CHAPTER 4 THE ANALYSIS OF RESULTS
4.3 Research on internal and external factors
4.3.1 Analysis of environmental factor
* Human resource
Table 4.2. Personnel statistics till December 31st 2014
No. Educational level Quantity
1 Master's degree 3
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2 Engineer’s degree, Bachelor’s degree
194
3 College 103
4 Professional secondary
school
94
5 Vocational high school 23
6 Technical worker 68
7 High school graduate 300
Total 785
The human resource’s average age of Tuong An Company is 30. The employees of this age are dynamic, innovative and have experience.
In general, the workforce of the Company is highly qualified and has various experience in cooking oil production and business. The Company currently concentrates on training its human resource in many ways such as 1 month to 3 month internship, overseas apprenticeship to absorb new technology, modern management style, and so on. However, the human resource of the Company is still unsatisfactory and it requires to have further training, especially in marketing, strategic planning, and financial management.
* Financial capacity a) Financial status
Table 4.3. Financial status of Tuong An Company in 2013 – 2014
Indicator Year 2013 Year 2014 Difference (%)
Total assets 1,222,588,579,768 1,209,437,293,927 -1.08 Net revenue 4,291,079,223,546 4,123,378,365,725 -3.91 Profit gained from
business activity 81,888,317,601 76,061,684,180 -7.12
Other profits 4,319,961,719 3,642,701,735 -15.68
Pre-tax profit 86,208,279,320 79,704,385,915 -754
After-tax profit 65,585,089,797 63,258,680,363 -3.95
Dividend payment 30,368,320,000 30,368,320,000 -
Dividend payout ratio 2.17 times 2.08 times -
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b) The major financial indicators
Table 4.4. Major financial indicators of Tuong An Company in 2013 - 2014
Indicator Year 2013 Year 2014 Difference
1. Liquidity
+ Short-term liquidity ratio Current assets/Current Liabilities + Quick ratio
2. Capital structure + Debt ratio/Total assets + Debt ratio/Owners’ equity
0.67 3. Operational capacity
+ Inventory turnover Cost of goods sold Average inventory
+ Total assets turnover ratio Net revenue/Total assets
+ After-tax profit margin/Net revenue + After-tax profit margin/Owners' equity + After-tax profit margin/Total assets + Operating profit margin/Net revenue
1.53% ( Source: Annual report in 2014 of Tuong An Vegetable Oil Joint Stock Company)
The liquidity ratio of Tuong An Company in 2014 and in 2013 is 1.32 and 1.24, respectively. All are greater than 1 that shows that the short-term debt coverage of Tuong An Company is pretty good. The Company is able to fulfill its obligation to pay its debts that are due.
The quick ratio of Tuong An Company in 2014 and in 2013 was 0.65 and 0.51.
Therefore, we can see that the value of the inventory of Tuong An Company accounts for a significant rate in the current assets. It reflects a relatively weak capacity to quickly pay on cash. The quick ratio of Tuong An Company in 2014 is lower than that in 2013, which reveals that this problem has not been solved, resulting in an increasing inventory level.
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Regarding the capital structure indicator, the loan capital of Tuong An Company in 2014 accounts for 0.64 of the total assets, compared to 1.76 of the equity capital. The loan capital accounts for a higher rate than the equity capital, which indicates that the financial autonomy capacity of Tuong An Company is relatively weak. However, this problem is not worrying because it is likely that the Company is using financial leverage and the loan capital supported by short-term loans and deferred credit from the parent company Vocarimex. The Company still has a very abundant level of capital. The asset turnover ratio of Tuong An Company in 2014 is 3.41, which expresses that the use of the assets and the production and business operation of the company is relatively efficient.
In terms of the operational capacity indicator, the inventory turnover in 2014 is lower than that in 2013, which shows that the stock turnover ratio is relatively low. The pace of selling goods of the Company in 2014 is slower than that in 2013, resulting in stagnant inventory. However, if the market demand is dramatically increased, the inventory will be able to help the Company retain customers and its market share not to be gained by the competitors, especially in public holidays. Moreover, the insufficient reserves of the material inputs for production may cause a stalled production line.
Profitability indicator:
The business performance of the Company over the years is profitable, although the ROS in 2014 was 1.5% which is relatively lower than the ratio of 3.4% to 4.9% from 2005 to 2007.
If such ROS could be maintained, the profit of Tuong An Company would be 120 billion VND to 200 billion VND instead of the current profits of 86 billion VND. However, the typical characteristic of the oil industry is that the profit margin is not so high as that in the food industry in general. For example, the gross profit margin of Tuong An and Nakydaco in 2013 was 9.7% and 5.8% respectively compared with the average rate of 23.4% in the food industry in general. In case of Vocarimex, the gross profit margin is from 3.2% to 3.5%.
* Research and development
Tuong An Company always focuses on market research to understand the demands of consumers and to apply new technologies. From 1994 to 2000, Tuong An Company constantly conducted in-depth investments to expand its production. The production capacity of the Company is now 245,000 tons of vegetable oil per year that can satisfy the market demand. Currently, although the market share of the Company is being reduced from 35.1% in September 2006 (prospectus) to 22.08% in 2012, the market share of the Company is still at the second rank in the industry. Therefore, the Company is increasing its investment in
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developing the mechanical system in which the modern and advanced technologies are applied.
The market research and product development is a continuous process. The Company needs to know when its product line has insufficient competitivenessin the market in order to replace it by a new one which meets the market demand and especially avoids the competition with the products of the current and potential rivals by the originality and the novelty of the product.
In order to meet the new requirement, Tuong An Company has improved its Research and Development department which has the pivotal task to research market and develop new product line. Based on this, the Company has launched the high-end product VIO which is designed for children and contains DHA to support the brain development. VIO is a progress in the research of the Company as this is the first cooking oil product containing DHA in Vietnam.
* Marketing - Mix
In general, the marketing activities of Tuong An Company are very weak in which the major activities are promotion campaigns on television, participation in exhibition fairs, organization of events, etc. However, we have hardly seen the advertisements of Tuong An Company.
a) Product
In general, the products of Tuong An Company are quite diverse with the four different oil groups that are frying oil, high-end oil, nutritional oil and solid oil. Those are the industrial products which meet all the requirements of customers. The frying oil products account for the highest rate of revenue (90% of revenue and 50% of profit of Tuong An Company), with the popular label Cooking Oil.
The product quality is always the primary goal of the Company. In April 2013, Tuong An Company was granted the certificate of meeting the ISO 9001: 2008 and GMP – HACCP standards of quality management system at Phu My cooking oil factory by Vietnam certification services centre Quacert. Effectively applying and maintaining that quality management system is the commitment of Tuong An Company to meet the increasing needs of customers, bring consumers the most satisfaction and ensure the food safety.
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b) Price
Table 4.5: The price of some cooking oil products in the market
Manufacturer Label Price
Tuong An Cooking Oil 35,700 VND/1 bottle/ 1L
Season (Nutritional oil) 44,000 VND/1 bottle/ 1L
Calofic (Cai Lan) Meizan 34,000 VND/1 bottle/ 1L
Cai Lan 27,000 VND/ 1 bottle/ 1L
Neptune 42,000 VND/ 1 bottle/ 1L
Neptune (Rice oil) 134,000 VND/ 1 bottle/
750ml
Simply soybean 44,500 VND/ 1 bottle/ 1L Simply organic mustard seed 50,000 VND/ 1 bottle/ 1L Simply sunflower 54,000 VND/ 1 bottle/ 1L
Golden Hope Mavelar 36,000 VND/ 1 bottle/ 1L
An long Kappi koki 36,000 VND/ 1 bottle/ 1L
(Source: Metro supermarket. May 31, 2015)
We can see that in the segment of frying oil, the label Cooking Oil of Tuong An Company has a quiet competitive price compared with most of the other labels; however, the label Cai Lan of Calofic has a much lower price with similar quality.
For the high-end oil products, the difference in the prices of the labels is negligible.
c) Marketing
The decline in the market share of Tuong An Company in the recent years (from 35.1%
in September 2006 to 22.8% in 2012) mainly due to the lack of dynamism in the marketing activities of the Company compared to its main competitor Cai Lan. For the commodity which is difficult to distinguish the product quality like cooking oil, the marketing can play the decisive role in promoting the productivity growth. However, the product marketing activities of Tuong An Company is much worse than those of Cai Lan. The frequency of the appearance on television of major labels of Cai Lan such as Neptune, Simply, Meizan is greaterthan that of the label Cooking Oil and the soybean oil of Tuong An Company. In 2011, Simply soybean oil of Cai Lan is also one of 40 brands which have the most successful advertisements on Vietnam Television channels according to the research of Cimigo Vietnam. The dynamism in the marketing helps Cai Lan gain the market share not only of Tuong An Company but also of
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the cooking oil companies with long tradition such as Golden Hope, Nha Be and Tan Binh. It increases the market share of Cai Lan from 35%, equivalent to Tuong An Company in 2006, to the current market share of 44%.
In fact, the systems of sales, marketing, etc. of Tuong An Company have still been invested a significant amount of capital over the past time. However, their operations are less efficient. The strange thing is that we do not know what the other expense in the selling expense includes, while it accounts for a large rate of selling expense.
Table 4.6: The selling expenses of Tuong An over the years
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Net
revenue
1.182 1.515 2.554 2.960 2.626 3.257 4.432 4.032 4.291 4.123
Selling expense
90 85 80 104 143 207 204 251 305 320
Of which the other expense
76 66 51 77 112 160 151 200 236 239
d) Distribution network
Distribution network includes over 200 distributors and agencies, 100 customers of industrial production and 400 supermarkets, restaurants, schools, kindergartens etc. that are built throughout 64 provinces nationwide.
• The trademark of red elephant
In spite of weaknesses in product marketing and advertisement, the trademark of red elephant always has an important position in customers’ minds.
Brand Footprint ranking (brand popularity) of Kantar Worldpanel publishes top 5 fast moving consumer goods (FMCG), which voted by consumers in four following sectors: Heath care and Beauty care, Family care, Drinks and foods. 5 out of 20 honorable brands are Vietnamese brands including My Hao, Vinamilk, Chinsu, 333 and Tuong An.
Recently, a survey conducted by Vinaresearch has been used to evaluate consumers’
awareness of cooking oil brands in two large cities Hanoi and Ho Chi Minh City. The result of the survey shows that Tuong An brand ranked the second position, after Neptune brand of Cai Lan with 0.2%.
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* Management activities
a) Internal conflict and no transparency in mechanism of material purchase
With the current mechanism of ownershipand management, the relationship between Tuong An cooking oil brand and parent company (Vocarimex) (before February 02, 2015, Vocarimex was a State-owned company with state capital accounting for 51%) carries risks of interest conflicts. At present, the Vietnam Vegetable Oils Industry Corporation - CTCP (Vocarimex) is both the biggest material supplier of TAC and the biggest shareholder (with dominant ownership rate of 51%). Thus, whether TAC faces risks when Vocarimex nearly controls all core issues of the company, including materials and management activities of Board of Directors. Besides, Vocarimex is rival in the production of cooking oil products on the market.
In fact, management status of the company has developed some problems since Vocarimex has held the power to control. On May 09, 2007, at the General Shareholders Meeting, Vocarimex, with 51% of TAC shares, voted to dismiss General Director – Ms.
Huynh Tuan Phuong Mai, who had great distribution to the development of TAC during the period of 2006-2007 (ROS in 2007 gained 4.9%). Since then, the market share of TAC has continuously decreased. According to some shareholders from the Dragon Capital Fund Management Company (having 8-9% of TAC capital) and Jaccar Investment Fund (having 6% of TAC capital), the reason why Vocarimex does not want to appoint Ms. Mai to act as General Director is that Ms. Mai is not the member of Vocarimex. Additionally, she always protects the benefits of TAC in the import of crude oil, input materials (accounting for 90% of the price of Tuong An cooking oil). Moreover, in two recent terms, the Chairman of the Board of TAC is a member of Vocarimex’s Board of Directors. This causes no transparency in mechanism of material purchase. TAC mainly purchases materials following the procurement method and the Chairman of the Board will decide to choose supplier. As a shareholder having 51% of capital as well as the party making competitive bids to supply materials for TAC, with this regulation, Vocarimex always clearly knows the offering price of other suppliers before quoting their price. This regulation violates the basic principles of competitive offers. Generally, when quoting prices by fax, suppliers always offer prices 10 to 20 USD higher than the real price per ton. This secures that the price will increase during negotiations. However, Vocarimex often quotes prices 1 USDlower than the price of offering sides per ton. This creates interest conflicts as well as damages for shareholders of TAC when the price of materials of TAC cannot compete with that of other rivals.
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Comparing two chats, we can see that benefits of Vocarimex greatly depends on the sale of materials to Tuong An.
b) Some positive changes
Recently, the rate of purchasing materials of TAC from Vocarimex is likely to decrease gradually from 80% in previous years to 60% in 2011 and the first six months of 2012, which reflects the decrease in the ability to govern of Vocarimex towards TAC.
On February 02, 2015, Board of Directors of Kinh Do Joint Stock Company (HOSE:
KDC) issued Resolution No.02/NQ HĐQT – KDC to adopt the detailed content of tender offerof Vocarimex’s shares. As expected, after the tender offer ends, Kinh Do will possess 62,118,000 shares, accounting for 51% of charter capital of Vocarimex. The Government will decrease the ownership rate of Vocarimex from 51% to 36% of capital. It means that Vocarimex only has 43,848 shares. Therefore, the State-based management mechanism of Vocarimex as well as Tuong An is changedwith an downward trend.
In this commercial affair, we can estimate the two directions of Kinh Do’s strategy as follows:
• Firstly, it is put emphasis on acquisition of Tuong An because of two following reasons:
- KDC does not purchase Vocarimex to possess 24% of Cai Lan: despite being the leading enterprise of cooking oil, Cai Lan is affected by Wilmar (68% of shares)
- KDC also does not own 49% of Golden Hope (the equity capital was negative 92 billion VND on December 23, 2013, which was fixed at Initially invested price of 42 billion VND. 27% of Nakydaco is very small that is unable to control and it has small scale.
This will create a new opportunity for TAC because KDC is a strong company with a wide distribution network and professional management procedure which helps Tuong An improve business effectiveness and develop its brand.
• Secondly, it is to develop a new cooking oil brand (called KIDO) which will compete with TAC itself.
The first direction has the most ability to happen because investment in production and marketing for a new product is extremely costly. However, the production line of Vocaimex is not great and the Voca brand only accounts for 3%-5% of the market share. On the contrary, TAC has the is bigger and more modern production line and its market share ranks the second position in this industry.
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* Level of production and production capacity
a) Machinery and equipment and technology procedure
Edible oil refining technology of Tuong An is conducted by the chemical refining method combined with physical refining method based on modern production line of WURTER &
SANGER (United States), THYSEN KRUPP (Germany), and DESMET (Belgium). Oil refining systems operate continuously and are controlled and checked automatically by PLC operating system and computer, which comply with requirements of the best quality for products to retain natural content of Vitamin A, E in oil.
b) Production capacity
Production capacity ranks the second position in the whole sector. To improve capacity, TAC invested in the establishment of Phu My factory with capacity of 600 tons per day, which has a favorable position near deep-water seaports (Phu My Port, Dam Port – Ba Ria Vung Tau Province). Therefore, it is possible to decrease transportation costs and enhance effectiveness for TAC. This factory has operated since 2008, increasing capacity of TAC up to 810 tons per day, being equivalent to about 245,000 tons per year. As a result, TAC is the enterprise having the second-largest production capacity in the whole sector.
4.3.1.2. Analysis of the external environment A. Macro-environment
* Economic environment
In 2014, the society and the economy of our country were in the context of slow recovery of the global economy after the global recession. Production and business were under the pressures of economic and political instability of the world market as well as pressures of the low absorptive capacity of the economy, heavy bad debts, slow domestic consumption of products, low management competence and competitiveness of enterprises etc. which had not been fully solved before. In that context, the Government and Prime Minister issued many resolutions, guidelines and decisions to acquire the macro stability, overcome difficulties, improve business environment, create the foundation to grow and secure social security for the people.
a) Development indicators
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Table 4.7: Development indicators
2008 2009 2010 2011 2012 2013 2014 Increase in GDP (%) 5.66 5.4 6.42 6.24 5.25 5.42 5.98
CPI (%) 19.89 6.52 11.75 18.58 9.21 6.04 4.09
Investment (% GDP) 43.1 42.8 41.9 36.4 33.5 30.4 40
State budget
overspending (%GDP) 4.60 6.90 5.60 4.90 4.80 5.30 5.30 Commercial scale -18 -12.8 -12.6 -9.8 0.748 0.10 -
(Source: General statistics Office of Vietnam )
Remark: Macro instability lasts long, inflation greatly increases, the growth rate decreases, the number of enterprises stopping operating rapidly increases, public debt quickly raises from 36.2% of GDP in 2008 to 56% of GDP in 2013. According to global public debt clock published by The Economic Magazine on August 20, 2014, at present, each Vietnamese person is burdened with the average public debt of 99 USD. CPI of 2014 was 4.09%, which is the lowest rate within recent ten years. Therefore, it is considered that the economy of Vietnam bottomed out in 2013. Additionally, the trend of next years is the growth of the economy.
Gross Domestic Products (GDP) of 2014 was estimated to increase by 5.98% compared to 2013 of which Quarter 1 increased by 5.06%; Quarter 2 increased by 5.34%; Quarter 3 increased by 6.07%; and Quarter 4 increased by 6.96%. The growth rate of this year is higher than increase of 5.25% in 2012 and the increase of 5.42% in 2013. It shows the positive sign of the economy.
b) Economic forecasting of 2016
The world economic forecast is shown in Table 4.8
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Table 4.8: Economic forecasting on the global economy of IMF for July
Quarter 4 compares with Quarter 4
Evaluation Forecast 2013 2014 2015 2016 2015 2016 2014 2015 2016
Philippines, Singapore, Thailand,
and Vietnam)
According to IMF (as above), the global economy in 2015 recovers quickly and the rate of global growth is estimated at 4%, increasing by 0.6 percentage - pointsin comparison with 2014 (this rate is much higher than that of growth of 2013 compared to 2012).
However, the economic situation is still unstable with the following events such as crisis in Ukraine, Western embargo on Russia, crisis and the fight against IS (Islamic State) in Mideast etc. which influence the global economy.
Vietnam’s economy in 2015 has the higher level of recovery and has abilities to gain the rate of growth from 6% to 6.2%. The reason is that the Prime Minister is clearly directing to
Vietnam’s economy in 2015 has the higher level of recovery and has abilities to gain the rate of growth from 6% to 6.2%. The reason is that the Prime Minister is clearly directing to