The PAN Group (HOSE: PAN) Earnings Release 3Q/2019

The PAN Group (HOSE: PAN) Earnings Release 3Q/2019

1

GOOD GROWTH DESPITE DIFFICULITIES

THANKS TO SUSTAINABLE DEVELOPMENT STRATEGIES

1. FINANCIAL SITUATION OVERVIEW

On October 29, 2019, The PAN Group (HOSE: PAN) officially released its Consolidated Financial

Statements for the third quarter of 2019. Details as below:

Items (Unit: bil VND) Q3/2019 Q3/2018 % +/-

Net Revenue 1,981.7 1,872.6 5.83%

Gross profit 364.7 307.2 18.73%

EBITDA 408.3 353.3 15.58%

Profit after tax 115 80.9 42.17%

Gross profit margin 18.4% 16.41%

EBITDA margin 20.61% 18.87%

Profit after tax margin 5.8% 4.32%

In Q3 2019, the company’s consolidated net revenue reached VND 1,982 billion, a growth of 6% year-on-

year (YoY). Revenue from the confectionery segment was VND 386 billion (up 8.7%) and shrimp segment

was VND 1,120 billion (up 4.6%). Revenue from the plant seed segment, however, decreased by 21%,

mainly due to difficulties in the agricultural sector. Regarding the cashew and pangasius segments, the

Group continued to focus on selling deep-processing products, which helped to increase profit margins

significantly despite a decline in sales. In addition, 584 Nha Trang Seafood JSC officially became a member

of the PAN Group after the Group increased its ownership in the company from 43.2% to 73.45%. 584 Nha

Trang contributed VND 68 billion into the Group's consolidated revenue in the third quarter.

Year-to-date net revenue of 9 months reached 50.4% of the whole-year plan. Because the plan to increase

the ownership shares in Vietnam Fumigation Joint Stock Company (HOSE: VFG) to over 50% was not

implemented, VFG's revenue was not consolidated into the Group's revenue

Consolidated profit after tax in the third quarter reached 115 billion, up 42% (~34 billion) compared to the

same period last year. Although the profitability of the plant seed segment was down due to general

difficulties of this sector, good performance in the confectionery, nut and seafood segments helped to raise

the Group’s profit in general. Specifically, the after-tax profit of the plant seed segment was only VND 18

billion, down about 45% YoY while the confectionery segment grew 9.6% to VND 23.4 billion.

Pangasius segment saw a drop in revenue, but its profit still reached VND 18.8 billion, up 14% YoY thanks

to technology improvements, cost savings and acceleration of value-added goods processing. The cashew

segment continued to go in the right direction as its after-tax profit of Q3 rose to VND 4.6 billion (last Q3, it

lost VND 17 billion) and completed 91% of the year plan. Revenue of the shrimp segment also decreased

given the difficulties of the industry, but its after-tax profit reached VND 76.3 billion, up 35% (~20 billion),

and achieved 98% of the year plan. This impressive growth was the result of the concentration on

sustainable development strategies and product quality.


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In the first 9 months, the consolidated profit after tax of the Group was VND 294 billion, up 2% YoY. Profit

after tax in Q3 attributable to shareholders of the parent company was VND 71.5 billion, this had increased

strongly by 40.22% YoY and its year-to-date profit after tax was 171.6 billion, up by 4% YoY.

Items (Unit: bil VND) YTD Q3/2019 YTD Q3/2018 % +/-

Net Revenue 5,299.7 5,419 -2.20%

Gross profit 1,056.8 881.5 19.89%

Profit after tax 293.8 288.3 1.91%

Profit after tax of Parent company 171.6 164.4 4.34%

The agriculture sector in the third quarter continued to face many difficulties due to drought and climate

change, affecting crop productivity and output. In the first 9 months of 2019, rice production decreased by

nearly 460 thousand tons compared to the same period last year. Both market and price for agricultural

export were unfavorable. The sector showed no sign of recovering since its production slightly increased

by 0.74%, a lower speed than in 2017 and 2018. Agricultural enterprises continued to suffer from negative

conditions. The PAN Group, however, managed to control its productions and business activities in line

with the plan.

2. BUSINESS SEGMENT ANALYSIS

2.1. Agriculture

In the first 9 months, net revenue slightly decrease due to unfavorable market and weather

conditions; however, gross profit margin remained high thanks to high-added value products.

Market highlights:

The growth rate of the agriculture sector in the first 9 months of 2019 was down to 2.0%, the lowest level

in the last 5 years while the GDP growth rate of the economy reached 6.98%. The growth focused on

fisheries and forestry while farming experienced a slowdown because of climate change impacts and

economic restructuring.

Agriculture

Industry

Services


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Demand for rice export plummeted resulting in a significant drop in the price to the lowest level in the last

15 years (decreased by 15%-20% YoY). The low profit margin of rice production combined with the negative

impact of unusual weather have reduced the cultivated rice and vegetables areas.

Plant pest and disease outbreaks, especially seasonal acacia epidemic - a new invasive pest attacking on

corn fields. The total winter cultivated area of corn is 500 thousand ha, equal to only 50% of the same

period last year.

Operation highlights

Agricultural seed high-tech Center at Truong Xuan Industry Zone (Dong Thap Province) was completed

99% and expected to be operational in December 2019. The center has 2 factories: an agricultural seed

processing factory with an annual capacity of 30,000 tons (increase by 40%); and rice processing factory

with an annual capacity of 30,000-40,000 tons which is FSSC22000 standard qualified.

Despite continuous and unpredictable climate change, R&D activities of the PAN Group have been making

steady progress. By Q3/2019, PAN has been approved for official production of new rice varieties VNR-10,

and VNR-20. The new varieties offer high yields and disease resistance. In addition, the company is working

with many prestigious foreign partners to develop new hybrid rice, corn and vegetable varieties. These

activities ensure the company the ability to diversify and improve its products and meet the market demand.

Business results

The business results of the seeds segment in the first 9 months are as follows

Items (Unit: billion VND) Q3/2019 Q3/2018 %

Seeds Segment

Net Revenue 972.3 1,057.7 -8%

EBITDA 208.4 224.7 -7%

Profit after tax 132.9 156.4 -15%


Net profit margin 13.6% 14.7%


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As negative impacts of unusual weather and market condition, PAN's net revenue in the seed segment

decreased slightly by 8% YoY. Along with the widespread drought since the second quarter, in this quarter

the Mekong Delta region has to suffer from saltwater intrusion and the seasonal acacia epidemic on corn

fields. As a result, the total winter cultivated area of corn reduced by more than 50% compared to the same

period last year.

Despite the decline of net revenue, gross profit margin remained at the same level (36%) while net profit

margin dropped because in 2019 SSC no longer got the tax incentive rate of 10%, resulting in higher

business income tax.

Business prospect:

In the context of the slowdown in the agriculture sector, the growth of PAN’s seeds segment was temporarily

affected however it still maintains its market share and high profitability. The company have nearly 20% of

the market shares in the Mekong Delta region, a very strategic market.

The fourth quarter is usually the peak business season, focusing on sales for the winter-spring crops. The

output for the last quarter normally accounts for 30 - 40% of the whole year. Therefore, if the market situation

is more favorable, the seed segment’s business result in 4Q and the whole year would be more positive.

Long term business prospects of the company’s seeds segment is very promising because of its R&D ability

and the new CSVC system.

2.2. Aquaculture:

Market highlights:

Aquaculture still face with many difficulties. Export volume of its two main products (shrimp and

pangasius) declined in the first 9 months of 2019.

Pangasius: Vietnam's pangasius export has decreased for the 7th consecutive month in 2019, raw

pangasius price remained low while the volume leveled off.

In the first 9 months of 2019, Vietnam's pangasius exports dropped 8.5% YoY, reaching USD 1.46bn, and

equivalent to 65.5% of the annual forecast (USD 2.23bn). The forecast was updated in July 2019 by VASEP.

Market Q3/2019 %YoY

China 419,749 21.9%

EU 189,361 7.3%

US 208,385 -43.6%

ASEAN 147,569 1.4%

Brazil 41,303 -26.4%

Mexico 70,365 4.7%

Colombia 35,213 -20.8%

Japan 24,939 2.6%

Others 323,809 -12.2%

Total 1,460,693 -8.5%

Source: VASEP


5

Source: Agromonitor, VASEP

Raw pangasius price remained low during the third quarter of 2019, now reaching the level of VND19,500-

20,500/kg. The sustained low price has led to a slowdown in production volume. Furthermore, this time of

the year is not farming season. In the first 9 months of 2019, pangasius farming volume reportedly reaches

110,700 tons.

Low price of raw pangasius input has caused breeding stock price to decline, around VND 19,600/kg.

Preliminary results of the anti-dumping tax on pangasius products to the US indicates the rate decreased

to USD 0/kg. According to the Vietnam Ministry of Industry and Trade, The US Department of Commerce

(DOC) announced its preliminary decision on the 15th anti-dumping tax review on Vietnamese Pangasius

products (POR15) for the period from 1st August 2017 to 31st July 2018. Tax rates for mandatory and

voluntary defendants at 0 USD / kg; while the national tax rate is 2.39 USD / kg. This tax is much lower

than the final result of the previous review (POR14) with the tax rate ranging from 1.37 USD / kg - 2.39

USD / kg. According to the announcement, the DOC will issue its final decision within 120 days from the

date of the preliminary results (February 2020).


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Shrimp: Export continues to decline however raw shrimp input price recovers

In the first 9 months of 2019, Vietnam shrimp export decreased 7.1% YoY, reaching USD 2.4bn. It had a

recovery in July (+13.6% YoY) after the first half of 2019 had negative results. However, it then continued

to decline in August and September 2019.

Exports to China, Australia and Taiwan increased by 12.4%, 7.3% and 13.9%, respectively. However, the

increases could not offset the declines in other important markets such as EU (-20.8%), Japan (-1.9%) and

Korea (-13.6%).

Unit (Billion USD) 9M2017 9M2018 9M2019 18-19 +/- YoY

EU 584 648 513 -20.8%

England 138 176 150 -14.4%

Netherlands 142 159 94 -40.8%

Germany 82 98 92 -5.8%

Others EU countries

222 216 177 -18.2%

US 488 472 477 1.0%

Japan 514 453 445 -1.9%

China 431 278 313 12.4%

Others 133 121 174 43.7%

Total 2,733 2,621 2,434 -7.1%

Source: VASEP

Source: VASEP

White shrimp price has a tendency to increase again in the third quarter of 2019, mainly due to scarcity of

raw materials while this is the peak season of processing plants.


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Source: Agromonitor

Business results:

Export of Pangasius and Clam: affected by falling demand and raw materials price and planned

reduction in clam production.

PAN’s net revenue of pangasius and clam in the first 9 months of 2019 decreased 2.7% YoY. In the context

of declining demand, this reduction is much lower than the general market’s fall.

The export volume was 3,756 tons, reaching 86% of the same period last year, as a result of focusing on

pangasius and planned reduction in clam production. Export of pangasius accounted for the largest

proportion with 77.5%, the proportion of clam export has decreased to 20.7%. Thanks to the strategic focus

on high value-added products and quality improvement, the company could keep selling prices at relatively

high ranges, while being less negatively impacted by declining market. The average selling price of

pangasius reached USD 3,673/kg (+4.07% YoY), which is higher than the average price on the market.

Unit (Billion VND) 9M2019 9M2018 %

Pangasius and clam export

Net revenue 299.7 308 -2.7%

Net profit 45.2 54.8 -17.5%

EBITDA 57.7 72.6 -20.6%



Net profit for the first 9 months of 2019 reached VND 45.2bn, decreased 17.5% YoY. Net profit margin

declined to 15.1%, mainly due to the increase of fingerling’s price, leading to higher cost of goods sold.

Export of shrimp: profit continue to grow

In the first 9 months of 2019, net profit of shrimp exports increased remarkably by 41.2%YoY, making net

profit margin jump to 6.1%. EBITDA was VND 237bn, and the EBITDA margin reached 8.6%, a growth of

1.8% compared to the same period last year. The main reason of the impressive result was the accurate

market trend forecast of the company’s managers by focusing on high demand products and strategic

markets which are affected by US-China trade war. In addition, demand from Japanese market increased

because of the Olympic 2020. Therefore, PAN’s shrimp revenue continued to grow despite the declining

market.

65,000

75,000

85,000

95,000

105,000

115,000

125,000

VND'000/kg

Soc Trang White shrimp price from 1/2017 to 9/2019


8

Unit (Billion VND) 9M2019 9M2018 %

Shrimp export

Net revenue 2,748.3 2,828.4 -2.8%

Net profit 168.1 119.1 41.2%

EBITDA 237.0 191.2 24.0%



Net revenue slightly decreased 2.8% YoY while sale volume increased by 4.3%, reaching 10,974 tons. The

revenue was negatively affected by the falling prices in the global export market, which declined 7.6% to

USD 10.4/kg. Japan continued to be the largest export market, generating 33% of total revenue (VND

909bn) while the US market, accounting for 20%, brought VND 554.6bn of revenue for the company.

Business prospects:

Pangasius export: Profitable opportunity from the sharp drop of input fingerling price. At the moment, the

price was down to VND 18,000-20,000/kg, which is expected to affect positively on PAN’s business result

in the last months of 2019 and beginning of 2020. In addition, preliminary results of the anti-dumping tax

on pangasius products to the US which indicates the rate decreased to USD 0/kg also supports the market’s

growth.

Furthermore, the group’s strategies focus on (1) hatchery technology, which helps the company self-supply

the source of high quality fingerling inputs and (2) facilities investment, which helps the company to expand

production scale and efficiency.

Shrimp export: According to VASEP, shrimp exports to US, China and Japan markets tend to be more

positive in the last months of 2019 when the inventories decreased. However, exports to EU have not

recovered yet. The selling price of Vietnamese frozen shrimps is not competitive with products from India

and Ecuador, which caused great pressure on Vietnamese businesses. According to an interview with

Agromonitor with some companies, shortage of raw materials has limited the production capacity and

restricted the ability to sign new contracts with customers in the last months of the year.

In the context of a declining market, although PAN’s revenue from the shrimp segment was slightly down,

it still earned positive results with sale volume increasing compared to the same period last year. It is

expected that the company will exceed its profit plan for 2019.

The company has also actively expanded its production capacity for the coming years. Cold storage with a

capacity of 6,000 tonnes is expected to be in operation in the first quarter of 2020. In addition, the investment

in new high-tech shrimp farms with an area of 83ha was approved by The People's Committee of Soc Trang

Province. The project will start in October 2019 and go into operation by May 2020.

2.3. Food Sector:

2.3.1. Confectionery

Market update

FMCG industry has grown positively in the first 9 months of 2019, especially in rural areas

According to Kantar, in the third quarter, the FMCG industry in urban and rural areas had average growth

rates of 5.1% and 10.1%, respectively. In addition, retail sales of consumer goods in the first 9 months of

2019 also increased by 12.6% over the same period last year. This sales growth stems from the stability of

the economy and is reflected in the consumer confidence index (CCI). GDP from the first 9 months of 2019


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reached 7.0% while the average inflation of the first 9 months of 2019 increased by 2.5% compared to the

same period of 2018 and remained at the basic level. Inflation is expected to stabilize at 3.3% - 3.5% in

2019. Meanwhile, the consumer confidence index (CCI) in the second quarter of 2019 reached 123 points,

recording the fourth highest result in the world after India, the Philippines and Indonesia. The consumer

confidence index reflects the optimism about the financial situation of consumers as well as the willingness

to spend of Vietnamese people.

FMCG industry’s growth rate in urban area (%) FMCG industry’s growth rate in rural area (%)

Source: Kantar The trend of consuming healthy products.

According to a survey from Nielsen, in the second quarter of 2019 health is the most serious concern of

Vietnamese people with the percentage of up to 44%. This means that consumers increasingly prefer

products with health benefits. Catching this trend, the companies in the Group have been developing many

high-quality products for health such as mixed nuts, dried vegetables, cakes for diabetics, herbal candy

Calytos and probiotic candy Huro and so on.

Concerns of Vietnamese Rates of healthy product preference of Vietnamese

Source: Nielsen

Modern Trade (MT) channel and e-commerce channel had a remarkable growth.

MT and e-commerce account for only 3% of FMCG's market share in urban areas and 3% of market share

in rural areas, but have a remarkable growth in the third quarter of 2019 compared to the same period last

year. This growth can be attributed to the improved economic conditions, the rapid pace of urbanization

2.0%3.2%

5.1%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Q1

2017

Q2

2017

Q3

2017

Q4

2017

Q1

2018

Q2

2018

Q3

2018

Q4

2018

Q1

2019

Q2

2019

Q3

2019

%Giá trung bình %Khối lượng % Giá trị% avg price

3.6%

6.5%

10.1%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Q1

2017

Q2

2017

Q3

2017

Q4

2017

Q1

2018

Q2

2018

Q3

2018

Q4

2018

Q1

2019

Q2

2019

Q3

2019

42%44%

22% 21%

9%

Công việc Sức khỏe Cân bẳng cuộc

sống

Kinh tế Phúc lợi &

giáo dục

Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Work Life balance

60%

53%

52%

48%

38%

37%

Không phẩm màu

Ít chất béo/không chất béo

Không chất tạo vị

Ít đường/không đường

Hữu cơ

Không GMO

% KL

% volume % value

Health Economy Welfare & Education

Less/ no sugar

Organic

GMO-free

Less/ no fat

Food dye-free

GMO-free


10

and the young population structure. Nowadays consumers tend to choose modern shopping channels

instead of traditional ones, thanks to the convenience and increasing store density of modern channels,

especially in urban areas. The development of modern shopping channels and e-commerce have created

many opportunities to reach consumers and entail distribution companies.

Market shares of sales channels in urban area Q3/2018 vs Q3/2019

Growth rate of sales channel in urban area Q3/2019 compared with the same period

Source: Kantar

Market shares of sales channels in urban area Q3/2018 vs Q3/2019

Growth rate of sales channel in urban area Q3/2019 compared with the same period

Source: Kantar

Business Result

Item (unit: bil. VND) Q3.2019 Q3.2018 %Increase/

Decrease 9M2019 9M2018

%Increase/ Decrease

Net Revenue 385.8 355.0 8.7% 891.6 860.1 3.7%

Profit after Tax 20.1 21.3 -5.6% 44.2 46.8 -5.6%

EBITDA 36.3 35.9 1.1% 85.3 90.2 -5.4%

LNST Margin 5.2% 6.0% 5.0% 5.4%

EBITDA Margin 9.4% 10.1% 9.6% 10.5%

33%

21%9%

9%

14%

6%3%5%

CH bách hóa Tiệm tạp hóa nhỏ

Chợ truyền thống CH chuyên doanh7%

-4%

-1%

11%

7%

19%

24%

CH bách hóa

Tiệm tạp hóa nhỏ

Chợ truyền thống

CH chuyên doanh

Siêu thị

CVS

Online

11%

64%

14%

3%5%

Cửa hàng bách hóa Tiệm tạp hóa nhỏ

Chợ truyền thống Cửa hàng chuyên doanh

Siêu thị Khác

25%

6%

1%

52%

38%

Cửa hàng bách

hóa

Tiệm tạp hóa

nhỏ

Chợ truyền

thống

Cửa hàng

chuyên doanh

Siêu thị

Grocery store

cery store Mom-and-pop store Specialized store

cery store

Market

Market

Specialized store

cery store Mom-and-pop store

Grocery store

cery store

Market

Specialized store

cery store

Mom-and-pop store

Supermarket

Grocery store

Market

Supermarket

Mom-and-pop store

Grocery store Market

Specialized store

Other


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Business result of confectionery segment remained stable in the first 9 months of 2019

The revenue of confectionery segment in the first 9 months reached VND 891.6 billion, increasing 3.7%

over the same period and gaining 55.7% of the plan. Profit after tax decreased slightly by 5.6% to VND

44.2 billion. Particularly in the 3rd quarter, the confectionery segment had positive results with profits from

main business activities increasing by 9.4% over the same period. Especially, gross profit margin reached

36.0%, withan increase of 3.9%, showing that production costs are managed effectively. Indeed, the Group

is aiming to develop product groups with high profitability.

The confectionery segment is constantly refreshing its image by diversifying advertising programs such as

discovering the world of confectionery, Smart packaging, Gift accumulation program etc. and is boosting

the development of neư products. Though this in turn leads to the increase in costs including advertising,

display, commission and sales bonuses, the results are very positive. Typically, the product line of Mochi

cakes was successfully launched in the Mid-Autumn Festival in 2019, helping the revenue from mooncakes

increase by 10% over the same period. The product line of breakfast bread has been well received in the

North market and will be widely expanded in the South market in the fourth quarter. In addition, the Group's

products have also begun to be well received in high-end markets such as Dorati sponge cake, which has

been successfully exported to Japan.

Business Prospect

Tet holiday, the peak time of the year for confectionery is coming. After the end of the Mid-Autumn

Festival in Q3, the Company will launch Tet products in the 4th quarter. The price of special products for

the Tet is 30-50% higher than the price of normal ones, will contribute about 19% of total revenue.

Bibica factory in the Mekong Delta region goes into operation. On October 10, 2019 Bibica factory in

the Mekong Delta region inaugurates and goes into production with two new product lines, which are wafer

Roppy and cracker Lurich. It is expected that in the fourth quarter the factory will produce about 1,000 tons

of a variety of product lines including sugar crackers, vegetable crackers, cheese-coated crackers, cream

wafer and cinnamon cream wafer. Simultaneously, this Bibica factory is digitalizing its operation, aiming to

automatically collect production data as well as the QA / QC data, to transfer them into the system SCADA

and to export direct reports. This is a solution to improve production capacity in the context of the majority

of confectionery lines operating at full capacity.

2.3.2. Nuts

Market Update

5,000

6,000

7,000

8,000

9,000

10,000

11,000

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

T1

/20

17

T2

/20

17

T3

/20

17

T4

/20

17

T5

/20

17

T6

/20

17

T7

/20

17

T8

/20

17

T9

/20

17

T1

0/2

01

7

T1

1/2

01

7

T1

2/2

01

7

T1

/20

18

T2

/20

18

T3

/20

18

T4

/20

18

T5

/20

18

T6

/20

18

T7

/20

18

T8

/20

18

T9

/20

18

T1

0/2

01

8

T1

1/2

01

8

T1

2/2

01

8

T1

/20

19

T2

/20

19

T3

/20

19

T4

/20

19

T5

/20

19

T6

/20

19

T7

/20

19

T8

/20

19

T9

/20

19

Average Export Price and Export Volume of Cashew Nut Jan/2017-Sep/2019

Sản lượng xuất khẩu Giá xuất khẩu (FOB)

USD/tonTấn

9M2018: FOB price USD 9,432/ton9M2019: FOB price USD 7,319/ton

Export volume Export price (FOB)


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- Export price of raw cashew nuts continued to decrease significantly, despite a slight recovery in

September 2019.

- In the first 9 months of 2019, Vietnam's cashew industry exported 325,000 tons of cashew nuts with a

total export value of US $ 2.4 billion, increasing by 20.1% in volume but decreasing by 6.8% in value

compared to the same period in 2018.

Business Result

- Nut segment continues to have positive business results in the peak season. In the first 9 months of

2019, it recorded a revenue of VND 273 billion, a decrease of 21% compared to the same period in

2018, but the EBITDA margin and net profit margin both improved significantly thanks to the change in

revenue structure in which the rate of high value-added products with better profit margins increases

- In the context that cashew kernel price continues to decrease, the Group's orientation keeps focus on

developing high value-added processing product lines of nuts.

- In the first 9 months of 2019, the value-added processing nut business reached VND 179 billion,

accounting for 65% of the total nut business, increasing by 37% over the same period. Meanwhile,

cashew business decreased sharply to VND 84.6 billion, equivalent to a decrease of 60% over the

same period. The Group limited cashew business activity in order to minimize risks due to sharp

fluctuations in cashew export price.

- In the first 9 months of 2019, the Group's nut business has completed 50.6% of the revenue plan

and 82% of the profit after tax plan.

Item (bil. VND) 9M2019 9M2018 % 9M2019/plan 2019

Gross revenue 273 346 -21% 50.6%

EBITDA 18.3 (39.7)

Profit after tax 10.30 (44.90) 82.0%

EBITDA margin 6.7% -11.5%

Profit after tax margin 3.8% -13.0%

Nut Business Prospect

- Quarter 4 is the peak one for the Group's export of high value-added cashew, which is expected to

bring significant revenue and profit.

- In addition to the main product of cashew nuts and mix product of different nuts including cashew nuts,

almonds, walnuts and so on, the Group is researching to develop dried fruit products to increase sales

during the low season of nut business and also to diversify its product portfolio.

2.3.3. Daily Food

Business Result

- The daily food segment grows slightly. In details, the third quarter's revenue reaches 49 billion VND,

increasing by 4% compared with the same period last year. In the first 9 months of 2019, this segment

recorded VND 141 billion in revenue, which is 1.8% higher than the same period last year. The growth

is attributed mainly by the drink sector with high-protein products with an increase of 1.7% and medium-

protein products with an increase of 3.9%


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- EBITDA margin in the first 9 months of 2019 reached 10.3%, decreasing by 1.8% compared to the

same period last year, mainly due to the increasing cost of raw materials for fish sauce production.

- Fish sauce industry has completed 65.1% of the sales plan for 2019.

Business Prospect

- In 2019, the company continues to increase investment in Ca Na port to boost the capacity of fish sauce

brewing and simultaneously to increase the investment in the bottling plant in Khanh Hoa. The project

is expected to double the current capacity from 7 million bottles/year to 15 million bottles/year.

- Through PAN CG's distribution network, the fish sauce sales are expected to enhance in the near

future, especially in the peak quarter of the year.

2.4. Distribution sector:

Business activities

Item (unit: bil. VND) 9M2019

Net revenue 293

Profit after tax 6.9

EBITDA 8.6

Profit after tax margin 2.3%

EBITDA margin 2.9%

The distribution segment begins to achieve its plan after 3 months of operation.

The 9 months' revenue of the distribution segment was VND 293.0 billion, of which more than 70% of

revenue came from GT channel. In the first phase, GT channel is the main sales channel. The company is

on track developing MT, Export, Key Account and other channels including schools, industrial zones and

e-commerce. Despite being in operation for only 3 months, not even in the peak season yet, the distribution

segment has started to reach the plan and is now very close to the average revenue target of 150 billion

per month. The number of selling points increased by 10% compared to the time when it was put into

operation, which is July 2019.

The company has built an experienced sales team of 800 employees. The number of employees is always

kept on balance to ensure both sales performance and cost effectiveness.

Business prospect of distribution sector

Diversified product distribution from Q4. In the first 3 months of operation, confectionery is the main

product to be distributed. From the 4th quarter, the Company will proceed to promote the distribution of

other products in the Group such as rice and fish sauce, expecting to boost sales significantly for

manufacturing companies in the Group. In the scope of the plan to distribute rice and fish sauce in the

fourth quarter, there is training for salespeople on product and sales policy, developing a national pricing

strategy and setting up a distribution plan.

3. PROSPECT AND DEVELOPMENT POTENTIAL IN 2019:

Due to the seasonal factor of the business sector of agriculture and food, PAN's main business cycle is in

the last quarter of the year, so PAN continues to expect outstanding business results from the last quarter.

There are significant highlights as below:


14

- Bibica Confectionery Factory in Mekong Delta region, which is worth VND 539 billion and has phase I

capacity of 10,000 tons per year, inaugurates and comes into operation in early October 2019. This is

the first new factory of Bibica after a long time of stable operation. With the area of 50,000m2 in Vinh

Loc 2 - Long An Industrial Park and equipment and technology imported from Europe and the US, the

factory is expected to have positive influence on business results of the Group in the fourth quarter.

- Truong Xuan Industrial Complex Project (Dong Thap) worth VND 342 billion producing rice and rice

varieties with the most modern technology in Vietnam is in the final stage of completion and is ready

for inauguration and trial operation in November 2019.

- The synergistic effect deriving from the launch of PAN Consumer Goods Distribution Joint Stock

Company (PAN CG) increases the expected revenue to VND 3,000 billion per year, which estimated

helps BBC / Pan Food grow 50% of its revenue next year. Along with this, business efficiency is also

improved thanks to the cost optimization in distribution and storage.

- The increase FMC’s farming area from 90 ha to 160 ha helps to complete the closed production chain,

to optimize production cost and to increase the value of the product.

- The increase of the ownership rate in Vietnam Fumigation JSC (VFC) to over 50% helps to consolidate

revenue and profit.

PAN's development steps during this period focus on investing in core business activities with high

efficiency and strictly comply with the vision and mission which are to become the leading regional group

in the field of Agriculture and Food, to provide reliable products, to continuously strive to improve the quality

of products, service values, to enhance the Vietnamese agriculture standard, and to bring value to

customers and investors. The Management Board believes that the company will achieve the business plan

set for 2019./.

The PAN Group (HOSE: PAN) Earnings Release 3Q/2019

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Transcript of The PAN Group (HOSE: PAN) Earnings Release 3Q/2019