Chapter 2: ACTUAL SITUATION ANALYSIS OF DA NHIM – HAM
2.5 Equitization plan of the Company
Company is performing the equitization activities; one important step is developing plans for the equitization to submit to EVN for approval. In the plan for equitization has stated the objectives of the company such as profits need be achieved, the commitment about production and selling prices with EVN; the issues not be change during 2010-2015. The commitment such causes both advantages and disadvantages for the company.
-Advantages: ensuring a stable output, just focus on production activities, not focused on market output.
- Difficulties: The cost is fixed through the years, while inflation is increasing; it requires company saving the costs thoroughly. Company has a very small opportunity to expand production or increase business profitability.
In this plan, all costs and revenue are stable over the years, a plan for stability-not for growth.
In this plant, both total revernue and cost are stable in 6 years. It is a fix plant not developping.
The financial targets in Equitization plan
Table 2.15 Financial indexs forcase for 2010-2015
N0. Interpretation 2010 2011 2012 2013 2014 2015 Avg(10-
15)
Ratio (%) 1 Equity (billion VND) 4,000 4,000 4,000 4,000 4,000 4,000 4,000
2 Electricity production
output (Mil.kWh) 2,500 2,500 2,500 2,500 2,500 2,500 2,500 3 Electricity production
sold (Mil.kWh) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 4 Electricity price
(VND/kWh) 577.7 584.0 578.3 572.4 551.1 545.2 568.1
VND)
6 Total cost (billion
VND) 1,095 1,111 1,097 1,082 1,030 1,016 1,072 100%
7 Variable cost (billion
VND) 107 137 137 136 137 137 132 12.30%
8 Fix cost (billion
VND) 988 974 960 946 893 879 940 87.70%
9 Cost of per unit
(VND/kWh) 447.0 453.4 447.7 441.7 420.5 414.6 437 10 Earning before tax
(billion VND) 320 320 320 320 320 320 320
11 Incopration tax 80 80 80 80 80 80 80
12 Earning after tax 240 240 240 240 240 240 240
13 Employee 395 395 395 395 395 395 395
14 Employee income
(1000/person/month) 7,489 7,489 7,489 7,489 7,489 7,489 7,489
15 ROE (%) 6% 6% 6% 6% 6% 6% 6%
Remarked
With the equity is up to VND 4,000 billion, accounted 46% in total assets, the company has strong financial resources, preferential ODA loans with low interest rates. Ability to repay is guaranteed by the basic depreciation source. However, because of the general difficulties of the industry, both taking economic and political reponsibilities, so the ROE of EVN is low. Thus, EVN approve for the member units the ROE at a low level of 8% before tax.
Because company must keep a high charter capital and the situation of stock market are less exciting, EVN decide the first salling of shares only 25% of charter capital, it is a lowest rate according to the regulations, EVN hold the rest 75% in total. The proceeds from the sale of shares and capital surplus shall be lodged back EVN, in accordance to EVN regulation.
When DHD is independent accounting company, under EVN, the interests of the Company and EVN have no conflicts. When the company moved to JSC model, the the relationship on interests between the Company and EVN has changed a lot,
sometimes it is in economic confrontation, because the interests of outside shareholders. Thus companies need to ensure the interests of small shareholders.
The company also has a large available cash flow, can be used to invest into other projects to expand production and business and also for provision to ensure repayment of loan in case the JPY exchange rate is increased.
In the structure of costs, the fixed costs constitute a large proportion of costs, so the operating leverage will high; consequently, if hydrology is favorable, company will get great interest and vice versa.
The company must keep high charter capital, the company will be pressure on dividends, while the dividend must paid to shareholders may just as 5% per year. It is very difficult to attract investors.
The income of workers is also not increased. This is what makes company's leaders pondering on the most, because it affects to the personnel structure of the company.
The average price in the years is 568.1dong/kWh. This sale price compared to other power plants belonging to EVN is too high and equivalent to the joint-stock companies, but still lower than the new power resources. This is a detriment to companies in offering on the bid market. Thus company must care in making offer and building strategy in making offer to limit the risks when entering the competitive generation market.
In the plan has not mention on the issue of exchange rate exposure. Ham Thuan - Da Mi hydropower plant was built mainly from concessional ODA loans from Japan. With the big proportion loans is JPY, a strong foreign currency, so business results of company depends heavily on the fluctuation of exchange rate. In recent years the exchange rate VND/ JPY increases continuously, so the interest rates also increased and the reassess exchange rate at last year are very diffirent with the original foreign exchange loan, so the losses are a great value. Although company’
loan at low interest rate but with the increase of currency exchange rates also make the real loan interest rate becoming high.
With outstanding debt is over JPY 25 billion, at the end 2008, the exchange rate VND/JPY up over 40 dong, compared to the beginning of the year, so the difference of exchange rate has lossed in last year more than VND 1,000 billion, estimated losses in 2009 is 600 billion. With big losses can not be used to calculate into the electricity cost prices of the company. But for state enterprises, the current regulation allows the enterprises allocating the debt due of the loan in the next year.
So EVN must adjust the purchase price increases to keep the electricity companies not in lossess. This thing only happens with the 100% invested subsidiaries of EVN.
The exchange rate exposure is still suspended and the company has yet to use any tool to prevent, although it has a great influence to the results of business of the company.
When company becomes a joint stock company, it shall not have the power to adjust internal prices; it must follow the fixed price option in the trading plan. How to manage the exchange rate exposure for long-term loans in JPY? Is there any derivative financial instrument to prevent the risks in the loans of JPY 25 billion within 15 years and annual interest payment for over JPY 700 million? What can stabilize the business results and make a sense for financial department and business leaders? Be in charge of the enterprise financial operations, these are the question that we always wonder and worry.
In short, with the dividend of 5% per year and there are many risks threatening to company's operations, so the company's shares will not attract the small investors.
The company offered the shares to the major shareholders are investment funds, foreign energy corporations such as Thailand, Japan and Russia, and the large financial firms in order to get support in financial management from these major shareholders.