “Management Agreement”). The Investment Manager receives a fee based on the net asset value of the Group, payable monthly in arrears, at an annual rate of 2% (30 June 2006: 2.5%).
Total management fees for the year amounted to USD 12,012,053 (2006: USD 4,348,221), with USD 1,417,292 (2006: USD 536,053) in outstanding accrued fees due to the Investment Manager at the end of the year.
Performance fees
In accordance with the Management Agreement, the Investment Manager is also entitled to a performance fee equal to 20% of the realised returns over an annualised compounding hurdle rate of 8% (30 June 2006: hurdle rate of 10%).
Total performance fees, for the year amounted to USD 68,850,611 (2006: USD 15,396,334), with USD 68,778,107 (2006: USD 15,396,334) in outstanding accrued fees due to the Investment Manager at the end of the year.
Placement fees
When raising capital through the issuance of new Ordinary Share a commission equal to 3% of the subscription price multiplied by the total number of the shares allotted by the Group on admission is payable by the Group to the Investment Manager. The Investment Manager is responsible for paying placing agents that are engaged in respect to such subscriptions. The net proceeds of share subscriptions are recorded after netting off placement fees.
Total placement fees for the year amounted to USD 9,138,572 (2006: USD 2,213,710), with no (2006: Nil) outstanding accrued fees due to the Investment Manager at the end of the year.
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33 Related party transactions
Management fees
The Group is managed by VinaCapital Investment Management Limited (the “Investment Manager”), an investment management company incorporated in the British Virgin Islands (“BVI”), under a management agreement dated 24 September 2003 (the “Management Agreement”). The Investment Manager receives a fee based on the net asset value of the Group, payable monthly in arrears, at an annual rate of 2% (30 June 2006: 2.5%).
Total management fees for the year amounted to USD 12,012,053 (2006: USD 4,348,221), with USD 1,417,292 (2006: USD 536,053) in outstanding accrued fees due to the Investment Manager at the end of the year.
Performance fees
In accordance with the Management Agreement, the Investment Manager is also entitled to a performance fee equal to 20% of the realised returns over an annualised compounding hurdle rate of 8% (30 June 2006: hurdle rate of 10%).
Total performance fees, for the year amounted to USD 68,850,611 (2006: USD 15,396,334), with USD 68,778,107 (2006: USD 15,396,334) in outstanding accrued fees due to the Investment Manager at the end of the year.
Placement fees
When raising capital through the issuance of new Ordinary Shares a commission equal to 3% of the subscription price multiplied by the total number of the shares allotted by the Group on admission is payable by the Group to the Investment Manager. The Investment Manager is responsible for paying placing agents that are engaged in respect to such subscriptions. The net proceeds of share subscriptions are recorded after netting off placement fees.
Total placement fees for the year amounted to USD 9,138,572 (2006: USD 2,213,710), with no (2006: Nil) outstanding accrued fees due to the Investment Manager at the end of the year.
Other related party transactions and balances
During the year, the following transactions with related parties were recorded:
Related party Relation Transaction USD
Vietnam Property Holding Ltd Associate Share profit from associates 6,992,783
Prosper Big Ltd Associate Share profit from associates 5,484,681
VinaCapital Danang Resorts Ltd Associate Share profit from associates 1,774,094
Cypress Assets Ltd Associate Share loss from associates (25)
Roxy Assets Ltd Associate Share loss from associates (1)
VinaCapital LongAn Industry Ltd Associate Share loss from associates (25)
Standbrook Global Ltd Associate Share loss from associates (1)
VinaCapital Commercial Center Ltd Associate Share loss from associates (1)
VNL Development Ltd Associate Share loss from associates (1)
SEM Thong Nhat Hotel Metropole Associate Share profit from associates 1,738,133
Hung Vuong Corporation Associate Share profit from associates 4,479,486
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Unit: USD
Related party Relation Transaction USD
Loan interest 1,069,782
International School of Ho Chi Minh City Associate Share profit from associates 600,863
Phong Phu Investment Associate Share profit from associates 19,183
Kinh Do Property Ltd Associate Share loss from associates (50,780)
At 30 June 2007, in addition to the loans receivable from associates disclosed in Notes 13 and 17, the following balances were outstanding with related parties:
Related party Relation Receivable Payable
Vinaland LtdCommon
management659,202 4,790,326
International School of Ho Chi Minh City Associate 360,402 -
1,019,604 4,790,326
34 Commitments
As at 30 June 2007, the Group is committed under lease agreements to paying the following future amounts:
USD
Within one year 131,373
From two to five years 235,744
Over five years 1,286,776
1,653,893
35 Subsequent events
On 9 October 2007, the Company announced its intention to raise USD 200 million by way of a placement of approximately 54 million new Ordinary Shares at a price of USD 3.68 per share (“the Placement”). The closing date for subscriptions for the Placement was 14 November 2007. On 15 November 2007 the Company announced that the capital raising had been significantly over-subscribed and that the Placement would be increased to approximately 77 million new Ordinary Shares for consideration of approximately USD 285 million. At the date of this report the allotment of shares is still pending.
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Unit: USD
36 Risk management objectives and policies
The Group invests in listed and unlisted equity instruments, debt instruments, assets and other opportunities in Vietnam and Asia Pacific countries with the objective of achieving medium to long-term capital appreciation and providing investors with an attractive level of investment income from dividends.
The Group is exposed to a variety of financial risks: market risk (including currency risk, interest rate risk, and price risk); credit risk; and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group’s risk management is coordinated by its Investment Manager who manages the distribution of the assets to achieve the investment objectives. The most significant financial risks to which the Group is exposed to are described below:
Foreign currency risk
The Group’s exposure to risk resulting from changes in foreign currency exchange rates is low as although transactions in Vietnam are settled in Vietnamese Dong, the value of the Vietnamese Dong is closely linked to that of USD, the reporting currency.
The Group’s exposure to fluctuations in foreign currency exchange rates at the balance sheet date were as follows:
30 June 2007 30 June 2006
Assets denominated in Vietnamese Dong 668,876,482 212,563,713
Liabilities denominated in Vietnamese Dong 11,759,464 13,332,952
Price risk
Price risk is the risk that the value of the instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. As the majority of the Group’s financial instruments are carried at fair value with fair value changes recognised in the income statement, all changes in market conditions will directly affect net investment income.
The Group’s unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Investment Manager provides the Group with investment recommendations that are consistent with the Group’s objectives. The Investment Manager’s recommendations are approved by an Advisory Committee and/or the Board of Directors before investment decisions are implemented.
All securities investments present a risk of loss of capital. The Investment Manager manages this risk 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 Group is monitored by the Investment Manager on a monthly basis and reviewed by the Board of Directors on a quarterly basis.
Cash flow and fair value interest rate risks
The majority of the Group’s financial assets are non-interest bearing. The Group currently has no financial liabilities with floating interest rates. As a result, the Group is not exposed to cash flow interest rate risk. Any excess cash and cash equivalents are invested at short-term market based interest rates.
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Credit risk
Credit risk is the risk that a counterparty will be unable to pay amounts in full when due. Impairment provisions are provided for losses that have been incurred by the Group at the balance sheet date.
All transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered low, as delivery of securities sold is only made once the broker has received payment. Payment is made for purchases once the securities have been received by the broker. The trade will be unwound if either party fails to meet its obligations.
The carrying amount of trade and other receivables and loans represent the Group’s maximum exposure to credit risk in relation to its financial assets. The Group has no other significant concentrations of credit risk.
In accordance with the Group’s policy, the Investment Manager monitors the Group’s credit position on a monthly basis.
Liquidity risk
The Group invests in both listed securities that are traded in active markets and unlisted securities that are not actively traded.
The Group’s listed securities are considered to be readily realisable, as they are mainly listed on the Vietnam Stock Exchange.
Unlisted securities, which are not traded in an organised public market, may be illiquid. As a result, the Group may not be able to quickly liquidate its investments in these instruments at an amount close to fair value in order to respond to its liquidity requirements or to other specific events such as deterioration in the creditworthiness of a particular issuer. However, the Group has the ability to borrow in the short term to ensure sufficient cash is available for any settlements due.
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Directory
The Vietnam Opportunity Fund Limited (“VOF” or the “Company”) is listed on the AIM market of the London Stock Exchange plc. Share price information is available on Bloomberg and Reuters.
ADMINISTRATION
The Company
Vietnam Opportunity Fund Limited P.O. Box 309GTUgland House South Church Street, George Town Grand Cayman Cayman Islands
Custodian, Administrator, and Registrar/Receiving Agent
HSBC Trustee (Cayman) LimitedHSBC HouseMary Street, George TownGrand CaymanCayman Islands
Broker
LCF Edmond De Rothschild Securities Limited Orion House 5 Upper St. Martin’s LaneLondon, WC2H 9EA United Kingdom
Legal Advisers
(English Law)Lawrence Graham Solicitors190 Strand London, WC2R 1JN United Kingdom
(Vietnamese Law) Baker & McKenzie LLP12/F Saigon Tower, 29 Le Duan Boulevard District 1, Ho Chi Minh City,Vietnam
(Cayman Islands Law) Maples and CalderUgland House P.O. Box 309GTSouth Church Street, George Town Grand CaymanCayman Islands
Investment Manager
VinaCapital Investment Management Ltd 17th Floor, Sun Wah Tower 115 Nguyen Hue BoulevardDistrict 1, Ho Chi Minh City Vietnam
Nominated Adviser
Grant Thornton Corporate FinanceGrant Thornton House Melton Street Euston Square London, NW1 2EP United Kingdom
Auditors
Grant Thornton (Vietnam) Ltd. 28th Floor, Saigon Trade Center 33 Ton Duc Thang StreetDistrict 1, Ho Chi Minh City Vietnam
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Ho Chi Minh City (Head Office)17th Floor, Sun Wah TowerNguyen Hue Bldv. Dist. 1Ho Chi Minh CityPhone: (84) 8 821 9930Fax: (84) 8 821 9931
Hanoi6th Floor17 Ngo Quyen, Hoan Kiem DistrictHanoiPhone: (84) 4 936 4630Fax: (84) 4 936 4629
Hong Kong16/F., St. John’s Building33 Garden Road,Central, Hong Kong SARPhone: (852) 2918 0088Fax: (852) 2918 0881
