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Friday, April 23, 2021

The missing 2020 business plans

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May has come knocking. But many an enterprise has yet to make public their 2020 business plans. Most of those that have managed to make it still indicate a decline in sales in the backdrop of unprecedented unfavorable business conditions.

Covid-19 has just aggravated the awkward positions of both the economy and companies which had already grappled with an array of unstable macro-economic indicators. That business will be on the wane is indisputable given the drastic fall in business results in the first quarter although the announced statements still did not reveal the whole picture of losses.

What will be lying in the future remains merely vague guesswork because of the Covid-19 pandemic. Will more impositions of social distancing measures affect production and consumption? Will transactions and trade be able to escape from the stagnation which has exerted adverse effects on exporters of commodities and importers of input materials? Even when the entire society has to live with the pandemic and treatment of the coronavirus has been identified, nobody can assure that consumers will regain their normal moods and demand will swiftly recover to help boost enterprises’ sales.

In the meantime, input costs remain an unknown to the corporate circle in the current context. The pandemic has upended everything, turning things unusually elusive and incredibly unpredictable. For instance, the recent oil price crash is typical of price fluctuations of many commodities. Falling prices of input materials may benefit enormously a host of enterprises and industries in the economy; however, it is very hard to predict whether those commodities in the rest of the year will continue the decline or regain their lost territories during the post-Covid-19 time.

Impacts of the foreign exchange rate and interest rates

The exchange rate has become now one of the biggest nagging worries of enterprises. Quite a few forecasts have shown that this year’s foreign exchange market is unlikely to experience a smooth year like in 2019 due to possible discrepancies in supply-demand. Income sources from export and foreign investment have shown signs of weakening while another big source, remittances from overseas Vietnamese and guest workers, may face a fall for the first time in many years. Migrant workers are the first group vulnerable to joblessness as a result of the economic recession in host countries, according to a recent report by the World Bank.

Reality has indicated that several foreign exchange fluctuations in the first quarter of this year, albeit not very strong, may exert tremendous influence on business results of multiple enterprises, according to financial reports released recently. For instance, Se San 4A Hydroelectric Joint Stock Company (HOSE:S4A) has freshly announced that its net profit in Q1 took a nosedive of 78% lower than that in the same period last year due to a drastic surge of 73% in financial costs. Of the VND17 billion surge, the increase caused by the difference in foreign exchange rate accounted for almost VND8 billion. Another example is

PetroVietnam Transportation Corporation (HOSE: PTV). This company reported a decline of 38% in net profit in Q1. Of the decrease, some VND8 billion was from the fluctuation of foreign exchange rate, which resulted in higher debt servicing paid in foreign currencies.

Meanwhile, the plummeting interest rates have become a dilemma for enterprises that have deposited huge amounts of cash at banks. Their income gained from bank interest dropped considerably in Q1, which was clearly illustrated in financial reports for Q1. Take PTV for example again. Its revenue from financial operations in Q1 dropped by VND16.5 billion, or 70% year-on-year, due mainly to falling bank interest.

Although nominally the current falling interest rates may help some companies receive preferential bank loans, and thus cut their financial costs, whether an enterprise is qualified for the stimulus packages is uncertain. Even though an enterprise is eligible for a support from the packages, they are actually being carried out too slow in defiance of commitments and promises.

Worries over provision and investment constraints

A strong recovery has been seen on the stock market since early April. Nonetheless, industry observers have maintained that it is far from breaking away with the bearish trend. Lower stock prices will freeze dividend payment plans. What comes next is enterprises that have invested in stocks will see their income fall in this sector. At the same time, they will have to set up provision for possible losses, particularly businesses in the financial sectors, such as securities companies and insurance firms.

PetroVietnam Insurance Corporation (HNX: PVI) announced its net profit of VND89 billion in Q1, a plunge of 60% year-on-year. Of this, a provision for possible price falls in stock trading worth almost VND100 billion in the period caused the company’s financial costs in Q1 to soar to VND134 billion, nearly 11 times higher than that in the same period last year. Another company, Danang Housing Investment Development Joint Stock Company (HXN: NDN) witnessed the lowest net profit in Q1 over the past four years. The declining profit was due to surging financial costs, up to VND17 billion. Of this, losses from stock investment alone accounted for VND10.7 billion and the provision for possible falling stock prices was VND11.9 billion.

Banks are no exception as a higher ratio of bad debt means they have to set up provision for credit risks. By the end of the first quarter, a draft of banks had resorted to much bigger provisional funds, which would surely adversely affect their profit. Saigon Commercial Bank (SCB) has set up a provision of VND654 billion for credit risks, a rise of 30 times higher than in the year-earlier period. Tien Phong Bank has doubled its provisional fund to VND324 billion. Likewise, Military Bank has also increased the provision twice as much. The ratio is 53% for SaigonBank and 36% for VietinBank.

Enterprise that are nurturing plans to expand to new business scope, enlarge their investment or have developed some projects also face similar problems. In the current context, calling for investment from the stock market, issuing bonds, or getting bank loans so that they can continue these projects is by no means easy. Being tougher to get money will result in a lot of projects stumbling and their relevant investors becoming moribund.

Considering all the above factors, it is understandable that the annual reports of a host of listed companies have been excluded from business plans for 2020. Dossiers prepared for shareholders’ meetings have not yet made public. If the dossiers have been made known, the section of profit target remains missing. Obviously, a profit plan too high will be unrealistic and those too low will not be convincing to shareholders and may adversely affect the stock price which has already plummeted in recent bearish trading sessions.

Needless to say, making plans which have to conform to the development of the unpredictable pandemic and an unstable business environment proves to be a splitting headache for proprietors of businesses. Each of them has to confront with numerous variables which impact industries and enterprises in various ways. That is why some of them have chosen to wait for some more time so that they can gain clearer input information of the business environment. However, as investors see it, for those who are closely monitoring operations of enterprises so as to make the right decision, such belatedness or delay may force them to be on tenterhooks.

By Trieu Duong

 

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