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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Vinacapital Vietnam Opportunity Fund Ld | LSE:VOF | London | Ordinary Share | GG00BYXVT888 | ORD $0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 473.00 | 469.50 | 474.00 | 474.50 | 470.50 | 474.50 | 144,665 | 16:35:12 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | -10.43M | -15.02M | -0.0975 | -48.26 | 725.05M |
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TIDMVOF
VINACAPITAL VIETNAM OPPORTUNITY FUND LIMITED
Annual Report and Financial Statements for the year ended 30 June 2016
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEARED 30 JUNE 2016
GENERAL INFORMATION
VinaCapital Vietnam Opportunity Fund Limited ("the Company") is a Guernsey
domiciled closed-ended investment company. The Company was previously a limited
liability company incorporated in the Cayman Islands. At an Extraordinary
General Meeting held on 27 October 2015, Shareholders approved proposals to
change the Company's domicile to Guernsey. This change took place on 22 March
2016. The Company is now classified as a registered closed-ended Collective
Investment Scheme under the Protection of Investors (Bailiwick of Guernsey) Law
1987 and is subject to the Companies (Guernsey) Law, 2008.
On 30 March 2016, the Company's shares were cancelled from trading on
Alternative Investment Market ("AIM") and admitted to the Main Market of the
LSE with a Premium Listing.
The Company does not have a fixed life but the Board has determined that it is
desirable that Shareholders should have the opportunity to review the future of
the Company at appropriate intervals. Accordingly, the Board intends that a
special resolution will be proposed every fifth year that the Company ceases to
continue. If the resolution is not passed, the Company will continue to operate
as presently constituted. If the resolution is passed, the Directors will be
required to formulate proposals to be put to Shareholders to reorganise,
unitise or reconstruct the Company or for the Company to be wound up. In July
2013, the Board tabled such a special resolution but it was not passed,
allowing the Company to continue as presently constituted for a further five
years.
INVESTING POLICY
The Company adopted the following revised investment objective and investment
policy at an Extraordinary General Meeting on 27 October 2015:
Investment Objective
The Company's objective is to achieve medium to long-term returns through
investment either in Vietnam or in companies with a substantial majority of
their assets, operations, revenues or income in, or derived from, Vietnam.
Investment Policy
All of the Company's investments will be in Vietnam or in companies with at
least 75 per cent ("%") of their assets, operations, revenues or income in, or
derived from, Vietnam at the time of investment.
No single investment may exceed 20% of the net asset value of the Company at
the time of investment.
The Company may from time to time invest in other funds focused on Vietnam.
This includes investments in other funds managed by VinaCapital Investment
Management Limited (the "Investment Manager"). Any investment or divestment of
funds managed by the Investment Manager will be subject to prior approval by
the Board. No more than 10%, in aggregate, of the value of the Company's total
assets may be invested in other listed closed-ended investment funds. The
restriction on investment in other listed closed-ended investment funds does
not apply to investments in closed-ended investment funds which themselves have
published investment policies to invest no more than 15% of their total assets
in other listed closed-ended investment funds.
The Company may from time to time make co-investments alongside other investors
in private equity, real estate or similar assets. This includes, but is not
restricted to, co-investments alongside other funds managed by the Investment
Manager.
The Company may gear its assets through borrowings which may vary substantially
over time according to market conditions and any or all of the assets of the
Company may be pledged as security for such borrowings. Borrowings are not to
exceed 10% of the Company's total assets at the time that any debt is drawn
down.
From time to time the Company may hold cash or low risk instruments such as
government bonds or cash funds denominated in either Vietnamese Dong or US
Dollars, either in Vietnam or outside Vietnam.
HISTORICAL FINANCIAL INFORMATION*
Years ended 30 June 2009 2010 2011 2012 2013 2014 2015 2016
Statement of Income (USD'000)
Total income from ordinary 29,075 134,263 (8,420) 54,556 120,239 111,510 12,132 119,137
activities
Total expenses from ordinary (25,869) (29,047) (27,214) (25,424) (29,515) (22,527) (17,504) (23,067)
activities
Operating profit/(loss) before 3,206 105,216 (35,634) 29,132 90,724 88,983 (5,372) 96,070
income tax
Income tax expense (108) (211) (545) (700) (672) - - -
Profit/(loss) for the year 3,098 105,005 (36,179) 28,432 90,052 88,983 (5,372) 96,070
Minority interests (3,684) 311 106 - (202) - - -
Profit/(loss) attributable to 6,782 104,694 (36,285) 28,432 90,254 88,983 (5,372) 96,070
ordinary equity holders
Statement of Financial Position
(USD'000)
Total assets 718,023 793,820 764,603 775,455 743,868 781,645 723,744 796,386
Total liabilities 36,111 11,319 12,697 9,810 9,171 10,265 5,080 9,850
Net assets 681,912 782,501 751,906 765,645 734,697 771,380 718,664 786,536
Share information
Basic earnings/(loss) per share 2.00 32.00 (11.00) 9.00 31.00 36.00 (2.00) 0.45
(cents per share)
Share price at 30 June (USD)** 1.43 1.40 1.57 1.50 2.13 2.50 2.50 2.82
Share price at 30 June (GBP)** 2.11
Ordinary share capital (thousand 324,610 324,610 324,610 312,536 261,376 238,255 219,958 208,646
shares)
Market capitalisation at 30 June 462,569 455,428 509,313 468,803 556,731 595,638 549,894 588,382
(USD'000)**
Market capitalisation at 30 June 440,243
(GBP'000)**
Net asset value per ordinary 2.10 2.41 2.32 2.45 2.81 3.24 3.27 3.77
share (USD)
Net asset value per ordinary 2.82
share (GBP)**
Ratio
Return on average ordinary 1.1% 17.0% (6.0%) 4.0% 14.8% 15.9% 1.0% 12.8%
shareholder's funds
Ongoing charges*** 2.2% 2.2% 2.1% 2.1% 2.1% 2.9% 2.2% 3.0%
* Until 1 July 2014, the Financial Statements were prepared on a consolidated
basis. From 1 July 2014, the financial statements of the Company are prepared
on a stand-alone basis in accordance with International Financial Reporting
Standards ("IFRS") 10.
** Following the change of domicile to Guernsey the Company's shares are now
quoted in Pound Sterling. USD Net Asset Value ("NAV") per share is translated
to Pound Sterling ("GBP") using the rate of exchange at 30 June 2016.
*** Ongoing charges have been prepared in accordance with the Association of
Investment Companies ("AIC") recommended methodology. The increase in ongoing
charges for the year ended 30 June 2016 is due to the increase in incentive fee
(see note 14 to the Financial Statements).
FINANCIAL HIGHLIGHTS
In the year to 30 June 2016, the Company's NAV per share increased in US Dollar
terms by 15.3% to USD3.77, while the Company's share price rose by 12.8% to
USD2.82, from the same period a year ago.
On 30 March 2016, the Company completed its Premium Listing on the Main Market
of the LSE after 12 years of being quoted on the Alternative Investment Market.
At the same time the Company migrated from the Cayman Islands and registered in
Guernsey (in the Channel Islands). The shares are now quoted in GBP.
As at 30 June As at 30 June As at 30 June
2016 2015 2014
USD USD USD
Total Net Assets (millions) 786.54 718.66 771.38
NAV per share 3.77 3.27 3.24
Increase in NAV per share 15.3% 0.9% 15.3%
Basic and diluted earnings/(loss) 0.45 (0.02) 0.36
per share
Share price 2.82 2.50 2.50
Increase in share price 12.8% 0.0% 17.6%
Discount to NAV 25.2% 23.5% 23.0%
The Company's share price discount to NAV widened to 25.2% as at 30 June 2016,
from 23.5% a year ago, despite good growth in NAV per share. Nevertheless,
there have been periods during the year when the discount was closer to or
below 20.0%, and reducing the discount remains an area of focus for both the
Board and the Investment Manager.
The Vietnam Ho Chi Minh Stock Index ("VN Index"), the main stock market index
in Vietnam, increased by 4.3% in US Dollar terms during the year ended 30 June
2016. Over the same period, the value of the capital markets component of VOF's
portfolio increased by 22.3%, significantly outperforming the VN Index. This
outperformance is mainly attributable to several large positions including
Vinamilk ("VNM"), Phu Nhuan Jewelry ("PNJ"), and Hoa Phat Group ("HPG"), which
increased by 24.8%, 94.9% and 37.0%, respectively.
During the twelve month period ended 30 June 2016, the Company spent USD28.2
million to repurchase 11.3 million shares. Since the commencement of the share
buyback programme on 25 October 2011, the Company has spent USD241.5 million to
repurchase 116.0 million shares, representing 35.7% of the total shares then in
issue. Both the Board and the Investment Manager believe that the share buyback
programme should help narrow the discount of the Company's share price to its
NAV per share.
CHAIRMAN'S STATEMENT
Dear Shareholder,
After a relatively pedestrian 2015, the 2016 financial year marked a return to
form for the Company, with a rise in NAV per share of 15.3% in US Dollar terms.
In this statement, I want to give some colour on how this return was achieved,
comment on the development of the Company's strategy and bemoan the fact that,
despite real progress on the investment and governance fronts, the discount
remains disappointingly high. Finally, I will set out some thoughts on where
the Company is seeking to add value in the years ahead.
Performance
The Company's performance in the 2016 financial year represented a substantial
improvement across all investment categories compared to the lacklustre results
in 2015. We saw positive performance in each of the sub-components of the
portfolio, the details of which are included in the Investment Manager's report
that follows.
The portfolio of listed equities represented 47.9% of total net assets at the
end of June 2016, down from 52.4% at last financial year end. This part of the
portfolio returned 22.3% in US Dollar terms, substantially outperforming the VN
Index, which rose by 4.3% on a comparable basis. At the close of the financial
year we divested our stake in Hau Giang Pharmaceuticals (DHG) to Taisho, a
leading Japanese pharmaceutical company. DHG had represented one of our top 10
holdings and the Investment Manager succeeded in divesting the block to a
strategic investor at a significant premium to the prevailing market price at
the time. The Investment Manager discusses this transaction along with other
activities in the listed equities portfolio in its report.
Over-the-counter ("OTC") traded securities, namely those companies going
through the privatisation process and moving toward active public trading,
accounted for 8.4% of the portfolio, an increase from last year's weight of
6.5%1. During the year, the Company purchased a stake in Airport Corporation of
Vietnam, one of the more high-profile privatisations that has come to the
market. The Investment Manager would have liked to have been able to deploy
more capital in this area, having had considerable success in the past with
investments such as Vinamilk, originally bought through the OTC process.
However, the Government has made disappointing progress on its privatisation
programme and the number of attractive opportunities has been limited.
Private equity investments accounted for 12.5% of the portfolio, compared to
9.5%1 last year, and generated a return of minus 2.2% due to a modest
revaluation of certain investments. The Investment Manager has been focusing on
rebuilding this part of the portfolio, following a number of divestments in
recent years. During the year the Company made significant new investments in
An Cuong Woodworking in the construction materials sector, a co-investment with
DEG of Germany, and in Thai Hoa International Hospital, a healthcare sector
investment located in the Mekong Delta. Again, the Investment Manager has
provided in its report more detail on these investments and has expanded on
other activities in the private equity portfolio. The Investment Manager makes
such investments with a time horizon which is relatively short by developed
market standards, looking to 'lock in' an element of return and to achieve an
exit within 2-4 years. The Company has had a successful historical track record
in this area, having achieved annualised returns of 21.3%2, and the Board is
hopeful that the existing portfolio together with these new investments will
offer attractive rates of return.
Finally, the year saw significant progress toward reducing our exposure to
direct real estate, which represented 8.2% of assets at the year end, compared
to 14.0%1 at the end of the last financial year. The sale of interests in the
Century 21 project, Danang Golf Club and Pham Hung yielded proceeds of USD50
million, which were at or in excess of their net asset values at the time of
exit. This represents a turnaround from the difficulty in recent years of
achieving attractive exits of significant direct real estate assets. This
reflects an improvement in the real estate market as well as representing the
culmination of long set plans to realise certain assets.
Operating assets, which are comprised primarily of the Sofitel Metropole Hotel
in Hanoi, represented 9.2% of assets. The Investment Manager continues to
evaluate options in this area.
1 Prior year reclassification of certain assets were made to ensure consistency
with current year classifications in line with financial statements
disclosures.
2 Annualised compound return of prior 5 financial years.
Strategy
In previous years, I have set out our strategy in three main sections, and I
reproduce those here:
1. We intend to reduce our exposure to direct real estate. As explained
above, this year, we have made progress on this front, but there is more work
to do and the year ahead should see our exposure to direct real estate fall
further. In the future, the intent is to ensure that our real estate exposure
is more liquid and less exposed to developmental risk in the hands of the
Investment Manager.
2. We continue to look to add to OTC and private equity assets, albeit
opportunistically. Our experience suggests that these are areas where
illiquidity is rewarded with superior returns. We are pleased to have made
progress on this front and expect there to be further investments in these
segments of the portfolio in the year ahead.
3. We retain the largest part of the portfolio in listed assets. Our approach
here is differentiated from a conventionally diversified fund in that it
comprises large positions where the Investment Manager looks to add value to a
business by helping with the development of good governance and management
practice as well as by offering strategic advice. Often, these companies began
life in the portfolio as OTC assets. Nothing has changed with regard to this
strategic objective.
Discount Management
Yet again, it is disappointing to have to report that the discount to NAV
remained little changed during the financial year, mostly range bound between
19% to 23%, only to widen and close at 25.2% at the year end. The Board
anticipated that the relisting of the Company's shares with a Premium Listing
on the Main Market of the LSE would improve liquidity and that entry into the
FTSE All Share / Small Cap Index would lead to significant buying by index
trackers. We also hoped that these factors would help to reduce the discount.
The listing took place, and the Company was indeed added to the Index. Index
trackers have been active buyers of shares as have new constituencies of retail
investors, but as yet the effect on the discount has not been seen. It is
important to note that in the three months between the relisting to 30 June
2016 the share price increased by 18.9% in Sterling terms (or 10.4% in US
Dollar terms), while the NAV per share increased at a similar rate of 18.6% in
Sterling terms (or 10.1% in US Dollar terms)3.
I know that I sound like a broken record, but lowering the discount remains a
priority for the Board, and the continuation of the share buyback programme
should help achieve that in conjunction with the other developments listed
here. To these factors we must add a more active shareholder communications
plan and the Investment Manager has placed an increased emphasis in maintaining
relationships with existing investors as well as seeking new ones.
Shareholders may have noted, that over the past 5 months, the Company has not
bought back any shares, despite the Board's commitment to the buyback
programme. This is because we have had to suspend activity in order to comply
with the provisions of the Market Abuse Regime, which came into effect in July
this year. As you would expect, the Board is often aware of confidential
potential portfolio transactions which are material and, in these
circumstances, we have been advised that we must suspend the buyback. This does
not mean that a significant transaction will happen, but that it might. The
suspension does not mean that the Board's commitment to the buyback is lessened
and as soon as we are able to re-commence buybacks we will do so.
During the financial year, we bought back USD28.2 million worth of shares,
adding 1.8% to NAV per share. Since inception of the buyback programme in
November 2011, the value of shares bought back totals USD241.5 million.
Migration to LSE Main Market
As foreshadowed in our last annual report, at the end of March 2016 the Company
migrated its domicile from the Cayman Islands to Guernsey, and moved its
listing to the LSE's Main Market, away from AIM. The Company also adopted a
Sterling quote, one of the prerequisites for inclusion in the FTSE All-Share
and Small-Cap Indices. The Company subsequently became the first
Vietnam-focused company to be so included. As stated when we announced the
decision to migrate, we believe these moves will, among other things, elevate
the Company's visibility and attract a new and broader base of investors. Since
moving to the
Main Market on 30 March 2016 to 27 October 2016, the Company's stock price has
increased nearly 39.5% in Sterling terms (or 18.2% in US Dollar terms).
3 Movement in share price and NAV per share as at 31 March 2016 compared to 30
June 2016.
Corporate Matters
Directorate
Following seven years of service on the Board, Mike Gray has decided to retire
following the Annual General Meeting ("AGM"). Mike has been a fixture on the
financial scene in Vietnam since 1993 and has made an outstanding contribution
to the Company, combining a deep local perspective with the rigour to be
expected of a former partner of a Big Four accounting firm. His knowledge of
the investee companies, valuation subtleties and auditing knowledge will be
hard to replicate. The Board would like to record its thanks to Mike for his
involvement and dedication to the Company and wishes him well in the future.
In May 2016, Huw Evans joined the Board as a non-executive Director of the
Company. Huw is a former partner of Phoenix Securities, a Chartered Accountant
resident in Guernsey, and serves on the boards of two other LSE-listed
companies. Huw will replace Mike as Chairman of the Audit Committee. Huw's
experience and perspective will be very beneficial to the Company and I urge
you to support his election at the forthcoming AGM.
Investment Management Agreement ("IMA")
As part of the change of domicile and relisting project, the Board agreed some
amendments to the IMA to bring the agreement up to the standards to be expected
of a Company with a Premium Listing on the LSE's Main Market. These are
principally of a technical nature except insofar as concerns the fee section of
the IMA. As reported, last year there was a difference of interpretation as to
the terms of the incentive fee which resulted in a compromise between the
Company and the Investment Manager. As part of that compromise, it was agreed
that the IMA would be amended to reflect the interpretation of the Company and
certain changes have been made to ensure that this is the case. The Board
believes that the methodology now adopted reflects its view of the original
intention and that the difference of opinion on the interpretation of the
previous agreement with the manager is now settled to the Company's benefit.
Incentive fee - current year
Given the performance this financial year, an incentive fee has been earned by
the Investment Manager on the Capital Markets pool. The total amount earned was
USD8.2 million, which is equal to the cap which limits the total paid in any
one year to 1.5% of the NAV of that pool. There was no fee earned in excess of
the cap. Details of the incentive fee are set out in note 17(b) to the
Financial Statements.
Outlook
Vietnam's economy has shown remarkable strength in the face of the significant
headwinds that have affected many emerging and frontier economies. In 2015,
Vietnam's 6.7% GDP growth was amongst the highest in the world, and while 2016
growth is shaping up to be slightly lower than this, the country nonetheless
remains resilient. Much of the slower growth can be attributed to a severe
drought that has affected large parts of Vietnam and hurt agricultural
production. Manufacturing, driven by foreign direct investment, continues to
grow and propel the economy forward. Fundamentally, Vietnam's macroeconomic
indicators continue to give investors confidence that the country is on a path
to sustained growth which is increasingly hard to find even in South East Asia.
This has helped propel the stock market to significant gains, although it
continues to sit at a valuation discount to regional peers.
Despite these positive developments, we join the chorus of foreign investors
who would like to see more meaningful progress on addressing the growing fiscal
deficit and on accelerating the process of privatisation. The latter in
particular offers investors the greatest potential as a number of
non-strategic, major enterprises remain under government ownership. We are
heartened that the new government has continued or accelerated the reforms
started by its predecessor. Initial concerns amongst some observers that the
new guard would be less committed to change at this point seem unfounded. This
bodes well for both the country and Company.
So great has Vietnam's development been in recent years that a few analysts
have suggested that Vietnam could "graduate" from frontier status to emerging
market status in the near term. Although we believe such a move remains
unlikely in the short run, what is clear is that the opportunities for
significant investment gains remain abundant, and that the Company is well
positioned to realise them.
On an administrative note, the AGM will be held at 2PM on 21 December 2016 at
the Company's registered address. As always, I invite you to attend. In the
meantime, please contact me, any of the other members of the Board, or the
Investment Manager should you have any questions or suggestions.
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund
27 October 2016
INVESTMENT MANAGER'S REPORT
INVESTMENT ENVIRONMENT
1. The financial year in review
Vietnam's macroeconomic stability over 2015 and into 2016 provided a solid
foundation for good market performance, in stark contrast to the lacklustre and
volatile performance in recent years. 2014 and early 2015 was dominated by
domestic and regional events, volatility in global markets, and a weak
currency.
1.1 GDP growth remains strong although deceleration in 2016 expected
The themes which dominated 2014 and 2015 did not recur in the current financial
year. In contrast, Vietnam was a stand-out performer in terms of economic
growth, posting 6.7% GDP growth for 2015, amongst the highest in the region and
in emerging markets more generally. Foreign direct investments ("FDI") remained
a structural driver of this growth as industrial production reached multi-year
highs (9% year-on-year growth for 2015), with the manufacturing and services
sectors contributing the most to output. FDI commitments and disbursements
topped USD23 billion and USD14 billion respectively for 2015 (up 13% and 17%
year-on-year respectively). FDI businesses remain an important source of
employment, wealth creation and have contributed to the rise of the
middle-class in Vietnam, as the economy shifts from its traditional reliance on
the agricultural sector towards manufacturing and exports of consumer goods.
Growth in the first half of 2016 slipped with GDP growth only reaching 5.5%
(annualised), leaving the prospect of achieving the targeted growth of 6.7% set
by the Vietnamese government for 2016 at risk. Several reasons explain this
deceleration including continued weakness in demand from China and developed
markets, and the lingering effects of El Niño that resulted in severe drought
conditions affecting agricultural output. Consequently, we have lowered our
in-house GDP forecast to between 6.0% and 6.3% for 2016.
1.2 Currency stability in 2016 a stark contrast to previous year
During 2015 Vietnam experienced a sharp 5.0% currency devaluation, a result of
the devaluation of the Chinese Yuan ("RMB") towards the second half of the
year, which forced the State Bank of Vietnam ("SBV") to devalue the Vietnam
Dong ("VND") in order to maintain export competitiveness.
For the first six months of 2016, the VND devaluation was halted and, in fact,
the currency appreciated by 0.8% against the US Dollar. This was partly due to
the government introducing at the start of the year a flexible exchange rate
regime against a basket of eight global currencies that make up Vietnam's key
trading partners, as well as maintaining a wide trading band that the
free-market rate can trade against the official rate. These measures, along
with strong FDI inflows and persistently high levels of overseas remittances
have provided a level of confidence in the local currency and contributed to a
healthy FX reserve that some analysts estimate to be close to USD40 billion (or
over 3 months of import coverage).
1.3 Structural reforms in the banking sector support credit growth
According to SBV estimates, the remaining non-performing loans ("NPLs") on bank
balance sheets had fallen to 3% by the end of 2015, or USD6 billion of
system-wide loans. It is important to put Vietnam's banking crisis into
context: NPL ratios peaked at 17% or USD20 billion in 2013, compared to 30%-60%
NPL ratios in countries impacted by the 1997-1998 Asian financial crisis.
Several Asian countries undertook strong measures to recapitalise and,
consolidate bad banks, and regulate their banking sector after the crisis. We
have yet to see similar strong-willed action directed towards Vietnam's banking
system. Instead, the approach to addressing the sector's structural problems
has allowed banks in Vietnam to progressively reduce their NPL's through a
process of:
1. Transferring the "bad" loans to the Vietnam Asset Management Company
("VAMC") which operates as a mechanism to allow banks to buy time to write-off
these bad loans over a 5 year period. Towards the end of 2015, approximately
USD10 billion of the estimated USD20 billion in "bad" loans had been sold to
the VAMC;
2. Write-offs through loan loss provisions which have an immediate impact
on banks' balance sheets; or
3. By simply reducing the NPL ratio through increasing the loan books.
Credit growth reached 11% in 2013, 13% in 2014, and approximately 18% in 2015.
There are early signs of progress, with the SBV attempting to implement
structural reforms in 2015 and 2016 that aim to improve the capitalisation,
risk management and liquidity of Vietnam's banks. Long-awaited regulations that
compel banks to report more accurate NPL figures are now in place (Circular
09). A comprehensive set of regulations (Circular 36) set industry standards on
capital adequacy ratios and minimum absolute amounts of equity capital required
by banks, as well as a more uniform way of measuring loan-deposit ratios, and
limits on bank cross-ownership stakes. The SBV hopes that consolidation will
follow with the number of local banks reducing from 36 at present to 15,
although no such timetable has been committed to.
With efforts to clean up their balance sheets underway, banks have focused
their efforts over the past year on increasing loan growth as a way to improve
their operating income. Encouragingly, credit growth has been directed towards
capital-intensive businesses instead of towards non-productive or non-core
businesses at state enterprises, which tend to exacerbate the NPL issue.
System-wide loan growth is being driven by demand for retail loans (for
example, mortgages and consumer credit), financing for the construction of real
estate projects, and financing of infrastructure projects, all of which will be
positive for the growth of the economy.
1.4 Property sector recovery has gained momentum
For much of the past two years, Vietnam's real estate market has been among the
most visible signs of the economy's expansion. Residential property sales have
been robust, construction of condominiums and office towers are underway in the
major cities, and industrial parks are rising on their outskirts. It does
indeed appear that real estate sector has recovered from the bubble that burst
in 2008. It is fundamentally stronger thanks to the numerous reforms enacted
over the past few years, an increase in bank liquidity and lending, all of
which resulted in a remarkable level of activity in 2015, particularly in the
residential sector.
While 2016 has seen solid growth, the year is shaping up somewhat differently
from 2015. Nevertheless, we believe the property market continues to hold
value, though it may be more difficult to uncover, and certain segments bear
monitoring.
1.4.1 Residential property beginning to show signs of cooling
The residential property market - and the high-end condominium sector in
particular - has captured most of the attention when it comes to real estate in
Vietnam, as massive projects rise across Hanoi and Ho Chi Minh City. In 2014,
7,530 condos were sold in Ho Chi Minh City, according to CBRE Vietnam. At the
start of 2015, roughly 21,000 unsold units were on the market, while a number
of new projects were launched, putting even more inventory up for sale. But by
mid-2015, the appetite for condos seemed insatiable, and buyers eagerly snapped
up 20,600 available properties. In 2016 to date, absorption rates have
continued to be positive, although CBRE expects that the third quarter will see
a decline from the second quarter.
It comes as no surprise, as higher levels of credit growth have fuelled growth
in the sector, that competition has intensified in 2016, with more players in
the market and a higher supply of high-end units. This year, an enormous amount
of inventory is expected to come onto the market, with 45,000 units in Ho Chi
Minh City - more than the total sold in the city over the past three years -
and 12,000 units in Hanoi set to launch. At the end of the second quarter,
unsold property in Hanoi and Ho Chi Minh City totalled nearly USD556 million.
According to CBRE Vietnam, the majority of high-end condo buyers tend to be
investors looking to rent out their units or speculators. Many of the more
recent high-end launches have been in mega projects, ranging from 3,000 to
11,000 units. While these offer prime locations and a full range of amenities,
these come at a cost, and there are signs that projects of this scale are
losing their allure among buyers.
The question is how many such buyers exist, given their strong purchasing over
the past year, with most of the developments yet to be delivered. This high-end
of the market may well have reached its capacity. Jones Lang LaSalle expects
overall apartment prices to rise 5-7% per annum over the next three years, a
slight slowdown from the 9% they have seen in the past 18 months, and a far cry
from the 106% in 2005-2007.
Q2 2016 price Apartment price Home price to
Apartment Type USD psm Y-o-Y change USD income ratio
Affordable 827 7.9% 62,025 3.9
Mid-end 1,414 4.6% 106,050 6.6
Premium 2,192 8.7%
Luxury 3,925 -3.1%
Source: Jones Lang LaSalle
With increasing prices, it is understandable that buyers at this level are
looking for properties that feel more exclusive. Novaland, a local developer in
which the Company invests through a preferred convertible equity note, has made
a name for itself for building more manageably-sized projects throughout Ho Chi
Minh City at rates that are more affordable compared to other projects, and
sales have continued to grow. While not as alluring as luxury, the sheer demand
for affordable properties makes this the next growth segment of the market,
particularly as incomes rise and urbanization accelerates.
1.4.2 Landed properties increasingly popular
If mega projects are losing favour, landed properties such as villas and
townhouses, are seeing steadily rising numbers of buyers. Offering larger homes
and international designs, landed properties have seen increasing absorption
rates. Developments from local developers Novaland and Khang Dien House
(another underlying portfolio company) have seen good sales within a short time
after launch, given their affordable prices. Nine South Estates, a VinaCapital
VinaLiving developed property has nearly sold out of its inventory of homes at
its development in the new Saigon South area adjacent to District 7. While
these developments are a little further from the Central Business District
("CBD"), they offer attractive landscaping, amenities such as pools and
clubhouses as well as a greater sense of privacy. We expect to see a number of
new such projects in the mid-term, although the availability of prime land,
such as clean riverfront sites or close to good infrastructure development, is
becoming increasingly scarce.
1.4.3 Hospitality sector improves as tourist numbers swell
Vietnam is finally appearing on the itineraries of more travellers. Several
international publications have highlighted the country's scenery and value, Ho
Chi Minh City's energy and Hanoi's charm. The government is also starting to
see the potential of tourism and is taking steps to make it easier to travel to
the country through relaxed visa regulations and greater investment in
marketing.
Vietnam has seen a steady increase in the number of tourist arrivals during the
first seven months of 2016, reaching nearly 6.5 million visitors, a 25.4%
increase on a year-on-year basis. This has been great news for the hospitality
industry, with CBRE Vietnam reporting June occupancy rates of 65% and 75% for
Ho Chi Minh City and Hanoi, respectively, the latter marking a five-year high.
In comparison, the average occupancy rate in Bangkok was 75%, Singapore 83%,
Kuala Lumpur 62% and Jakarta 49%; the average daily rate for Ho Chi Minh City
and Hanoi exceed those of all of those cities except for Singapore.
CBRE Vietnam foresees strong growth in the five-star and resort hotel segment,
and already new hotels are under construction across the country, particularly
in coastal areas. The segment's growth has also led to several transactions
involving operating properties, with the sales of the luxurious Nam Hai Resort
in Hoi An for USD63 million (USD630,000 per key), the Con Dao Six Senses for
USD18 million (USD327,300 per key), and the Duxton Hotel Saigon, a four-star
hotel in central Ho Chi Minh City for USD49 million (USD256,500 per key) among
the more notable deals.
Overall, the future for hospitality looks bright but as more international
operators enter the market, local hotel brands will have to step up their game
if they want to compete.
1.5 Retail growth still strong and gives rise to Vietnam's middle class
As incomes have risen, so too have retail sales, which rose 9.5% in nominal
terms during the first six months of 2016. The retail sector has seen a huge
amount of M&A over the past 12 months, with Thai companies purchasing the
Vietnam operations of Metro and Big C. Korea's Lotte and Japan's Aeon also
continue to expand their retail networks in the country. Singapore's Keppel
Group recently opened the doors of its expanded Saigon Centre in the heart of
District 1, with famed Japanese department store Takashimaya its anchor (a
source of local pride as the store opened a branch in Vietnam before Thailand),
and a full range of food and beverage options. Given its international design
and construction standards and prime location, it is little surprise that the
shopping centre was fully committed six months before opening.
The same cannot necessarily be said for other western-style shopping centres.
Earlier this year, Parkson, a Malaysian retailer which has operated in Vietnam
for several years, closed its store in Ho Chi Minh City's District 7, following
the closure of its store in Hanoi last year, leaving it with just a handful of
locations. During the first quarter of this year, the company said its retail
sales had plummeted more than 14% on a year-to-year basis.
A few factors are at play in this sector. First, western-style malls and modern
trade outlets are perceived as expensive. Second, the traditional habit of
shopping at wet markets and local mom-and-pop shops has been hard to break.
Third, some of the new shopping centres have been poorly designed and lack an
alluring retail mix. The most successful tenants today are food & beverage
operators - whose margins tend to be slim and rely on foot traffic - and
centres currently being designed allocate up to 65% of net leasing area to food
and beverage ("F&B") and entertainment.
1.6 Impact on the stock market and possible catalysts
While the message has been positive overall for Vietnam, global events over the
financial year have made for a somewhat volatile local stock market. The
benchmark Vietnam Index ("VN Index"), which covers stocks listed on the Ho Chi
Minh Stock Exchange, increased by 4.3% in US Dollar terms over the financial
year. This overall increase masks several periods of volatility caused by both
domestic and global events.
Over the first six months of the financial year, from July to December 2015,
the VN Index declined by 5.5% in US Dollar terms. The index closed at 593
points at the end of the previous financial year, and by 31 December 2015 it
had declined to 579 points, due to: a technical correction of the market during
the last quarter of the calendar year due to the prolonged impact of low oil
prices on listed companies in the oil and gas sector; and the unintended
consequence of a 5% currency devaluation in the second half of 2015 due to the
aggressive RMB devaluation in August 2015.
The second half of the financial year, from January to June 2016, marked the
start of a turnaround of the index, as both foreign and domestic investors
piled into the market, attracted by relatively cheap valuations (approximately
13 times trailing PE at the start of the calendar year), hopes more companies
would commence relaxing the foreign ownership limits ("FOL"). Further, good
earnings growth in blue-chip companies such as Vinamilk ("VNM") and Hoa Phat
Group ("HPG"), helped drive up prices.
The index closed the 2016 financial year at 632 points, and in fact on the
first day of July 2016, to mark the start of the Company's 2017 financial year,
the index closed above 640 points, something that has not been seen for almost
8 years. More important is that Vietnam's stock market appears to have broken
through a psychological and technical barrier of 640 points that has been a
level of resistance for the index in recent years. However, in 2016, we have
seen the market maintain its momentum and subsequent to the end of the
financial year we have seen the market exceed this level of resistance and is
currently on its way to 700 points.
And an important footnote to the financial year; while global events such as
"Brexit" pummelled most global markets in June, it barely registered any impact
on Vietnam's bourses. The country's stock market saw no lasting impact from
Brexit. On the day before the results of the vote were announced, the VN Index
closed at 632 points; the Index ended the month of June less than a week later
at the same level, and subsequently moved even higher than pre-Brexit levels.
1.7 Risks and headwinds
Macroeconomic results that have come in post financial year-end have been for
the most part positive although our in-house projection for GDP growth this
year is lower, between 6.0% and 6.3%. We expect the government's target of 6.7%
set at the beginning of the year to be over-ambitious and factors such as
strong FDI commitments, a positive balance of trade, and credit expansion may
not be sufficient to fully offset the widening fiscal deficit and a reduction
in budget revenues as a result of persistently low oil prices.
Today, oil revenues contribute less than 5% of the government's budget
revenues, a far cry from the 15% levels when oil was trading above USD100 per
barrel over the 2014-2015 period. While low commodity prices have been
beneficial to help keep inflation levels at multi-year lows, this dwindling
contribution to revenues has not been offset by other sources in a meaningful
way. In fact, in recent years Vietnam's ratio of budget revenues as a
percentage of GDP has been declining in contrast with an uptrend in other
regional countries, and the deficit as a percentage of GDP has been rising
against a downtrend in the region. In 2015 the public debt to GDP ratio reached
60.3% and in 2016 is forecast to be 64.9%, a worrisome level given that the
National Assembly of Vietnam have laws in place to restrict public debt from
exceeding 65%. Finally, given the need for the Government to continue its
impressive programme of fiscal spending to develop key infrastructure projects
throughout the country, there does not appear to be any viable solution to
reduce this widening deficit.
1.8 Summary of key macroeconomic indicators and forecasts
Major Unit 2011A 2012A 2013A 2014A 2015A 2016F
Indicators
GDP growth % 5.8 5 5.4 6 6.7 6.3
CPI % 18.1 6.8 6 1.8 0.6 3.0 - 4.0
Trade Deficit / USDbn -9.5 0.3 0.9 2 -3.5 -5
Surplus
Exports USDbn 96.3 114.6 132.2 150.1 162 180
Imports USDbn 105.8 114.3 131.3 148.1 165 185
FDI Commitments USDbn 14.7 13 21.6 20.2 23 23.0 -
25.0
FDI USDbn 11 10.5 11.5 12.4 14 13.0 -
Disbursement 15.0
Credit Growth % 10.9 7 11 12.6 17.2 18-20
FX Reserves USDbn 17.2 26 32 35 30 38-40
SBV Refinancing % 15 9 7 6.5 6.5 6.5
Rate
Deposit Rate % 14 8 7 5.5 6 6.0 - 6.5
Lending Rate % 18.0 - 12.0 - 8.0 - 11.0 - 12.0 9.0 - 9.5 -
20.0 15.0 12.0 11.0 11.5
USD/VND VND 21,200 20,880 21,190 21,580 22,660 23,000
(market rate)
Source: General Statistics Office of Vietnam, Bloomberg, VinaCapital research
INVESTMENT REVIEW
2. Performance review
Annual return
Asset class FY2016 FY2015 Last 3 years Last 5 years
Capital market 22.3% 1.0% 15.4% 9.8%
Listed equities 19.7% 0.2% 15.7% 8.8%
OTC securities 44.2% 4.9% 12.7% 13.4%
Private equity (2.4)% 13.1% 25.9% 21.3%
Bonds 0.0% 4.6% 2.8% 3.0%
Operating assets (including 0.3% 4.5% 3.3% 3.9%
hospitality projects)
Real estate projects 11.2% (10.0%) (9.2%) (9.2%)
NAV/share growth 15.3% 0.3% 10.9% 6.0%
VN Index (USD) return 4.3% 0.3% 10.4% 0.5%
Volatility
NAV/share volatility (std. dev.) 9.5% 8.4% 14.4% 19.5%
Source: Bloomberg, Numis Securities research, VinaCapital research, 30 June
2016, last 3 and 5 years based on FY2013-FY2015 and FY2011-FY2015 respectively,
capital markets performance consists of listed equities and OTC securities.
Resurgent investment interest in Vietnam, through net inflows to the public
markets from investors local and offshore who are attracted to the market's low
valuation and average earnings growth in excess of 10% (excluding outliers),
have helped the stock market deliver a 4.3% return over the 2016 financial
year, in US Dollar terms.
This performance should be viewed in two parts, with the first half of the
financial year (1 July 2015 to 31 December 2015) underperforming, while
the second half of the year (1 January 2016 to 30 June 2016) posting a strong
recovery. In fact, the VN Index increased by 9.7% in US Dollar terms over the
second half of the year, making it one of the best performing stock markets
globally over the 6 month period. This strong performance has continued into
the current financial year. The Company's portfolio followed a similar pattern,
with NAV per share down 0.9% in the first half of the financial year, but up
16.2% in the second half, and returning 15.3% overall for the full financial
year.
Looking specifically at the Company's capital markets portfolio which includes
listed equities and OTC securities, a return of 22.3% over the financial year,
was achieved, significantly outperforming the VN Index (+4.3%), MSCI Emerging
Market index (-14.2%) and MSCI Vietnam index (-5.5%) over the same period.
The listed equities portion of the capital markets portfolio, which includes
our holdings in Vietnamese publicly listed equities, represents 47.9% of the
total portfolio and delivered a 19.7% return this year, one of the best results
in recent years and a marked improvement on last year's 0.2% return. Our
high-conviction strategy, holding large, meaningful blocks in companies that
deliver above average earnings growth at attractive valuations, and that are at
or near their foreign ownership limits, is paying off. During the year we
divested a number of large listed equity investments, including Hau Giang
Pharmaceuticals ("DHG"), and trimmed other large positions such as Hoa Phat
Group ("HPG"). By the close of the financial year, there were 19 holdings in
the listed equities portfolio.
The OTC portfolio, which includes state-owned companies that have recently
undergone a privatisation process - or "equitisation" as it is referred to in
Vietnam - delivered a strong performance this year, up 44.2%. In previous years
we had sought to build-up this part of the portfolio after several successful
divestments including An Giang Plant Protection. One new OTC investment was
purchased over the year, namely Airports Corporation of Vietnam ("ACV"), and we
added to an existing stake in Quang Ngai Sugar ("QNS"). Both companies have
seen strong NAV performance as they delivered good results over the year. OTC
investments represent 8.4% of the total portfolio as at 30 June 2016 compared
to 6.5% the prior year.
Unlike in previous years, the private equity portfolio did not contribute
materially to performance this financial year. It was a year of building up new
holdings in this area, which now represents 11.4% of the portfolio compared to
9.5% last year, and less than 2.5% in the financial year before that (2014).
NAV was down 2.4% in 2016, primarily as a result of fair value adjustments to
the portfolio. On a historical basis, over the previous 3 and 5 financial
years, private equity has been one of the strongest contributors to performance
and we expect that the current investments under this portfolio will deliver
solid returns on exit.
We have made concrete progress on the realisation of assets held in the real
estate portfolio, with approximately USD46.5 million in proceeds received
during the financial year, through the divestment of projects including Century
21, Danang Golf, and Pham Hung. This has helped reduce the NAV of this part of
the portfolio to 8.2% from 14.0% in the previous year, as well as delivering a
strong 11.2% return as assets were sold above their carrying value.
Overall, the Company's NAV per share increased by 15.3% during the 2016
financial year to USD3.77, from USD3.27 the prior year. Unlike in prior years,
the VND was stable and did not materially impact the portfolio performance.
2.1 Portfolio review
2.2 Listed equities
The Company's listed equities portfolio continued to maintain its balance, with
47.9% of the total portfolio allocated to the listed equity asset class, versus
52.4% as of last financial year, as we continue to concentrate and build up our
positions in key holdings where we are able to negotiate significant stakes,
like Khang Dien House ("KDH"), or where we can take advantage of the premium to
market price where foreign ownership is at, or close to prescribed limits, such
as with Vinamilk ("VNM") and Hau Giang Pharmaceuticals ("DHG"). In the case of
DHG, in June 2016 we sold our shares to a strategic investor - Taisho, a
leading Japanese pharmaceutical company - for a significant premium to the
market price at the time of exit, realising USD34 million in proceeds. DHG's
share price has increased 40.1% over the financial year.
Our largest holding, VNM, reported a strong second quarter 2016 result, with
net revenue growth of 18.6% year-on-year, while net profit surged 28.8%
year-on-year. For the first six months of the calendar year, revenue was up
18.6%; domestic revenue surged by 19.5% year-on-year; while net profit rose
32.9%. We expect that VNM will continue to deliver good earnings in the second
half of the 2016 calendar year, benefiting from a better sales mix and
favourable milk powder input prices. Following the end of the financial year,
in July VNM received official permission from the State Securities Commission
("SSC") to remove its foreign ownership limit ("FOL"), allowing foreigners to
buy up to 100% of the company. Given recent results and other developments, we
believe VNM will continue to be popular with foreign investors and this removal
of FOL may see VNM included in the two Vietnam ETF's and other index-tracking
funds. Our shares in VNM represent 14.7% of NAV, and VNM's share price
increased 24.8% over the financial year.
Another core listed equity holding, Hoa Phat Group ("HPG"), announced better
than expected results for the second quarter 2016, with net income of USD91
million, an impressive increase of 63.5% year-on-year and 80.8%
quarter-on-quarter on revenue of USD361 million (an increase of 5.2%
year-on-year). A sharp improvement in gross margins to 32% during the second
quarter was driven by the recovery in average selling price, while input
materials were hedged at a lower price. HPG also regained its position as the
number one steel producer in Vietnam, with 21.5% market share, an increase of
2% compared to the first quarter of the calendar year. Given the continued
strength of Vietnam's construction industry, we expect HPG is well positioned
to sustain sales volume growth and maintain healthy profit margins into the
second half of the year. HPG makes up 8.3% of NAV and has seen its share price
increase 37.0% over the financial year.
Eximbank ("EIB") which is the third largest holding in the portfolio,
experienced a challenging year. The Investment Manager sought to work with the
bank's management and strategic shareholders to reconstitute the board in late
2015. EIB have been addressing problems in their NPL book during the year and
we expect that they have been more aggressive than other banks in booking
provisions against their balance sheet. Even so, the bank's net assets remain
positive at USD588 million as at 30 June 2016. VinaCapital continues to have
the opportunity to work with the bank's management and strategic investors and
expect to exit at a premium to current market value. The Company's stake in EIB
represents 4.0% of NAV as at year end, and the share price has underperformed
over the financial year, down 11.5%.
Phu Nhuan Jewelry ("PNJ") maintained strong growth in its core operations in
the first half of 2016 with gold jewellery retail sales increasing 23%,
significantly higher than market growth of only 6%. Market share of gold
jewellery was estimated to increase from 25% to 30%, backed by rapid store
expansion with 59 newly-opened stores in the past twelve months. Ending the
period, core net profit advanced 32% primarily driven by gross margin expansion
(to 17% from 14% over the same period in 2015) while net profit surged at a
faster pace of 123% due to lower financial provisions for the investment in
Dong A Bank, and one-off profit from property sales. Over the first half 2016,
PNJ's share price strongly outperformed the VN Index (up 80% vs 9% for the
index in local terms). As at financial year end, our investment in PNJ
represented 4.9% of NAV, and the company's share price increased 94.9% over the
financial year.
2.3 Over-the-counter securities
OTC securities represent the other component of the capital markets portfolio.
Traditionally, OTC investments come about when the government embarks on a
programme to privatise - or "equitise" as it is called in Vietnam - the
state-owned enterprise. Historically, this asset class has made a material
contribution to the portfolio's performance compared to other asset classes.
As at the financial year end, the Company had USD65.5 million or 8.4% of NAV
allocated to this asset class, an increase from 6.5% last year. While the
previous financial year saw some large divestments from the portfolio,
including An Giang Plant Protection (AGPP) in September 2014, this year we have
tried to seek opportunities to put money to work into this asset class.
However, the fact that we have only been able to invest in two opportunities
during the financial year is testament to the dearth of investible
opportunities from the Government's privatisation program. Headline grabbing
equitisations such as Vietnam Airlines in 2015 did not garner the level of
foreign, institutional investor interest as perhaps hoped for, a reflection of
high valuations that we hoped for the business. Encouragingly, All Nippon
Airlines ("ANA") of Japan did subsequently acquire a strategic stake in the
national carrier.
In late December 2015, consistent with our ongoing strategy, we took the
opportunity to increase our OTC portfolio by participating in the privatisation
of Airports Corporation of Vietnam ("ACV"). This share sale was 1.3x
oversubscribed on offer, and the sale valued the business at close to USD1.4
billion. The key success factor with this equitisation was that it attracted
strong demand from both domestic and international investors, a reflection of
the quality of the company and the fair valuation of the offer. ACV are now
finalising the selection of an international strategic investor, and expect to
publicly list within the next 12 months. ACV currently manages 22 airport
terminals throughout Vietnam. As at year end, the holding in ACV represents
2.1% of NAV and since the initial investment, the OTC share price has increased
approximately 57%.
Meanwhile, Quang Ngai Sugar ("QNS"), which is a leading food and beverage
company and market leader in soy milk production (84% market share), and is
also the largest domestic sugar producer (11% market share), continues to
deliver strong results. QNS is cost competitive thanks to its business size and
vertical integration. In 2015, soymilk sales volume increased 25% year-on-year,
while revenues increased 25% to USD350 million compared to sector-wide revenue
growth of 4%. In 2016, QNS increased capacity at their Bac Ninh factory from 90
million liters to 180 million liters and will add another 90 million liters in
the Binh Duong factory from Nov 2016. As at the financial year end, we continue
to build up our stake in QNS, which now represents 3.8% of NAV. The OTC share
price has increased 92% compared to prior year, although the stock trades
thinly on the OTC market.
2.3.1 Looking ahead on equitisation (privatisation)
Looking ahead, we would expect the government to quicken the pace of
equitisation after a disappointing past 2 years where few investible
opportunities were available. In fact, for the calendar year up to August 2016,
the government has completed less than 50 equitisations, for state-owned
companies with a combined market capitalisation of USD1.5 billion, although in
practice, the actual float available for investors is far less than this
amount.
The new financial year may bring some more promise in terms of opportunities to
invest in. In July, the government announced plans to equitise over 20
companies, including several large, attractive, companies in non-sensitive
sectors which should mean a relatively straight forward process for
equitisation. However, our investment approach is to remain disciplined, not be
tempted by chasing headline, high-profile transactions that invariably lead to
rich valuations, but rather seek opportunities where we can work closely with
management to conduct and participate in an equitisation of meaningful size.
2.4 Private equity
Turning to private equity, this asset class accounted for 11.4% of NAV as at
the end of the financial year, up slightly from 9.5% the prior year. We
continue to focus on investment opportunities in privately negotiated deals
given the lack of meaningful opportunities in the OTC / equitisation process.
While the change in the portfolio's private equity allocation has been
incremental, two new investments have been added to the top 5 holdings, one in
the healthcare sector and the other in the construction materials sector. We
discuss these investments further below. The other two top investments which
were made during the prior financial year (International Dairy Products
("IDP"), and Novaland, which is a redeemable preferred equity instrument)
continue to perform well and have seen a positive movement in their valuations
over the year.
In March 2016, we invested USD9.0 million in a management buyout transaction to
acquire a controlling stake in Thai Hoa International Hospital ("Thai Hoa"), a
leading healthcare provider located south of Ho Chi Minh City in the Mekong
Delta region. Thai Hoa is a general hospital established in 2008, built with
the goal of providing premium healthcare and top-of-the-line hospital
facilities for the region. Currently, Thai Hoa has 200 beds, with the ability
to scale up to 300 beds in the same location, employs over 30 doctors, and is
capable of treating over 300,000 patient visits per year. Management expects
that the number of visits will increase significantly through 2016 and 2017 due
to the Government's Private Partnership Program between public and private
hospitals and the loosening of National Health Insurance regulations that will
take effect in the second half of this year. Furthermore, with Thai Hoa
strategically located within 30km from the border with Cambodia, medical
tourism should become an increasingly important source of growth.
Thai Hoa makes up 1.1% of the overall portfolio NAV. While this investment is
still in its early stages, we have been able to make progress in turning around
operating losses (all the while maintaining positive EBITDA), improve bed and
operating theatre utilisation rates, increase in-patient and out-patient
numbers, as well as improve operating margins from over-the-counter
pharmaceutical sales. Going forward, we expect Thai Hoa to be an anchor
investment in a roll-up strategy that will add more hospitals, beds and medical
diagnostic facilities as part of a wider platform of healthcare businesses that
service Ho Chi Minh City and its adjacent provinces in the south.
In June 2016, to cap off the financial year, we announced a private equity
investment into An Cuong Woodworking JSC ("An Cuong"), one of Vietnam's leading
wood-working and decorative materials companies. This deal was a USD30 million
co-investment, with the Company partnering with Deutsche Investitions- und
Entwicklungsgesellschaft mbH ("DEG"), a member of the KfW Group, to acquire
more than 20% of the company. An Cuong had been on our radar for some time - it
is well managed, ambitious and innovative, and had been seeking ways to expand
their business in a sustainable manner. VinaCapital, which led the consortium
to acquire this company, is partnering with DEG to help An Cuong further build
on its leading position in the industry and enter a new phase of growth.
Established in 1994, An Cuong manufactures a wide range of products including
wood and laminate panelling, flooring and furniture. The company is a
manufacturer and exporter for well-known brands in Japan, South East Asia, USA
and Europe. Recognized as the top wood-based surface specialist in the country,
the company's products meet international standards for design and quality. Its
sustainable environmental and social ("E&S") practices have been recognized
with an ISO 14001:2004 certification and its products are certified by Green
Label Singapore. As part of its commitment to continuous improvement in E&S
practices, An Cuong is implementing an E&S action plan with the objective of
compliance with the International Financial Corporation Standards. Currently,
An Cuong has more than 1,300 employees, 10 showrooms across the country and a
factory in Binh Duong province with an area of more than 90,000m2, alongside
representative offices around the world, including Cambodia, Malaysia, Japan,
Canada, USA, and Australia.
With consistent growth rates of 30%-35% over the past several years, An Cuong
has reached an annual turnover of over USD70m in 2015 with dominant market
share of over 50% in branded MFC panels and 70% in branded laminate panels. In
June this year, they reported year-to-date growth in excess of 30%, and with
the continued activity in residential construction, we expect the company's
strong growth to continue for the foreseeable future. An Cuong makes up 2.3% of
the overall portfolio NAV, and represents our second largest private equity
investment as at financial year end.
Turning to our existing investments in the private equity portfolio, in the
prior financial year we led a co-investment into International Dairy Products
("IDP"), a leading consumer goods company that dominates Vietnam's southern
market for flavoured milk and yogurt products. We took a controlling stake in
this business and implemented several changes including the appointment of an
industry veteran as the new CEO.
IDP reported strong sales in the second half of 2015, up 50% compared to the
prior year. However, during the first half of 2016 revenues were flat and the
company reported a small operating loss due to the unexpected suspension of
milk exports to China. The company's management forecast that exports will
resume in late 2016 and that the company will be back on track to meet its
revenue and profit forecasts in the next financial year.
The company has restructured its product mix and introduced several new
products. In the first half of 2016, the IDP team successfully launched a new
fruit milk drink using aseptic bottles with several fruit flavours and expects
to have another chocolate-based drink to be in the market by third quarter
2016. The product is manufactured under an OEM contract the with Kirin factory
in Vietnam. The company has also successfully launched a new corn milk product
in December 2015 and an Australian packaged UHT drinking milk in April 2016
under the Love'In Farm ("LiF") brand. Other achievements include the successful
installation of an ERP system in 2015, paving the way for better inventory and
logistics management. As at 30 June 2016, our investment in IDP represents 4.6%
of the overall portfolio NAV.
Turning to our investment in Novaland, in June 2015, prior to the end of the
previous financial year, we deployed almost USD15 million to invest into
Novaland, one of Vietnam's leading residential property developers, through a
redeemable convertible preferred equity instrument that provides an annual
dividend payment and offers significant downside protections to our investment.
While this investment has been classified under "unlisted and OTC shares [or]
bonds" in the financial statements, given how we monitor this investment and
the terms we were able to negotiate concerning the downside protections, for
portfolio monitoring and reporting purposes we classify this as a private
equity investment. As at financial year end, Novaland represents 2.2% of the
overall portfolio NAV.
Novaland has delivered strong performance over the year, buoyed by the ongoing
recovery in the real estate sector, high levels of credit growth that has been
a boon to both developers and buyers, while favourable reforms in the banking
and real estate sector have benefited developers like Novaland who develop
modest, high-quality apartments that appropriately target Vietnam's rising
urban middle-class. The company has commenced plans which should lead to
listing on Vietnam's main bourse by the close of the calendar year.
Overall, private equity is the area of the portfolio that shows the most
promise in terms of investment opportunity, and given our track record over the
past 5 years, is expected to deliver strong returns in the future. Our fully
realised private equity investments have delivered an average IRR in excess of
20% to date, and we believe these types of investments continue to offer the
most attractive returns in the market. The private equity investment team
continues to focus on opportunities in the education, media and infrastructure
sectors, areas that are both defensive in times of market volatility, but also
stand to benefit from the country's strong forecast economic growth.
2.5 Real estate
2.5.1 Direct real estate
With regard to our direct real estate portfolio, efforts in recent years to
reduce the development risk to the portfolio have finally borne fruit and we
have made several announcements during the past financial year regarding exits
from the portfolio including the Century 21, Danang Golf, and the Pham Hung
projects, along with several other smaller investments. In total, we have
returned approximately USD46.5 million in proceeds during the financial year.
As at the end of the financial year, the direct real estate portfolio made up
8.2% of NAV, a much smaller share of the portfolio as compared to 14.0% in the
prior financial year.
In May 2016, the Company, alongside VinaLand Limited ("VinaLand") announced
that it had divested its entire stake in the Century 21 project, located in Ho
Chi Minh City. The site is a future residential, mixed-use development site,
with a total site area of 30.1ha and was acquired in 2006. This transaction
resulted in net cash proceeds of USD28.7 million to the Company, approximately
USD3.2 million higher than the 31 March 2016 unaudited net asset
value when heads of terms were negotiated.
Also in May 2016, the Company, alongside VinaLand, announced that it had
divested its stake in Danang Golf. The project, acquired in 2006, is situated
in Danang on 219.8 ha of land and includes a completed 18-hole golf course
with related facilities as well as residential dwellings, some of which are
currently under construction. The project site also has an approved master plan
for future development. The transaction resulted in net cash proceeds of
USD12.2 million to the Company, at a valuation that was 2% higher than the 28
February 2016 unaudited net asset value when heads of terms were negotiated.
Finally, in June 2016, the Company announced it had divested its stake in the
Pham Hung project. The project, acquired by the Company in 2007, is a 2.4
hectare parcel of land located in Hanoi and has planning approval for a future
mixed use development. This transaction resulted in net cash proceeds of USD5.4
million to the Company, compared to a carrying value of USD3.4 million as at 31
December 2015.
Several other smaller divestments were made during the financial year and, in
summary, the momentum continues in our efforts to reduce the Company's direct
real estate holdings. The proceeds from these investments will go towards the
share buyback programme as well as to our pipeline of investment opportunities
in other segments of the market, including pre-IPO and privately negotiated
deals that focus on sectors which continue to benefit from Vietnam's growing
domestic consumption and rapid urbanisation.
2.5.2 Operating assets
Operating assets represent 9.2% of NAV, down from 11.4% last year, primarily as
a result of fair value adjustments and the rise in value of the liquid assets.
The segment of the portfolio includes our hospitality investment in the Sofitel
Metropole Hanoi Hotel ("Sofitel Metropole") and the Huong Vuong Plaza, a
mature, cash-yielding investment which in prior years was classified under
direct real estate. Assets held under this asset class reflect the fact that
they are mature, and are cash-yielding in nature, whereas direct real estate
investments more accurately reflect the development risk associated with
projects.
The hospitality sector continues to perform well, with visitor arrivals over
the first 6 months of this calendar year up 21% compared to the same period
last year. Arrivals from Hong Kong, China, Thailand and Korea continue to show
strong growth, as additional scheduled flights linking new destinations in
Vietnam come online, operated by international, regional and domestic low-cost
carriers. The increased attractiveness of Vietnam as a destination should
continue to drive growth in the tourism sector.
With 364 rooms, the international 5-star Sofitel Metropole has benefited from
this growth. Calendar year-to-date results to June show the hotel's gross
operating profit ("GOP"), revenue per available room ("RevPar"), and average
occupancy rates are well ahead of budget and last year's results. The property
remains on track to achieve budget this calendar year, and continues to deliver
dividends as in previous years.
3. Closing thoughts
3.1 Portfolio strategy
Our strategy remains consistent - to invest in companies that deliver strong
core earnings growth at fair valuations to the market and peers. We prefer
where possible to take large, high-conviction stakes in both listed and
unlisted companies, with a preference towards privately negotiated deals that
offer strong downside protections for our minority interests. We seek to divest
when the investment has reached our target price and Internal Rate of Return
("IRR"), generally via a block trade where we are able to negotiate a premium
to prevailing market prices.
This financial year, we have been able to demonstrate our execution of this
strategy through the following transactions:
· Investments into OTC traded securities including Quang Ngai Sugar
("QNS") and Airports Corporation of Vietnam ("ACV") have seen a positive uplift
from our investment costs.
· Divestments in public equities at significant premiums to market price,
such as Hau Giang Pharmaceuticals ("DHG"), that were at or near FOL levels and
where we were able to deliver a large, meaningful stake to a strategic
investor.
· Dedicate time and effort to source, carry out due diligence and invest
into private equity deals where we have been able to identify high growth
business, or opportunities to enter at attractive valuations and lock in strong
downside protections, such as An Cuong Woodworking, Thai Hoa International
Hospital, or Khang Diem House ("KDH") through a rights issue.
· Deliver on our commitment to reduce the development real estate risk
from the portfolio, with exposure to direct real estate assets below 10% of
NAV, and we continue to focus on reducing this portion further.
The multi-asset class nature of the portfolio offers investors exposure to
opportunities beyond public equities, as well as delivering lower NAV
volatility, particularly in times of market turmoil. While half of the
portfolio is exposed to listed equities which are valued on a marked-to-market
basis, the unlisted portfolio, which includes private equity and real estate
projects, have been a strong contributor to the Company's performance.
Going forward, private equity and equitisation (i.e. privatisation) are areas
that we continue to focus on, more so on the privately negotiated deals as the
pace of equitisation has so far been slow. The pipeline for private equity
deals remains healthy, and the investment ticket size and stake in the
companies we are considering are getting larger and more meaningful in size.
This places us in a unique position in both the domestic as well as regional
market as an investor that can source, execute and importantly, add value to
Vietnamese businesses seeking growth capital.
The next twelve months look to be an exciting time to invest in Vietnam. While
nobody can predict what may happen at a global level, Vietnam - whose economy
has been remarkably resilient during recent global slowdowns - is poised to
make significant progress on privatisation which, in turn, could lead to
increases in market liquidity, an important factor in the country "graduating"
to emerging market status. While we are bullish on the country's prospects, we
are cognizant of the challenges that remain.
We look forward to being able to communicate to the market over the coming year
our progress in these activities, and we thank our Board and shareholders for
your continued support.
Andy Ho
Managing Director
VinaCapital Investment Management Ltd
27 October 2016
TOP 10 HOLDINGS SUMMARY
Investee company Asset % of NAV Sector Description
class
1 Vinamilk (VNM) Listed 14.7 Food & beverage Leading dairy company with
equity dominant market share.
2 Hoa Phat Group Listed 8.3 Construction Largest steel manufacturer
(HPG) equity materials in Vietnam.
3 Sofitel Legend Operating 7.7 Operating assets One of Vietnam's premium
Metropole Hotel asset hotels.
Hanoi
4 Phu Nhuan Listed 4.9 Consumer The largest jewellery
Jewelry (PNJ) equity discretionary manufacturer and
distributor in Vietnam.
5 International Private 4.6 Food & beverage One of the top five dairy
Dairy Product equity companies with potential
(IDP) growth.
6 Eximbank (EIB) Listed 4.0 Financial services One of Vietnam's top ten
equity commercial banks.
7 Khang Dien House Listed 3.9 Real estate & Leading property developer
(KDH) equity construction with strong asset base
strategically located in
District 9, HCMC.
8 Quang Ngai Sugar OTC equity 3.8 Food & beverage Diversified FMCG producer
JSC with dominant market share
in soymilk drink.
9 VinaLand Ltd Listed 2.7 Real estate & VCIM-managed Vietnam real
(AIM: VNL) equity construction estate fund.
(overseas)
10 Petrovietnam Listed 2.5 Mining, oil & gas Leading oil and gas
Technical equity technical service provider
Services in Vietnam.
Corporation
(PVS)
Top 10 % of NAV 57.1
Source: VinaCapital, % of total NAV, 30 June 2016
VINACAPITAL MANAGEMENT TEAM
Don Lam
Chief Executive Officer
Don Lam is a founding partner of the Investment Manager and has more than 20
years' experience in Vietnam. He has overseen the Investment Manager's growth
from the manager of a single US$10 million fund in 2003 into a leading
investment management and real estate development firm in Southeast Asia, with
a diversified portfolio of approximately US$1.3 billion in assets under
management. Before founding the Investment Manager, Mr Lam was a partner at
PricewaterhouseCoopers (Vietnam), where he led the corporate finance and
management consulting practices throughout the Indochina region. Additionally,
Mr Lam set up the VinaCapital Foundation whose mission is to empower the
children and youth of Vietnam by providing opportunities for growth through
health and education projects. He also is the Vice-Chairman, Global Agenda
Council on ASEAN for the World Economic Forum. He has a degree in Commerce and
Political Science from the University of Toronto. He is a Chartered Accountant
and is a member of the Institute of Chartered Accountants of Canada. He also
holds a Securities License in Vietnam.
Brook Taylor
Chief Operating Officer
Brook Taylor is the Chief Operating Officer of the Investment Manager. Brook
has more than 20 years of management experience, including more than eight
years as a senior partner with major accounting firms. Previously, Brook was
deputy managing partner of Deloitte in Vietnam and head of the firm's audit
practice. He was also managing partner of Arthur Andersen Vietnam and a senior
audit partner at KPMG. Brook has lived and worked in Vietnam since 1997.
Brook's expertise spans a broad range of management and finance areas including
accounting, business planning, audit, corporate finance, taxation, and IT
systems risk management. He holds an Executive MBA from INSEAD, a Bachelor of
Commerce and Administration from Victoria University of Wellington, and is a
member of the Australia and New Zealand Institute of Chartered Accountants and
Association of Chartered Certified Accountants.
Andy Ho
Managing Director and Chief Investment Officer
Andy Ho is Managing Director and Chief Investment Officer of the Investment
Manager, where he oversees the capital markets, private equity, fixed income
and venture capital investment teams. Previously, Mr Ho was Director of
Investment at Prudential Vietnam's fund management company, where he managed
the capital markets portfolio and Prudential's investment strategy. He has also
held management positions at Dell Ventures (the investment Company of Dell
Computer Corporation) and Ernst & Young. Mr Ho is a leading authority on
capital markets investment, privatisations, and private equity deals and
structures in Vietnam, where he has led private placement deals totaling over
USD750 million. He holds an MBA from the Massachusetts Institute of Technology
and is a Certified Public Accountant in the United States.
Loan Dang
Deputy Managing Director
Loan Dang joined VinaCapital in 2005 and is responsible for the Company's
private equity investments. Ms Dang has led numerous private equity and private
placement deals for the Company, and holds board positions at several of the
Company's investee companies. Ms Dang has previous experience at KPMG Vietnam
and Unilever Vietnam. She has an MBA from the University of Hawaii and holds an
FCCA (UK) fellow membership and a BA in Finance and Accounting from the
University of Economics, Ho Chi Minh City.
Duong Vuong
Deputy Managing Director
Duong Vuong is responsible for the Company's capital market investments. Mr
Vuong has over 20 years of investment experience including the last 9 years in
Vietnam. Previously, Mr Vuong was a Research Head at PXP Vietnam Asset
Management where he managed a team of analysts responsible for producing
investment ideas for all of the firm's portfolios. Prior to working in Vietnam,
he held various positions including Senior Investment Analyst for ADIA in Abu
Dhabi and Banks Analyst for Merrill Lynch in London. He is a CFA charter holder
having gained the CFA designation in 2001.
BOARD OF DIRECTORS
Steven Bates
Non-executive Chairman (Independent)
(Appointed 5 February 2013)
Steve Bates is a veteran investor in emerging markets, spending most of his
career with the Fleming Company and its successor JP Morgan Asset Management,
where he led the emerging markets team. Over the past 10 years Mr Bates has
continued to manage investments across the emerging world working for GuardCap
Asset Management and has added a number of non-executive roles in investment
companies.
Martin Adams
Non-executive Director (Independent)
(Appointed 5 February 2013)
Martin Adams has over 30 years investment and banking experience in emerging
markets, including over 20 years in Vietnam, and has forged a career serving as
an independent director on listed and unlisted funds. He is currently chairman
of Eastern European Property Fund, Kubera Cross Border Fund, Trading Emissions
and Trinity Capital, and a non-executive director of a number of other funds.
Michael Gray
Non-executive Director (Independent)
(Appointed 24 June 2009)
Michael Gray has over 30 years' professional accounting experience and trained
as a chartered accountant with Coopers & Lybrand in the UK. He was admitted as
a member to the Institute of Chartered Accountants of England and Wales (FCA)
in 1976. Prior to his accounting career, Mr Gray spent 10 years in the shipping
industry. Apart from being a FCA, Mr Gray has a Bachelor of Science Degree in
Maritime Studies from Plymouth University, a Master of Arts in South East Asian
Studies from the National University of Singapore and Doctor of Business
(Honoris Causa) from the University of Newcastle in Australia. He is also a
Fellow of the Chartered Institute of Logistics and Transport, a Fellow of the
Institute of Singapore Chartered Accountants and a Fellow of the Singapore
Institute of Directors. Mr Gray was a partner in PricewaterhouseCoopers
Singapore and was the founding Territorial Senior Partner for
PricewaterhouseCoopers Indochina (Vietnam, Cambodia and Laos). He is a board
member of several listed companies in Singapore, including Avi-tech Electronics
Ltd, GSH Corporation Holdings Ltd and FSL Trust Management Pte Ltd. Mr Gray has
also held many positions in Boards of Voluntary Welfare Organisations and
government committees in Singapore.
Thuy Bich Dam
Non-executive Director (Independent)
(Appointed 7 March 2014)
Ms Thuy Bich Dam began her career at Vietnam's Ministry of Science, Technology
and Environment, responsible for coordinating treaties between the government
and the World Intellectual Property Organisation (WIPO) and the European Patent
Office (EPO). From 1996 to 2005, Ms Dam worked as the Natural Resources
Director of ANZ Investment Bank (Singapore). Following this, Ms Dam was
appointed as the CEO Vietnam, CEO Greater Mekong Region and Vice Chairwoman for
the Greater Mekong Region for ANZ Bank Vietnam over a span of nearly eight
years. Ms Dam was also the Chief Representative for the National Australia
Bank, Vietnam from November 2013 to September 2016. She is currently the
President-Designate of Fulbright University Vietnam. She holds a Bachelor's
degree in English from Hanoi University, an MBA Finance from The Wharton School
of Business and completed the Advanced Management Program at Harvard Business
School.
Huw Evans
Non-executive Director (Independent)
(Appointed 27 May 2016)
Huw Evans is a Guernsey resident and qualified in London as a Chartered
Accountant with KPMG (then Peat Marwick Mitchell) in 1983. He subsequently
worked for three years in the Corporate Finance Department of Schroders before
joining Phoenix Securities Limited in 1986. Over the next twelve years he
advised a wide range of companies in financial services and other sectors in
the UK and overseas on mergers and acquisitions and more general corporate
strategy. Since moving to Guernsey in 2005 he has acted as a Director of a
number of Guernsey-based companies and funds. He holds an MA in Biochemistry
from Cambridge University.
DISCLOSURE OF DIRECTORSHIPS IN OTHER PUBLIC COMPANIES LISTED ON RECOGNISED
STOCK EXCHANGES
Directorships Stock Exchange
Company Name
Steven Bates
Baring Emerging Europe plc London
The Biotech Growth Trust PLC London
British Empire Securities and General Trust plc London
F&C Capital & Income Investment Trust plc London
Martin Adams
Aberdeen Latin America Income Fund Limited London
DWS Vietnam Fund Limited Ireland
Eastern European Property Fund Limited London
Kubera Cross-Border Fund Limited London
Marwyn Value Investors Limited London
Terra Catalyst Fund London/Channel Islands
Trading Emissions Plc London
Trinity Capital Plc London
Michael Gray
GSH Corporation Limited Singapore
Avi-Tech Electronics Limited Singapore
FSL Trust Management Pte. Ltd. Singapore
Thuy Bich Dam
None
Huw Evans
BH Macro Limited London/Dubai/Bermuda
Standard Life Investments Property Income Trust Limited London
Other than the Company, none of the Directors has a shared directorship with
any other Director.
REPORT OF THE DIRECTORS
The Board of Directors ("the Board") present their Annual Report together with
the Audited Financial Statements of the Company for the year ended 30 June
2016.
Until 22 March 2016, the Company was incorporated in the Cayman Islands as an
exempted company with limited liability. The registered office of the Company
was PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The
Company's shares were traded on the AIM market of the LSE.
At an Extraordinary General Meeting on 27 October 2015, Shareholders approved
proposals to change the Company's domicile to Guernsey. Registration as a
Guernsey company was completed on 22 March 2016. The current registered office
of the Company is PO Box 225, Trafalgar Court, Les Banques, St Peter Port,
Guernsey, GY1 3QL.
On 30 March 2016, the Company's shares were cancelled from trading on AIM and
admitted to the Main Market of the LSE with a Premium Listing.
The Company's investments continue to be managed by VinaCapital Investment
Management Limited (the "Investment Manager").
Principal Activities
The Company is a closed-ended investment company with limited liability which
was incorporated in Guernsey on 22 March 2016 under The Companies (Guernsey)
Law, 2008.
Through its investments in subsidiaries, the Company mainly invests in
Vietnam-focused listed and unlisted companies, debt instruments, private equity
and real estate assets and other opportunities with the objective of achieving
medium to long-term capital appreciation and investment income.
Life of the Company
The Company does not have a fixed life but the Board considers it desirable
that Shareholders should have the opportunity to review the future of the
Company at appropriate intervals. Accordingly, the Board intends that a special
resolution will be proposed every fifth year that the Company ceases to
continue. If the resolution is not passed, the Company will continue to operate
as presently constituted. If the resolution is passed, the Directors will be
required to formulate proposals to be put to Shareholders to reorganise,
unitise or reconstruct the Company or for the Company to be wound up. The Board
tabled such a special resolution in 2008 and in 2013 and on both occasions it
was not passed, allowing the Company to continue as presently constituted. The
next special resolution on the life of the Company will be held in 2018.
Investment Policy and Valuation Policy
The Company's investment objective and investment policy are set out in General
Information. The valuation policy can be found in note 2 to the Financial
Statements.
Performance
The Chairman's Statement and the Investment Manager's Report give details of
the Company's activities and performance during the year.
The key performance indicators ("KPIs") used to measure the progress of the
Company during the year include:
· the movement in the Company's NAV;
· the movement in the Company's share price; and
· discount of the share price in relation to the NAV.
Information relating to the KPIs can be found in the Financial Highlights
section.
Risk Management
The Board considers risk management to be a function of its Audit Committee and
a review of whose operations is set out in Report of the Audit Committee. On
the specific question of risk management, the Audit Committee reviews at each
of its meetings the risks and uncertainties faced by the Company in the form of
a risk matrix and heat map. For the purposes of making the Viability Statement,
the Board has undertaken a robust review of the principal risks and
uncertainties facing the Company including those that would threaten its
business model, future performance, solvency or liquidity. Those principal
risks are described in the table below together with a description of the
mitigating actions taken by the Board.
Vietnamese Market Risk
Description Mitigating Action
Opportunities for the Company The Board is regularly briefed on
to invest in Vietnam have come about political and economic developments by
through the liberalisation of the the Investment Manager. The Investment
Vietnamese economy. Were the pace or Manager publishes a monthly report on the
direction of change to the economy to Company which includes information and
alter in the future, the interests of the comment on macroeconomic and, where
Company could be damaged. relevant, political developments in
The economy could also be affected by any Vietnam.
escalation in geopolitical tensions in
the region and elsewhere.
Changing investor sentiment
Description Mitigating Action
As a Company investing mainly in Vietnam, The Investment Manager has an active
changes in investor sentiment towards Investor Relations programme, keeping
Vietnam and/or frontier markets may lead shareholders and other potential
to the Company becoming unattractive to investors regularly informed on Vietnam
investors leading to reduced demand for in general and on the Company's portfolio
shares and a widening discount. in particular. At each Board meeting the
Board receives reports from the
Investment Manager and from the Broker
and is updated on the composition of and
any movements in the shareholder
register. The Board also communicates
regularly with major shareholders
directly, independent of the Investment
Manager.
Over the past year, the Company has
migrated its domicile from Cayman Islands
to Guernsey in order to demonstrate that
the Company adopts the highest standards
of corporate governance and has moved its
trading from AIM to a premium listing on
the Main Market of the LSE in order to
make the shares attractive to as wide an
audience of investors as possible.
In seeking to close the discount, the
Board has also approved and is
implementing an extensive share buy-back
programme, the details of which are set
out below.
Investment Performance
Description Mitigating Action
The performance of the Company's The Board monitors the allocation of the
investment portfolio could be poor, Company's portfolio to the various
either absolutely or in relation to the classes of assets and receives regular
Company's peers. reports on the performance of the
portfolio and on those underlying
Some of the Company's real estate assets. The Investment Manager attends
investments take the form of minority all Board meetings and the Board visits
interests in joint projects with VinaLand Vietnam for more detailed meetings,
Limited ("VinaLand"), an independent including with investee companies, twice
company also managed by the Investment each year.
Manager. VinaLand has been following a
strategy of returning capital to The Investment Manager, following
shareholders over the past four years. instructions from the Board, has been
VinaLand's interests and the Company's divesting its real estate investments, in
interests may not, therefore, be the same line with VinaLand's strategy of
and, as a minority partner in any realising investments and returning
project, the Company's influence is capital to shareholders. The
limited. realisations to date have, in aggregate,
been at sales prices above carrying
value.
The Company has a shareholding in
VinaLand and seeks to influence the
overall strategy of VinaLand in order to
protect the Company's interests in the
jointly held projects.
Fair Valuation
Description Mitigating Action
The risks associated with the fair The Board reviews the valuation of the
valuation of the portfolio could result quoted investment portfolio with the
in the Net Asset Value of the Company Investment Manager each quarter and
being misstated. questions any unexpected or sharp
movements in market prices.
The quoted companies in the portfolio are
carried at market price but many of the In relation to real estate and private
holdings are of a size which would make equity investments, the Board works with
them difficult to liquidate in the the Investment Manager and has appointed
ordinary course of market activity. independent external valuers in order to
assist the Board in determining fair
The fair valuation of OTC stocks and values in accordance with international
private equity investments is carried out financial reporting standards.
according to international valuation
standards but the investments are not In addition, the external auditors review
readily liquid and may not be immediately the portfolio valuations at the time of
realisable at the stated carrying the annual audit.
values.
The fair valuation of the real estate
investments is carried out in a manner
consistent with international real estate
valuation guidelines and processes.
However, the assets are also illiquid
(and may be part of joint ventures) which
would make a sale difficult at the stated
carrying valuations.
The values of the Company's underlying
investments are, in the main, denominated
in Vietnamese Dong whereas the Company's
accounts are prepared in US Dollars and
investments entered into at the Company
level are denominated in US Dollars.
Exchange rate fluctuations and Vietnamese
currency devaluation could have a
material effect on the NAV.
Investment Management Agreement
Description Mitigating Action
The Investment Management Agreement The Board maintains close contact with
requires the Investment Manager to the Investment Manager and key personnel
provide competent, attentive and of the Investment Manager attend each
efficient services to the Company. If Board meeting. The Board visits the
the Investment Manager was not able to do Investment Manager and meets with key
this or if the Investment Management individuals in Vietnam twice each year.
Agreement were terminated, there could be
no assurance that a suitable replacement
could be found in Vietnam and, under
those circumstances, the Company would
suffer.
Operational
Description Mitigating Action
The Company is dependent on third parties The Board receives regular reports from
for the provision of all systems and the Investment Manager on its internal
services (in particular, those of the policies, controls and risk management.
Investment Manager) and any control It also receives an annual assurance from
failures and gaps in these systems and the Investment Manager on the adequacy
services could result in a loss or damage and effectiveness of the internal
to the Company. controls of the Company. The Investment
Manager has appointed Ernst & Young LLP
("EY LLP") as its internal auditor and
the Board has direct unfettered access to
EY LLP for any purpose. In addition, EY
LLP report regularly to the Board on
their findings. The Board has sought to
ensure segregation of functions through
the appointment of Northern Trust
International Fund Administration
Services (Guernsey) Limited ("Northern
Trust") as independent administrator, and
Standard Chartered Bank as custodian for
those assets which can be held by a third
party custodian. Further details of the
internal controls which are in place are
set out in the Report of the Directors.
Legal and Regulatory
Description Mitigating Action
Failure to comply with relevant The laws and regulations in Vietnam are
regulation and legislation in Vietnam, at an early stage of development and are
Guernsey or the UK may have an impact on not well established. The Investment
the Company. Manager maintains a risk and compliance
department which monitors compliance with
Although there are anti-bribery and local laws and regulations as necessary.
corruption policies in place at the Locally based external lawyers (typically
Company, the Investment Manager and all part of major international law firms)
other service providers, the Company are engaged to advise on portfolio
could be damaged and suffer losses if any transactions where necessary. As to its
of these policies were breached. non-Vietnamese regulatory and legal
responsibilities, the Company is
administered in Guernsey by Northern
Trust which reports to the Board at each
Board meeting on Guernsey compliance
matters and more general issues
applicable to Guernsey companies listed
on the LSE. In addition, from time to
time the Board uses external experts to
advise on specific matters.
The Investment Manager and other service
providers confirm to the Board at least
annually that they maintain anti-bribery
and corruption policies and disclose if
there have been any breaches of these
policies.
Dividend policy
It is intended that the Company's income will consist wholly or mainly of
investment income. For the current year, no dividend is recommended, but the
Directors will review annually the question of whether to pay a dividend.
Discount Management
The Board will continue to operate the share buyback programme in an effort to
ensure that the share price more closely reflects the underlying NAV per share.
While no public announcement has been made in terms of the target percentage
discount or the volume of funds to be allocated to buybacks, the Board
considers the current discount to be too high.
The Board will continue to retain responsibility for setting the parameters for
the discount management policy, for overseeing the management of the buyback
programme and for ensuring that its policy is implemented. The Board intends to
continue to seek to narrow the discount through the continued use of share
buybacks. The Board's objective is to achieve a narrowing of the discount in a
manner that is sustainable over the longer term. The Board and the Investment
Manager intend to consult regularly with Shareholders with a view to assessing
and improving the effectiveness of the buyback programme. Further comments on
the buyback programme are set out in the Chairman's Statement.
Refer to note 10 for details of share buybacks during the year under review.
Corporate Governance Statement
To comply with the UK Listing Regime, the Company must comply with the
requirements of the UK Corporate Governance Code (the "Code"). The Company is
also required to comply with the Guernsey Code of Corporate Governance (the
"Guernsey Code").
The Company is a member of the Association of Investment Companies (the "AIC")
and by complying with the AIC Code of Corporate Governance ("AIC Code") is
deemed to comply with both the Code and the Guernsey Code.
The Board has considered the principles and recommendations of the AIC Code by
reference to the AIC Corporate Governance Guide for Investment Companies ("AIC
Guide"). The AIC Code, as explained by the AIC Guide, addresses all the
principles set out in the Code, as well as setting out additional principles
and recommendations on issues that are of specific relevance to Investment
Companies.
The Board considers that reporting against the principles and recommendations
of the AIC Code, and by reference to the AIC Guide (which incorporates the
Code), will provide clear information to Shareholders. To ensure ongoing
compliance with these principles the Board receives and reviews a report from
the secretary, at each quarterly meeting, identifying whether the Company is in
compliance and recommending any changes that are necessary.
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the Code, except as set out below.
The Code includes provisions relating to:
· the role of the chief executive
· executive directors' remuneration
· the need for an internal audit function
· whistle-blowing policy
For the reasons set out in the AIC Guide, and as explained in the AIC Code, the
Board considers that these provisions are not relevant to the position of the
Company as it is an externally managed investment company with a Board formed
exclusively of non-executive Directors. The Company has therefore not reported
further in respect of these provisions.
Board Composition
The Board consists of five non-executive Directors, each of whom is independent
of the Investment Manager. No member of the Board is a Director of another
investment company managed by the Company's Investment Manager, nor has any
Board member been an employee of the Company, its Investment Manager or any of
its service providers.
The Board has considered whether a Senior Independent Director ("SID") should
be appointed. However, as the Board comprises entirely non-executive directors,
the appointment of a SID is not currently necessary.
The Board reviews the independence of the Directors at least annually.
The Board believes that each Director has appropriate qualifications, industry
experience and expertise to guide the Company and that the Board as a whole has
an appropriate balance of skills, experience and knowledge. The Directors'
biographies can be found in the Board of Directors section.
Re-election of Directors
The principle set out in the Code is that Directors should submit themselves
for re-election at regular intervals and at least every three years, and in any
event as soon as it is practical after their initial appointment to the Board.
It is a further requirement that non-executive Directors are appointed for a
specific period.
However, the Board has determined that all Directors will submit themselves for
annual re-election by Shareholders. The individual performance of each Director
standing for re-election has been evaluated by the other members of the Board
and a recommendation will be made that Shareholders vote in favour of their
re-election at the AGM.
The Board has adopted a formal policy requiring that Directors should stand
down at the AGM following the ninth anniversary of their initial appointment.
Michael Gray, who was appointed to the Board in June 2009, will be retiring at
the forthcoming AGM and will not put himself forward for re-election.
Board Proceedings
New appointees to the Board are provided with a full induction programme. The
programme covers the Company's investment strategy, policies and practices.
The Directors are also given key information on the Company's regulatory and
statutory requirements as they arise, including information on the role of the
Board, matters reserved for its decision, the terms of reference for the Board
Committees, the Company's corporate governance practices and procedures and the
latest financial information. It is the Chairman's responsibility to ensure
that the Directors have sufficient knowledge to fulfil their role and Directors
are encouraged to participate in training courses where appropriate.
The Directors have access to the advice and services of a Company Secretary,
who is responsible to the Board for ensuring that Board procedures are
followed. The Company Secretary is also responsible for ensuring good
information flows between all parties.
The Board meets regularly throughout the year and representatives of the
Investment Manager are in attendance, when appropriate, at each meeting and
most Committee meetings. The Chairman encourages open debate to foster a
supportive and co-operative approach for all participants.
The Board has agreed a schedule of matters specifically reserved for decision
by the Board. This includes establishing the investment objectives, strategy
and benchmarks, the permitted types or categories of investments, the markets
in which transactions may be undertaken, the level of permitted gearing and
borrowings, the amount or proportion of the assets that may be invested in any
category of investment or in any one investment, and the Company's treasury and
share buyback policies.
The Board, at its regular meetings, undertakes reviews of key investment and
financial data, revenue projections and expenses, analyses of asset allocation,
transactions and performance comparisons, share price and net asset value
performance, marketing and shareholder communication strategies, the risks
associated with pursuing the investment strategy, peer Company information and
industry issues.
The Board is responsible for strategy and has established a predetermined
annual programme of agenda items under which it reviews the objectives and
strategy for the Company at each meeting.
Board Committees
There are four Board committees in operation: the Audit Committee, Management
Engagement Committee, Remuneration Committee and Nomination Committee. The
chairmanship and membership of each Committee throughout the year, and the
number of meetings held during the year, are shown in the table in the
Corporate Governance Statement. A summary of the duties of each of the
Committees is provided below. The terms of reference are available on the
Company's website www.vof-fund.com.
Audit Committee
The Audit Committee, which meets at least three times a year, comprises all
independent non-executive Directors and is chaired by Mr Gray. Mr Evans will
become the chairman of the Audit Committee on Mr Gray's retirement at this
year's AGM.
The Audit Committee is responsible for monitoring the process of production and
ensuring the integrity of the Company's accounts and advises the Board that the
accounts are fair, balanced and understandable.
One of the responsibilities of the Audit Committee is to oversee the
relationship with the External Auditor. In discharging its responsibility to
oversee the External Auditor's independence, the Audit Committee considers
whether any other engagements provided by the auditor will have an effect on,
or perception of, compromising the External Auditor's independence and
objectivity. The performance of services outside of external audit must be
specific and approved by the Audit Committee Chairman.
The Audit Committee is also responsible for recommending to the Board the
valuation of investments. In seeking to determine the fair value of the
Company's real estate and private equity investments, the Committee reviews the
reports of independent valuation specialists as well as reviewing the
Investment Manager's valuation process. Each individual valuation is reviewed
in detail and the recommendations of the independent valuers may be accepted or
modified. The Committee approves the fair value of investments used to prepare
the Financial Statements. Refer to note 3 for further information on the
valuation of investments held by the Company.
A report of the Audit Committee detailing responsibilities and activities is
presented after the Statement of Directors' Responsibilities.
The Audit Committee's Chairman presents the Committee's findings to the Board
at the next Board meeting following a meeting of the Audit Committee.
Management Engagement Committee
The Management Engagement Committee comprises all independent non-executive
Directors and is chaired by Mr Adams. The Committee's responsibilities include:
reviewing the performance of the Investment Manager under the IMA and to
consider any variation to the terms of the agreement. The Management Engagement
Committee also reviews the performance of the Company Secretary, Corporate
Brokers, Custodian, Administrator and Registrar and any matters concerning
their respective agreements with the Company.
The IMA between the Company and the Investment Manager sets out the limits of
the Investment Manager's authority, beyond which Board approval is required.
The Board has also agreed detailed investment guidelines with the Investment
Manager, which are considered at each board meeting.
Representatives of the Investment Manager attend each meeting of the Board to
address questions on specific matters and to seek approval for specific
transactions which the Investment Manager is required to refer to the Board,
for example investing in real estate or unquoted investments.
The Board has delegated discretion to the Investment Manager to exercise voting
powers on its behalf, other than for contentious or sensitive matters which are
to be referred to the Board for consideration.
As disclosed in the Report of the Audit Committee, a difference of
interpretation arose between the Company and the Investment Manager about
certain provisions of the IMA relating to the incentive fee during the
preparation of the prior year financial statements. Report of the Audit
Committee details the action taken and agreement reached by the Board and the
Investment Manager.
Remuneration Committee
The Remuneration Committee comprises all independent non-executive Directors
and is chaired by Ms Dam. The Committee's responsibilities include:
recommending to the Board the policy for the remuneration of the Company's
Chairman, the Audit Committee Chairman and the remaining non-executive
Directors, and reviewing the ongoing appropriateness and relevance of the
remuneration policy; determining the individual remuneration policy of each
non-executive Director; agreeing the policy for authorising Directors' expenses
claims; and the selection and appointment of any remuneration consultants who
advise the Committee.
The Directors' Remuneration Report is presented below.
Nomination Committee
The Nomination Committee comprises all independent non-executive Directors and
is chaired by Mr Bates. The Committee's responsibilities include: reviewing the
structure, size and composition of the Board and making recommendations to the
Board in respect of any changes; succession planning for the Chairman and the
remaining non-executive Directors; making recommendations to the Board
concerning the membership and chairmanship of the Board committees; identifying
and nominating for the approval of the Board candidates to fill Board
vacancies; and, before any new appointment is recommended; evaluating the
balance of skills, knowledge, experience and diversity within the Board and
preparing an appropriate role description.
Board and Committee Meetings
During the year ended 30 June 2016, the number of scheduled Board and Committee
meetings attended by each Director was as follows:
Board Audit and Management Nomination Remuneration
meetings Valuation Engagement Committee Committee
Committee Committee meetings meetings
meetings6 meetings
Number of meetings 8 4 - 1 1
Attendance
Steven Bates 1 8 4 - 1 1
Martin Adams 2 8 4 - 1 1
Thuy Bich Dam3 8 4 - 1 1
Michael Gray 4 8 4 - 1 1
Huw Evans 5 1 1 - - -
1 Steven Bates is Chairman of the Board and the Nomination Committee.
2 Martin Adams is Chairman of the Management Engagement Committee.
3 Thuy Bich Dam is Chairman of the Remuneration Committee.
4 Michael Gray is the Chairman of the Audit Committee.
5 Huw Evans was appointed to the Board on 27 May 2016.
6. Until 29 July 2016, the Audit Committee was referred to as Audit and
Valuation Committee.
It is the intention that the Management Engagement Committee, the Remuneration
Committee and the Nomination Committee each meet at least once each year.
However, during the year ended 30 June 2016, the external service providers
were substantially changed as a result of the Company's change of domicile to
Guernsey and the Investment Manager was extensively involved in this project.
Consequently, the Management Engagement Committee did not formally meet during
the year but a meeting was held on 11 October 2016 at which the
performance of the Investment Manager and the new external service providers
was reviewed. At that meeting the Management Engagement Committee concluded
that it was in the best interests of the Company that the Investment Manager
continues to act under the terms of the Third Amended Investment Management
Agreement which was subsequently signed on 27 October 2016.
In addition to the scheduled meetings noted above, several ad hoc meetings of
the Board were held during the year which were attended by those Directors
available at the time.
Appointment of new Directors
For new appointments to the Board, nominations are sought from the Directors
and from other relevant parties and candidates are then interviewed by the
Nomination Committee. The Board has a breadth of experience relevant to the
Company, and the Directors believe that any changes to the Board's composition
can be managed without undue disruption. An induction programme is provided for
newly-appointed Directors.
Board Performance
The Board has a formal process to evaluate its own performance and that of its
Chairman annually. The Chairman leads the assessment which covers the
functioning of the Board as a whole, the effectiveness of the Board Committees
and the independence of each Director. Where necessary the Chairman discusses
the responses with each Director individually. The Chairman absents himself
from the Board's review of his effectiveness as the Company Chairman.
During the year ended 30 June 2016, the review considered the Board's
objectives and how the contributions made individually and collectively to
Board meetings helped the Company to achieve its objectives.
The Board is satisfied that the structure, mix of skills and operation of the
Board continue to be effective and relevant for the Company.
The Board must ensure that the Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
Shareholders to assess the Company's performance, business model and strategy.
In seeking to achieve this, the Directors have set out the Company's investment
objective and policy and explain how the Board and its delegated Committees
work and how the Directors review the risk environment within which the Company
operates and set appropriate risk controls. Furthermore, throughout the Annual
Report the Board has sought to provide further information to enable
Shareholders to understand the Company's business and financial performance.
Policy to combat fraud, bribery and corruption
The Board has adopted a formal policy to combat fraud, bribery and corruption.
The policy applies to the Company and to each of its Directors. Further, the
policy is shared with each of the Company's service providers, each of which
confirms its compliance to the Board.
Internal Controls and Risk
(i) Risk
The Company's risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee and by the Board
at their meetings. The Board believes that the Company has adequate and
effective systems in place to identify, mitigate and manage the risks to which
it is exposed.
(ii) Management System
The Investment Manager's Enterprise Risk Management ("ERM") framework provides
a structured approach to managing risk across all of its managed funds by
establishing a risk management culture through education and training,
formalized risk management procedures, defining roles and responsibilities with
respect to managing risk, and establishing reporting mechanisms to monitor the
effectiveness of the framework. The Audit Committee works closely with the
Investment Manager on the application and review of the ERM framework to the
Company's risk environment.
Regular risk assessments and reviews of internal controls are undertaken by the
Audit Committee in the context of the Company's investment policy. The reviews
cover the strategic, investment, operational and financial risks facing the
Company. In arriving at its judgement of the risks which the Company faces, the
Board has considered the Company's operations in light of the following
factors:
· the nature and extent of risks which it regards as acceptable for the
Company to bear within its overall business objective;
· the threat of such risks becoming reality;
· the Company's ability to reduce the incidence and impact of risk on its
performance; and
· the cost to the Company and benefits related to the Company of third
parties operating the relevant controls.
(iii) Internal Control Assessment Process
Responsibility for the establishment and maintenance of an appropriate system
of internal control rests ultimately with the Board. However, the Board is
dependent on the Investment Manager to achieve this and a process has been
established which seeks to:
· Review the risks faced by the Company and the controls in place to address
those risks
· Identify and report changes in the risk environment
· Identify and report changes in the operational controls
· Identify and report on the effectiveness of controls and errors arising
· Ensure no override of controls by its service providers, the Investment
Manager and Administrator.
The key procedures which have been established to provide effective internal
financial controls are as follows:
· investment management is provided by the Investment Manager. The Board is
responsible for the overall investment policy and monitors the investment
performance, actions and regulatory compliance of the Investment Manager at
regular meetings;
· accounting for the Company and its subsidiaries was provided by the
Investment Manager up to 1 October 2015 and, from that date, the
Administrator took over accounting for the Company itself, leaving accounting
for the subsidiaries the responsibility of the Investment Manager;
· the provision of fund administration by HSBC and, with effect from 1
October 2015 by Northern Trust;
· custody of listed and OTC assets is undertaken by Standard Chartered Bank;
· The Management Engagement Committee monitors the contractual arrangements
with each of the service providers and their performance under these contracts;
· mandates for authorisation of investment transactions and expense payments
are set by the Board and documented in the Investment Management Agreement;
· the Board receives financial information produced by the Investment
Manager on a regular basis. Board meetings are held at least once a quarter to
review such information; and
· actions are taken to remedy any significant failings or weaknesses, if
identified. No significant failings or weaknesses were identified during the
year.
(iv) Internal Audit Function
The Investment Manager has appointed EY LLP as its internal auditor and the
Board has direct unfettered access to EY LLP for any purpose. In addition, EY
LLP reports regularly to the Board on their findings. The Management Engagement
Committee has reviewed the need for an internal audit function for the Company
itself. The Management Engagement Committee has concluded that the systems and
procedures employed by the Investment Manager and the Administrator, including
their own internal audit functions, currently provide sufficient assurance that
a sound system of internal control, which safeguards the Company's assets, is
maintained. An internal audit function specific to the Company is therefore
considered unnecessary.
Directors' Dealings
The Company has adopted a Code of Directors' dealings in securities.
Relations with Shareholders
A detailed analysis of the substantial Shareholders of the Company is provided
to the Directors at each Board meeting. The Chairman and representatives of the
Investment Manager regularly meet with institutional Shareholders to discuss
strategy and to understand their issues and concerns and, if appropriate, to
discuss corporate governance issues. The results of such meetings are reported
at the following Board meeting.
Regular reports from the Company's brokers are submitted to the Board on
investor sentiment and industry issues.
Shareholders wishing to communicate with the Chairman, or any other member of
the Board, may do so by writing to the Company, for the attention of the
Company Secretary, at the Registered Office. The Directors welcome the views of
all Shareholders and place considerable importance on communications with them.
The Company aims to provide Shareholders with a full understanding of the
Company's investment objective, policy and activities, its performance and the
principal investment risks by means of informative Annual and Half Year
reports. This is supplemented by the publication by the Investment Manager of a
monthly fact sheet.
The Company's website, www.vof-fund.com, is regularly updated with monthly
factsheets and provides useful information about the Company including the
Company's financial reports and announcements.
The Annual General Meeting of the Company provides a forum for Shareholders to
meet and discuss issues with the Directors of the Company.
Foreign Account Tax Compliance Act ("FATCA")
For purposes of the US FATCA, the Company registered with the US Internal
Revenue Services ("IRS") as a Guernsey reporting Foreign Financial Institution
("FFI"), received a Global Intermediary Identification Number
GUHZUZ.99999.SL.831, and can be found on the IRS FFI list.
The Company is subject to Guernsey regulations and guidance based on reciprocal
information sharing inter-governmental agreements which Guernsey has entered
into with the United Kingdom and the United States of America. The Board will
take the necessary actions to ensure that the Company is compliant with
Guernsey regulations and guidance in this regard.
Common Reporting Standard ("CRS")
The CRS is a standard developed by the Organisation for Economic Co-operation
and Development (OECD) and is a global approach to the automatic exchange of
tax information. Guernsey has adopted the CRS which came into effect on 1
January 2016.
The CRS has replaced the UK Inter-Governmental Agreement ("IGA") from 1 January
2016. The first report for CRS will be made to the Director of Income Tax by 30
June 2017.
The Company is subject to Guernsey regulations and guidance on the automatic
exchange of tax information and the Board will therefore take the necessary
actions to ensure that the Company is compliant in this regard.
Share Capital and Treasury Shares
The number of shares in issue at the year end is disclosed in note 10 to the
Financial Statements.
Directors' interests in the Company
As at 30 June 2016 and 30 June 2015, the interests of the Directors in shares
of the Company are as follows:
Shares held Shares held
as at 30 June 2016 as at 30 June 2015
Steven Bates - -
Martin Adams - -
Thuy Bich Dam - -
Michael Gray 100,000 100,000
Huw Evans - -
There have been no changes to any holdings between 30 June 2016 and the date of
this report.
Substantial Shareholdings
As at 30 June 2016 and 30 September 2016, the Directors are aware of the
following interests in the Company's voting rights:
30 June 2016 30 September 2016
Shareholder Number of % of Number of % of
ordinary voting ordinary voting
shares rights shares rights
Euroclear Nominees Limited 47,467,587 22.75% 45,413,600 21.77%
Citibank Nominees (Ireland) Limited 30,633,532 14.68% 26,014,864 12.47%
Vidacos Nominees Limited 16,262,788 7.79% 17,001,669 8.15%
State Street Nominees Limited 16,070,089 7.70% 17,888,377 8.57%
The Bank of New York (Nominees) 16,051,639 7.69% 17,715,672 8.49%
Limited
Lynchwood Nominees Limited 14,596,607 7.00% 14,558,285 6.98%
Securities Services Nominees 14,102,743 6.76% 12,345,721 5.92%
Limited
Nortrust Nominees Limited 8,794,406 4.21% 8,934,299 4.28%
HSBC Global Custody Nominee (UK) 6,926,147 3.32% 7,927,639 3.80%
Limited
Annual General Meeting ("AGM")
The Company's next AGM will be held at the offices of Northern Trust at
Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL. The Notice of
Meeting is set out at the back of the Annual Report.
Ongoing Charges
Ongoing charges are the recurring expenses incurred by the Company excluding
one-off expenses. Ongoing charges for the years ended 30 June 2016 and 30 June
2015 have been prepared in accordance with the AIC's recommended methodology.
The ongoing charges including performance fees for the year ended 30 June
2016 were 3.0% (30 June 2015: 2.2%) (see Financial Highlights section). The
ongoing charges excluding performance fees for the year ended 30 June 2016 were
1.8% (30 June 2015: 1.7%). Performance fees for the year ended 30 June 2016
were USD8.2 million (30 June 2015: USD3.7 million).
Going Concern and Viability Statement
The Company is exposed to a number of risks and uncertainties as in the Report
of the Directors and, as noted, the Directors monitor and assess these risks on
a regular basis. The Directors confirm that their assessment of the principal
risks facing the Company is robust and, for the purposes of complying with the
Code, that they have assessed the viability of the Company over the three years
to 30 June 2019. The Directors consider this period sufficient given the
inherent uncertainty of the investment world and the specific issues which the
Company faces in investing in Vietnam.
An additional factor which the Directors have considered is the continuation
vote which will be put to shareholders in 2018. In seeking to ensure that
shareholders retain confidence in the Company, the Investment Manager meets
regularly with shareholders and has an active investor relations programme. In
addition, the Directors have undertaken a number of actions aimed at reducing
the discount at which the Company's shares have been trading in relation to
NAV, including migrating the domicile of the Company to Guernsey, moving the
quotation on AIM to a premium listing on the Main Market of the LSE and
resolving that the Company carry out a significant share buy-back programme.
The Directors cannot predict what the outcome of the continuation vote will be
but have no present indication that the vote will not be positive and, in
making the viability statement, have assumed that the Company will continue to
operate in its present form beyond the continuation vote.
The Directors, having considered the above risks and other factors, have a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the three-year period of their
assessment.
After making enquiries and given the nature of the Company and its investments,
the Directors are also satisfied that there are no material uncertainties and
that it is appropriate to continue to adopt the going concern basis in
preparing these Financial Statements.
Subsequent Events After the Reporting Date
On 27 October 2016, the IMA was amended ("Third Amended IMA") which clarified
the calculation of incentive fees. The clarification did not result in
adjustments to the incentive fees expensed as of and for the year ended 30 June
2016.
On behalf of the Board
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund Limited
27 October 2016
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing Financial Statements in accordance
with IFRS and the Companies (Guernsey) Law, 2008 for each financial period
which give a true and fair view of the state of affairs of the Company and its
profit or loss for that period. International Accounting Standard 1 -
Presentation of Financial Statements requires that financial statements present
fairly for each financial period the Company's financial position, financial
performance and cash flows. This requires the faithful representation of the
effects of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the International Accounting Standards Board's ("IASB")
"Framework for the preparation and presentation of financial statements". In
virtually all circumstances a fair presentation will be achieved by compliance
with all applicable IFRS.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to ensure that the Financial Statements have been prepared in
accordance with the Companies (Guernsey) Law, 2008 and IFRS. They are also
responsible for safeguarding the assets of the Company and hence taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
In preparing Financial Statements the Directors are required to:
· ensure that the Financial Statements comply with the Memorandum & Articles
of Incorporation and IFRS;
· select suitable accounting policies and apply them consistently;
· present information including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
· make judgements and estimates that are reasonable and prudent;
· prepare the Financial Statements on the going concern basis, unless it is
inappropriate to presume that the Company will continue in business; and
· provide additional disclosures when compliance with the specific
requirements of IFRS is insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the Company's
financial position and financial performance.
The Directors confirm that they have complied with these requirements in
preparing the Financial Statements.
Responsibility Statement of the Directors in Respect of the Financial
Statements
Each of the Directors confirms to the best of each person's knowledge and
belief that:
a) The Financial Statements have been prepared in accordance with IFRS and
give a true and fair view of the financial position and profit of the Company
as at and for the year ended 30 June 2016.
b) The Annual Report includes a fair view of the information required by DTR
4.1.8R and DTR 4.1.11R, which provides an indication of important events and a
description of principal risks and uncertainties which face the Company.
Directors' Statement
So far as each of the Directors is aware, there is no relevant audit
information of which the Company's auditor is unaware, and each Director has
taken all the steps they ought to have taken as a Director to make themselves
aware of any relevant audit information and to establish that the Company's
auditor is aware of that information. In the opinion of the Board, the Annual
Report and Financial Statements taken as a whole, are fair, balanced and
understandable and provides the information necessary to assess the Company's
performance, business model and strategy.
On behalf of the Board
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund Limited
27 October 2016
REPORT OF THE AUDIT COMMITTEE
We present the Audit Committee's (the "Committee") Report for the year ended 30
June 2016, setting out the Committee's structure and composition, principal
duties and key activities during the year. As in previous years, the Committee
has reviewed the Company's financial reporting, the independence and
effectiveness of the Independent Auditor and the internal control and risk
management systems of the service providers.
Structure and Composition
The Committee is chaired by Michael Gray. All other Directors of the Company
are members of the Committee.
Appointment to the Committee is for a period up to three years which may be
extended for two further three year periods provided that the majority of the
Committee remain independent of the Investment Manager.
Huw Evans was appointed to the Board and to the Committee on 27 May 2016.
The Committee conducts formal meetings at least three times a year. The table
in the Corporate Governance Statement sets out the number of Committee meetings
held during the year ended 30 June 2016 and the number of such meetings
attended by each committee member. The Independent Auditor is invited to attend
those meetings at which the annual and interim reports are considered. The
Independent Auditor, Internal Auditor and the Committee meet together every
year without the presence of either the Administrator or the Investment Manager
and at other times if the Committee deems this to be necessary.
Principal duties
The role of the Committee includes:
· monitoring the integrity of the published Financial Statements of the
Company and advising the Board on whether, taken as a whole, the Annual Report
and Financial Statements are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's performance,
business model and strategy;
· reviewing and reporting to the Board on the significant issues and
judgements made in the preparation of the Company's Annual Report and Financial
Statements, having regard to matters communicated by the Independent Auditor,
significant financial returns to regulators and other financial information;
· monitoring and reviewing the quality and effectiveness of the Independent
Auditor and their independence and making recommendations to the Board on their
appointment, reappointment, replacement and remuneration;
· carrying out a robust assessment of the principal risks facing the Company
and including in the Annual Report and Financial Statements a description of
those risks and explaining how they are being managed or mitigated; and
· recommending valuations of the Company's investments to the Board.
The complete details of the Committee's formal duties and responsibilities are
set out in the Committee's Terms of Reference, which can be obtained from the
Company's Administrator.
Independent Auditor
PricewaterhouseCoopers CI LLP ("PwC CI") was appointed as the Independent
Auditor with effect from 24 May 2016 following the change of domicile of
the Company from the Cayman Islands to Guernsey. Prior to this
PricewaterhouseCoopers Hong Kong was the Independent Auditor.
The independence and objectivity of the Independent Auditor is reviewed by the
Committee, which also reviews the terms under which the Independent Auditor is
appointed to perform any non-audit services. The Committee has established
policies and procedures governing the engagement of the auditor to provide
non-audit services. These are that the Independent Auditor may not provide a
service which:
· places them in a position to audit their own work;
· creates a mutuality of interest;
· results in the Independent Auditor functioning as a Manager or Employee of
the Company; and
· puts the Independent Auditor in the role of Advocate of the Company.
The audit and any non-audit fees proposed by the Independent Auditor each year
are reviewed by the Committee taking into account the Company's structure,
operations and other requirements during the period and the Committee makes
recommendations to the Board.
The Committee has examined the scope and results of the external audit, its
cost effectiveness and the independence and objectivity of the Independent
Auditor, with particular regard to non-audit fees, and considers PwC CI, as
Independent Auditor, to be independent of the Company.
Key Activities
The following sections discuss the assessment made by the Committee during the
year:
Significant Financial Statement Issues
Valuation of Investments:
The fair value of the Company's investments at 30 June 2016 was USD789.7
million accounting for 99.2% of the Company's assets (30 June 2015: USD717.8
million and 99.2%, respectively).
In relation to the listed investments and OTC securities, the Committee
satisfies itself that the Investment Manager has used the appropriate market
values as at the Statement of Financial Position date.
In relation to the real estate and private equity investments, the Committee
has concentrated on ensuring that the Investment Manager has applied
appropriate valuation methodologies.
Members of the Committee meet the Independent Valuer and the Investment Manager
at least annually to discuss the valuation process. The Committee gains comfort
in the valuations produced by reviewing the methodologies used. The
methodologies and valuations were discussed and subsequently approved by the
Committee in meetings with the Independent Valuer and Investment Manager in May
and July 2016. The Committee has thus satisfied itself that the valuation
techniques are appropriate.
Calculation of incentive fee:
During the preparation of the prior year financial statements, a difference of
interpretation arose between the Company and the Investment Manager
about certain provisions of the IMA relating to the incentive fee. The Board
took independent legal advice on the matter and, in order to avoid the costs
and financial uncertainty of recourse to a legal solution, the Board and the
Investment Manager agreed that the incentive fee payable for the year ended 30
June 2015 was USD3.7 million, which was fully settled. The Investment Manager
and the Board have now amended the IMA to reduce the possibility of differences
of interpretation in the future. No incentive fee was accrued on the
Company's performance for the six month period ended 31 December 2015 as the
Board and the Investment Manager did not expect at that time that any incentive
fee would be payable for that period under the Amended IMA. However, now that
the performance of the Company for the year ended 30 June 2016 has been
determined, a performance fee for the year of USD8.2 million has been accrued.
The maximum incentive fee that can be paid in any given year in respect to a
portfolio is 1.5% of the NAV of that portfolio at the Statement of Financial
Position date. Any incentive fees earned in excess of the cap may be paid out
in subsequent years providing that certain performance targets are met.
Effectiveness of the Audit
The Committee held formal meetings with PwC CI before the start of the audit to
discuss formal planning, to discuss any potential issues and to agree the scope
that would be covered and, after the audit work was concluded, to discuss the
significant issues which arose.
The Committee considered the effectiveness and independence of PwC CI by using
a number of measures, including but not limited to:
- Reviewing the audit plan presented to them before the start of the audit;
- Reviewing and challenging the audit findings report including variations
from the original plan;
- Reviewing any changes in audit personnel; and
- Requesting feedback from both the Investment Manager and the
Administrator.
Following this evaluation, the Committee was satisfied that there had been
appropriate focus and challenge on the significant and other key areas of audit
risk and assessed the quality of the audit process to be good.
Audit fees and Safeguards on Non-Audit Services
The table below summarises the remuneration paid by the Company to PwC CI and
to other PwC member firms for audit and non-audit services during the years
ended 30 June 2016 and 30 June 2015.
Year ended Year ended
30 June 2016 30 June 2015
USD'000 USD'000
Audit and assurance services
- Annual audit 194 134
- Interim review 131 123
Non-audit services
- Tax opinion on re-domicile 26 -
- Clinical improvement programme for an investment target 35 -
in Vietnam
- Advisory and reporting accountant services on
admission
to LSE Main Market 667 -
Total 1,053 257
The Committee considers PwC CI to be independent of the Company. Further, the
Committee has obtained PwC CI's confirmation that the services provided by
other PwC member firms to the wider VinaCapital organisation do not prejudice
its independence.
Internal Control
At each of its meetings during the year, the Committee reviewed the Investment
Manager's internal control report and, during the year, met with EY LLP, the
internal auditor appointed by the Investment Manager, to discuss the control
environment and the outcome of their review of the Investment Manager's
internal control. The Committee also reviewed the externally prepared Service
Organisation Control ("SOC1") report on the control environment in place at the
Administrator.
Conclusion and Recommendation
On the basis of its work carried out over the year, and assurances given by the
Investment Manager and the Administrator, the Committee is satisfied that the
Financial Statements appropriately address the critical judgements and key
estimates (both in respect to the amounts reported and the disclosures). The
Committee is also satisfied that the significant assumptions used for
determining the value of assets and liabilities have been appropriately
scrutinised and challenged and are sufficiently robust. At the request of the
Board, the Committee considered and were satisfied that the 30 June 2016 Annual
Report and Financial Statements were fair, balanced and understandable and that
they provided the necessary information for Shareholders to assess the
Company's performance, business model and strategy.
PwC CI reported to the Committee that no material misstatements were found in
the course of its work. Furthermore, both the Investment Manager and the
Administrator confirmed to the Committee that they were not aware of any
material misstatements including matters relating to the presentation of the
Financial Statements. The Committee confirms that it is satisfied that PwC CI
has fulfilled its responsibilities with diligence and professional scepticism.
Following the review process on the effectiveness of the independent audit and
the review of audit and non-audit services, the Committee has recommended that
PwC CI be reappointed for the coming financial year.
For any questions on the activities of the Committee not addressed in the
foregoing, a member of the Audit Committee remains available to attend the AGM
to respond to such questions.
Michael Gray
Audit Committee Chairman
27 October 2016
DIRECTORS' REMUNERATION REPORT
Introduction
An ordinary resolution for the approval of the Directors' remuneration report
will be put to the Shareholders at the AGM to be held on 21 December 2016.
Policy on Directors' Fees
The Board's policy is that the remuneration of the independent non-executive
Directors should reflect the experience and time commitment of the Board as a
whole, and is determined with reference to comparable organisations and
available market information each year.
Independent Directors' Fees
The fees for the independent Directors are determined within the limit set out
in the Company's Articles of Incorporation, which provide that the aggregate
total remuneration paid to independent Directors shall not exceed USD500,000
(or such higher amount as may be approved by the Company in a general meeting)
in respect of any 12-month period.
The policy is to review the fee rates periodically, although such a review will
not necessarily result in any changes.
For the year ended 30 June 2016, Directors' remuneration remained the same as
the previous year, being USD90,000 for the Chairman and USD75,000 for the
independent Directors, with USD5,000 for membership of the Audit Committee and
USD15,000 for chairmanship of the same.
There are no long term incentive schemes provided by the Company and no
performance fees are paid to Directors.
Directors' Emoluments for the Year
The Directors who served during the year received the following emoluments in
the form of fees:
Year ended Year ended
Annual fee 30 June 2016 30 June 2015
USD USD USD
Steven Bates 95,000 95,000 95,000
Martin Adams 80,000 80,000 80,000
Martin Glynn * 80,000 - 32,444
Michael Gray 90,000 90,000 90,000
Thuy Bich Dam 80,000 80,000 80,000
Huw Evans ** 80,000 7,671 -
352,671 377,444
* Resigned 26 November 2014.
** Appointed 27 May 2016.
On behalf of the Board
Thuy Bich Dam
Chair
Remuneration Committee
27 October 2016
INDEPENT AUDITORS' REPORT to the members of vinacapital vietnam opportunity
fund limited
Report on the Financial Statements
We have audited the accompanying financial statements of VinaCapital Vietnam
Opportunity Fund Limited ("the Company") which comprise the Statement of
Financial Position as of 30 June 2016 and the Statement of Comprehensive
Income, the Statement of Changes in Equity and the Statement of Cash Flows for
the year then ended and a summary of significant accounting policies and other
explanatory information.
Directors' Responsibility for the Financial Statements
The directors are responsible for the preparation of financial statements that
give a true and fair view in accordance with International Financial Reporting
Standards and with the requirements of Guernsey law. The directors are also
responsible for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors' Responsibility
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 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 on the auditors' judgement, 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 control
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 the directors, 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.
Opinion
In our opinion, the financial statements give a true and fair view of the
financial position of the Company as of 30 June 2016, and of its financial
performance and its cash flows for the year then ended in accordance with
International Financial Reporting Standards and have been properly prepared in
accordance with the requirements of The Companies (Guernsey) Law, 2008.
Report on other Legal and Regulatory Requirements
We read the other information contained in the Annual Report and consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements. The other information
comprises only the Report of the Directors, Investing Policy, Historical
Financial Information, Financial Highlights, Chairman's Statement, Investment
Manager's Report, Board of Directors, Disclosure of Directorships in Other
Public Companies Listed on Recognised Stock Exchanges, Statement of Directors'
Responsibilities, Report of the Audit Committee, Directors' Remuneration
Report, Management and Administration and Notice of Annual General Meeting.
In our opinion the information given in the Report of the Directors is
consistent with the financial statements.
This report, including the opinion, has been prepared for and only for the
Company's members as a body in accordance with Section 262 of The Companies
(Guernsey) Law, 2008 and for no other purpose. We do not, in giving this
opinion, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters which we are
required to review under the Listing Rules:
· the directors' statement set out in the Report of the Directors page in
relation to going concern. As noted in the directors' statement, the directors
have concluded that it is appropriate to adopt the going concern basis in
preparing the financial statements. The going concern basis presumes that the
Company has adequate resources to remain in operation, and that the directors
intend it to do so, for at least one year from the date the financial
statements were signed. As part of our audit we have concluded that the
directors' use of the going concern basis is appropriate. However, because not
all future events or conditions can be predicted, these statements are not a
guarantee as to the Company's ability to continue as a going concern;
· the directors' statement that they have carried out a robust assessment
of the principal risks facing the Company and the directors' statement in
relation to the longer-term viability of the Company. Our review was
substantially less in scope than an audit and only consisted of making
inquiries and considering the directors' process supporting their statements;
checking that the statements are in alignment with the relevant provisions of
the UK Corporate Governance Code; and considering whether the statements are
consistent with the knowledge acquired by us in the course of performing our
audit;
· the part of the Corporate Governance Statement relating to the Company's
compliance with the ten further provisions of the UK Corporate Governance Code
specified for our review; and
· certain elements of the report to shareholders by the Board on
directors' remuneration.
John Roche
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
27 October 2016
The maintenance and integrity of the Company's website is the responsibility of
the Directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website. Legislation in
Guernsey governing preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
STATEMENT OF FINANCIAL POSITION
30 June 2016 30 June 2015
Notes USD'000 USD'000
ASSETS
Cash and cash equivalents 6 1,570 906
Receivables 9 5,077 5,079
Financial assets at fair value through 8 789,739 717,759
profit or loss
Total assets 796,386 723,744
CURRENT LIABILITIES
Accrued expenses and other payables 11 9,850 5,080
Total liabilities 9,850 5,080
EQUITY
Share capital 10 483,829 512,027
Retained earnings 302,707 206,637
Total Shareholders' equity 786,536 718,664
Total liabilities and equity 796,386 723,744
Net asset value, USD per share 16 3.77 3.27
The Financial Statements were approved and signed by the Board of Directors on
27 October 2016.
Steven Bates
Chairman
Michael Gray
Director
The accompanying notes are an integral part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
Share Revaluation Currency Retained Total Non-controlling Total
capital reserve translation earnings interests Equity
reserve
Note USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Balance at 1 July 2014 559,371 33,281 (19,186) 205,489 778,955 849 779,804
(restated)
Restatement adjustments - (33,281) 19,186 6,520 (7,575) (849) (8,424)
Balance at 1 July 2014 559,371 - - 212,009 771,380 - 771,380
(restated)
Loss for the year - - - (5,372) (5,372) - (5,372)
Total comprehensive - - - (5,372) (5,372) - (5,372)
loss
Transactions with
owners
Shares repurchased 10 (47,344) - - - (47,344) - (47,344)
Balance at the 30 June 512,027 - - 206,637 718,664 - 718,664
2015
Balance at 1 July 2015 512,027 - - 206,637 718,664 - 718,664
Profit for the year - - - 96,070 96,070 - 96,070
Total/loss - - - 96,070 96,070 - 96,070
comprehensive income
Transactions with
owners
Shares repurchased 10 (28,198) - - - (28,198) - (28,198)
Balance at 30 June 2016 483,829 - - 302,707 786,536 - 786,536
The accompanying notes are an integral part of these Financial Statements.
STATEMENT OF COMPREHENSIVE INCOME
Year ended
30 June 2016 30 June 2015
Notes USD'000 USD'000
Dividend income 12 51,159 69,197
Net gains/(losses) on financial assets at 13 67,598 (57,447)
fair value through profit or loss
General and administration expenses 14 (23,067) (17,504)
Other income 380 382
Operating profit/(loss) 96,070 (5,372)
Profit/(loss) before 96,070 (5,372)
tax
Corporate income tax 15 - -
Profit/(loss) for the 96,070 (5,372)
year
Total comprehensive income/(loss) for the 96,070 (5,372)
year
Earnings/(loss) per share
-basic and diluted (USD per share) 16 0.45 (0.02)
All items were derived from continuing activities.
The accompanying notes are an integral part of these Financial Statements.
STATEMENT OF CASH FLOWS
Year ended
30 June 2016 30 June 2015
Notes USD'000 USD'000
Operating activities
Income/(loss) before tax 96,070 (5,372)
Adjustments for:
Dividend income (51,159) (69,197)
Unrealised (gain)/loss on financial assets
at fair value through profit or loss 13 (67,598) 57,447
(22,687) (17,122)
Change in receivables 2 49
Change in accrued expenses and other payables 4,770 (5,185)
Dividend receipts 20,827 21,853
Net cash inflow/(outflow) from operating 2,912 (405)
activities
Investing activities
Purchases of financial assets at fair value 19 (2,248) -
through profit or loss
Net cash used in investing activities (2,248) -
Net change in cash and cash equivalents for the 664 (405)
year
Cash and cash equivalents at the beginning of the 6 906 1,311
year
Cash and cash equivalents at the end of the year 6 1,570 906
The Statement of Cash Flows does not include payments made by the Company's
subsidiary on behalf of the Company:
Year ended
30 June 2016 30 June 2015
Notes USD'000 USD'000
Company share repurchases 12 28,198 47,344
Purchases of financial assets at fair value 12 2,134 -
through profit or loss
30,332 47,344
The accompanying notes are an integral part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
VinaCapital Vietnam Opportunity Fund Limited ("the Company") is a Guernsey
domiciled closed-ended investment company. The Company was previously a limited
liability company incorporated in the Cayman Islands. After an Extraordinary
General Meeting on 27 October 2015, Shareholders approved proposals to change
the Company's domicile to Guernsey. This change took place on 22 March 2016.
The Company is classified as a registered closed-ended Collective Investment
Scheme under the Protection of Investors (Bailiwick of Guernsey) Law 1987 and
is now subject to the Companies (Guernsey) Law, 2008.
The Company's objective is to achieve medium to long-term returns through
investment either in Vietnam or in companies with a substantial majority of
their assets, operations, revenues or income in, or derived from, Vietnam.
The Company has a Premium Listing on the London Stock Exchange's ("LSE's") Main
Market, under the ticker symbol VOF, after being previously listed on the LSE's
AIM market. The change occurred on 30 March 2016 following the change of
domicile described above.
The Company does not have a fixed life but the Board has determined that it is
desirable that Shareholders should have the opportunity to review the future of
the Company at appropriate intervals. Accordingly, the Board intends that a
special resolution will be proposed every fifth year that the Company ceases to
continue as presently constituted. If the resolution is not passed, the Company
will continue to operate. If the resolution is passed, the Directors will be
required to formulate proposals to be put to Shareholders to reorganise,
unitise or reconstruct the Company or for the Company to be wound up. On 22
July 2013, the Board tabled such a special resolution but it was not passed,
allowing the Company to continue as presently constituted for a further five
years.
The Financial Statements for the year ended 30 June 2016 were approved for
issue by the Board on 27 October 2016.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these Financial
Statements are set out below. These policies have been consistently applied to
all years presented, unless otherwise stated.
Statement of Compliance
The Financial Statements have been prepared in accordance with IFRS, which
comprise standards and interpretations approved by the IASB together with
applicable legal and regulatory requirements of Guernsey Law.
2.1 Basis of preparation
The Financial Statements have been prepared using the historical cost
convention, as modified by the revaluation of financial assets at fair value
through profit or loss, and financial liabilities at fair value through profit
or loss. The Financial Statements have been prepared on a going concern basis.
The preparation of Financial Statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires judgement to be
exercised in the process of applying the Company's accounting policies. The
areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the Financial Statements are
disclosed in note 3.
2.2 Changes in accounting policy and disclosures
a) Changes in accounting policy
The accounting policies adopted are consistent with those of the previous
financial year.
b) New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that
are not mandatory for 30 June 2016 reporting periods and have not been early
adopted by the Company. The Company's assessment of the impact of these new
standards and interpretations is set out in the following page.
IFRS 9 (effective 1 January 2018), 'Financial instruments', addresses the
classification, measurement and derecognition of financial assets and financial
liabilities and introduces new rules for hedge accounting. In July 2014, the
IASB made further changes to the classification and measurement rules and also
introduced a new impairment model. These latest amendments now complete the new
financial instruments standard. The Company is yet to assess IFRS 9's full
impact and intends to adopt IFRS 9 no later than the accounting year ending 30
June 2019.
c) Amendments to existing standards effective for accounting periods beginning
1 January 2016
(i) Amendments made to IFRS 10, 'Consolidated Financial Statements' and IAS
28, 'Investments in associates and joint ventures' clarify that:
· The exception from preparing consolidated financial statements is also
available to intermediate parent entities which are subsidiaries of investment
entities.
· An investment entity should consolidate a subsidiary which is not an
investment entity and whose main purpose and activity is to provide services in
support of the investment entity's investment activities.
· Entities which are not investment entities but have an interest in an
associate or joint venture which is an investment entity have a policy choice
when applying the equity method of accounting. The fair value measurement
applied by the investment entity associate or joint venture can either be
retained or consolidation may be performed at the level of the associate or
joint venture, which would then unwind the fair value measurement.
Early adoption is permitted. The Company did not early adopt the above
amendments to IFRS 10 and IAS 28 but it was assessed that these will not have a
material impact to the Company as all of the Company's investments are fair
market valued.
(ii) Disclosure Initiative - Amendments to IAS 1, 'Presentation of Financial
Statements'
As the amendments to IAS 1 clarify the existing requirements, they do not
affect the Company's accounting policies or any of the disclosures provided.
There are certain other current standards, amendments and interpretations that
are not relevant to the Company's operations.
2.3 Subsidiaries and associates
The Company meets the definition of an Investment Entity within IFRS 10 and
therefore does not consolidate its subsidiaries but measures them instead at
fair value through profit or loss.
Any gain or loss arising from a change in the fair value of investments in
subsidiaries and associates is recognised in the Statement of Comprehensive
Income.
Refer to note 3 on further disclosure on accounting for subsidiaries and
associates.
2.4 Foreign currency translation
a) Functional and presentation currency
The functional currency of the Company is the United States dollar ("USD"). The
Company's Financial Statements are presented in USD.
b) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions or valuation
where items are re-measured. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the Statement of Comprehensive Income.
Non-monetary items measured at historical cost are translated using the
exchange rates at the date of the transaction. Non-monetary items measured at
fair value are translated using the exchange rates at the date when the fair
value was determined.
2.5 Financial assets
2.5.1 Classification
The Company classifies its financial assets in the following categories: at
fair value through profit or loss and loans and receivables. The classification
depends on the purpose for which the financial assets were acquired.
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets
that are either classified as held for trading or are designated to be carried
at fair value through profit or loss at inception. Financial assets at fair
value through profit or loss held by the Company comprise listed and unlisted
securities, investments in subsidiaries and associates and bonds.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. The Company's
loans and receivables comprise "Receivables" in the Statement of Financial
Position.
2.5.2 Initial measurement, recognition, de-recognition and measurement
Receivables are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method, less provision for
impairment.
Purchases or sales of financial assets are recognised on the date on which the
Company commits to purchase or sell the asset.
Financial assets carried at fair value through profit or loss are initially
recognised at fair value, and transaction costs are expensed in the Statement
of Comprehensive Income. Financial assets are derecognised when the rights to
receive cash flows from the investments have expired or have been transferred
and the Company has transferred substantially all risks and rewards of
ownership. Financial assets at fair value through profit or loss are
subsequently carried at fair value. Loans and receivables are subsequently
carried at amortised cost using the effective interest method less provision
for impairment.
Gains or losses arising from changes in the fair value of the "financial assets
at fair value through profit or loss" category are presented in the Statement
of Comprehensive Income within "net gains/(losses) on financial assets at fair
value through profit or loss" in the period in which they arise. Dividend
income from financial assets at fair value through profit or loss is recognised
in the Statement of Comprehensive Income when the Company's right to receive
payments is established.
2.6 Impairment of assets
Impairment of financial assets at amortised cost
The Company assesses at the end of each reporting period whether there is
objective evidence that a financial asset is impaired. A financial asset is
impaired and impairment losses are incurred only if there is objective evidence
of impairment as a result of one or more events that occurred after the initial
recognition of the asset (a 'loss event') and that loss event (or events) has
an impact on the estimated future cash flows of the financial asset that can be
reliably estimated.
Evidence of impairment may include indications that the debtor is experiencing
significant financial difficulty, default or delinquency in interest or
principal payments, the probability that they will enter bankruptcy or other
financial reorganisation, and where observable data indicate that there is a
measurable decrease in the estimated future cash flows, such as changes in
arrears or economic conditions that correlate with defaults.
For the loans and receivables category, the amount of the loss is measured as
the difference between the asset's carrying amount and the present value of
estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial asset's original effective interest rate.
The carrying amount of the asset is reduced and the amount of the loss is
recognised in Statement of Comprehensive Income. If a loan has a variable
interest rate, the discount rate for measuring any impairment loss is the
current effective interest rate determined under the contract. As a practical
expedient, the Company may measure impairment on the basis of an instrument's
fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment
was recognised (such as an improvement in the debtor's credit rating), the
reversal of the previously recognised impairment loss is recognised in the
Statement of Comprehensive Income.
2.7 Cash and cash equivalents
In the Statement of Cash Flows, cash and cash equivalents includes deposits
held at call with banks, other short-term highly liquid investments with
original maturities of three months or less and bank overdrafts. In the
Statement of Financial Position, bank overdrafts are shown within borrowings in
current liabilities.
2.8 Share capital
Ordinary shares are classified as equity. Share capital includes the nominal
value of ordinary shares that have been issued and any premiums received on the
initial issuance of shares. Incremental costs directly attributable to the
issue of new ordinary shares or options are shown in equity as a deduction, net
of tax, from the proceeds.
Where the Company purchases its equity share capital (treasury shares), the
consideration paid, including any directly attributable incremental costs (net
of income taxes) is deducted from equity attributable to the Company's equity
holders.
Where such treasury shares are subsequently reissued, any consideration
received, net of any directly attributable incremental transaction costs and
the related income tax effects, is included in equity attributable to the
Company's equity holders.
2.9 Trade payables
Trade payables are obligations to pay for goods or services that have been
acquired in the ordinary course of business from suppliers.
Trade payables are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method.
2.10 Revenue recognition
The Company recognises revenue when the amount of revenue can be reliably
measured; when it is probable that future economic benefits will flow to the
entity; and when specific criteria have been met for each of the Company's
activities, as described below.
Dividend income
Dividend income is recognised when the right to receive payment is established.
2.11 Operating expenses
Operating expenses are accounted for on an accrual basis.
2.12 Related parties
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party in
making financial or operational decisions. Enterprises and individuals that
directly, or indirectly through one or more intermediary, control, or are
controlled by, or under common control with, the Company, including,
subsidiaries and fellow subsidiaries are related parties of the Company.
Associates are individuals owning directly, or indirectly, an interest in the
voting power of the Company that gives them significant influence over the
entity, key management personnel, including directors and officers of the
Company, the Investment Manager and their close family members. In considering
related party relationships, attention is directed to the substance of the
relationship, and not merely the legal form.
2.13 Segment reporting
In identifying its operating segments, management follows the subsidiaries'
sectors of investment which are based on internal management reporting
information. The operating segments by investment portfolio include: capital
markets, real estate projects and operating assets, private equity and cash
(including cash and cash equivalents, bonds, and short-term deposits).
Each of the operating segments are managed and monitored individually by the
Investment Manager as each requires different resources and approaches. TheInvestment Manager assesses segment profit or loss using a measure of operating
profit or loss from the underlying investment assets of the subsidiaries.
Expenses and liabilities which are common to all segments are allocated based
on each segment's share of total assets.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
3.1 Eligibility to qualify as an investment entity
The Company has determined that that it is an investment entity under the
definition of IFRS 10 as it meets the following criteria:
a) The Company has obtained funds from investors for the purpose of providing
those investors with investment management services;
b) The Company's business purpose is to invest funds solely for returns from
capital appreciation, investment income or both; and
c) The performance of investments made by the Company are substantially
measured and evaluated on a fair value basis.
The Company has the typical characteristics of an investment entity:
· it holds more than one investment;
· it has more than one investor;
· it has investors that are not its related parties; and
· it has ownership interests in the form of equity or similar interests.
As a consequence, the Company does not consolidate its subsidiaries and
accounts for them at fair value through profit or loss.
3.2 Fair value of subsidiaries and associates and their underlying investments
At the end of each half of the financial year, the fair values of investments
in subsidiaries and associates are reviewed and the fair values of all material
investments held by these subsidiaries and associates are assessed. The fair
values of real estate and private equity investments are estimated by a
qualified independent professional services firm (the "independent valuer").
The valuations by the independent valuer are prepared using a number of
approaches such as adjusted net asset valuations, discounted cash flows,
income-related multiples and price-to-book ratio. In cases where the underlying
investments of a subsidiary or associate are real estate projects or hotels,
the independent valuer determines their fair value based on valuations provided
by specialised independent professional appraisers ("specialised appraisers").
These valuations are used by the independent valuer as the primary basis for
estimating each subsidiary's or associate's fair value.
As at 30 June 2016, 100% (30 June 2015: 100%) of the financial assets at fair
value through profit and loss relate to the Company's investments in
subsidiaries and associates that have been fair valued in accordance with the
policies set out above. The Company has investments in a number of subsidiaries
and associates which were established to hold underlying investments. The
shares of the subsidiaries and associates are not publicly traded; return of
capital to the Company can only be made by divesting the underlying investments
of the subsidiaries and associates. As a result, the carrying value of the
subsidiaries and associates may not be indicative of the value ultimately
realised on divestment.
The underlying investments include listed and unlisted securities, private
equity and real estate assets. Where an active market exists (for example, for
listed securities), the fair value of the subsidiary or associate reflects the
valuation of the underlying holdings. Where no active market exists, valuation
techniques are used.
As at 30 June 2016 and 30 June 2015, the Company classified its investments in
subsidiaries and associates as Level 3 within the fair value hierarchy, because
they are not publicly traded, even when the underlying assets may be readily
realisable.
The estimated fair values provided by the independent valuer are used by the
Audit Committee as the primary basis for estimating the fair value of real
estate and private equity investments for recommendation to the Board.
Information about the significant judgements, estimates and assumptions that
are used in the valuation of these investments is discussed below.
(a) Valuation of assets that are traded in an active market
The fair values of listed securities are based on quoted market prices at the
close of trading on the reporting date. For unlisted securities which are
traded in an active market, fair value is the average quoted price at the close
of trading obtained from a minimum sample of three reputable securities
companies at the reporting date. Other relevant measurement bases are used if
broker quotes are not available or if better and more reliable information is
available.
(b) Valuation of assets that are not traded in an active market
The fair value of assets that are not traded in an active market (for example,
private equities and real estate where market prices are not readily available)
is determined by using valuation techniques. The independent valuer uses its
judgement to select a variety of methods and make assumptions that are mainly
based on market conditions existing at each reporting date. The valuations may
vary from the actual prices that would be achieved in an arm's length
transaction at the reporting date.
(b.1) Valuation of investments in private equities
The Company's underlying investments in private equities are fair valued using
discounted cash flow and market comparison methods. The projected future cash
flows are driven by management's business strategies and goals and its
assumptions of growth in gross domestic product ("GDP"), market demand,
inflation, etc. The independent valuer selects appropriate discount rates that
reflect the uncertainty of the quantum and timing of the cash flows.
(b.2) Valuation of real estate and hospitality investments
A number of the Company's real estate investments are held in joint ventures
with VinaLand Limited ("VinaLand"), another company managed by the Investment
Manager. In all cases, VinaLand holds a controlling stake in the joint ventures
and therefore exercises control over the investments. As both companies are
managed by the same Investment Manager, each company's investment objectives
for each property have generally been the same.
The fair values of underlying real estate properties are based on valuations by
specialised appraisers. These valuations are based on certain assumptions which
are subject to uncertainty and might result in valuations which differ
materially from the actual results of a sale. The estimated fair values
provided by the specialist appraisers are used by the independent valuer as the
primary basis for estimating fair value of the Company's subsidiaries and
associates that hold these properties in accordance with accounting policies
set out in note 2.3.
In conjunction with making its judgement for the fair value of the Company's
underlying real estate and hospitality investments, the independent valuer also
considers information from a variety of other sources including:
a. current prices in an active market for properties of different nature,
condition or location (or subject to different lease or other contracts),
adjusted to reflect those differences;
b. recent prices of similar properties in less active markets, with
adjustments to reflect any changes in economic conditions since the date of the
transactions that occurred at those prices;
c. recent developments and changes in laws and regulations that might affect
zoning and/or the Company's ability to exercise its rights in respect to
properties and therefore fully realise the estimated values of such properties;
d. discounted cash flow projections based on estimates of future cash flows,
derived from the terms of external evidence such as current market rents,
occupancy and room rates, and sales prices for similar properties in the same
location and condition, and using discount rates that reflect current market
assessments of the uncertainty in the amount and timing of the cash flows; and
e. recent compensation prices made public by the local authority in the
province where the property is located.
4. SEGMENT ANALYSIS
There have been no changes from prior periods in the measurement methods used
to determine reported segment profit or loss.
Segment information can be analysed as follows:
Statement of Comprehensive Income
Capital Real estate Private Total
markets* and equity
hospitality
USD'000 USD'000 USD'000 USD'000
Year ended 30 June 2016
Dividend 51,159 - - 51,159
income
Net gains/(losses) on financial 55,655 17,688 (5,745) 67,598
assets at fair value through
profit or loss
General and administration (19,010) (2,649) (1,408) (23,067)
expenses (note 14)
Other income 380 - - 380
Profit/(loss) before tax 88,184 15,039 (7,153) 96,070
Year ended 30 June 2015
Dividend 69,197 - - 69,197
income
Net (losses)/gains on financial (62,114) (1,280) 5,947 (57,447)
assets at fair value through
profit or loss
General and administration (13,698) (2,999) (807) (17,504)
expenses (note 14)
Other income 382 - - 382
(Loss)/profit before tax (6,233) (4,279) 5,140 (5,372)
* Capital markets include listed as well as unlisted over-the-counter
securities.
Statement of Financial Position
Capital Real estate and Private Other net Total
markets* hospitality equity assets**
USD'000 USD'000 USD'000 USD'000 USD'000
As at 30 June 2016
Cash and cash - - - 1,570 1,570
equivalents
Receivables - - - 5,077 5,077
Financial assets at 482,746 137,268 72,952 96,773 789,739
fair value through
profit or loss
Total assets 482,746 137,268 72,952 103,420 796,386
Accrued expenses and -
other payables - - - 9,850 9,850
Total liabilities - - - 9,850 9,850
Net asset value 482,746 137,268 72,952 93,570 786,536
Capital Real estate and Private Other net Total
markets* hospitality equity assets
USD'000 USD'000 USD'000 USD'000 USD'000
As at 30 June 2015
Cash and cash - - - 906 906
equivalents
Receivables - - - 5,079 5,079
Financial assets at 465,028 173,968 51,256 27,507 717,759
fair value through
profit or loss
Total assets 465,028 173,968 51,256 33,492 723,744
Accrued expenses and
other payables - - - 5,080 5,080
Total liabilities - - - 5,080 5,080
Net asset value 465,028 173,968 51,256 28,412 718,664
* Capital markets include listed as well as unlisted over-the-counter
securities.
** Other net assets of USD96.8 million (30 June 2015: USD27.5 million) comprise
cash and cash equivalents and other net assets of the direct subsidiaries at
fair value.
5. INTERESTS IN SUBSIDIARIES AND ASSOCIATES
5.1 Directly-owned subsidiaries
The Company had the following directly-owned subsidiaries as at 30 June 2016
and 30 June 2015:
As at
30 June 30 June
2016 2015
% of % of
Country of Company Company
Subsidiary incorporation interest interest Nature of the business
Vietnam Investment Property British 100.00 100.00 Holding company for listed,
Virgin
Holding Limited Islands unlisted securities and
("BVI") real estate
Vietnam Investment Property BVI 100.00 100.00 Holding company for listed,
Limited
and unlisted securities
Vietnam Ventures BVI 100.00 100.00 Holding company for listed,
Limited
unlisted securities and
real estate
Vietnam Investments BVI 100.00 100.00 Holding company for listed,
Limited
unlisted securities and
real estate
Asia Value Investment BVI 100.00 100.00 Holding company for listed,
Limited
and unlisted securities
Vietnam Master Holding 2 BVI 100.00 100.00 Holding company for listed
Limited securities
VOF Investment Limited BVI 100.00 100.00 Holding company for listed,
unlisted securities, real
estate,
hospitality and private
equity
VOF PE Holding 5 BVI 100.00 100.00 Holding company for listed
Limited securities
Visaka Holdings BVI 100.00 100.00 Holding company for treasury
Limited shares
Portal Global Limited BVI 100.00 100.00 Holding company for listed
securities
and unlisted securities
Windstar Resources BVI 100.00 100.00 Holding company for listed
Limited securities
Allright Assets BVI 100.00 100.00 Holding company for real
Limited estate
Vietnam Enterprise BVI 100.00 100.00 Holding company for listed,
Limited
unlisted securities and
real estate
Vina QSR Limited BVI 100.00 100.00 Holding company for
investments
VOF PE Holding 3 BVI 100.00 100.00 Holding company for
Limited investments
Vinaland Heritage BVI 100.00 100.00 Holding company for
Limited investments
Sharda Holdings BVI 100.00 100.00 Holding company for
Limited investments
Hospira Holdings BVI 100.00 100.00 Holding company for
Limited investments
Navia Holdings Limited BVI 100.00 100.00 Holding company for
investments
Orkay Holdings Limited BVI 100.00 100.00 Holding company for
investments
Halico Investment Holding BVI 100.00 100.00 Holding company for
Limited investments
Clear Interest Group BVI 100.00 100.00 Holding company for
Limited investments
Foremost Worldwide BVI 100.00 100.00 Holding company for unlisted
Limited securities
Rewas Holdings Limited BVI 100.00 100.00 Holding company for
investments
Allwealth Worldwide BVI 100.00 100.00 Holding company for private
Limited equity
Nomino Holdings BVI 100.00 100.00 Holding company for
Limited investments
Vina Sugar Holdings BVI 100.00 100.00 Holding company for
Limited investments
Belfort Worldwide BVI 100.00 100.00 Holding company for
Limited investments
Preston Pacific BVI 100.00 100.00 Holding company for
Limited investments
Vietnam Opportunity Fund II BVI 100.00 100.00 Holding company for
Pte. Ltd. investments
Liva Holdings Ltd BVI 100.00 100.00 Holding company for
investments
Allright Assets Singapore 100.00 100.00 Holding company for real
Limited estate
Turnbull Holding Pte. Singapore 100.00 - Holding company for
Ltd. investments
Menzies Holding Pte. Singapore 100.00 - Holding company for
Ltd investments
Fraser Investment Pte. Singapore 100.00 100.00 Holding company for listed
Limited securities
SE Asia Master Holding 7 Singapore 100.00 100.00 Holding company for private
Pte Limited equity
VTC Espero Pte Limited Singapore 100.00 100.00 Holding company for real
estate
Hawke Investments Pte Singapore 100.00 100.00 Holding company for unlisted
Limited securities
There is no legal restriction to the transfer of funds from the BVI or
Singapore subsidiaries to the Company. Cash held in directly-owned as well as
indirectly-owned Vietnamese subsidiaries and associates is subject to
restrictions imposed by co-investors and the Vietnamese government and
therefore it cannot be transferred out of Vietnam unless such restrictions are
satisfied.
The Company's underlying investments in real estate projects jointly invested
with VinaLand have commitments under investment agreements to acquire and
develop, or make additional investments in investment properties and leasehold
land in Vietnam.
5.2 Indirect Interests in Subsidiaries
The Company had the following indirect interests in subsidiaries at 30 June
2016 and 30 June 2015:
As at
30 June 30 June
2016 2015
% of % of
Company's Company's
Country of Immediate indirect indirect
Indirect incorporation Nature of business Parent interest interest
subsidiary
Longwoods BVI Holding company for listed Nomino Holdings 100.00 100.00
Worldwide Limited and unlisted investments Limited
Victory Holding BVI Holding company for listed Rewas Holdings 100.00 100.00
Investment Limited and unlisted investments Limited
DTL Education BVI Holding company for Clear Interest 100.00 100.00
Holding Ltd investments Group Limited
Transwell BVI Holding company for Orkay Holdings 100.00 100.00
Enterprises unlisted securities Limited
Limited
Vietnam BVI Holding company for real VOF Investment 100.00 100.00
Hospitality Ltd estate Limited
PA Investment BVI Holding company for Vietnam Enterprise 100.00 100.00
Opportunity II investments Limited
Limited
Pegasus Leisure BVI Holding company for Vietnam Investments 100.00 100.00
Ltd. investments Limited
Howard Holding Singapore Holding company for Allwealth Worldwide 80.56 80.56
Pte. Limited private equity Limited
Abbott Holding Singapore Holding company for Hospira Holdings 100.00 -
Pte. Limited private equity Limited
Whitlam Holding Singapore Holding company for Navia Holdings 61.26 -
Pte. Limited private equity Limited
Indochina Building Singapore Holding company for VOF Investment 100.00 100.00
Supplies Pte. Ltd private equity Limited
Yen Viet Joint Vietnam Food & Beverage products SE Asia Master 65.00 65.00
Stock Company Holding 7 Limited
Bivi Cooporation Vietnam Real estate investment VOF Investment 100.00 100.00
Limited
5.3 Direct Interests in Associates
The Company had the following directly-owned associates as at 30 June 2016 and
30 June 2015:
As at
30 June 30 June 2015
2016
% of % of
Country of Company Company
Associate incorporation interest interest Nature of the business
Allwealth Asia Ltd BVI 35.00 35.00 Holding company for real
estate
Sunbird Group Ltd BVI 25.00 25.00 Holding company for real
estate
Perimeter Investment BVI 25.00 25.00 Holding company for real
Limited estate
Daybreak Overseas Limited BVI 25.00 25.00 Holding company for real
estate
Central Lion International BVI 25.00 25.00 Holding company for real
estate
Bantam Investments Limited BVI 25.00 25.00 Holding company for real
estate
Vietnam Property Holdings BVI 25.00 25.00 Holding company for real
Limited estate
Prosper Big Investment Lmited BVI 25.00 25.00 Holding company for real
estate
Avante Global Limited BVI 25.00 25.00 Holding company for real
estate
VinaLand Eastern Limited Singapore 25.00 25.00 Holding company for real
estate
Pacific Alliance Land BVI 25.00 25.00 Holding company for real
Limited estate
VinaCapital Danang Resorts BVI 25.00 25.00 Holding company for real
Limited estate
VinaCapital Commercial Center Singapore 12.75 12.75 Holding company for real
estate
Private Limited
Mega Assets Pte. Limited Singapore 25.00 25.00 Holding company for real
estate
SIH Real Estate Pte. Singapore 25.00 25.00 Holding company for real
Limited estate
5.4 Indirect Interests in Associates
The Company had the following indirect interests in associates at 30 June 2016
and 30 June 2015:
As at
30 June 30 June
2016 2015
% of % of
Company's Company's Company's
subsidiary
Country of holding direct indirect indirect
interest
Indirect incorporation Nature of the in the associate interest interest
associate business
Phong Phu Investment and Vietnam Real estate Vietnam Ventures 30.00 30.00
Development investment Limited
Saigon Golf JSC Vietnam Real estate Vietnam Ventures 20.00 20.00
investment Limited
Avila Co. Ltd. Vietnam Real estate Vietnam Investment 16.18 16.18
investment Property
Holdings Limited
Vina Dai Phuoc Corporation Vietnam Real estate Allright Assets 18.00 18.00
investment Limited
Vinh Thai Urban Vietnam Real estate VTC Espero Limited 17.75 17.75
Development Corporation investment
Thang Loi Vietnam Real estate VOF Investment 34.00 34.00
Textile investment Limited
Hung Vuong Corporation Vietnam Real estate VOF Investment 33.00 33.00
investment Limited
The Company's indirect interests of less than 20% in associates at year-end are
co-investments with VinaLand. The Company considers these interests as indirect
associates because, as part of the co-investment strategy, the Company can
exert significant influence on these entities.
5.5 Financial risks
The Company owns a number of subsidiaries and associates for the purpose of
holding investments in listed and unlisted securities, debt instruments,
private equity and real estate. The Company, via these underlying investments,
is subject to financial risks which are further disclosed in note 19. The
Investment Manager makes investment decisions after performing extensive due
diligence on the underlying investments, their strategies, financial structure
and the overall quality of management.
6. CASH AND CASH EQUIVALENTS
30 June 2016 30 June 2015
USD'000 USD'000
Cash at banks 1,570 906
As at the Statement of Financial Position date, cash and cash equivalents were
denominated in USD.
The Company's overall cash position including cash held in directly held
subsidiaries is USD57.0 million (30 June 2015: USD23.7 million). Please
refer to note 8 for details of the cash held by the Company's subsidiaries.
7.
FINANCIAL INSTRUMENTS BY CATEGORY
Loans and Financial Total
receivables assets at fair
value through
profit or loss
USD'000 USD'000 USD'000
As at 30 June 2016
Cash and cash 1,570 - 1,570
equivalents
Receivables 5,077 - 5,077
Financial assets at fair value through - 789,739 789,739
profit or loss
Total 6,647 789,739 796,386
Financial assets denominated
in:
- USD 6,647 789,739 796,386
As at 30 June 2015
Cash and cash 906 - 906
equivalents
Receivables 5,079 - 5,079
Financial assets at fair value through - 717,759 717,759
profit or loss
Total 5,985 717,759 723,744
Financial assets denominated
in:
- USD 5,985 717,759 723,744
All financial liabilities are short term in nature and their carrying values
approximate their fair values. There are no financial liabilities that must be
accounted for at fair value through profit or loss (30 June 2015: nil).
8. FINANCIAL ASSETS AT FAIR VALUE
THROUGH PROFIT OR LOSS
Financial assets at fair value through profit and loss comprise the Company's
investments in subsidiaries and associates. The underlying assets and
liabilities of the direct subsidiaries and associates at fair value are
disclosed in the following table.
30 June 2016 30 June 2015
USD'000 USD'000
Cash and cash 55,430 22,752
equivalents
Ordinary shares - listed 400,005 401,218
Ordinary shares - unlisted and 82,741 63,810
over-the-counter ("OTC")
Private equity 72,952 51,256
Real estate projects and operating assets 137,268 173,968
Other assets, net of 41,343 4,755
liabilities
789,739 717,759
The major underlying investments held by the direct subsidiaries of the Company
were in the following industry sectors.
30 June 2016 30 June 2015
USD'000 USD'000
Consumer goods 235,142 175,391
Construction 97,961 94,341
Financial services 38,054 52,991
Agriculture 24,681 22,056
Energy, minerals and petroleum 41,531 58,153
Pharmaceuticals 9,023 21,356
Real estate projects and operating assets 219,862 257,491
Infrastructure 26,711 5,860
As at 30 June 2016, an underlying holding, Vietnam Dairy Products Joint Stock
Company, within financial assets at fair value through profit or loss amounted
to 14.5% of the net asset value of the Company (30 June 2015: 11%). There were
no other holdings that had a value exceeding 10% of the net asset value of the
Company as at 30 June 2016 or 30 June 2015.
9. RECEIVABLES
30 June 2016 30 June 2015
USD'000 USD'000
Receivables from the Investment Manager on management fees 380 382
rebate
Cash held in escrow 4,697 4,697
account
5,077 5,079
Cash held in escrow account represents a deposit in United Overseas Bank Ltd
that was retained from the sale of the Company's underlying investment, Prime
Group Joint Stock Company, held through a previously owned Singaporean
subsidiary, in 2012. The retention balance serves as partial security for the
Company's liability arising from the Company's Tax Assessment obligations. The
escrow account is due to be released to the Company on 1 January 2017.
10. SHARE CAPITAL
The Company may issue an unlimited number of Shares, including shares of no par
value or shares with a par value. Shares may be issued as (a) Shares in such
currencies as the Directors may determine; and/or (b) such other classes of
shares in such currencies as the Directors may determine in accordance with the
Articles and the Companies Law and the price per Share at which shares of each
class shall first be offered to subscribers shall be fixed by the Board. The
minimum price which may be paid for a share is USD0.01. The Directors will act
in the best interest of the Company and the Shareholders when authorising the
issue of any shares.
Issued capital
30 June 2016 30 June 2015
Number of USD'000 Number of USD'000
shares shares
Issued and fully paid at 1 July 324,610,259 725,310 324,610,259 725,310
Cancellation of treasury shares (113,264,001) (234,009) - -
Issued and fully paid at 30 211,346,258 491,301 324,610,259 725,310
June
Shares held in (2,700,000) (7,472) (104,652,647) (213,283)
treasury
Outstanding shares at 30 June 208,646,258 483,829 219,957,612 512,027
Treasury shares
30 June 2016 30 June 2015
Number of USD'000 Number of USD'000
shares shares
Opening balance at 1 July 104,652,647 213,283 86,355,265 165,939
Shares repurchased during the year 11,311,354 28,198 18,297,382 47,344
(note 12)
Shares cancelled during the year (113,264,001) (234,009) - -
Closing balance at 30 June 2,700,000 7,472 104,652,647 213,283
In October 2011, the Board sought and obtained shareholder approval to
implement a share buyback programme. By 30 June 2016, a total of 115,964,001
shares had been bought back, a return of capital to Shareholders of
approximately USD241.5 million.
During the year, 113,264,001 shares held in treasury were cancelled. The
cancellation of treasury shares did not result in a change in the Company's NAV
per share.
11. ACCRUED EXPENSES AND OTHER PAYABLES
30 June 2016 30 June 2015
USD'000 USD'000
Management fees payable to the Investment Manager 993 938
(note 17)
Incentive fees payable to the Investment Manager 8,241 3,672
(note 17)
Payables to other related 304 426
parties
Other payables 312 44
9,850 5,080
All accrued expenses and other payables are short-term in nature. Therefore,
their carrying values are considered a reasonable approximation of their fair
values.
12. DIVID INCOME
30 June 2016 30 June 2015
USD'000 USD'000
Dividend income from a subsidiary used to pay
for the
Company's share repurchases* 28,198 47,344
Dividend income from a subsidiary used to pay
for the
Company's operating expenses 20,827 21,853
Dividend income from a subsidiary used to pay
for the
Purchases of financial assets at fair value through 2,134 -
profit or loss
51,159 69,197
* During the year, the Company purchased 11,311,354 of its ordinary shares
(year ended 30 June 2015: 18,297,382 shares) for total cash consideration of
USD28.2 million (year ended 30 June 2015: USD47.3 million). Until 29 April
2016, all share buy backs were carried out under the name of Visaka Holdings
Limited, a wholly-owned subsidiary. From 29 April 2016, all share buy backs are
carried out under the name of the Company. The payments for the share buy backs
were made by VOF Investment Limited ("VOFIL"), a wholly-owned subsidiary of the
Company. All purchases had been fully settled by the Statement of Financial
Position dates.
13. NET GAINS/(LOSSES) ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
30 June 2016 30 June 2015
USD'000 USD'000
Financial assets at fair value through
profit or loss:
- Unrealised gains/(losses), 67,598 (57,447)
net
Total 67,598 (57,447)
14. GENERAL AND ADMINISTRATION EXPENSES
30 June 2016 30 June 2015
USD'000 USD'000
Management fees (note 18(a)) 10,708 11,395
Incentive fees capital market portfolio pool 8,241 3,672
(*)
Directors' 353 377
fees
Custodian, secretarial and other 2,452 1,508
professional fees
Others 1,313 552
23,067 17,504
(*) The structure of the incentive fee is set out in note 17(b). As at 30 June
2016, the Company accrued an incentive fee of USD8.2 million (30 June 2015:
USD3.7 million) based on the Company's performance during the year.
15. INCOME TAX EXPENSE
The Company was incorporated in the Cayman Islands until 22 March 2016 when it
changed its domicile to Guernsey. Under the laws of the Cayman Islands, there
are no income, state, corporation, capital gains or other taxes payable by the
Company.
The Company has been granted Guernsey tax exempt status in accordance with The
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended).
A number of subsidiaries are established in Vietnam and Singapore and are
subject to corporate income tax in those countries. The income tax payable by
these subsidiaries is taken into account in determining their fair values in
the Statement of Financial Position.
16. EARNINGS/(LOSS) PER SHARE AND NET ASSET VALUE PER SHARE
(a) Basic
Basic earnings/(loss) per share is calculated by dividing the profit/(loss)
from operations of the Company by the weighted average number of ordinary
shares in issue during the year excluding ordinary shares purchased by the
Company and held as treasury shares (note 10).
30 June 2016 30 June 2015
Profit/(loss) for the year 96,070 (5,372)
(USD'000)
Weighted average number of ordinary shares 214,238,617 228,742,512
in issue
Basic earnings/(loss) per share (USD per 0.45 (0.02)
share)
(b) Diluted
Diluted earnings/(loss) per share is calculated by adjusting the weighted
average number of ordinary shares outstanding to assume conversion of all
dilutive potential ordinary shares. The Company has no category of potentially
dilutive ordinary shares. Therefore, diluted earnings/(loss) per share is equal
to basic earnings/(loss) per share.
(c) Net asset value per share
Net Asset Value ("NAV") per share is calculated by dividing the net asset value
of the Company by the number of outstanding ordinary shares in issue as at the
reporting date excluding ordinary shares purchased by the Company and held as
treasury shares (note 10). NAV is determined as total assets less total
liabilities.
30 June 2016 30 June 2015
Net asset value 786,536 718,664
(USD'000)
Number of outstanding ordinary shares in 208,646,258 219,957,612
issue
Net asset value per share (USD/share) 3.77 3.27
17. RELATED PARTIES
Investment Manager's Fees
(a) Management fees
Under the Second Amended IMA dated 15 October 2014, the Investment Manager
receives a fee at an annual rate of 1.5% of the NAV, payable monthly in
arrears.
Total management fees for the year amounted to USD10.7 million (30 June 2015:
USD11.4 million), with USD1.0 million (30 June 2015: USD0.9 million) in
outstanding accrued fees due to the Investment Manager at the reporting date.
(b) Incentive fees
Under the Second Amended IMA, from 1 July 2013, the incentive fee was changed
to be 15% of the increase in NAV per share over a hurdle rate of 8% per annum.
A catch up is no longer applied. Furthermore, for the purposes of calculating
incentive fees, the Company's net assets are segregated into a Direct Real
Estate Portfolio and a Capital Markets Portfolio. A separate incentive fee is
calculated for each portfolio so that for any statement of financial position
date it will be possible for an incentive fee to become payable in relation to
one, both, or neither, portfolio depending upon the performance of each
portfolio. However, the maximum incentive fee that can be paid in any given
year in respect to a portfolio is 1.5% of the NAV of that portfolio at the
statement of financial position date. Any incentive fees earned in excess of
the cap may be paid out in subsequent years providing that certain performance
targets are met.
Total incentive fees for the year amounted to USD8.2 million (30 June 2015:
USD3.7 million), with USD8.2 million (30 June 2015: USD3.7 million) in
outstanding accrued fees due to the Investment Manager at the reporting date.
As disclosed in note 21, the IMA was amended on 27 October 2016 which clarified
the calculation of incentive fees. The clarification did not result in
adjustments on the incentive fees expensed as of and for the year ended 30 June
2016.
Directors' Remuneration
The Directors who served during the year received the following emoluments in
the form of fees:
Year ended Year ended
Annual fee 30 June 2016 30 June 2015
USD USD USD
Steven Bates 95,000 95,000 95,000
Martin Adams 80,000 80,000 80,000
Martin Glynn * 80,000 - 32,444
Michael Gray 90,000 90,000 90,000
Thuy Bich Dam 80,000 80,000 80,000
Huw Evans ** 80,000 7,671 -
352,671 377,444
* Resigned 26 November 2014.
** Appointed 27 May 2016.
No Directors' fees were outstanding at the year-end (30 June 2015: Nil).
(c) Other balances with related parties
30 June 2016 30 June 2015
USD'000 USD'000
Receivables from the Investment Manager on management fees 380 382
rebate
Payables to the Investment Manager on
expenses paid
on behalf of the Company 205 427
Certain underlying investments jointly managed by the
Investment Manager
- Vietnam Infrastructure 2,290 5,860
Limited
- VinaLand Limited 21,005 18,698
23,295 24,558
(d) Cost of treasury shares paid for by
subsidiaries on behalf of the Company
As disclosed in note 12, the cost of treasury shares purchased during the year
of USD28.2 million (30 June 2015: USD47.3 million) were paid by the Company's
subsidiary.
18. COMMITMENTS
The Company's indirect real estate associates have a broad range of commitments
under investment licences which they have received for real estate projects
jointly invested with VinaLand and other agreements they have entered into, to
acquire and develop, or make additional investments in investment properties
and leasehold land in Vietnam. Further investments in many of these
arrangements are at the Company's discretion.
19. FINANCIAL RISK MANAGEMENT
(a) Financial risk factors
The Company has set up a number of subsidiaries and associates for the purpose
of holding investments in listed and unlisted securities, debt instruments,
private equity and real estate in Vietnam and overseas with the objective of
achieving medium to long-term capital appreciation and providing investment
income. The Company accounts for these subsidiaries as financial assets at fair
value through profit or loss.
The Company's overall risk management programme focuses on the unpredictability
of financial markets and seeks to minimise potentially adverse effects on the
Company's financial performance. The Company's risk management is coordinated
by the Investment Manager which manages the distribution of the assets to
achieve the investment objectives.
There have been no significant changes in the management of risk or in any risk
management policies since 30 June 2015.
The Company is subject to a variety of financial risks: market risk, credit
risk and liquidity risk.
(i) Market risk
Market risk comprises price risk, foreign exchange risk and interest rate risk.
Market risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices, interest rates
and / or foreign exchange rates.
Price risk
Price risk is the risk that the value of an instrument will fluctuate as a
result of changes in market prices, whether caused by factors specific to an
individual investment, its issuer, or factors affecting all instruments traded
in the market.
The Company has made and will make investments in, and receives income in USD.
Therefore, the Company's risk exposure mostly relate to price risk on the
measurement and evaluation of subsidiaries' performances on a fair value basis.
The direct investments are subject to market fluctuations and the risk inherent
in the purchase, holding or selling of investments and there can be no
assurance that appreciation or maintenance in the value of those investments
will occur.
The Company's subsidiaries and associates invest in listed and unlisted equity
securities and are exposed to market price risk of these securities.
The majority of the underlying equity investments are publicly traded on either
of Vietnam's stock exchanges (HOSE or HNX).
All securities investments present a risk of loss of capital. This risk is
managed through the careful selection of securities and other financial
instruments within specified limits and by holding a diversified portfolio of
listed and unlisted instruments. In addition, the performance of investments
held by the Company's subsidiaries is monitored by the Investment Manager on a
monthly basis and reviewed by the Board of Directors on a quarterly basis.
Market price sensitivity analysis
If the prices of the listed securities had increased/decreased by 10%, the
Company's financial assets held at fair value through profit or loss would have
been higher/lower by USD40.0 million (30 June 2015: USD40.1 million).
The Company's associates invest in a number of real estate projects. The fair
values of the underlying properties have a direct impact on the fair values of
these investments in associates. The Investment Manager closely monitors
indicators that may affect property valuations. The Board of Directors reviews
these valuations every half year.
If the fair values of real estate properties had gone up/down by 10%, the
Company's financial assets at fair value through profit and loss would have
risen/dropped by USD13.7 million (30 June 2015: USD10.7 million).
Depending on the development stage of a business and its associated risks, the
independent valuer uses discount rates in the range from 17% to 21% and
terminal growth rates of 3% to 5% (30 June 2015: 25% to 30% and 5% to 6%,
respectively).
As at 30 June 2016, discount rates ranged from 15% to 19% (30 June 2015: 15% to
21.5%). As at the year end, if the discount rates had been higher/lower, the
fair value of the Company's underlying real estate and hospitality investments
would have been decreased/increased.
The average occupancy and room rates used in the discounted cash flow
projections for the Company's hospitality investments are in line with current
rates and historical experience. As at 30 June 2016, if the occupancy and room
rates had been higher/lower, the fair value of the Company's underlying
hospitality investments would have risen/gone down.
Foreign exchange risk
The Company makes investments in USD and receives income and proceeds from
sales in USD. As such, at the Company level, there is minimal foreign exchange
risk. Nevertheless, investments are made in Group entities which are often
exposed to the Vietnamese Dong ("VND"), and these Group entities are therefore
sensitive to the exchange rate of the VND against USD. On a 'look-through'
basis, therefore, the Company is exposed to movements in the exchange rate of
the VND against the USD.
Interest rate risk
The Company's exposure to interest rate risk is limited as its cash balance at
year-end is minimal. In addition, the Company does not have interest-bearing
loans receivables or payables.
(ii) Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail
to discharge an obligation or commitment it has entered into with the Company.
The Company's maximum credit exposure without taking into account any
collateral held, is limited to the carrying amount of cash and receivables at
year end.
a) Financial assets that are neither past due nor impaired
With the exception of the receivables disclosed in note 19 (ii)(b), the
Company's cash and receivables as at 30 June 2016 and 2015 are neither past due
nor impaired. Cash and majority of receivables that are neither past due nor
impaired are held with banks with high quality external credit ratings. Credit
risk for cash and receivables is considered to be limited.
b) Financial assets that are past due and impaired
At 30 June 2016 and 2015, USD11.6 million of receivables relating to the sale
of a direct investment were fully impaired. In determining the impairment,
management has made judgements as to whether there is observable data available
indicating that there has been a significant change to the debtor's ability to
pay. Management is also investigating the collateral against which the loans
may be secured and whether mechanisms exist to recover value from the
collateral.
(iii) Liquidity risk
Liquidity risk is the risk that the Company may not be able to generate
sufficient cash resources to settle its obligations in full as they fall due or
can only do so on terms that are materially disadvantageous.
Listed securities held by the Company's subsidiaries are considered readily
realisable, as the majority are listed on Vietnam's stock exchanges.
At year end, the Company's non-derivative financial liabilities have
contractual maturities which are summarised in the table below. The amounts in
the table are the contractual undiscounted cash flows.
30 June 2016 30 June 2015
Within 12 Over 12 Within 12 Over 12
months months months months
USD'000 USD'000 USD'000 USD'000
Payables to related parties 9,538 - 5,036 -
(note 11)
Other payables (note 11) 312 - 44 -
9,850 - 5,080 -
The Company manages its liquidity risk by investing predominantly in securities
through its subsidiaries that it expects to be able to liquidate within 12
months or less. The following table analyses the expected liquidity of the
assets held by the Company:
30 June 2016 30 June 2015
Within 12 Over 12 Within 12 Over 12
months months months months
USD'000 USD'000 USD'000 USD'000
Cash and cash 1,570 - 906 -
equivalents
Receivables 5,077 - 382 4,697
Financial assets at fair
value
through profit or loss 636,855 152,884 545,627 172,132
643,502 152,884 546,915 176,829
Some indirect associates have made commitments that are not guaranteed by the
Company. It is anticipated that such commitments will be met from cash and
investment proceeds withheld by the subsidiaries or through cash injections by
the Company.
(b) Capital management
The Company's capital management objectives are:
· To ensure the Company's ability to continue as a going concern;
· To provide investors with an attractive level of investment income; and
· To preserve a potential capital growth level.
The Company is not subject to any externally imposed capital requirements. The
Company has engaged the Investment Manager to allocate the net assets in such a
way so as to generate a reasonable investment return for its Shareholders and
to ensure that there is sufficient funding available for the Company to
continue as a going concern.
Capital as at the year-end is summarised as follows:
30 June 2016 30 June 2015
USD'000 USD'000
Net assets attributable to equity 786,536 718,664
shareholders
(c) Fair value estimation
The table below analyses financial instruments carried at fair value, by
valuation method. The different levels have been defined as follows:
· Level 1: Quoted prices (unadjusted) in active markets for identical assets
or liabilities;
· Level 2: Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices); and
· Level 3: Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
There are no financial liabilities of the Company which were carried at fair
value through profit or loss as at 30 June 2016 and 30 June 2015.
The level into which financial assets are classified is determined based on the
lowest level of significant input to the fair value measurement.
Financial assets measured at fair value in the Statement of Financial Position
are grouped into the following fair value hierarchy:
Level 3 Total
USD'000 USD'000
As at 30 June 2016
Financial assets at fair value through 789,739 789,739
profit or loss
As at 30 June 2015
Financial assets at fair value through 717,759 717,759
profit or loss
The Company classifies its investments in subsidiaries and associates as Level
3 because they are not publicly traded, even when the underlying assets may be
readily realisable.
If these investments were held at the Company level, they would be presented as
follows:
Level 1 Level 2 Level 3 Total
USD'000 USD'000 USD'000 USD'000
As at 30 June 2016
Cash and cash equivalents 55,430 - - 55,430
Ordinary shares - listed 400,005 - - 400,005
- unlisted - 65,704 17,037 82,741
and OTC
Private equity - - 72,952 72,952
Real estate projects and operating - - 137,268 137,268
assets
Other assets, net of - - 41,343 41,343
liabilities
455,435 65,704 268,600 789,739
As at 30 June 2015
Cash and cash equivalents 22,752 - - 22,752
Ordinary shares - listed 391,459 9,759 - 401,218
- unlisted - 30,438 33,372 63,810
and OTC
Private equity - - 51,256 51,256
Real estate projects and operating - - 173,968 173,968
assets
Other assets, net of - - 4,755 4,755
liabilities
414,211 40,197 263,351 717,759
Investments whose values are based on quoted market prices in active markets,
and are therefore classified within Level 1, include actively traded equities,
government bonds and private equity investments which have committed prices at
the Statement of Financial Position date. The Company does not adjust the
quoted price for these instruments.
Financial instruments which trade in markets that are not considered to be
active but are valued based on quoted market prices and dealer quotations are
classified within Level 2. These include investments in unlisted equities and
over-the-counter ("OTC") equities. As Level 2 investments include positions
that are not traded in active markets, valuations may be adjusted to reflect
illiquidity and/or non-transferability, which are generally based on available
market information. There are no significant adjustments that may result in a
fair value measurement categorised within Level 3.
Private equities, real estate and hospitality investments, and other assets
that do not have an active market are classified within Level 3. The Company
uses valuation techniques to estimate the fair value of these assets based on
significant unobservable inputs such as discount rates, occupancy and room
rates, etc., as described in note 3.2.
There were no transfers between the Levels during the year ended 30 June 2016
and 30 June 2015.
Set out below is the sensitivity analysis on the significant unobservable
inputs used in the valuation of Level 3 investments as at 30 June 2016.
Level 3 - Range of unobservable inputs (probability-weighted average)
Segment Valuation Valuation Discount Cap Terminal Occupancy Room Selling Sensitivity analysis on
technique (USD'000) rate rate growth rate rate price management's estimates
rate (USD) per
unit
(USD)
Real estate Direct 35,578 N/A N/A N/A N/A N/A 30 - Change in selling
comparisons 8,243 price per square
meter
-10% 0% 10%
32,397 35,578 38,671
Real estate Discounted 41,333 15% - 3% - N/A N/A N/A N/A Change in discount
19% rate
cash flows 14.5% -1% 0% 1%
Change in -1% 45,620 42,910 40,408
cap rate 0% 43,888 41,333 38,948
1% 42,500 40,048 37,778
Hospitality Discounted 60,357 16.00% 11.00% N/A 67% 237 N/A Change in discount
rate
cash flows -1% 0% 1%
Change in -1% 63,906 60,896 58,110
cap rate 0% 63,318 60,357 57,615
1% 62,764 59,849 57,149
Change in room rate
Change in -1% 0% 1%
occupancy -5% 59,827 59,886 59,944
rate 0% 60,294 60,357 60,420
5% 60,760 60,828 60,896
Private Discounted 46,151* 17% - N/A 3% - 5% N/A N/A N/A Change in discount
21% rate
equity cash flows -1% 0% 1%
Terminal -1% 48,026 44,469 41,330
growth 0% 50,001 46,151 42,741
rate 1% 52,266 48,022 44,349
* The Company acquired certain investments towards the end of the year. The
carrying values of those investments were equivalent to their fair values and
therefore excluded from independent valuations and sensitivity analysis.
Set out below is the sensitivity analysis on the significant unobservable
inputs used in the valuation of Level 3 investments as at 30 June 2015.
Level 3 - Range of unobservable inputs (probability-weighted average)
Segment Valuation Valuation Discount Cap Terminal Occupancy Room Selling Sensitivity analysis on
technique (USD'000) rate rate growth rate rate price management's estimates
rate (USD) per
unit
(USD)
Real estate Direct 72,034 N/A N/A N/A N/A N/A 285 - Change in selling
1,818 price per square
meter
comparisons -10% 0% 10%
68,928 72,034 75,107
Real estate Discounted 39,757 15% - 8.5% - N/A N/A N/A N/A Change in discount
rate
cash flows 21.5% 9.0% -1% 0% 1%
Change in -1% 47,855 41,872 36,383
cap rate 0% 45,547 39,757 34,575
1% 43,597 37,971 32,935
Hospitality Discounted 62,177 15.75% 10.75% N/A 69% 235 N/A Change in discount
rate
cash flows -1% 0% 1%
Change in -1% 65,987 62,825 59,900
cap rate 0% 65,281 62,177 59,306
1% 64,681 61,569 58,748
Change in room rate
Change in -1% 0% 1%
occupancy -5% 57,320 57,386 57,453
rate 0% 62,105 62,177 62,249
5% 66,891 66,968 67,044
Private Discounted 51,256 25% - N/A 5% - 6% N/A N/A N/A Change in discount
30% rate
equity cash flows -1% 0% 1%
Terminal -1% 52,263 48,364 44,832
growth 0% 55,560 51,256 47,427
rate 1% 59,235 54,516 50,288
Specific valuation techniques used to value the Company's underlying
investments include:
· Quoted market prices or dealer quotes;
· Use of discounted cash flow technique to present value the estimated
future cash flows;
· Other techniques, such as the latest market transaction price.
Changes in Level 3 financial assets at fair value through profit or loss
The fair value of the Company's investments in subsidiaries and associates are
estimated using approaches as described in note 3.2. As observable prices are
not available for these investments, the Company classifies them as Level 3
fair values.
30 June 2016 30 June 2015
USD'000 USD'000
Opening balance 717,759 775,206
Purchases 4,382 -
Sales - -
Unrealised gains/(losses), net (note 13) 67,598 (57,447)
789,739 717,759
Total unrealised gains/(losses) for the year
included in:
Profit/(loss) 67,598 (57,447)
Total unrealised profit/(loss) for the year 67,598 (57,447)
20. RECLASSIFICATION OF COMPARATIVE AMOUNTS
The market value of an investment directly held by a subsidiary, previously
classified as prepayments for acquisitions of investment properties in the
Statement of Financial Position of the Company, amounting to USD5.8 million (30
June 2015: USD5.2 million) has been reclassified to financial assets at fair
value through profit or loss as part of the market value of the subsidiary
holding the investment. The reclassification for both the current and prior
years had no impact on the Company's NAV.
21. SUBSEQUENT EVENTS
This Annual Report and Financial Statements were approved for issuance by the
Board on 27 October 2016. Subsequent events have been evaluated until this
date.
On 27 October 2016, the IMA was amended ("Third Amended IMA") to clarify the
calculation of incentive fees. The clarification did not result in adjustments
on the incentive fees expensed as of and for the year ended 30 June 2016.
MANAGEMENT AND ADMINISTRATION
Directors Registrar
Steven Bates Computershare Investor Services (Guernsey)
Limited
Michael Gray 1 Le Truchot
Martin Adams St Peter Port
Thuy Bich Dam Guernsey, GY1 1WD
Huw Evans (appointed 27 May 2016) Channel Islands
Registered Office Independent Auditors for the financial
year ending
PO Box 255 30 June 2015
Trafalgar Court PricewaterhouseCoopers
Les Banques 21/F Edinburgh Tower
St Peter Port 15 Queens Road Central
Guernsey GY1 3QL Hong Kong
Channel Islands
Independent Auditors for the financial
year ending
Investment Manager 30 June 2016
VinaCapital Investment Management PricewaterhouseCoopers CI LLP
Limited
PO Box 309 PO Box 321
Ugland House Royal Bank Place
Grand Cayman KY1-1104 1 Glategny Esplanade
Cayman Islands St Peter Port
Guernsey GY1 4ND
Administrator and Corporate Secretary Channel Islands
Northern Trust International Fund
Administration Services (Guernsey)
Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Channel Islands
Corporate Broker
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
United Kingdom
Custodian
Standard Chartered Bank (Vietnam)
Limited
Unit 1810-1815, Keangnam Hanoi Landmark
Tower
Pham Hung Road
Me Tri Ward
Nam Tu Liem District
Hanoi, 1000
Vietnam
Tel: +848 3911 0000
Ho Chi Minh City
17th Floor, Sun Wah Tower,
115 Nguyen Hue Blvd., District 1,
Ho Chi Minh City, Vietnam.
Phone: +84-8 3821 9930
Fax: +84-8 3821 9921
Hanoi
5th Floor, Sun City Building,
13 Hai Ba Trung Street,
Hoan Kiem Dist., Hanoi, Vietnam.
Phone: +84-4 3936 4630
Fax: +84-4 3936 4629
Singapore
6 Temasek Boulevard,
42-01 Suntec Tower 4,
Singapore 038986.
Phone: +65 6332 9081
Fax: +65 6333 9081
END
(END) Dow Jones Newswires
October 28, 2016 02:00 ET (06:00 GMT)
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