VIETNAM NATIONAL UNIVERSITY, HANOI

INTERNATIONAL SCHOOL

***

Financial Management (INS2007)

Full name: Lưu Ngọc Anh

Student ID: 18071020

Date of birth: 06/03/2000

Class: IB2018E

Hanoi, June 2021

SECTION A:
I. Introduction
1. General Information

Trade name: Hoa Phat Group

Abbreviation: Hoa Phat

Logo:

Founded: August 1992

Company type : Joint-stock company

Revenue (2020): 91,279 billion VND

Industry: Iron & Steel, Steel Product, Agriculture and Real estate

Headquarter 39 Nguyen Dinh Chieu, Hai Ba Trung, Ha Noi

address:

Key member: Tran Dinh Long, Chairman of the board of management.

Area served: Worldwide

Product: Construction steel, steel pipe, coke coal, agriculture, minerals, construction
machinery, furniture, refrigeration

Hoa Phat Hai Duong Steel Joint Stock Company, Hoa Phat Steel Pipe
Subsidiaries: Company Limited, Hoa Phat Hung Yen Steel Company Limited, Hoa Phat
Furniture Joint Stock Company, Hoa Phat Steel Pipe Co., Ltd Da Nang...

Service: Steel, Refrigeration and Agriculture production, Construction and sales of

real estate

Telephone: 024 628 48 666

Website : (Main website) http://www.hoaphat.com.vn

2. Financial Decision : Investment decision

One of the financial decision of Hoa Phat is investment decision in steel production.
- In 2017, Hoa Phat Dung Quat iron and steel production complex has a total
investment of VND 52,000 billion, designed with a capacity of 4 million tons a
year. The main products are construction steel, high quality coil steel. This is an
important strategic project. When it has complete, it will ensure the position of the
leading steel producer in Southeast Asia for Hoa Phat Group.
- At the Annual General Meeting of Shareholders of Hoa Phat Group (HPG) 2020
mentioned the story of investment in expanding Hoa Phat Dung Quat Iron and
Steel Complex by 5 million tons.
Statement:
Hoa Phat Dung Quat Iron and Steel Complex project has been approved by the Prime
Minister for investment policy in Document No. 152/TTg-CN, dated January 25, 2017
and granted investment certificate in Quang Ngai province by Quang Ngai province on
6/2/2017.
Circumstances:
The demand for the development of the real estate market consist of Vietnam's industrial
parks and residential real estate.
These company have taken advantage of importing cheap iron ore from the beginning of
the year which is estimated to be enough to use for several quarters.
The decision to impose a safeguard tax on billet and iron steel products by the Ministry of
Industry and Trade in March 2016 has significantly limited the competitiveness of
Chinese imported steel in the Vietnamese market.
Goal/Objective:
The first goal of Hoa Phat when continuing to invest in steel production is to maximize
profits.
The second goal of Hoa Phat is combined importing cheap iron ore and the source of raw
materials is coke which is also proactive to create competitive advantage about price.
The third goal is to extend Hoa Phat influence in Vietnam market to dominate the market
share for the southern market of Vietnam and export.
SECTION B

II. The financial principles are applied in financial decision making

1. Cash is King
Cash flows principle helps Hoa Phat know that the movements of money into and out
of business. If Hoa Phat does not apply the cash flow principle in investment decisions,
they will easily lose profits or go bankrupt because they cannot control the company's
money into and money out .

 Operating cash flow includes all cash generated by a company's main business
activities.

 Investing cash flow includes all purchases of capital assets and investments in
other business ventures.

 Financing cash flow includes all proceeds gained from issuing debt and equity as
well as payments made by the company.

Table 1

2020 (VND) 2019 (VND)

Cash from operating activities 11,587,249,912,974 7,715,168,694,116

Cash from investing activities (18,495,398,244,903) (18,064,216,043,257)

Cash from financing activities 13,696,099,298,228 4,544,900,252,204

 Table 2

The table 2 is Cash and cash equivalents. At the begin of the year, they had cash and cash
equivalents. Hoa Phat has made the investment in expanding Hoa Phat Dung Quat Iron
and Steel Complex and then pay for the expenses. The cash and cash equivalents at the
end of the year increase from 4,544 billion to 13,696 billion.

2. Return and risk trade off

Hoa Phat invests in a variety of fields that are both return and risk. The higher the risk
undertaken, the more ample the return – and conversely, the lower the risk, the more
modest the return. As a result, Hoa Phat has considered the return and risk trade-off of the
investment before they made the investment decision. If they do not apply this financial
principle, the long-term development of the company will be affected and they will have
no solution to solve the problem in bad circumstances. Only in the first quarter of 2021,
Hoa Phat Group has profit after tax reached VND 7,000 billion, which was three times
more than the first quarter of 2020. Iron and steel industry is the core business of the
Group, continuing to play a leading role, contributing 84% of revenue and 82% of profit
after tax in 2020.
 However, Hoa Phat steel is facing big risks. Firstly, the price of input materials and the
selling price of output products are factors that Hoa Phat completely depends on the
market. In the third quarter of 2020, the price of iron ore has been increasing strongly due
to a strong increase in steel production demand in the Chinese market and a temporary
shortage in supply due to the temporary closure of many iron mines in Brazil because of
the impact of the Covid-19 pandemic. By the end of August 2020, the price of iron ore
62% was about 123-125 USD/ton, up 34% compared to the beginning of the year and
55% higher than the bottom at the end of march 2020. In addition to the cost of raw
materials, the large production capacity is also a potential risk for Hoa Phat. In the
domestic market, there is a risk of oversupply in the short term. Vietnam's domestic
construction steel market consumes about 9-10 million tons/year. However, when the
Dung Quat project comes into full operation, Hoa Phat construction steel output can
supply to the market up to more than 5.1 million tons/year, an increase of 2.7 million
compared to 2019. With such a large amount of steel supplied to the market in just over 2
years, it is difficult for the domestic construction steel market to absorb immediately and
oversupply will take place. And the current reality is also showing that Hoa Phat is
having to sell excess raw billets to the Chinese market, the expected output in 2020 is up
to 1.8 million tons and the selling price of finished steel is continuously low.
3. Competitiveness
Hoa Phat applies this financial principle because it can create a competitive advantage
and reduce production costs. If Hoa Phat does not apply this principle to investment
decisions, it will be difficult for the company to compete with other companies in both
price and product quality. There are some competitiveness of Hoa Phat as follow.

Hoa Phat is currently the only construction steel company in Vietnam that have
successfully implemented closed-loop blast furnace technology from iron ore to finished
steel, a process known as upstream steel production. In addition, in terms of technology,
the advantage of the Basic Oxygen Furnace technology (BOF) which Hoa Phat is using is
its ability to consume lower power than the technology being used by most Vietnamese
steel enterprises is Electric Arc Furnace (EAF) which is lower between 10 -15%. Hoa
Phat has the ability to self-control about 40% of the electricity demand for the Iron and
Steel Complex, so it is less affected by the increase in electricity prices compared to other
companies in the industry. Therefore, although the cost of electricity accounts for less
than 5% of the cost of steel production, it also contributes to further strengthening Hoa
Phat's cost advantage compared to other companies in the industry. Moreover, Hoa Phat
is also proactive in the source of raw materials that account for 30% of the price of steel
which is coke - a product of Hoa Phat Energy Plant also in the complex. Furthermore
recently, the world price of bitum coal (a main raw material for coke production) has
dropped sharply, creating great competition for Hoa Phat steel. These factors make Hoa
Phat steel cheaper than the regional steel industry and Southeast Asia (ASEAN). This has
helped Hoa Phat attract customers to buy steel products leading to increased revenue and
profit for the company.
The following tables is show the steel price of Hoa Phat compare with another company
 Table 3

Table 4

SECTION C

We can see Hoa Phat has made a great decision when they decided to invest in Hoa Phat
Dung Quat iron and steel production complex . Alternative financial decision for Hoa
Phat is productivity performance bonus decision because of some following reasons

- Productivity performance bonuses can be gifts or “hot bonuses” when employees

do a great job or take significant improvement initiatives. It helps employees to be
more motivated especially who have reseach capability and offer optimal
solution for production process.
- It will help the company retain employees. If that employee leaves, the company
will train replace employee which waste the company's time and training costs.
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