Final Results
Vietnam Opportunity Fund Limited
08 December 2004
Vietnam Opportunity Fund Limited('VOF' or 'The Company')
8 DECEMBER 2004
Final results for year ended 30 June 2004
Chairman's Statement
The Company is pleased to present the first annual report for the Vietnam
Opportunity Fund Limited (VOF) for the year ended 30 June 2004.
It has been an encouraging first 9 months for the Company. The economy has
performed well, Government reforms have continued to move forward, and the
Company has seen a growing number of interesting investment opportunities.
The economy has continued its impressive run of stable high growth, second only
to that of China. This growth is now supported by three legs - most importantly
the domestic private sector, but now also increasingly exports and FDI. The
domestic private sector expanded 21.8 percent for the first half of 2004,
exports grew by 16.9 percent and FDI grew 11.4 percent and is now higher than
China as a percentage of GDP. It is encouraging that Vietnam is starting to be
seen as a serious investment destination.
Government reforms have continued their slow but steady trajectory, most notably
in pushing forward with the privatization effort. The privatization of Vinamilk
and Bao Minh insurance heralded the beginning of the final phase of
privatization, with the largest companies in the key sectors being sold down.
In terms of investment opportunities the Company has not been opportunity
constrained. It is encouraging to see Vietnamese companies performing well while
valuations are among the lowest in the region and dividend yields among the
highest. In fact, the average ROEs of Vietnam's listed companies are almost four
times those of average Chinese listed companies. Furthermore, the fledgling real
estate market is showing signs of growth as mortgages allow the average citizen
to now more easily buy their own homes.
Overall, the prospects are good and we expect the Company and country to see
continued positive development in 2005.
Jonathan Choi
Chairman
Vietnam Opportunity Fund
Investment Manager's Report
State of The Economy
Vietnam achieved GDP growth of 7.1 percent in the first half of 2004, compared
to 7.2 percent in 2003. This performance is encouraging as Vietnam faced several
challenges in 2004 including severe droughts, avian flu and increases in
international steel and oil prices.
As previously, the non-state sector experienced the largest increase, growing at
21.8 percent, followed by the foreign invested sector at 14.7 percent and the
state-owned sector at 11.9 percent. The increased number of domestic private
enterprises and the accelerated pace of SOE privatization are expected to be key
drivers for the growth of non-state industrial output in the future.
The private sector has contributed over 60 percent of Vietnam's total export
turnover excluding crude oil, since 2001, and consistently outperformed the
state-owned sector since 1997. Within the first four months of 2004, there were
more than 10,000 new enterprises registered nationwide, representing a 38.4
percent increase over the same period in 2003, thus increasing the number of new
private businesses established in Vietnam since 2000 to 140,000.
Exports have also seen positive growth. During the first half year of 2004,
Vietnam reported export revenue of US$11.55 billion, representing an increase of
16.9 percent over the same period of 2003. Vietnam's three largest exports are
crude oil with a turnover of US$2.47 billion, textiles/garments of US$1.96
billion and footwear of US$1.26 billion. Vietnam also continues to prepare for
WTO accession expected in 2006 and full implementation of US BTA in 2010.
According to the Ministry of Planning and Investment (MPI), foreign direct
investment (FDI) committed during the first half of 2004 increased 11.4 percent
over the same period in 2003 to US$1.4 billion. Noteworthy is that the number of
projects has decreased by 4.6 percent, representing an expansion in the size of
projects from previous years. As a percentage of GDP Vietnam surpasses China for
FDI commitments.
The restructuring of SOEs is one of the Government's eight key economic
priorities in developing a platform for sustainable growth. Since 1991, the
aggregate number of SOEs has been reduced by 65 percent to 4,296, while average
capital per SOE has risen from approximately US$0.21 million in 1991 to
approximately US$2.89 million in 2003. From now until the end of 2005, an
additional 2,000 SOEs have been scheduled to undergo privatization through a
pilot scheme intended to eventually publicly list major SOEs. The Government has
introduced a series of measures to accelerate the pace of privatization,
including preferential tax and land rental policies for privatized SOEs,
deferral of asset valuations by Government agencies to external consultants and
auditors, the auction of public assets and the establishment of an asset
management company to restructure distressed public assets.
Banking sector reform is a further Government priority. As part of this
initiative the Government is pushing the consolidation of the highly fragmented
market through increased capital reserve requirements, is encouraging increased
foreign participation in local banks to improve management capabilities and
kicking off its privatization program. In 2004, it announced the forthcoming
privatization of the two largest state-owned commercial banks (SOCB),
Vietcombank and Mekong Delta Housing Bank, and completed a successful public
offering of Bao Minh, the second largest domestic player in the non-life
insurance market.
The HCMC Stock Trade Center (STC), Vietnam's stock exchange celebrated its
fourth anniversary of inauguration in July 2004. Performance has been positive
in the year to date with the STC index having increased 49.6 percent from
December 2003 to 30 June 2004. The rise in the market has been driven partly by
increased foreign investor participation, reflecting more positive sentiment
towards the country and markets. However, the capitalization and number of
listed stocks remains small and the Government must improve the incentives to
encourage companies to move from the OTC market to a full stock market listing.
Foreign ownership also remains limited to 30 percent. This limit now has been
reached in a large proportion of companies, thus limiting significant further
foreign investor activity - despite there being significant capital available
from investment funds and insurance companies. Furthermore, development of the
real estate market is offering an alternative to retail investors.
Portfolio Performance
Following a 5 percent decease in NAV to US$0.95 per share for the first quarter
to 30 December 2003 due to start up and operating expenses, NAV increased to
US$1.14 per share by 30 June 2004, representing a 13.3 percent increase. We are
highly encouraged to have quickly found attractive investments that earned a 20
percent return from our post IPO capital base.
Realized Income
Total realized income for the period is US$304,561 or 2.8 percent of the Fund's
NAV
Income 30 June 2004
-------- --------------
Bond Interest $36,773
Dividend 7,635
Gain on sales of shares 200,397
Other income 59,756
---------------- ------------------------------
Total $304,561
Portfolio Summary
By the end of June 2004, VOF had invested 76.33 percent of its committed capital
of US$9.5 million: 14.18 percent is invested in property projects, 19.55 percent
in 7 listed shares on the HCMC STC, 10.33 percent in two private equity
investments and 32.27 percent invested across 13 leading private domestic
companies and privatized SOEs. The Fund held 15.87 percent of its capital in
cash and 5.52 percent as deposits for public auctions of Bao Minh, the second
largest non-life insurer. This auction will take place after the 2004 financial
year-end.
VOF's portfolio is a well-diversified with exposure to 11 sectors of the
national economy: 23.2 percent in food and beverages, 19.7 percent in property,
6.4 percent in banks, 6.3 percent in general domestic commerce, 4.6 percent in
an infrastructure.
Listed Portfolio (19.55%)
VOF invests in the listed market, targeting quality companies that are primarily
active in the domestic economy and offer low PEs and good dividend yields.
Important additional criteria include quality of management, corporate
governance, growth potential and brand equity.
As at 30 June 2004, VOF held a portfolio of seven shares listed on the STC and
realised a US$200,397 gain through its trading activities since inception. The
Vietnam Index reached its highest level in over two years in the first quarter
of 2004. VOF ended the first quarter with an unrealized gain of US$40,273 on a
listed portfolio totaling US$1,446,671. In the second quarter, the stock market
index fell 10 percent to end at 249.7 as at 30 June 2004. As a result, VOF
incurred an unrealized loss of (US$52,870) as of 30 June 2004.
Underlying performance however remained positive, with almost all companies
reporting results in line with targets for the first half of 2004. We see the
market fall as an opportunity to carefully accumulate selected stocks which we
believe are significantly undervalued.
On 30 June 2004, Vietnam's stock market had a total capitalization of US$243
million with weighted average P/E ratio of 9.8 times and dividend yield of 5.3
percent.
Private Equity (10.33%)
VOF has two investments in private companies made as pre-investments prior to
its inception in September 2003. Through it subsidiaries, VOF currently holds a
30 percent interest in Kidos Ice Cream Corporation, and a 29.44 percent interest
in AA Land. The private equity portfolio performed well with the underlying
businesses making substantial progress.
Real Estate (14.18%)
VOF made one real estate investment during the period; purchasing an 30 percent
stake in a prime site in central Ho Chi Minh City from a motivated international
seller. The stake was purchased for US$9.9 million, with an initial down payment
of US$300,000. This has been valued at US$23 million. Based upon a recent
transaction and independent valuation report from CB Richard Ellis, the site was
revalued to US$1.53 million.
OTC Portfolio (32.27%)
As of 30 June 2004, VOF had invested into 9 local companies and 4 local banks
traded on the OTC market with a total investment cost of approximately US$2.97
million or 32.27 percent of NAV. The most significant investment during the
period was a US$0.96m investment in Vinamilk, one of the largest, most
successful SOEs, representing a 0.51 percent stake of the company.
As of 30 June 2004, VOF had unrealized gain of US$511,560 or 17.22 percent gain
over cost on its OTC portfolio. No disposal of OTC investments was made during
the period.
Significant Holdings (48.13% Nav)
Vietnam Dairy Products Company (13.04% NAV)
Vietnam Dairy Products Company (Vinamilk) is a dairy processor with products
ranging from all kinds of milk, to fresh fruit juices, yoghurt and ice cream.
Vinamilk was the largest SOE privatized in 2003 with shareholder structure of 80
percent State, 11 percent staff and 9 percent public. The Company is the market
leader with 45 percent share of the domestic processed dairy products market,
which is estimated to be growing at 20 percent per annum.
In April 2004, Vinamilk officially merged with Saigonmilk, and increased its
chartered capital by 6 percent to US$101.27 million. The merger further
strengthens Vinamilk's position in the local market by broadening its product
range and removing one of the largest competitors.
The Company posted 2003 revenue of US$245.77 million, which was a 19.5 percent
decrease from 2002. With 30 percent of total revenue from exports, the decline
in turnover was directly attributable to the loss of Company's sales to the
Middle East, which accounted for 90 percent of the company's export revenue, as
the result of the ongoing war in Iraq. However, the Company reported a 2003 net
profit of US$32.46 million, which is a 12.9 percent increase compared to 2002.
The increase in net profit was derived from non-operating income, including
interest and investments, which totaled approximately US$6.45 million. During
the first quarter 2004, Vinamilk posted US$79.87 million in revenue and realized
a net profit of US$11.72 million, an after-tax profit margin of 14.7 percent.
The strong performance was attributable to the fulfillment of projected annual
export volume as a result of the Company's efforts to expand into more export
markets, such as Africa, as well as the continuing strong growth of the domestic
market.
Vinamilk was the most actively traded stock in the OTC market. As of 30 June
2004, VOF held 76,265 shares of Vinamilk, a 0.51 percent stake, with market
value of US$1,406,566. This is a 46.9 percent increase from cost. Vinamilk's P/E
at 30 June 2004 was 14.9x and its dividend yield was 5.2 percent.
Financial Highlights
FYE 31 Dec Profit and Loss Summary Balance Sheet Summary
Unit: US$MM 2002 2003 Assets 2002 2003
Revenue $305.27 $245.77 Current Assets $115.70 $124.50
Y/Y Growth 20.0% - 19.5% Fixed Assets 20.02 35.23
Gross 86.61 73.75 Total Assets $135.72 $159.73
Profit
Gross 28.4% 30.0% Liabilities and
Margin
EBIT 42.92 52.41 Shareholders'
Equity
EBIT Margin 14.1% 21.3% Short term Debt $39.04 $51.38
Net Profit $28.76 $32.46 Other Liabilities - 7.34
Net Profit 9.4% 13.2% Shareholders' Equity 96.68 101.01
Margin (SE)
ROE 29.6% 32.1% Total Liabilities & $135.72 $159.73
SE
3-yr Revenue 13.2%
CAGR
3-yr Earning 35.7%
CAGR
34 Ton Duc Thang Project (14.18% NAV)
34 Ton Duc Thang Project (the Project) is a piece of real estate purchased from
a joint venture (JV) between a French Investor and Saigon Tourist, the largest
SOE-tourism services provider. The site is in a prime commercial location at the
corner of Ham Nghi and Ton Duc Thang Street facing the Saigon River.
The joint venture's plan was to develop a hotel on the site. Saigon Tourist
contributed the land for US$10 million and the French partner invested US$15
million in clearing the site and building the foundation before they stopped due
to the Asian financial crisis. VOF purchased 30 percent at a valuation of US$9.9
million, having paid a down payment US$300,000 to date. The site has now been
valued at a US$23 million based on a valuation by CB Richard Ellis and a recent
transaction for a 10 percent stake to a third party investor
Based on a detailed feasibility study the project has been redesigned to include
a retail podium of six floors, a 24 story office and a 32 story apartment tower.
Active discussions are being held with several large regional property
developers to execute the project.
Refrigeration Electrical Engineering Corporation (5.98% NAV)
Initially established in 1977, REE comprises four subsidiaries in mechanical and
electrical engineering (M&E), white goods production for industrial and
commercial purposes (REEtech), real estate (E.town), technology education
(Ree-edu) plus several financial investments. Over the 27 years since
incorporation, the Group has built a strong relationship with large State
agencies helping it to achieve a market share of approximately 30 percent for M&
E and 40 percent for large-capacity white good products. It has a wide
distribution network of over 130 outlets nationwide.
2003 was a successful year for REE, having achieved a net profit of US$2.52
million, representing annual growth of 14 percent. For the first half of 2004,
REE posted revenues of US$10.36 million, representing an increase of 65.9
percent over the same period in 2003 and realized a net profit of US$1.52
million nearly double that achieved in the same period of 2003. In light of the
winning major M&E and REEtech contracts like Vincom towers, a major new resort
in Nha Trang and the new HCMC airport, the Group expects to achieve its target
revenue of US$32.25 million and realize net profit after tax of US$3.87 million,
or net margin of 15.3 percent. The core M&E business of REE remains lumpy and
difficult to predict, however, the company offers good value when seen on a sum
of the parts basis.
Financial Highlights
FYE 31 Dec Profit and Loss Summary Balance Sheet Summary
Unit: US$MM 2002 2003 Assets 2002 2003
Revenue $26.57 $24.01 Current Assets $12.79 $12.19
Y/Y Growth 32.1% - 9.6% Fixed Assets 17.14 18.74
Gross Profit 4.84 6.95 Total Assets $29.93 $30.93
Gross Margin 18.0% 29.0% Liabilities and
EBIT 2.34 3.12 Shareholders'
Equity
EBIT Margin 9.0% 13.0% Short term Debt $7.67 $6.85
Net Profit $2.21 $2.52 Other Liabilities 0.02 0.04
Net Profit 8.0% 10.0% Long term Debt 4.59 5.47
Margin
ROE 12.6% 13.6% Shareholders' Equity 17.65 18.57
(SE)
3-yr Revenue 17.1% Total Liabilities & $29.93 $30.93
CAGR SE
3-yr Earning 8.2%
CAGR
REE's shares were the most actively traded on the STC. As at 30 June 2004, VOF
holds 406,090 shares, or 1.8 percent, with a market value of US$645,654. This
represents a 4.48 percent decrease from cost. REE's P/E was 14.4x and its
dividend yield was 4.8 percent. Other major shareholders include the State with
10 percent, foreign investors with 29.4 percent, and the public with 60.6
percent.
AA Land Corporation (5.53% NAV)
VOF acquired a 29.44 percent interest in AA Land Corporation (AA Land) for
US$600,000 in September 2003. AA Land is involved in the development and
management of real estate projects in Ho Chi Minh City (HCMC). The strategy of
AA Land is to commit as little of its own capital to projects as possible by
taking fees and carried interest and to realize projects within 2-4 years. AA
Land currently has three existing projects.
As of 30 June 2004, only Hai Ba Trung Court Serviced Apartment (Hai Ba Trung
Court), a small luxury apartment in HCMC's main district with 21 apartments of
53 to 108 square meters, was officially opened. CB Richard Ellis, a leading
American property management firm, has been chosen to be the apartment manager.
CB Richard Ellis also signed a lease agreement for all 21 apartments for a 10
year period, providing AA Land with a guaranteed fixed return.
KiDos Ice Cream (4.8% NAV)
KiDos Ice Cream Corporation (KiDos Ice Cream) represents the business built from
the acquired assets of Unilever's Walls Ice Cream operations. In September 2003,
VOF acquired 693 shares in KiDos Ice Cream or 30 percent for US$500,000, with P/
B(1) of 0.1x. By 30 June 2004, VOF's investment in KiDos Ice Cream was valued at
US$516,026, or 3.2 percent increase. The P/E was 7.6x, and its dividend yield
was 30 percent.
KiDos Ice Cream has achieved impressive results in the first year under new
ownership and management. For the year ending 30 June 2004, the Company achieved
sales of US$5.4 million, a slight decline of 8 percent from the pre-acquisition
period under Wall's ownership due to lower advertising and promotional
expenditure from the gradual phase out of the Walls brand. However, KiDos Ice
Cream made an unaudited net profit of US$0.58 million, or net margin of 10.7
percent. In comparison Walls Ice Cream never achieved a profit during its 8
years of operations.
Priorities for 2004 have primarily focused on the roll out of premium tub-based
products, which will increase the Company's production to 28 SKUs under the
KiDos brand. In addition, approximately 12 SKUs of the Walls Ice Cream brand
were eliminated, reducing the remaining Walls production count to 16 SKUs by the
end of June, 2004. Moreover, KiDos will continue to deploy its cost reduction
strategy and to embark on a new sales incentive scheme for distributors. KiDos
is presently the market leader with 30 percent share of the domestic ice cream
market.
With per capita consumption of ice cream remaining one of the lowest in the
world, there is good growth potential for the ice cream sector. Tapping this
potential requires market education and continuing product localization and
innovation.
Financial Highlights
P&L (US$MM) Pre-acquisition Post-acquisition
Jul 2002 - Jun 2003 Jul 2003 - Jun 2004
Revenues $5.83 $5.4
% Change - -8%
EBIT (1.21) 0.56
EBIT Margin -20.7% 10.4%
Net Profit ($1.73) $0.58
Net Margin -29.7% 10.7%
Source: Company reports
HCMC Infrastructure Investment Joint Stock Company (4.6% NAV)
HCMC Infrastructure Investment Joint Stock Company (CII) is the dominant and
largest infrastructure developer in the HCMC area, and is a pioneer in public
fundraising for large-scale infrastructure projects. CII has 3,000,000
outstanding shares which are presently trading in the OTC market with an
effective dividend yield of 8.8 percent.
As of 30 June 2004, VOF held 60,000 shares or 2 percent stake of the Company.
VOF acquired the shares in March 2004 at the price of US$8.27 per share with a P
/E of 8.0x. Total investment was US$496,060 or 4.58 percent of NAV.
Financial Highlights
FYE 31 Profit and Loss Summary Balance Sheet Summary
Dec
Unit: 2002 2003 Assets 2002 2003
US$MM
Revenue $7.56 $11.10 Cash $4.21 $0.08
Y/Y NA 46.9% Current Assets 0.01 0.02
Growth
Gross 7.56 11.10 A/R 0.02 0.09
Profit
Gross 100% 100% Fixed Assets 60.48 57.31
Margin
EBIT 3.12 3.14 Total Assets $64.72 $57.50
EBIT 41.3% 28.3% Liabilities and
Margin Shareholders' Equity
Net $3.12 $3.14 Current Liabilities $45.77 $37.14
Profit
Net Profit 41.3% 28.3% Shareholders' Equity 18.95 20.36
Margin (SE)
ROE 16.5% 15.4% Total Liabilities & SE $64.72 $57.50
In 2003, CII recorded revenue of US$11.10 million, representing a year-on-year
increase of 46.9 percent, and generated an after-tax profit of approximately
US$3.14 million. The Company's 2004 plan includes a revenue target of
approximately US$12 million and dividend yield of 9.2 percent.
Infrastructure expenditure in HCMC and neighboring provinces is estimated to
grow at 15 percent per year over the next five years. Vietnam's infrastructure
is still well behind that of China and remains a priority.
Report Of The Directors
Administration
The Vietnam Opportunity Fund Limited (VOF or the Fund) is listed on the London
Stock Exchange Alternative Investment Market. Price information is available on
Reuters and on Bloomberg.
Report Of The Directors
The directors present their report and the audited financial statements for the
fiscal year ended 30 June 2004.
Principal activity
The Company is an investment holding company incorporated as a closed end,
exempted company in the Cayman Islands. The shares of the Company are listed on
the AIM of the London Stock Exchange. The principal activity of the Company is
to invest directly or indirectly in a diversified portfolio of listed and OTC
companies, debt, assets and other investment opportunities in Vietnam and
surrounding Asian countries.
Results and dividends
The Company's profit for the fiscal year ended 30 June 2004 and its state of
affairs at that date are set out in the financial statements on pages 27 to 37.
The dividend for the year ending June 30th, 2004 will be announced at the
forthcoming Annual General Meeting of Shareholders.
Share capital
Details of movements in the company's share capital during the year are set out
in note 6 to the financial statements.
Directors
The directors of the Company during the year were:
Non-executive Directors:
Jonathan Choi
Horst Geicke
Robert Knapp
Directors' rights to acquire shares or debentures
At no time during the year was the Company a party to any arrangement to enable
the Company's directors to acquire benefits by means of the acquisition of
shares in or debentures of the company or any other body corporate.
Directors' interests in shares
Horst Geicke has a direct interest in the Company's shares in the amount of
700,000 Ordinary Shares that are immediately effective following Admission which
accounts for 7.37 percent of the total shares issued.
Jonathan Choi has an indirect interest in the Company's shares in the amount of
1,500,000 Ordinary Shares that are immediately effective following Admission
which accounts for 15.78 percent of the total shares issued.
Robert Knapp has an indirect interest in the Company's shares in the amount of
2,500,000 Ordinary shares in his capacity as Managing Director of Millennium
Partners, LP that immediately effective after Admission accounted for 26.3
percent of the total shares issued.
Apart from the above, no director had a direct or indirect interest in the share
capital of the company at the end of the year or at any time during the year.
Directors' interests in agreements
Horst Geicke has an interest in arrangements between the Company and the Manager
by virtue of being Director and interested in the Company's Ordinary Shares and
by virtue of being indirectly interested in the shares of the Manager.
Apart from the above, there were no contracts of significance in relation to the
Company's business in which a director of the Company had a material interest,
whether directly or indirectly, at the end of the fiscal year or at any time
during the year.
Substantial shareholders
At 30 June 2004, the Company's register of shareholders showed that the
following shareholders each held more than a 3 percent interest of the issued
Ordinary shares of the Company:
Name No. of shares Percentage
------ --------------- ------------
Millennium Partners LP 2,500,000 26.32%
Ideal Trade Investments Ltd. 1,500,000 15.79%
Deutsche Bank Securities Inc. 1,250,000 13.16%
The Value Catalyst Fund Ltd. 1,000,000 10.53%
Horst Joachim Franz Geicke 700,000 7.37%
Omni Worldwide Ltd. 500,000 5.26%
American Fidelity Corporation 350,000 3.68%
Others* 1,700,000 17.89%
Note:
* Others include investors with below 3 percent interest of the issued Ordinary
shares of the Company
Purchase, sale or redemption of securities of the Company
The Company neither purchased, sold nor redeemed any of its own shares during
the year.
Auditors
Grant Thornton UK is appointed to be the auditors for the Company. Grant
Thornton (Vietnam) Limited is appointed to be auditors of the Manager.
BY ORDER OF THE BOARD
Auditors' report
To the Directors
Vietnam Opportunity Fund Limited
We have audited the accompanying balance sheet of Vietnam Opportunity Fund
Limited as of 30 June 2004, and the related statements of income, changes in
shareholders' equity and cash flows for the period from 15 July 2003 to 30 June
2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements give a true and fair view of the
financial position of the Company as of 30 June 2004, and of the results of its
operations and its cash flows for the period from 15 July 2003 to 30 June 2004,
in accordance with International Financial Reporting Standards.
Balance sheet
Notes 30 June 2004 30 June 2004
Consolidated Company
US$ US$
ASSETS
Cash 1,210,419 -
Term deposit 440,417 440,417
Deposits and advances 1,099,065 -
Dividends and other receivables 1,483 1,405
Investments in financial assets 3 5,590,332 -
Investments in associates 4 2,644,276 -
Investments in subsidiaries 5 - 10,502,787
---------------------------- ------ ----------- -----------
10,985,992 10,944,609
============================ ====== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses 197,796 156,413
---------------------------- ------ ---------- -----------
197,796 156,413
Shareholders' equity
Paid-in capital 6 9,500,000 9,500,000
Retained earnings 1,288,196 1,288,196
---------------------------- ------ ---------- -----------
10,788,196 10,788,196
---------------------------- ------ ---------- -----------
10,985,992 10,944,609
============================ ====== ========== ===========
Statement of income
Notes Period from 15 Period from 15
July 2003 to 30 July 2003 to 30
June 2004 June 2004
Consolidated Company
US$ US$
Revenue
Gain on
investment in
financial
assets 3 458,690 -
Gain on
investments in
associates 4 1,247,276 -
Gain on sale
of investments 237,169 -
Foreign
exchange and
translation
gains, net 94,227 90,328
Interest and
dividends 45,132 33,190
Other income 22,258 -
Equity in
earnings of
subsidiaries 5 - 1,952,788
---------------------------- ------- ----------- -----------
2,104,752 2,076,306
Operating expenses
Organisational
fees (461,992) (457,703)
Investment
advisory fees (189,460) (189,460)
Professional
fees (80,687) (65,974)
Directors'
fees and
expenses (39,514) (39,514)
Broker fees (22,472) (13,636)
Trustee fees (19,397) (19,397)
Other expenses (3,034) (2,426)
---------------------------- ------- ----------- -----------
(816,556) (788,110)
---------------------------- ------- ----------- -----------
Net income 1,288,196 1,288,196
============================ ======= =========== ===========
Statement of changes in shareholders' equity
Notes Period from 15 Period from 15
July 2003 to 30 July 2003 to 30
June 2004 June 2004
Consolidated Company
US$ US$
Paid-in capital
Issue of
shares 6 9,500,000 9,500,000
---------------------------- ------ ----------- -----------
Balance at end
of the period 9,500,000 9,500,000
---------------------------- ------ ----------- -----------
Retained earnings
Net income 1,288,196 1,288,196
---------------------------- ------ ----------- -----------
Balance at end
of the period 1,288,196 1,288,196
---------------------------- ------ ----------- -----------
Total
shareholders'
equity 10,788,196 10,788,196
============================ ====== =========== ===========
Statement of cash flows
Period from 15 Period from 15
July 2003 to 30 July 2003 to 30
June 2004 June 2004
Consolidated Company
US$ US$
Cash flows from operating activities
Net income 1,288,196 1,288,196
Adjustments for:
Gain on
investments in
associates (1,230,000) -
Gain on
investments in
financial
assets (458,690) -
Unrealised
foreign
exchange gain (202,031) -
Interest
income (37,498) (33,190)
Equity in
earnings of
subsidiaries (17,276) (1,952,788)
------------------------------ ----------- -----------
Net loss
before changes
in working
capital (657,299) (697,782)
Increase in
deposit,
advances and
other
receivables (1,100,547) (1,389)
Increase in
accounts
payable and
accrued
expenses 197,796 156,414
------------------------------ ----------- -----------
Net cash used
in operating
activities (1,560,050) (542,757)
Cash flows from investing activities
Interest
received 37,405 33,174
Acquisition of
investments (8,069,568) -
Proceeds from
sales of
investments 2,843,048 -
Investment in
subsidiaries - (7,450,000)
------------------------------ ----------- -----------
Net cash used
in investing
activities (5,189,115) (7,416,826)
Cash flows from financing activities
Proceeds from
shares issued 8,400,000 8,400,000
------------------------------ ----------- -----------
Net cash from
financing
activities 8,400,000 8,400,000
Net increase
in cash and
equivalents
for the period 1,650,835 440,417
------------------------------ ----------- -----------
Cash and cash
equivalents at
end of the
period 1,650,835 440,417
============================== =========== ===========
Notes to the financial statements 30 June 2004
1. Corporate information
Vietnam Opportunity Fund Limited was incorporated in the Cayman Island 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. The Company holds a 100% interest in the following entities, which were
incorporated in the British Virgin Islands:
• Asia Value Investment Ltd
• Vietnam Enterprise Ltd
• Vietnam Investment Property Ltd
• Vietnam Investment Property Holdings Ltd
• Vietnam Investment Ltd
• Vietnam Ventures Ltd
• VOF Investment Ltd
The principal activity of the Company is to invest in listed and unlisted
companies, debt instruments, assets and other opportunities in Vietnam and
surrounding countries with objective of achieving medium to long-term (three
to five years) capital appreciation and providing investors with an
attractive level of investment income from interest and dividends.
As at 30 June 2004, the Company had no employees.
2. Principal accounting policies
Basis of presentation
The financial statements expressed in United States Dollars have been prepared
under the historical cost convention and in conformity with International
Financial Reporting Standards.
.
Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiaries. Subsidiaries are consolidated from the date the
Company obtains control until such time that such control ceases. All
inter-company balances and transactions have been eliminated. There is no
goodwill arising upon consolidation.
Cash and cash equivalents
Cash and cash equivalents include cash in bank and short-term, highly liquid
investments readily convertible to known amounts of cash and which are subject
to insignificant risk of changes in value.
Investments
Investments are initially recorded at their cost of acquisition, which generally
consists of the purchase price of the security or the fair value of the
consideration given in exchange and other costs directly related to the
acquisition. Subsequent to acquisition, the investments are carried at the
following values:
Financial assets
Financial assets consist of portfolio investments of listed and unquoted
marketable equity securities, which are carried at fair value. Fair value of a
listed security is determined by the quoted market price on the last trading day
of each quarter. Fair value of an unlisted security is determined by the price
of the most recent comparable transaction for that security, if any, before the
end of each quarter. Gains and losses are recorded in the statement of income.
The cost of securities sold is determined on a first-in first-out basis.
Associates
Investments in enterprises in which the Company has significant influence are
accounted for using the equity method, whereby the investment is originally
recorded at cost and adjusted for changes in the Company's share of the equity
of the associate since date of acquisition. The Company's share of the results
of operations of an associate is accounted for in the statement of income.
Investments in associates that have been acquired and are being held exclusively
for the purpose of disposing of them in the near future are carried at fair
value, determined by reference to an independent appraisals performed by a
professional appraisers. Gains and losses are recorded in the statement of
income.
Subsidiaries (parent company accounts)
Investments in subsidiaries are accounted for using the equity method. The
Company's share of the results of operations of a subsidiary is accounted for in
the statement of income.
Interest and dividend income
Interest income is recognized on an accrual or if applicable effective yield
basis. Dividend income is recorded when the stockholders' right to receive the
dividend is established.
Impairment of assets
The carrying amounts of the Company's assets are reviewed at each balance sheet
date to determine whether there is any indication of impairment. If any such
indication exists, the asset's recoverable amount is estimated. An impairment
loss is recognised whenever the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount
Foreign currency transactions
The accounting records of the Company are maintained in United States Dollars.
Foreign currency transactions during the year are translated at the exchange
rates that approximates those prevailing on transaction dates. Foreign currency
monetary assets and liabilities at the balance sheet date are translated into
United States Dollars at exchange rate that approximates those prevailing on
that date. Exchange gains and losses are recognized in income for the period.
Related parties
Related parties include companies or individuals which directly or indirectly
hold significant equity interests in the Company ('shareholders'), other
investees of shareholders ('affiliated companies'), subsidiary companies and
associates.
3. Investment in financial assets
Consolidated
Number of Type of Closing balance Gain
shares security
(loss)
US$ US$
Listed securities
Ree Corporation
(REE) 406,090 Ordinary shares 645,650 (30,270)
Sacom (SAM) 201,790 Ordinary shares 494,080 3,950
Savimex (SAV) 209,990 Ordinary shares 439,370 1,130
Tribeco (TRI) 223,940 Ordinary shares 336,110 (28,430)
620-CCC (BT6) 62,130 Ordinary shares 130,390 1,170
Gilimex (GIL) 17,890 Ordinary shares 38,460 (1,310)
Cobovina Bach
Tuyet (BBT) 26,000 Ordinary shares 24,640 890
---------------------- ------- ------- ---------
----------
2,108,700 (52,870)
---------------------- ------- ---------- ------- ---------
Unlisted securities
Vinamilk Joint
Stock Company 76,265 Ordinary shares 1,406,566 449,020
Ho Chi Minh
Infrastructure
Investment
Joint Stock
Company 60,000 Ordinary shares 496,060 -
Phuong Nam Bank 400,000 Ordinary shares 305,266 -
North Kinh Do
Food Joint
Stock Company 156,800 Ordinary shares 249,300 56,270
Tien Phong
Technology
Company 300,000 Ordinary shares 238,489 -
Eximbank 3,500 Ordinary shares 219,250 4,610
Phuong Nam
Cultural Goods
Manufacturing
Joint Stock
Company 187,190 Ordinary shares 150,969 -
Saigon
Commercial
Joint Stock
Bank 100,000 Ordinary shares 120,834 1,270
Sa Giang Import
Export
Corporation 10,000 Ordinary shares 105,253 -
Do Thanh
Plastic Joint
Stock Company 10,000 Ordinary shares 65,505 -
Southern Seed
Company 4,810 Ordinary shares 61,180 -
Eastern Asia
Commercial
Joint Stock
Bank 171 Ordinary shares 43,500 390
Geology and
Mineral
Resources
Company 3,000 Ordinary shares 19,460 -
--------------------- ------- -------- ---------
----------
3,481,632 511,560
--------------------- ------- ---------- -------- ---------
5,590,332 458,690
===================== ======= ========== ======== =========
4. Investment in associates
Consolidated
Proportion of Closing balance Gain (loss)
ownership
interest US$ US$
AA Land Corporation
Limited 29.44% 598,250 (1,750)
Kido's Ice Cream
Corporation 30% 516,026 19,026
--------------------- --------- ------- ---------
1,114,276 17,276
Held for disposal in near future
Saigon M&C Real
Estate Corporation 30% 1,530,000 1,230,000
--------------------- --------- -------- ---------
2,644,276 1,247,276
===================== ========= ======== =========
The loss for AA Land is based on financial statements that utilize accounting
policies prevalent in Vietnam. It is not practical to calculate adjustments to
conform such policies to International Financial Reporting Standards.
The fair value of the investment in Saigon M&C Real Estate Corporation is based
on an independent valuation of the major asset of the associate carried out by
CB Richard Ellis dated 30 June 2004.
5. Investment in subsidiaries
Acquisition cost Company
US$
8,550,000
Equity in net earnings for the period 1,952,788
---------------------------- -------------
10,502,788
============================ =============
6. Paid-in capital
US$
Share capital: ordinary shares with nominal value of US$0.01 per
share. Authorized
50,000,000 shares; issued 9,500,000 shares 95,000
Share premium 9,405,000
-------------------- ------------
9,500,000
==================== ============
7. Taxation
The Company is exempt from income tax pursuant to the Tax Concessions Law (1999
Revision) of the Cayman Islands.
8. Related party transactions
During the period, the following transactions with related parties were
recorded:
Related party Relation Transaction US$
Vinacapital Investment
Management Limited Affiliate Investment advisory fees 189,460
-------------------- --------- --------------- --------
At 30 June 2004 the following balances were outstanding with related parties:
Related party Relation Payable
US$
Vinacapital Investment Management Limited Affiliate 28,021
--------------------- --------------- ----------
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