CENTRE FRANCO-VIETNAMIEN DE FORMATION A LA GESTION MBA - INTAKE 20

CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITIES

TERM PAPER TOPIC

CORPORATE GOVERNANCE ANALYSIS OF DRY CELL AND STORAGE JOINT STOCK COMPANY (PINACO JSC)

Instructor: Prof. Dr. Truong Thi Nam Thang Group members: Nguyen Quoc Bao Nguyen Mai Lan Nguyen Minh Dang

Ho Chi Minh City - Mar 03rd, 2012

CORPORATE GOVERNANCE ANALYSIS

Corporate Governance Scores are articulated on a scale from 1 (lowest) to 100 (highest) and express CFVG students opinion of the extent to which a company adopts and conforms to codes and guidelines of good corporate governance practices that clearly serve the interests of its shareholders and other financial stakeholders. We also evaluate component scores for the following aspects: Shareholders and meeting of shareholders: 35 maximum Board of Directors: 34 maximum Supervisory Board: 8 maximum Financial Transparency and Information Disclosure and Audit: 23 maximum

Company: Dry Cell and Storage Joint Stock Company Transaction Name: PINACO Industry: Electronic Equipment Country: Vietnam Listed: Ho Chi Minh Security Exchange (HOSE) Ticker: PAC Company composite governance score: 63/100 Rank: Fair Shareholders and meeting of shareholders: 23/35 Board of Directors: 19/34 Supervisory Board: 6/8 Financial Transparency and Information Disclosure and Audit: 15/23

EXECUTIVE SUMARY
Applying the Truongs CG scoring , our group has assigned Dry Cell and Storage Battery JSC the Vietnamese leading company in battery production a score of 63 (maximum 100). It reflects the fair standard in corporate governance of the Company in overall. We have assigned PINACO a score of 23 (maximum 35) for its shareholders rights, ownership structure as well as the Annual General Meeting aspect. We positively believe that the Company remains a good relationship with its shareholders. However, the company is still partly a state-run company in terms of ownership since the states share accounts for more than a half. Regarding the meeting, the Company has created and maintained positive procedures for preparation and information disclosure. Shareholders are well-informed about all the appropriate reports from the BOD. The main reason for the fair standard in this aspect results from the bad performance of the Supervisory Board when there is no evidence for their activities and reports in the meeting. Thus, all the facts and figures from the BOD and BOM, their cooperation within the organization could not be analyzed in a quantitative and qualitative manner. PINACO receives a score of 19 (maximum 34) for the Board of Directors structure and process. PINACO has maintained a simple governance structure without any sub-committees under BOD. All regulations and procedures of BOD composition, selection process, their operation, remuneration have been clearly stated out in the Companys Charter which is in line with Vietnamese laws of charter standard requirements. The negative aspects in the structure still exist due to many bad customs remaining since the state-run period, involving in no performance clarification, no ethic commitment, no successors plan, unrevealed remuneration decision. The Supervisory Board of PINACO has been assigned a score of 6 under the maximum of 8. The roles and functions of the Supervisory Board are obviously stipulated in the Charter. The main down-trend feature is there is no clear evidence for the actual and realistic activities of the Board. The Company needs to include the Supervisory Boards report into the AGM. The financial transparency and information disclosure and audit gets a total score of 15/23. We strongly believe that PINACO has made efforts to publish and reveal all appropriate information to shareholders. However, the Company should enhance the information updating and upgrading in the English version for all shareholders understanding. Regarding the audit activity, PINACOs external auditors should focus in the audit task rather than non-audit service.

The theory basic for our evaluation is the Truongs CG Scoring for Vietnamese listed companies. For more details about the criteria and methodology of the evaluation, please refer to the latest information from the website of the scoring author of National Economics University. Dated: Mar 03, 2012 Evaluation data period: Before Dec 31, 2010.

TABLE OF CONTENT
1. OVERALL PROFILE OF PINACO JSC: ................................................................... 1 2. SHAREHOLDERS AND MEETING OF SHAREHOLDERS .................................. 2 2.1. Shareholders aspect .............................................................................................. 2 2.2. Meeting of Shareholders ...................................................................................... 3 2. 2.1 Meeting of Shareholders general assessment ................................................ 3 2.2.2 Report of the BOM and the Supervisory Board of PINACO JSC.................. 3 2.2.3 Report of the Supervisory Board .................................................................... 4 3. BOARD OF DIRECTORS - STRUCTURE AND PROCESS ................................... 5 3.1. BOD Structure ...................................................................................................... 5 3.2. BOD Composition ................................................................................................ 6 3.3. BOD Members ..................................................................................................... 6 3.4. Regulations and Standards for BOD Operations ................................................. 6 3.5. BOD Information Disclosure ............................................................................... 6 3.6. BOD Remuneration Package ............................................................................... 7 4. SUPERVISORY BOARD ........................................................................................... 8 5. FINANCIAL TRANSPARENCY AND INFORMATION DISCLOSURE AND AUDIT ............................................................................................................................. 9 5.1. Financial Transparency and Information Disclosure ........................................... 9 5.2 Auditing............................................................................................................... 10 6. BREACHES AND PENALTIES .............................................................................. 11

Corporate Governance Score: PINACO JSC

1. OVERALL PROFILE OF PINACO JSC:

Dry Cell and Storage Battery Joint Stock Company (Pinaco JSC or the Company HOSE: PAC) is one of the leading batteries production company in Vietnam. It was established by the nationalization of several batteries factories in the southern regions of Vietnam in 1976. During the time of rapid economic growth of the 90s and up until now, Pinaco JSC has gradually captured a major stake in the Vietnamese batteries market of more than 50%. The core business of the Company is the production of batteries and dry cell batteries, which are distributed through a combined sophisticated system of well more than 200 stores national wide and traditional distributing channels. The Company has also operated several batteries production factories with high capacities mainly in the Southern provinces and expanded new export market globally. The factories are as follow: Dong Nai battery factory with production capacity of 500,000 kwh per year. Sai Gon battery factory with production capacity of 500,000 kwh per year. Eagle Dry Cell factory with production capacity of 250,000 kwh per year. A new factory is currently under construction in Dong Nai Nhon Trach industrial zone with planned production capacity of 2,000,000 kwh per year.

Table 1: Summary of Financial Information of PINACO JSC for the period of 2007 - 2011 End of fiscal year Dec 31 Revenue(billions VND) EBT (billions VND) Net profits (billions VND) EPS(in VND) EPS Growth (percentage) PER EV/EBITDA Yield (percentage) 2007 989.8 81.5 44.9 2,719 107.9 18.9 6.2 na 2008 1241.2 165.1 77.8 3,933 44.6 13.1 6.4 2.9 2009 1304.8 271.7 147.8 8,328 111.8 6.2 3.9 5.8 2010 1461.4 284.4 109.4 5,348 (35.8) 9.6 4.3 2.9 2011 1636.7 278.2 144.8 5,830 9.0 8.8 3.3 2.9

There are currently 3 substantial shareholders of the Company, of which the Vietnam National Chemical Company claims for 46.7% of shares and is, by default, the Companys major shareholder. The other two substantial shareholders are KITM and Vietnam Holding, which claim for 7.1% and 4.5% of shares, respectively. The remaining shares of the Company are available for public trading at Hochiminh Stock Exchange (HOSE).

Corporate Governance Analysis CFVG MBA20

Corporate Governance Score: PINACO JSC

2. SHAREHOLDERS AND MEETING OF SHAREHOLDERS

PINACO JSC scores fairly high on this particular aspect with major improvement across the board compared to several prior years. The key discussion will focus on:

2.1. Shareholders aspect

We consider this aspect as one of the critical issues for an economic entity in keeping a healthy and mutually beneficial relationship with its shareholders. As a result, without taking due diligence of this aspect, the Company may face a lot of difficulties in its economic life, mainly from a Corporate Governance standpoint. As such, the initial ratings focus on issues such as: Purchasing and exchanging shares among stakeholders. Availability of shares to foreign investors Plans for IPO in major stock exchange centers in foreign countries. Accordance and relevancy of the companys charter compared to the standard charter. Management regulations and its sub sections aspect.
SHAREHOLDERS AND MEETING OF SHAREHOLDERS Score:

23/35

Shares of the Company are available for access and trading through HOSE since the company initiated its IPO on 2009. The accessibility and availability of the Companys vital information is consistently high, which can be effortlessly retrieve through the homepage of Pinaco JSC and other public domains. The Company offers a portion of its common shares for foreign investors, which is favorable in terms of additional beneficial effects for its future operations. Pinaco JSC also follows its charter and management regulations accordingly reflected in the high score in this section and the sub sections. The charter and the management regulations are other two of the strong points of the Company. The charter of the company was constructed regarding closely to the Vietnamese Standard Charter. The management regulations section and its subsequent sub sections are details and sufficient. Within these sub sections, Pinaco JSC scores are positive consistently throughout the major criteria. This practice assists the company in its Corporate Governance compliance and ensures the proper relationship with its shareholders and the benefits to all the parties related. However, our major concern with the Company resulted from 2 different issues. First issue is that the company still has no plan to initiate the Initial Public Offering in foreign countries. Although the IPO largely depends on the nature of the Company and its Modus Operandi, a lack of foreign IPO may result in lower confidence in potential investors. Moreover, the Company does not specify the shares threshold for identifying major shareholders, which is the second issue. Due to a lack of this particular threshold, shareholders with more than 5% of stakes are less likely to initiate any meaningful contribution to the Companys management and operations. In conclusion for the shareholders aspect, we believe that Pinaco JSC has maintained a strong relationship with its shareholders by providing them the ease of access to the

Corporate Governance Analysis CFVG MBA20

Corporate Governance Score: PINACO JSC

Companys information and policies. However, there are some minor shortfalls that would surely hamper this relationship to some certain extends if the Company fails to fix them in a timely manner.

2.2. Meeting of Shareholders

In this section, the focus is fixed on 2 critical aspects, which are: 1. General assessment of the Meeting from the general shareholders standpoint. 2. The quality of information provided to the shareholders by the Board of Management (BOM) and the Supervisory Board (SB) of PINACO JSC.

2. 2.1 Meeting of Shareholders general assessment

In terms of the Shareholders Meeting preparation and method of execution, we take notices of the initiative and the procedure, of which the Company employs to announce the Meeting to the Shareholders. During the process, we will justify and scale the overall effectiveness of the pre Shareholders Meeting in the following aspects: Duration between the fiscal years end and the Shareholders Meeting. Duration between preparing letters of notification and the Shareholders Meeting. Forms, formats and appropriateness of the communication process prior to the Meeting. Announcement of the Voting procedures and execution. Allowing voting delegation and cumulative voting.

In term of availability, the Company does its due diligence to inform the shareholders the time of meeting through various appropriate channels via individual inquiry letters, email, the Company website, and public domains. The time treatment for the Meeting Shareholders is another positive aspect, which ranges from 10 20 days until the Meeting. However, the Company should lower the number of days preparing for the Meeting after the end of its fiscal year since the duration is abnormally high (more than 90 days) compared to standard practices. Furthermore, we also took notices that the preparing for the Meeting has placed high priorities to the shareholders by observing several positive factors. One of which is that the regulations for voting are provided accurately and appropriately in advance in order to keep the voting session unbiased. Another aspect is the standard practice of cumulative voting and the delegating voting right through representatives are enacted to ensure the right of minor shareholders. Although given the majority of shares (46.7% of total) is claimed by the Vietnam National Chemical Company, this practice has a low probability of carrying any significant impact; we still take into consideration the appropriate steps that Pinaco JSC has made to ensure the rights and the benefits of the shareholders, individually.

2.2.2 Report of the BOM and the Supervisory Board of PINACO JSC
Our assessment of the Companys report is positive. The report is details and contains sufficient information in order to assess the companys performance throughout the period. The report contains the entire sub section criteria specified in the standard and it also has

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Corporate Governance Score: PINACO JSC

additional information for the benefits of the shareholders, all in an appropriate manner. These criteria include as following: Overall review of companys operations. Result of companys operations and financial status. Result of monitoring BOD and executives performance. Reviewing collaboration among BOM, BOD, Supervisory Board and shareholders.

The Company has taken into consideration the transparency and the quality aspects of its disclosure to the shareholders. The Company also takes responsibility in posting the Final Resolution of the Shareholders Meeting on the homepage. The whole process of elaborating closely to the standard of Corporate Governance has earned a high mark on our scale.

2.2.3 Report of the Supervisory Board

Another important aspect of the Meeting is the report of the Supervisory Board, which announced after the report of the BOD. The Supervisory Board, by default, is an independent board which ensures the close monitoring of the BOD in many aspects. We strongly believe that with a strong, self sufficient and independent Supervisory Board, the Company would maintain a solid background in the Corporate Governance aspect. As such, we will conduct our assessment based on the following priorities: Activities of Supervisory Board. Minutes from the meeting of the Supervisory Board. Result of monitoring operations and financial status of Pinaco JSC. Result of performance from members of BOM and BOD. Reviewing collaboration among BOM, BOD, Supervisory Board and shareholders.

Regrettably, this is the aspect that the Pinaco JSC has failed to comply with the norms and standards. Overall, the Companys Supervisory Board did not show any positive initiatives, nor did it show any significant influence and positive impacts on the whole organization structures. We consider this issue to be unprofessional and not in accordance with the Companys charter. Initially, our assessments immediately noticed the absence of the Supervisory Boards report. This part is considered to be critical by common practices, yet the whole AGM report does not contain any assessment from the Supervisory Board. The impact of this decision is immensely negative and therefore, has resulted in negative reviews across the whole spectrum in this particular section and sub sections. We will go into details and analyze the possible outcomes. Without the report, logically speaking, the Supervisory Board has not proven its competency and its capability in monitoring the operations of Pinaco JSC as a whole and as individually. Furthermore, the Supervisory Board fails to show its initiative in fulfilling the main functionality of ensuring the Company to follow its chapter, bylaws and the Corporate Governance aspect on a strategic level. Finally and most importantly, the lack of the report

Corporate Governance Analysis CFVG MBA20

Corporate Governance Score: PINACO JSC

without any explanation shows that the Supervisory Board has not operated independently as a separated identity without any influence from external factors. By noticing all of these aspects, we have a strong rationale to assign the Supervisory Board with very negative assessments. A lack of this particular aspect also concerns us in assessing and reviewing the efficiency of the organization on the whole level as well as on individual basis. We could not positively and objectively identify the reviews of the operations as well as the reviews of members of the BOM. The performance aspect, therefore, could not be analyzed quantitatively and qualitatively. We consider this fact as one of the major shortfall of the organization and thus, Pinaco JSC should immediately take actions to remedy this particular negative situation.

3. BOARD OF DIRECTORS - STRUCTURE AND PROCESS

In general, PINACO maintains a simple enterprise structure with BOD, BOM and SB without any sub-committee under each. The overall scores of 19/34 that PINACO received should be a signal to investors and current shareholders as well as the Companys leaders regarding management of BOD activities, especially the announcement of related information to shareholders.
BOARD OF DIRECTORS Score:

19/34

3.1. BOD Structure

The BOD has transformed during its transition from a state-owned limited company to a joint stock company listed on the stock market. While in past years, CEO and Chairman positions were handled by one person, and many BOD members held executive positions in the company, PINACO BOD now almost separates from BOM. PINACOs current BOD is reasonable established with the main structures as below: The Board has five members with a period of five years. Its a selection of a majority of non-executive members. Only one member in the Board holds executive position. The CEO and Chairman positions are separate. The Chairman are non-employed by the Company.

This structure helps keep the Company independent from the BOD influences on Companys daily management. In fact, the BOD is an effective monitor of the management and as a body deeply engaged in providing strategic leadership to the Company. The Companys Secretary also is also cum the role of Secretary of the Board. Even though she plays a large supporting roles for the Board and the Company as a whole, her reporting to both BOD and BOM is non-compliant and should be revised. The dual role may prevent her from objectiveness and due diligence in fulfill the responsibilities of a Boards Secretary. Furthermore, under the Board currently there are no sub-committees. We suggest that the company at least should form these 3 committees: audit, remuneration and nomination committees whose members should be independent non-executives. These committees will play an important roles in handling each part of Boards roles and make the BOD process

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Corporate Governance Score: PINACO JSC

clearer, avoiding the situation that Chairman or some members have to handle a lot of jobs at the same time.

3.2. BOD Composition

The BOD selection process is a strong point of the Company. It sets up a clear process to nominate and dismiss members of BOD. Accordingly, the BOD has its own process of nominating and dismissal of members of BOM. All these processes are regulated in the Companys Charter, Article 27 Chapter 7-8. In the Charter, the requirement for minimum threshold of stakes to be eligible for nominating members of BOD is also stated clearly.

3.3. BOD Members

All the information regarding the BOD, such as experience, education, possession of shares, responsibility and position are widely announced in the Annual Report and Companys Prospectus. PINACOs BOD members represent a diversity of backgrounds and skills and come from chemical industry, economics, finance to technical and engineering. The appropriate mix of skills and experience in the battery production industry, along with their long time management service in the Company, helps BOD not only oversee BOM but contribute to Companys development with precise decisions in Business strategy and selection of the competent BOM. The chairwoman, Ms Nguyen Thi Kim Thao, the woman of work and pride of PINACO as many newspaper called, has a thorough background of the chemical industry which is a big support for her to chair PINACO. Her long time service in the Company as Executive and Chairwoman proves her reputation and the Companys reliability on her ability.

3.4. Regulations and Standards for BOD Operations

The BOD responsibilities and authority are clearly stated in the Companys Charter. From the Shareholders meetings and Meeting reports, BOD meeting minutes, it is shown that the shareholders deeply rely on the BOD to approve important decisions. This is shown via usual 100% of agreement in Shareholders Meetings. While BOD performance is assessed and announced to Shareholders, we noticed some shortage in the Shareholders control on BOD, which may result from the reliability and dependence of the Shareholders on BOD and the Company. Some remarkable weaknesses which should be paid attention to and fixed are: No commitment for professional ethics for BOD member are revealed. No plan for BOD successors. While the Company announces the number of BOD meetings every year, the number of attendants in the meetings is kept secret.

3.5. BOD Information Disclosure

The Company has tried to establish some norms and standards of information disclosure, amongst them are: All the minutes and resolutions of the BOD or the AGM are uploaded to Companys homepage and accessible by shareholders.

Corporate Governance Analysis CFVG MBA20

Corporate Governance Score: PINACO JSC

Each nominating BOD member has to announce and guarantee the transparency, reliability and rationality of the information provided to shareholders.

However, there remain some gaps between the Companys norms and real actions. Proper documentation regarding nominees of BOD is sometimes not available prior the shareholders meetings but during the meeting only. This causes inconvenience for shareholders to make proper decision.

3.6. BOD Remuneration Package

The BOD base commission is publicly announced in the Annual Report. The plan for compensation to BOD is also informed in Companys reports. However the remuneration package is too small that raises a big question about the Companys structure of benefits. In general, the commission for each BOD member is a fixed and quite small number, which is around 2-3 million in cash per month per member. It is symbolic rather than a real benefit. There is no other pay or compensation in stocks or preferred stocks.

On the other hand, the Company remains undisclosed of other benefits (if any) offered to BOD members as well as the BOM. The additional benefits such as training for new BOD members or insurance of responsibility are not announced. Even though via internal interview, we know that the training for BOD has already been taken place by the Company, the fact that the Company does not announce this training shows a lack of responsibility in releasing information to investors. There is no proof of independence of the BOD in determining the remuneration of the BOM.

Another weak point of the Company comes from its lack of a permanent remuneration committee. Its current method of urgent establishment of a one-off remuneration committee whenever there is need for remuneration package is a bad practice, which causes ineffective and subjective decisions made by the committee members. In addition, the current remuneration package seems to be decided basing on the title only. There is no information about whether that package is decided on the performance evaluation of each member or not. It shows that the Company has not made efforts to link pay to performance, a very important indicator for BOD selection. Even though all of the BOD members privately own a proportion of Companys shares and they will do their jobs in BOD with due diligence for the Company and their own sake, it is reasonable and necessary for the Company to establish a remuneration regime basing on each members contribution and performance. This will both help Company control its budget with clarity and encourage BOD members to fulfill their responsibilities, especially in case the BOD wants to attract independent non-executive members to the BOD later.

Corporate Governance Analysis CFVG MBA20

Corporate Governance Score: PINACO JSC

4. SUPERVISORY BOARD
The supervisory board plays an important role in the company. However, PINACO Supervisory Boards activities are not really efficient. KEY ANALYTICAL ISSUES There is procedure for implementing activities independently There is procedure for nominating and dismissal of members of Supervisory Board There is regulation of performance for Supervisory Board Number of meeting per year for Supervisory Board is announced in advance There is training activities for members of Supervisory Board

The Supervisory Boards role is shown clearly in the Companys Charter. PINACO Supervisory Board is directly SUPERVISORY selected in the Shareholders Annual General Meeting (AGM), BOARD Score: independent from Board of Director and Board of Management to manage their performance in alignment with the Company strategies and core mission. There are many advantages in regard of Supervisor Boards functions and activities that any shareholder can observe in the Companys Charter. All procedures involving in their independent performance, nominating and dismissal, regulation, Shareholders number of meetings per year are obviously stated out.

6/8

Assembly Supervisory Board

Board of Directors

PINACO Supervisory Board is successful in proposing the audit company, audit budget, checking all financial statement, ensuring the internal control and the Company has consistently followed this practice over the past several years. Shareholders can easily perceive all members of Supervisory Board in the annual report of PINACO as well. The relevant information of the Supervisory Board is publicly stated in Companys Prospectus about experience and qualifications of each member in the Supervisory Board.

Board of Management

However, the members commitment for professional ethics is not considered reasonably. Although the remuneration of the Supervisory Board is stipulated in the chatter and annual report, it still be a fixed number, not performance-based salaries. Shareholders will hardly understand the salary is reasonable for the Board performance or not. In addition, we find that the Supervisory Board is not really efficient in terms of its governance for the activities of Board of Director and Board of Management. As mentioned in above-mentioned Item 2.2.3 Report of the Supervisory Board in the Annual General Meeting, there is no report of the Supervisory Board about the performance of Board of

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Corporate Governance Score: PINACO JSC

Director and Board of Management, as well as their cooperation in action to fulfill the Companys strategy. In conclusion, we strongly recommend the Company to standardize and integrate the procedure to include the Supervisory Boards report into the AGM. With this integration, the Company will prove the transparency and quality of its information, which is always under careful monitoring to ensure that Executive and Management members understand the Codes of Conduct. PINACO JSC should also take care of the format of its report so that information would be reasonably and professionally organized, physically and electronically, in the future. The bottom line for the assessment of Shareholders Meeting is that the Company earns no scores in this aspect. Therefore, Only by adhering to the practice of keeping a strong Supervisory Board will they have the opportunity of improving the quality of the AGM to meet the satisfactory level of the shareholders.

5. FINANCIAL TRANSPARENCY AND INFORMATION DISCLOSURE AND AUDIT 5.1. Financial Transparency and Information Disclosure
The quality and content of public disclosure as well as the access to information is rather respectable. All needed information can be retrieve easily by shareholders. KEY ANALYTICAL ISSUES Compliant to Vietnamese Accounting Standards Financial statements are clearly presented and disclosed quarterly or yearly There is Consolidated Financial Statement with relevant balance sheet, profit and loss account, cash flow statements and are supported by comprehensive notes There is announcement of annual report and transactions to related parties There is business disclosure report, company management, and company chatter English/Vietnamese company website with relevant and regular updated information There is newsletter for investors

PINACO has proper system of financial transparency and information disclosure. All financial statements are in alignment with Vietnamese Accounting Standards and are well audited by Ernst & Young. The financial figures are disclosed publicly each quarter and every year. Furthermore, PINACO announces the Consolidated Financial Statement with relevant balance sheet, profit and loss account, cash flow statements and are supported by comprehensive notes to make it easier for outsider s to understand how the headline figures were calculated.

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Corporate Governance Score: PINACO JSC

The annual report is prepared and public for every shareholders before the Annual General Meeting. PINACO possess a nice website with relevant and regular INFORMATION updated information. Company charter, business disclosure DISCLOSURE AND report, and announcement of company's management are well AUDIT Score: disclosed on the company website. Information about the most recent AGM as well as voting results, notes are positively provided. The website is also available in English. However, all updated financial statements are still in Vietnamese. It is a weak point of PINACO information disclosure in consideration of the fact that its foreign investors compromise for more than 20%. These investors must find these figures through other websites for public analysis.

15/23

Regarding the announcement of minor transactions and internal transactions, we cannot find any evidence of the disclosure. It is extremely a remarkable weak point that PINACO should quickly fix. For the social and environmental responsibility, PINACO gives them public utterance yearly along with the annual report. The Company is well recognizes about their accountability for the environment protection, employees right and benefits. Level of engagement with shareholders is managed through the website. PINACO creates public news about the financial and operational issues to communicate with shareholders and other stakeholders directly. Nevertheless, the company rarely holds investors meetings during the year except for the Annual General Meeting.

5.2 Auditing
PINACOs auditors are recognized as reputable and independent. However, there is no independent procedure of selection an independent auditory company. KEY ANALYTICAL ISSUES The auditing company is reputable and experienced. Switching audit companies at least once in a five year period As stipulated in the Company Charter, auditors are appointed by shareholders on an annual basis, upon the recommendation of the BOD. In 2009, PINACO appointed Ha Noi Audit Company as its external auditors. According to the Company policy, PINACO changed its external audit company in 2010. Ernst and Young was appointed due to its experience and reputation of independent auditing process. Currently, Ernst & Young also provides PINACO with other services including taxation and consulting service. Actually, to increase the reliability and transparency of the auditing process and reports, PINACO has to hire separate companies for auditing and advisory service. This is to avoid the conflicting of an auditing company to advise its audited company how to escape from or hide the mistakes it made. However, it is difficult and too expensive for a company to suffer the cost of hiring independent auditing and advisory companies, while Vietnams laws have not required this

Corporate Governance Analysis CFVG MBA20

10

Corporate Governance Score: PINACO JSC

separation, then not only PINACO but many companies in Vietnam market still use those two services of one auditing company only. In addition, the Company holds no explicit, transparent and accountable process of selecting the auditor. Although the auditor will be selected via voting at the Annual General Meeting, we cannot find any evidence for the procedure of selection. Therefore, shareholders cannot ensure the transparency in proposing the auditor at the Annual General Meeting. Furthermore, Ernst & Young provides PINACO with other services including taxation and consulting service. The auditing and non-auditing fees cannot be retrieved from public resources, which causes inconvenience for Shareholders to decide whether the value of auditing company they choose is really worth for their expense.

6. BREACHES AND PENALTIES

Since its IPO on the Ho Chi Minh Security Exchange, we find no evidence for any breaches and penalties about the information disclosure, accounting and auditing. However, in 2010, PINACO selects Ernst and Young as its external auditors as well as consultant for restructuration of human resource. It can be considered as a risk for the Company and may lead it to breaches of the laws since it harms the independent aspect of the external auditors.

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APPENDIX THE TRUONG'S CG SCORING FOR VIETNAMESE LISTED COMPANIES ANALYSIS FOR: DRY CELL AND STORAGE JOINT STOCK COMPANY
Criteria Yes / No Benchmarking Score Observation Resource

I. SHAREHOLDERS AND MEETING OF SHAREHOLDERS

1 2 3 4 5 6

Percentage of stakes owned by foreign companies Planning for IPO in foreign countries Threshold for identifying major shareholders Shareholders have full right to exchange stakes Company's Charter obeys to the Model Charter Management regulations include Order and procedure for convening and voting for the meeting of shareholders Order and procedure for nominating, self - nominating and dismissal of members of BOD Order and procedure for organizing meeting of BOD Order and procedure for appointment and dismissal for members of BOD Collaborting process among managerial departments Regulations for rewards and disciplinary actions assessments for admisnistrative departments Time until convenning of meeting of shareholders after financial year's end < 31 days < 90 days > 90 days Letter of notification sent before < 10 days 10 - 20 days

Yes No No Yes Yes Yes Yes Yes Yes Yes Yes

1 1 1 1 1 1 1 1 1 1 1

1 1 1 1 1 1 1 1 1

Annual report 2010 - Page 40

Article 11, Chapter IV, Charter Opening, Charter Article 13, 17 Chapter VI, Charter Chapter 7, Charter Article 28 Chapter VII, Charter Article 31, Chapter VIII, Charter Article 25, Chapter VII, Charter Article 35, Chapter XI, Charter

No No Yes

1 1 0 0 1 1 1

1 1 1 1

AGM 2011

Yes

> 20 days Yes

9 10

No minimum threshold of stakes for the meeting of the shareholders Form of communication to the shareholders

Yes

AGM 2010 (29/03/2010); website PAC AGM 2010 (29/03/2010); website PAC Article 11, Chapter VI, Charter

Letter to shareholders Yes Announcement on company's website Yes Announcement on public domain Regulations for organizing shareholder's meeting Providing information on the procedure of voting Shareholders retain voting right through representative Cumulative voting Report of BOD includes Overall review of company's operations Result of company's performance and financial status Result of BOD's performance Result of overall collaboration among BOM, BOD, Supervisory Board and shareholders More than 4 above aspects Report of Supervisory Board includes Operations of Supervisory Board Minutes from meeting of the Supervisory Board Result of overseeing operations and financial status of the company Yes Yes Yes Yes No Yes Yes Yes No No No No No No No No Yes

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

1 1 1 1 1 1 1 1 1 1

AGM 2010 (29/03/2010); website PAC AGM 2010 (29/03/2010); website PAC Article 13, Chapter VI, Charter Article 19, Chapter VI, Charter

11 12 13 14 15

Article 20, Chapter 6, Charter Article 20, Chapter 6, Charter Annual Report 2010, page 21

16

Result of performance from members of BOM and BOD Reviewing the collaboration among BOM, BOD, Supervisory Board and shareholders More than 4 above aspects Resolution of the shareholders' meeting is posted on the company's 17 website II. BOARD OF DIRECTORS 18 Compostion of non - executive members less than 1/3 equal to 1/3 more than 1/3

www.pinaco.com.vn

No Yes Yes

0 1 1

1 1

Article 24, Chapter 7 Article 24, Chapter 7

THE TRUONG'S CG SCORING FOR VIETNAMESE LISTED COMPANIES ANALYSIS FOR: DRY CELL AND STORAGE JOINT STOCK COMPANY
Criteria Yes / No Benchmarking Score Observation Resource

19 20 21 22 23 24 25

26 27 28 29 30 31 32

33 34 35 36 37 38 39 40 41 42 43

44 45 46

47 48 49 50 51 52 53 54

Fully independent member Information regarding CV of members of BOD Chairman/CEO seperation BOD sub-committee Procedure for nominating and dismissal of members of BOM Procedure for nominating and dismissal of executive and managerial members Proper documentation regarding nominating members of BOD available prior to the shareholders' meeting Announcement guaranteeing transparency, truthfulness and rationality of the provided information for members and nominationg members of the BOD Different time period for serving members Announcement of minutes and resolutions of the BOD Information assisting the assessment process for members of the sub commitees to be competent and independent Company's secretary or board's secretary Process for filling board's vacancies Minimum threshold of stakes to be eligible for nominating members of BOD Company specified threshold greater than ownership regulations according to regulations <10%: 1 candidate; 10-30%: 2; 30-50: 3: 5065%: 4; above 65%: sufficient for BOD members Company specified threshold less than ownership regulations Regulations/standards of professional ethics Activities assessing performance of members of BOD Succession plan Announcement of number of BOD meetings for a year Announcement of participation rate in meeting of BOD members Announcement of current positions of the members of the BOD BOD members education Insurance of responsibility for members of BOD Performance evaluation criteria for members of BOD Clear independence of the Board in determining the remuneration of the executives Form of remunerations In cash In common stock In preferred stock Information regarding compensation of all members of BOD Information regarding compensation of individual member of BOD Plan of compensation III. SUPERVISORY BOARD There is information to help shareholders to assess the appropriate level of SB members training and experiences Nominating members of Supervisory Board's commitment to professional ethics Procedure for implementing plans independently Procedure for nominating and dismissal of members of Supervisory Board Regulations for Supervisory Board Number of meeting per year for Supervisory Board Performance based salaries for members of Supervisory Board

No Yes Yes No Yes Yes No Yes

1 1 1 1 1 1 1 1

1 1 1 1 1

Prospectus 2007, page 41 Annual Report 2010 Article 24, Chapter 7, Charter Article 31, Chapter 8, Charter

External Audit Report 2010 - Page 4

No Yes No Yes Yes Yes No Yes No No No No Yes Yes Yes No No No No

1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 -

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Article 32, Chapter 8, Charter Article 24, Chapter 7, Charter Article 24, Chapter 7, Charter

Article 24, Chapter 7, Charter

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Annual Report 2010

Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes No

1 1 1 1 1 1 1 1 1 1 1 1 1

Annual Report 2010

Annual Report 2010, Page 39 Annual Report 2010, Page 39

Prospectus 2007, page 41

Article 37, Charter Unit 3, Article 36, Chapter 10, Charter Article 37, Charter Unit 3, Article 37, Chapter 10, Charter Unit 4, Article 37, Chapter 10, Charter
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55 56 57

Training plans for Supervisory Board Yes 1 IV. FINANCIAL TRANSPARENCY AND INFORMATION DISCLOSURE AND AUDIT Comply to Vietnamese Accounting Standards Yes 1 1 1 1 1 1

External Audit Report 2010 - Page 4

Comply to IFRS No Annual and quarter Financial Statement Yes 58 Financial Statement in English No Consolidated Financial Statement and Financial Statements for Yes 59 subsidiaries 60 Announcement of minor transactions No

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Consolidated FS, PAC website

THE TRUONG'S CG SCORING FOR VIETNAMESE LISTED COMPANIES ANALYSIS FOR: DRY CELL AND STORAGE JOINT STOCK COMPANY
Criteria Yes / No Benchmarking Score Observation Resource

61 62 63 64 65 66 67 68

Announcement of internal transactions Announcement of transactions to related parties Announcement of annual report Business disclosure report Announcement of company's management Announcement of company's charter Announcement of social and environmental impacts Website for the company Regularly updated Sufficient information In English Level of engagement in relations with shareholders Newsletter for shareholders/investors Shareholders/investors meeting In different forms Independent auditory company is reputable and experienced Independent procedure of selection auditory company Policy of switching audit companies The company actually changed auditors (at least 5 years / time) TOTAL V. BREACHES, PENALTIES Independent auditors provides non auditing services Proofs of violations regarding information announcement Proofs of violations in auditing and accounting process

No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 100

69

70 71 72 73

Yes No No Yes

1 1 1 1 1 1 1 1 1 1 1 1 63

Annual Report 2010, page 55

www.pinaco.com.vn www.pinaco.com.vn www.pinaco.com.vn www.pinaco.com.vn

Annual Report 2010, page 17

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AGM decisions 2011 - Article 5

Annual report 2009

74 75 76

Evaluation speacialists Nguyen Quoc Bao Nguyen Mai Lan Nguyen Minh Dang