Analyzing financial performance of united pharma vietnam co , ltd for a period of 2008 2009

Our analysis will primarily focus on the following areas: • Company’s business activities • Company’s financial performance and efficiency against its rivals in perspective of financial

MBAVB

PHONG QUOC HOANG

ANALYZING FINANCIAL PERFORMANCE OF UNITED PHARMA VIETNAM Co., Ltd FOR A

PERIOD OF 2008-2009

PROJECT MASTER IN BUSINESS ADMINISTRATION

(Part-time)

Ho Chi Minh City

DECLARATION

I hereby enclose eight hard copies of my final project “Analyzing Financial

Performance and Financial Position of United Pharma Vietnam for a period of

2008-2009” to Solvay Business School and Ho Chi Minh City Open University

I confirm this final project is my own work And I certify that all datas and

references using in this project are legal

ACKNOWLEDGEMENTS

I gratefully thank my Supervisor Dr Nguyen Tan Binh for his valuable

advices and hearted guidance throughout the process of developing this study,

especially how empirical findings should be analyzed

I would like to thank and appreciate Financial Division of United Pharm

Vietnam Co Ltd for great opportunity to work with them and for providing me with

access to internal record and data With their kind help, I can optimize application to

this real case study Special thanks to Mr Renan Sabino Danganan for his

hospitality and readiness to support at all time

Least but not last, I would like to acknowledge and thank to all professors,

co-ordinators Mr Serge and Ms Tran and my classmates of MBAVB1 program who

have provided me with practical and helpful insights, comments and assistance

COMPANY’S COMMENTS

Mr Hoang presented a detailed and in-depth analysis of the financial performance

of United Pharma Vietnam He displayed a thorough knowledge of the financial

terms and concepts and was able to apply this in his analysis We were impressed

with the details of his presentation, how he was able to go “deep down to the heart”

of our operation He was able to present the financial information in a way that will

be useful to management in making strategic decision knowing full well the

relationship of the financial ratios with the financial performance We appreciate

his practical suggestions and we sincerely thank him for this work

SUPERVISOR’S COMMENTS

Hoang applied a thorough knowledge of financial term and concepts to present a

detailed and in-depth analysis financial performance of United Pharma Vietnam

He made great effort to collect data and benchmark financial ratios of Company

against those of its rivals He was able to find out areas that need improvement and

proposed practical solutions

TABLE OF CONTENTS

EXECUTIVE SUMMARY

CHAPTER 01: INTRODUCTION 1 

1.1 Problem Context 1 

1.2 Objectives of Research Study 2 

1.3 Methodology 2 

1.3.1 Research Approach 2 

1.3.2 Research Method 3 

1.3.3 Data Collection 3 

1.3.4 Limitation 4 

CHAPTER 02: LITERATURE REVIEW 5 

2.1 Financial Statement Analysis 5 

2.1.1 Three Primary Business Activities 5 

2.1.2 Users of Financial Statement 6 

2.1.3 Balance Sheet 6 

2.1.4 Profit/Loss Statement 7 

2.1.5 Cash Flow Statement 7 

2.2 Financial Ratio Analysis of Financial Statement 8 

2.2.1 Interpretation of financial ratios 9 

2.2.2 Liquidity Ratios 10 

2.2.2.1 Current Ratio 10 

2.2.2.2 Quick Ratio 11 

2.2.2.3 Cash Ratio 11 

2.2.3 Profitability Ratios 11 

2.2.3.1 Net profit to Net sales Ratio 12 

2.2.3.2 Return on assets (ROA) 12 

2.2.3.3 Return on equity (ROE) 13 

2.2.4 Efficiency Ratios 13 

2.2.4.1 Days Inventory Held (DIH) 13 

2.2.4.2 Days Sales Outstanding (DSO) 14 

2.2.4.3 Days Payable Outstanding (DPO) 14 

2.2.4.4 Cash Conversion Cycle 15 

2.2.4.5 Total Assets Turnover 15 

2.2.5 Leverage Ratios 15 

2.2.5.1 Debt to Assets Ratio 16 

2.2.5.2 Debt to Equity Ratio 17 

2.2.5.3 Interest Coverage Ratio 17 

CHAPTER 03: INFORMATION ABOUT COMPANY 19 

3.1 Company profile 19 

3.2 Organization chart 20 

3.3 Company’s Products 20 

3.3.1 Consumer channel 20 

3.3.2 Pharmacy channel 21 

3.3.3 Medical Doctor Channel 21 

CHAPTER 04: ANALYSIS OF FINANCIAL PERFORMANCE FOR 02 YEARS (2008 – 2009) 22 

4.1 Analyzing Business Performance for 2 Years (2008-2009) 22 

4.2 Analyzing Assets and Source of Capital for 2 Years (2008-2009) 29 

4.2.1 Analyzing Net Assets 29 

4.2.2 Analyzing Total Assets 30 

4.2.3 Analyzing Sources of Capital 33 

4.3 Cash Flow Analysis for 2 Years (2008-2009) 37 

4.4 Financial Analysis Through Financial Ratios 40 

4.4.1 Net Working capital 40 

4.4.2 Analyzing Liquidity Ratios 40

4.4.2.1 Current Ratio 40 

4.4.2.2 Quick Ratio 41 

4.4.2.3 Cash Ratio 42 

4.4.3 Analyzing Leverage Ratios 42 

4.4.3.1 Debt to Asset Ratio 42 

4.4.3.2 Debt to Equity Ratio 43 

4.4.3.3 Interest Coverage ratio 43 

4.4.4 Profitability ratios 44 

4.4.4.1 Net Profit to Net Sales Ratio 44 

4.4.4.2 Return on Assets 44 

4.4.4.3 Return on equity 45 

4.4.5 Operational Efficiency ratios 45 

4.4.5.1 Days Inventory Held (DIH) 45 

4.4.5.2 Days sales outstanding (DSO) 46 

4.4.5.3 Days Payable Outstanding (DPO) 47 

4.4.5.4 Cash Conversion Cycle 48 

4.4.5.5 Assets Turnover Ratio 48 

4.4.5.6 Current Asset turnover 49 

4.4.5.7 Fixed assets ratio 49 

4.4.6 Analysis of Financial Ratios Across Pharmaceutical Companies 50 

CHAPTER 05: CONCLUSION AND SUGGESTIONS 54 

5.1 Conclusion 54 

5.1.1 United Pharma Vietnam - Year to Year Comparison 54 

5.1.2 United Pharma Vietnam vs Its Rivals 56 

5.2 Suggestion 57 

REFERNCES 60 

APPENDIXES 61 

Appendix 01: 2007-2009 Financial Statement of United Pharma Vietnam 62 

Appendix 02: 2009 Financial Statement of HauGiang Pharmaceutical 66 

Appendix 03: 2009 Financial Statement of Domesco Pharmaceutical 68 

Appendix 04: 2009 Financial Statement of Imexpharm Pharmaceutical 70 

Appendix 05: 2007-2009 Historical Exchange Rate – VND vs USD 72 

Appendix 06: 2007-2009 Consumer Price Index 72 

Financial performance of United Pharma Vietnam for year 2008 and 2009 draw out two attentions Firstly, its performance in 2008 was strong with growth rate 22% for net sales and growth rate of 12% for net profit Moving toward

2009, its performance was continuously improved with net sales increased by 26% and net profit increased by 57% Total assets increased by 3% and 7% in

2008 and 2009 respectively However, cash flow was deficit of VND 5.2 billion and VND 1.5 billion in the same two periods respectively Secondly, its profitability ratios remained lowest compared to its rivals; specially in 2009, Net profit ratio was 4%, ROA was 6% and ROE was 10% whereas intervals of those ratios of studied Pharmaceutical Companies in VND showed Net profit to net sales interval (4%, 21%), ROA interval (10%, 35%) and ROE (6%, 24%) Therefore Management of United Pharma Vietnam wants to clearly understand and address two following concerns:

1 How did its financial performance impact its financial position

rivals; Hau Giang Pharmaceutical Company and Domesco Pharmaceutical Company and Imexpharm Pharmaceutical Company

Based on the abovementioned reasons, I would like to propose my final project “Analyzing financial performance of United Pharma Vietnam for a period of 2008-2009” Our analysis will primarily focus on the following areas:

• Company’s business activities

• Company’s financial performance and efficiency against its rivals in perspective of financial ratios analysis

We hope that our final project can address the above concerns of company’s management, and recommend the suitable solutions for improvement for 2010 and 2011

The analysis of final project is conducted primarily by analyzing the historical data of financial statements of United Pharma Vietnam – Balance Sheet, Profit/Loss Statement and Cash Flow Statement, and analyzing its financial ratios Furthermore, comparison of main financial ratios is made across three above rivals

CHAPTER 01: INTRODUCTION

1.1 Problem Context

United Pharma Vietnam is a 100% foreign invested company Currently its scope of business is to manufacture and trade generic pharmaceutical products in Vietnam market Its capital was formed from owned capital and loan capital Financial Statement of United Pharma Vietnam for year 2008 and 2009 raised two concerns Firstly, together with strong performance; sales growth of 22% in 2008 and 26% in 2009, net profit growth of 12% and 57% in 2008 and

2009 respectively, however cash flow suffered deficit of VND 5.2 billion and VND 1.5 billion in the same two periods respectively Secondly, pharmaceutical sector was considered as high profitable rate in Vietnam due to strict compliance and regulation to enter into this business, however Company’s profitability ratios were low; Net profit to net sales: 4%, ROA: 6% and ROE: 10% Therefore Management of United Pharma Vietnam wants to clearly understand and address two following concerns:

1 How did its financial performance impact its financial position

2 How good were its financial performance and efficiency against its rivals; Hau Giang Pharmaceutical Company and Domesco Pharmaceutical Company and Imexpharm Pharmaceutical Company

I believe that the existing topic “Analyzing financial performance and financial position of United Pharma Vietnam for a period of 2008-2009” is more meaningful to my final project and United Pharma Vietnam and it will encourage

me to go ahead with this research and interest Management of Company

1.2 Objectives of Research Study

In this project, I will focus my analysis toward the main following objectives as follow:

• • Gain the depth understanding of financial statements and financial ratios analysis

position and financial performance of its company in financial perspective for a period of 2008-2009

and efficiency against its rival

• Find out areas that negatively influence its financial performance, and

propose solutions for improvement

In our research, we will start with description of important concepts such as financial statement analysis and ratios analysis, subsequently collect data from primary financial statements such as balance sheet, profit/loss statement and cash flow, finally apply these important concepts to analyze and explain reason

behind variances of financial statement and financial ratios Therefore deductive research is compatible for our research

Trend based analysis compares articles of financial statement or financial ratios for several periods and reveal tendencies dominating in change of value Factor analysis reveal causes of changes in absolute and relative value through decomposition of them

Ratio analysis studies levels and changes of relative measurements of financial performance Ratio analysis can help us tell how profitable a business

is, how the company is performing better this year than it was last year, how the company is performing in comparison with other companies in the same business sector… etc

1.3.3 Data Collection

Data collection and quality of data are crucial to success of our research Data mainly comes from financial statement of company and financial ratios index of other companies in its same business sectors such as Hau Giang,

Domesco and Imexpharm There are three main financial statements: Balance Sheet, Profit/Loss Statement and Cash Flow

1.3.4 Limitation

The study is limited to financial statement of United Pharma Vietnam Company from 2007 to 2009 and financial ratios of Hau Giang Pharmaceutical Company, Domesco Pharmaceutical Company and Imexpharm Pharmaceutical Company Financial ratios are computed mainly by weighted average method I

am unable to obtain financial ratios benchmark of Vietnam Pharmaceutical Industry to compare

CHAPTER 02: LITERATURE REVIEW

This section is to explain theoretical framework, which is used as a tool to analyze our final project for empirical findings Also theoretical framework will help the readers to understand purpose of financial performance analysis as they may have a little knowledge about it and help us to achieve objectives of our final project

2.1 Financial Statement Analysis

Three principal financial statements include balance sheet, profit/loss statement, and cash flow They are consolidated through accounting numbers and provide useful information about the company’s performance, problems and prospects Also they have close relationship together

Financial statement analysis is process by which analytical tools and techniques are applied to financial statements to derive estimates and hints, which is necessary to important business decision Financial statement analysis involves interpretation of accounting numbers shown in financial statement for assessing the company’s performance, anticipating and planning future actions for the company

2.1.1 Three Primary Business Activities

Past financial performance and current financial position of company are reported in its financial statements Financial statements are designed to provide information on three primary business activities, which consist of operating, financing and investing activities Analyzing financial statement help us to sort out and evaluate information, and focus our intention on reliable information most relevant to our business decision

2.1.2 Users of Financial Statement

There are different users of financial statement, Shareholders and creditor use it to assess past financial performance, current financial position and future company prospects for investing and lending decision Board of director uses financial statement information to monitor management’s decision Suppliers use

it to establish suppliers Customers use it to decide whether to establish supplier relationship Auditors use it to assess fair presentation of its client’s financial statement numbers…etc

2.1.3 Balance Sheet

Balance sheet summarizes a financial position of company and represents the total value of all existing assets owned by the company, and the funding sources of those assets at a point in time The basic equitation is used for the financial reporting system as follow:

Total assets = liabilities + owner’s equity The left hand side of the equitation is assets and refers the economic resources controlled by company These resources are valuable in presenting potential resources of future revenue through operating activities Assets are composed of current assets and non-current assets Current assets, which is expected to turn into cash within a year from balance sheet date, mainly comprises cash, short term investment, inventory, receivable, advance, short term deposits, prepaid expenses In contrast, Non-current assets, which is not expected turn into cash within a year from balance sheet date and not easy to convert to cash, mainly comprises fixed assets, leasehold improvement, long term repayment, long term investment, long term collateral and deposit

To engage in operating activities, the company needs to obtain funding to invest in assets The right hand side of this equitation identifies funding resources Liabilities are funding from creditors and represent obligation of the company Liabilities are divided into current liabilities and long term liabilities Current liabilities are expected to pay within a year from balance sheet date whereas long term liabilities are not Owner’s equity is total of funding invested

by shareholders and accumulated retained earnings

2.1.4 Profit/Loss Statement

Profit/Loss statement provides information about a company’s operating activities Net profit of a company is equal to its net sales minus expenses; sales arise from selling goods or service, and expenses measure the cost associated with generating these sales

Net profit will show the increase in net worth of company before considering distribution to shareholders and contribution from shareholders, and net loss will do inversely In United Pharma Vietnam, net profit/loss is determined by using accrual based accounting Under this method, sales are recognized when the company sells goods or renders services, independent of receiving cash In turn, expenses are recognized when related revenue is recorded, independent of paying cash

2.1.5 Cash Flow Statement

A cash flow statement is a financial report which reflects cash inflow and cash outflow relating to company’s operating, investing and financing activities during a reporting period Cash flow enables the users to evaluate the company’s ability to generate cash, determine their assets movement, perform liquidity and

cash flow forecasting for subsequent period Cash flow statement is structured in three main parts: Cash flow from operating activities, Cash flow from investing activities, Cash flow from financing activities

Cash flow from operating activities which reflect total cash inflow and outflow directly related to operating activities of the company such as: sales, receivables, inventory, expenses paid to employees, suppliers, …ect

Cash flow from investing activities which reflect total cash inflow and outflow directly related to investing activities of the company Its cash outflow consists of amount invested in purchase of fixed assets and in other entities through joint venture, shares or loan Its cash inflow includes the gross amount of cash received from disposal of fixed assets and from return on investment in other entities

Cash flow from financing activities which reflect total cash inflow and outflow directly related to financing activities of the company Financing activities include those activities which relate to changing financial structure of the company, such as capital contribution, loan, shares and loan repayment It cash inflow mainly includes the gross amount of cash received from loan receipt, capital increase, share issuance It cash outflow is mainly composed of amount of cash used for interest payment, dividend payment

2.2 Financial Ratio Analysis of Financial Statement

Financial ratios are useful by-product of financial statements and provide standardized measures of a company’s profitability and risk The most common used tools of financial statement analysis are financial ratios A ratio refers to economically important relation Ratio analysis involves methods of calculating

and interpreting financial ratio in relative value By which it helps us to measure and evaluate company’s past financial performance and current financial position

There are different financial ratios as there are items appearing on balance sheet, profit/loss statement and cash flow, and their application is defined from the analyst point of view The users apply various approaches depending on the goal of analysis and business issues Despite of number of ratios, they all cohere through their classification

In our final project, financial statement analysis of financial performance and financial position will go along with four directions where financial ratios can be categorized as follow:

2.2.1 Interpretation of financial ratios

Ratio analysis is not just calculation of given ratios Ratios, alone, are not sufficient enough to understand a company’s past financial performance and current financial position, and forecast its future prospects Most important is interpretation of ratio value However it is not easy to do this work and there is not single correct value for ratio Correct conclusion that the value of a particular ratio is high and low depends on perspectives of the analyst and company’s

strategy A financial ratio is meaningful only when it is compared with standard, benchmark, such as ratio trend, financial ratio of our rival, planned management objectives and industry trend

2.2.2 Liquidity Ratios

The liquidity ratios are used to measure company’s ability to satisfy its short-term obligations as they come due Liquidity also stands for ability of a company to convert its assets into cash quickly and with lower costs as possible Such liquid assets are necessary to cover any financial emergencies and play as

a buffer in company’s operations

2.2.2.1 Current Ratio

This ratio compares current assets (cash, inventory and account receivables and other current assets) that will turn into cash within a year to current liabilities that will be paid within a year Calculation is as below:

A company with a low current ratio lacks liquidity If it is less than 1, current liability will exceed current assets and company’s liquidity will be threatened Financially, a high current ratio is a financially favorable condition, because it indicates the ability to pay current liability from conversion of current assets into cash Operationally, a high current ratio tends to increase operating freedom and reduce probability of paying bill difficulty

Current Assets Current Ratio =

Current Liabilities

2.2.2.2 Quick Ratio

Differences in structure of assets may require calculating the quick ratio Some assets are more liquid then others are Quick ratio is current assets minus inventories, divided by current liabilities Inventories are excluded in computation of this ratio as it is the least liquid of all current assets

A company with a low quick ratio lacks liquidity Financially, a high quick ratio allows the company little dependence on salability of inventories to meet current obligations Operationally, this high ratio tends to increase operating freedom for company

2.2.2.3 Cash Ratio

Cash Ratio (Absolute liquidity ratio) The most liquid assets are the company’s cash and financial instruments These assets have an absolute liquidity and allow redeeming all obligations in time

2.2.3 Profitability Ratios

Profitability ratios help to measure how well a company is managing its expense and resources to generate profit These ratios allow examine the company’s profitability in relative to sales, assets and owner’s investment These

Cash + Securities + Receivables

ratios are usually created by relating net profit to the resources utilized in generating that profit

2.2.3.1 Net profit to Net sales Ratio

This ratio measures net profit earned per a VND of sales generated by company It is calculated as follow:

The higher this ratio is the better it is for a company If net profit margin ratio is negative, a company incurs loss In this case, a company must look at its pricing structure, cost of goods sold, selling and marketing expenses, general administrative expenses to find out the possible room for improvement This high ratio will facilitate a company to expand business and improve its financial position

2.2.3.2 Return on assets (ROA)

It is a basic measure of the efficiency with which a company allocates and manages its resources It measures earnings generated per a VND of money provided by owners and creditors

The higher this ratio is the better it is for a company A company is efficient

if it can use adequate minimum resource of assets to generate its expected

Total Net Profit

Net profit Ratio =

Total Net Sales

Total Net Profit

Return on assets =

Total assets

return If its current resource of assets is redundant, its excessive assets should

be shifted to new investment to improve its ROA

2.2.3.3 Return on equity (ROE)

It is a measure of the efficiency in which a company employs owners’ capital to generate earnings It measure earnings generated per a VND of invested equity capital

2.2.4 Efficiency Ratios

This is another set of ratios estimate how efficiently a company uses its working capital Efficiency ratios measure the speed with which various accounts are converted into sales or cash inflows or outflows During the analysis of financial statement, it is important to look beyond measures of liquidity and to evaluate the efficiency of specific current accounts Several ratios are available from the real analysis practices for measuring the performance of the most important elements of working capital: inventory, accounts receivable, and account payable

2.2.4.1 Days Inventory Held (DIH)

This ratio measures the average number of days it takes to sell inventory It

is calculated by dividing the averaged inventory held by the average daily cost of goods sold For this analysis, the averaged inventory held was determined by using the inventory balance at the beginning of the year plus the inventory balance at end of the year and divide by two

Total Net Profit

Return on equity = Total Owner’s equity

A low ratio will contribute to improving efficiency of utilization of company’s capital and increase the current liquidity of the company

2.2.4.2 Days Sales Outstanding (DSO)

This ratio measures how many days on average it takes the company to collect the credit sales It is calculated by dividing the average account receivable by the average daily sales

The closer the DSO is to the credit term policies of the company, the closer the receivables are to optimal level

2.2.4.3 Days Payable Outstanding (DPO)

This ratio measures how long it takes the company to pay creditors for the materials and services that the company purchased This ratio is computed by dividing the average account payable by the average daily cost of goods sold

The larger the days payable outstanding is the better it is if the company is able to actually pay creditor at the date agreed in contract

Average Account Payables

Total Cost of goods sold

Average Inventory

DIH = x 365

Total Cost of Goods Sold

Average Account Receivables

Net Sales

2.2.4.4 Cash Conversion Cycle

It estimates how long it takes the company to convert inputs tied up in production and sales process into cash Cash conversion cycle is composed of three main working capital components and computed by Days sales outstanding plus Days inventory held and minus Days payable outstanding

The lower the cash conversion cycle the healthier the company generally is

2.2.4.5 Total Assets Turnover

It measures sales generated per a VND of assets put in business operation and efficient use of asset The low assets turnover signifies better use of assets and the high asset turnover will do reversely

Nature of the company’s business, product and competitive strategy determine its asset needs, then influence assets turnover An ideal company is the one that produces higher sales and profit with minimum required assets Therefore controlling assets is vital determinants of assets

Total Net Sales

Total Assets Turnover =

Total Assets

debt holders have been paid, the debt is said to create financial leverage In extreme cases, if crisis times come, a company may be unable to pay its debts Financial leverage enables a company to have an asset base larger than its equity A company can finance its assets with equity or with equity and borrowing Financial leverage increases the company’s ROE as long as the cost

of the borrowing is less than the return from investing these funds While a company’s shareholders can potentially benefit from financial leverage, it can also increase their risk

In contrast with equity, borrowings have predefined payment terms, and the company may face risk of financial distress if it fails to meet these obligations There are some ratios to evaluate the degree of risk coming from financial leverage There are two types of financial leverage ratios:

•Component percentages

•Coverage ratios

Component percentages compare a company’s debt with either its total capital (debt plus equity) or its equity capital Coverage ratios reflect an ability to satisfy fixed financial obligations, such as interest, principal repayment, or lease payments

Therefore, leverage ratio look at the long term solvency of the company They help us to analyze the use of debt and the ability to meet obligation

2.2.5.1 Debt to Assets Ratio

This ratio measures how much debt the enterprise used to fund to total assets Debt to Assets ratio is defined as total debt divided by total assets

Total debts

Debt to assets ratio =

Lender would like to see this low ratio to ensure safer collection of debt The enterprises tend to have this high ratio when their business gets better because they want to have more fund to expand their business, increase profitability and improve return on equity ratio, they also want to share risk with lender where they go out of business However this ratio is high, the enterprises will bear high interest expenses accordingly This is why the company should increase this ratio as high as its business still generates margin profit

2.2.5.2 Debt to Equity Ratio

This ratio indicates what proportion of equity and assets the company is using to finance its assets Beside, this will help to analyze and understand the enterprise’s solvency more clearly as owner’s equity is a good source to repay debt Debt to equity ratio is computed by dividing total debt by total owner’s equity

The lower the ratio is the better the enterprise’s solvency is A low ratio is more favorable, financially independent on outside of funds, and operationally bear lower interest cost However a low ratio may have unfavorable impact on return on equity The higher ratio is more risky to present and future creditors

2.2.5.3 Interest Coverage Ratio

This ratio measures the company’s capability to pay interest payment from profit before interest and tax It is calculated by dividing operating profit before financial income/expenses by interest expenses

Total debts Debt to equity ratio =

Total owner’s equity

This ratio equal to one or greater indicates the ability of the company’s current operating profit to pay current interest expenses

Operating profit before financial income/expenses Interest coverage ratio =

Total Interest expenses

CHAPTER 03: INFORMATION ABOUT COMPANY

3.1 Company profile

United Pharma (Vietnam) Inc is a 100% foreign-owned enterprise established in Vietnam in accordance with Investment Licence No 1214/GP, issued by the Ministry of Planning and Investment on 24 April 1995

Its principal activities are to manufacture and sell pharmaceutical preparations for human consumption in accordance with Vietnamese health regulations

It started building Factory in 1997 and was granted GMP (Good Manufacturing Practice) certificate and initially produced four products: Alaxan, Decolgen, Nutroplex and Enervon in 1999

In 2001, UPI commenced full operation After one year, UPI continuously received three certificates: GMP, GLP (Good Laboratory Practice) and GSP (Good Storage Practice)

In 2003, It launched Pediatric products, and was granted receiving ISO 9001:2000 certificate and Golden-Dragon award

In 2005, It launched Therapharma products

In 2006, UPI was granted WHO GMP, GLP and GSP certificates and award

of high quality product After that, in 2007, UPI honorably achieved two certificates ISO 14001 and OHSAS:18001

EXTERNAL AFFAIRS

FINANCE

& ADMIN

HUNAM RESOURCE

FACTORY OPERATION

COUNTRY MANAGER

PORTFOLIO AND NEW BUSINESS

3.3.2 Pharmacy channel

There are nine products under pharmacy channel, which include the following products:

3.3.3 Medical Doctor Channel

There are eighteen products under pharmacy channel, which include the following products:

CHAPTER 04: ANALYSIS OF FINANCIAL PERFORMANCE FOR 02

YEARS (2008 – 2009) 4.1 Analyzing Business Performance for 2 Years (2008-2009)

In absolute value, performance of the company is better year by year In

2008, it achieved net sales of about VND 195 billion with growth rate of 22% and net profit of about VND 6 billion with growth rate of 12% Its performance in

2009 was more impressive with strong growth of 26% and 57% for net sales and net profit respectively Net profit in 2009 increased due to better sales, which more than offset an increase in cost of goods sold and operating expenses We will conduct depth study of cost of goods sold and operating expenses in next parts

Net profit in 2009 as percent to net sales was 4% and higher than 2008 and

2007 This means the company earned net profit of 4 VND for net sales of every

100 VND in 2009, which was slightly higher than VND net profit of 3.2 VND in

2008 and net profit of 3.5 VND in 2007

Cost of Goods Sold:

This is variable cost to net sales, which comprises material cost, direct labor and factory overhead Of which material cost make up a large proportion of Cost

of Goods Sold and 70% of materials is imported from other countries Therefore

it is significantly influenced by exchange rate and the world price fluctuation

Act Act Act

Material Cost 49,286 64,916 85,507 15,630 32% 20,591 32% Direct Labour Cost 4,478 5,529 6,893 1,050 23% 1,364 25% Factory Overhead 24,610 25,476 28,067 865 4% 2,592 10%

2009

vs 2008

A Cost Of Goods Sold Presented in Amount

B Cost Of Goods Sold Structure Presented in % to Total COGS

• 2009 vs 2008

Similarly, Cost of Goods Sold in 2009 increased by VND 25 billion or 26% due to higher sales As percent to Net Sales, it was maintained 49%, unchanged compared to 2008 due to implementation of price increase for big brands such as Obimin, Atussin, Ceelin and Clazic However, components of cost of goods sold

as percent to total was changed in tendency of material cost up to 71% from 68%

in 2008, factory overhead down to 23% from 27% in 2008 and direct labor was constant As percent to total cost, material cost rose due to an increase in prices

of imported materials and local sourced materials, and higher exchange rate (VND depreciation vs USD by 8%), Factory overhead is down resulting from higher production volume

Therefore:

Cost of goods sold, as percent to net sales, maintained at 49% for three consecutive years This contributed maintaining and improving profitability and financial position of the company Stabilization of Cost of Goods Sold came from efficiency in productivity and implementation of price increase for big brands of company, but this was offset price increase of materials

Selling Expenses

Selling expenses are those relating to selling products, setting up distribution network and developing brand image, which comprise many individual expense items Those expenses had significant impact on profitability and sales performance of the company Below is breakdown of main individual selling expense items of the company

Act Act Act

Advertising expenses 11,295 12,144 12,093 850 8% (51) (0%) Public Medical education expenses 4,976 6,951 13,238 1,974 40% 6,288 47% Trade progam expenses 6,718 9,766 10,657 3,048 45% 891 8% Personnel cost 14,841 17,775 22,220 2,933 20% 4,445 20% Incentives 1,342 3,703 3,937 2,361 176% 234 6% Travelling expenses 2,454 4,052 5,239 1,598 65% 1,187 23% Rent expense 789 716 993 (72) (9%) 276 28% Research & development 1,576 3,120 3,864 1,545 98% 743 19% Conference expense 312 1,465 2,223 1,153 370% 758 34% Other expenses 2,111 3,119 3,160 1,008 48% 41 1%

Total Selling Expenses 46,413 62,811 77,623 16,398 35% 14,812 19%

Net Sales 160,191 194,787 245,777 34,596 22% 50,990 21%

Selling Expenses % to Net Sales 29% 32% 32% 3% (1%)

2008 vs 2007 2009 vs 2008 Particulars

• 2008 vs 2007

Total selling expenses in 2008 amounted to VND 63 billion and increased

by VND 16 billion or 35% As percent to Net Sales was 32%, about 3% higher than last year The increase primarily came from more spending on public medical education programs, trade promotion programs, personnel cost, incentives, traveling, research & development, conference expenses

Public medical education programs increased by VND 2 billion or 40% compared to 2007 Those programs aim to educate the target customers, pharmacists and doctors about products of the company so that its products can

be accepted more easily drugstores, hospitals and customers, by which its sales can be promoted So far the company categorized those programs into three main kinds: (1) medical education program for customers, (2) medical education program for drugstores, and medical education program for doctors Under those,

the company will invite its target customers, pharmacist and doctors to participate and introduce functions of its product

Trade promotion programs were continuously encouraged It rose by VND

3 billion or 45% Those programs aim to attract the target customers, drugstores and doctors to purchase products of the company Under those programs, gifts will be given to customers, drugstores, doctors if they meet the sales target

Personnel cost rose by VND 3 billion or 20% This was due to annual salary increase effective from Jan 2008 and recruitment of additional sales and marketing headcount to promote sales

Incentives increased by VND 2 billion or 176% This was primarily due to better sales performance and higher incentive rate

It spent more on traveling expenses by VND 1.6 billion or 65% than last year This was primarily due to larger market coverage and more implementation of public medical education programs conducted by salesmen and marketing staff to ensure efficiency in implementation of programs and better market coverage

• 2009 vs 2008

Similarly, total selling expenses in 2009 amounted to VND 78 billion, rose

by VND 15 billion or 19% As percent to Net Sales was 32%, the same as 2008 ratio The increase in absolute value is due primarily to more spending on public medical education programs, personnel cost and traveling expenses

Public medical education expenses were higher by VND 6 billion or 47%,

as the company continued intensifying those programs to achieve sales growth of 26%

Personnel cost was higher by VND 4 billion or 20% This is due to annual salary increase and higher end year bonus resulting from better sales performance

Traveling expenses were higher by VND 1 billion or 23% due to market expansion and implementation of more marketing programs

General Admin:

General expenses are those arising from general administrative activities to support production, sales and marketing to achieve company’s business goal, which are almost invariable to an increase in sales, however it annually increases or decreases upon business status of the company – downsize or expansion Those expenses had significant impact on profitability it will not improve its profitability unless the company own qualified personnel forces, good controlling system, suitable office equipments and software Below is breakdown of main individual general administrative expense items of the company

Act Act Act

Personnel cost 15,709 16,988 22,109 1,279 8% 5,121 23% Travelling Eexpenses 1,050 647 1,484 (403) (38%) 837 56% Rent Expense 2,843 2,938 5,198 95 3% 2,260 43% Training 405 1,006 2,202 601 149% 1,196 54% Depreciation 829 909 1,345 79 10% 437 32% Other expenses 7,613 7,117 4,868 (496) (7%) (2,249) (46%)

Total General Admin 28,448 29,605 37,207 1,157 4% 7,602 20%

Net Sales 160,191 194,787 245,777 34,596 22% 50,990 21%

2008 vs 2007 2009 vs 2008 Particulars

• 2008 vs 2007

Total general administrative expenses amounted to VND 30 billion, rose by 8% or 1 billion due mainly to personnel cost and training expenses to increase internal capability However, as percent to net sales was 15% and lower than last year by 3% Higher personnel cost was due to annual salary increase, but this was offset by reduction in administrative headcounts

• 2009 vs 2008

Total general administrative expenses in 2009 amounted to VND 37 billion, rose by VND 8 billion or 20% The increase was due primarily to higher personnel cost, higher rental expenses and traveling expenses, but this was offset

by lower other expenses

Personnel cost was higher by VND 5 billion or 23% mainly due to an annual salary increase, additional recruitment of administrative headcount and higher end year bonus due to better business performance

Rental expenses were higher by VND 2 billion or 43% mainly due to renting new location for head offices New location aimed for business expansion and strengthening company’s image

Training expenses were higher by VND 1 billion or 54% mainly due to English training programs for managers, Performance Alignment Management System for the whole company

Nevertheless, other expenses reduced by 2 billion or 46% mainly due to continuous improvement in cost controlling policies and cost awareness programs

4.2 Analyzing Assets and Source of Capital for 2 Years (2008-2009)

4.2.1 Analyzing Net Assets

Total Owner's Equity

The company had positive net assets of VND 82 billion with an increase by 7% in 2008 compared to 2007 and 102 billion with an increase by 11% in 2009 compared to 2008 The increase came from annual net profit as there is no dividend remittance Therefore this contributed to strengthen balance sheet and cash flow solvency of company We will deeply study in next sections