Hoa Phat : Quarter summary Quater 4.2022

HOA PHAT GROUP

QUARTER SUMMARY - Q4-2022

Revenue 2022	by	NPAT 2022	by
	segments		segments
4,8%	0,5%		0,7%	3,6%

142,771	8,444
VNDb		VNDb
94,7%	95,7%
Steel Agriculture Real-Estate		Steel Agriculture Real-Estate

		Construction steel sales volume and marketshare
14.0									35%	40%
							32%	33%
12.0								35%
10.0				24%	24%	26%				30%
	21%	22%					25%
8.0		19%								20%
6.0	14%	15%						11.9	12.3
			10.0	10.6	10.5	15%

Q4-2022 financial performance

Hoa Phat's consolidated revenue in Q4-2022 was VND 26,211b, droped by 42% compared to Q4-2021 (VND 45,048b). Net profit after tax (NPAT) was VND -1,999b, went down 127% compared to Q4-2021 (VND 7,419b).

In 2022, total consolidated revenue reached VND 142.771b, went down VND 8.095b, equivalent to reduce 5% compared to 2021. NPAT reached VND 8.444b, reduced VND 26.077b (76%) compared to NPAT's 2021.

In 2022, Hoa Phat expanded its marketshare, remaining No.1 position in domestic construction steel and steelpipe market, while expanding export market.

Q4-2022

TOTAL ASSETS

170,336 VNDb

7,178 USDm

TOTAL EQUITY

96,113 VNDb

4,050 USDm

REVENUE

26,212 VNDb

1,105 USDm

EBITDA

1,332 VNDb

56 USDm

NPAT

(1,999) VNDb

(84) USDm

4.0								8.1	9.1							10%
					5.2	6.5
	4.5	4.6
2.0											5%
1.0	1.4	1.8	2.2	2.4	2.8	3.4	3.9	4.3
	0.6	0.7
-																0%
2012	2013		2014	2015	2016	2017	2018	2019	2020	2021	2022
				Hoa Phat			Vietnam Steel Associate		Hoa Phat marketshare

Steelpipe sales volume and marketshare

3,000								32%	32%		29%	35%
		27%			26%	26%	28%				30%
2,500						25%
		23%
											25%
2,000			20%
1,500	15%											20%
											15%
									822
1,000						581	654	751	675	749	10%
				488
				329
500	98	210	228								5%
-												0%
	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021(*)	2022
		Hoa Phat		Vietnam Steel Associate	Hoa Phat marketshare

(Source: Vietnam Steel Associate's newsletter)

(*): Taken account of new members into since 2021

Steel remains the core business of Hoa Phat Group, which contributed 94.7% in consolidated revenue and 95.7% NPAT in 2022. Hoa Phat's main steel products includes construction steel, hot roll coiled (HRC), billet, steel pipe and steel sheet, in which construction steel contributed 59% total steel product's consumption.

In 2022, Hoa Phat supplied to the market 7.2m tons of steel in total, including 4.2m tons construction steel and 2.6m tons HRC. Steel pipe and steel sheet's consumption respectively reached 749k and 328k tons. Compared to 2021, construction steel's market share expanded from 33% to 35%, steel pipe's market share increased from 25% to 29% in 2022, which kept Hoa Phat remained first position of these products' domestic market. The export market was also expanded and diversified. Total export's consumption was over 1.57 mil tons, in which construction steel was 1.2 mil tons.

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HOA PHAT GROUP

QUARTER SUMMARY - Q4-2022

Financial Highlights

		Q4-22	Q4-21	2022	2021
Revenue	VNDb	26,212	45,048	142,771	150,865
COGS	VNDb	26,711	35,123	124,646	108,571
Gross profit	VNDb	(885)	9,587	16,763	41,108
Gross margin	%	-3%	21%	12%	27%
EBITDA	VNDb	1,332	10,785	23,764	46,871
EBITDA margin	%	5%	24%	17%	31%
NPAT	VNDb	(1,999)	7,419	8,444	34,521
Net margin	%	-8%	16%	6%	23%
Total assets	VNDb			170,336	178,236
Total equity	VNDb			96,113	90,781
ROA	%			5%	19%
ROE	%			9%	38%
	(Sources: https://www.hoaphat.com.vn/investor-relations/financial-report)

18%

24%

26%

32%

2022 was a struggle year for the economy in general and for the steel industry in particular.

2022 witnessed various unfavorable macroeconomic fluctuations of Vietnam's economic as well as the world, which cause noticeable impact on the fundamental heavy production industry - steel. The echo of an exceptionally favourable year for the steel industry only lasted until the end of Q1- 2022 - when the Russia- Ukraine war occured, which led to the fuel price's crisis and supply chain disruption. Combined with the post Covid's recession and the escalate inflation, as a result, the high level of tightening money policy has gradually slowed down the growth of steel industry in the remains quarter, especially Q3 and Q4-2022.

Hoa Phat's consolidated revenue reached its highest in Q1-2022 and diminised gradually to the year end. NPAT in Q2-2022 reduced in half compared to Q1-2022 and consecutively recorded at negative numbers in Q3 and Q4-2022. Hoa Phat's gross margin has sharply dropped from 23% in Q1 to -3% in Q4-2022. Net margin fell from 18% in Q1 to -8% in Q4-2022. Since Q4-2008, this is the second time Hoa Phat recognised a negative consolidated gross profit and the third time for a consolidated net loss after tax. The big difference between quarterly financial results was derived from the rapid changes in external conditions during the year.

		Hoa Phat's Revenue, COGS, Profit 2021 - 2022
50,000		32%							35%
			30%
	26%								30%
40,000
		27%	27%		23%				25%
30,000	22%			21%					20%
			18%
					17%
				16%
								15%
20,000
						11%			10%
10,000									5%
							3%
								-3%	0%
-
	Q1-21	Q2-21	Q3-21	Q4-21	Q1-22	Q2-22	Q3-22	Q4-22	-5%
							-5%
(10,000)								-8%	-10%
	Revenue	COGS		Gross profit	Net profit	Gross margin		Net margin

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HOA PHAT GROUP

QUARTER SUMMARY - Q4-2022

Construction Steel Price 2022

18000

16000

14000

	Hoa Phat and Vietnam Construction steel comsumption 2022
		Vietnam Steel Associate	Hoa Phat	Steel Net Revenue
6.00	42,381				45,000
5.00		35,636	32,256		40,000
			35,000
	3.68
4.00			23,737	30,000
	2.89	3.10
		2.62	25,000
3.00
			20,000
2.00	1.34	1.04	1.08		15,000
		0.82	10,000
1.00
				5,000
-					-
	Q1/2022	Q2/2022	Q3/2022	Q4/2022

				Iron ore and Hard coking coal price 2022
800
600
400
200
-
	T01.22	T02.22	T03.22	T04.22	T05.22	T06.22	T07.22	T08.22	T09.22	T10.22	T11.22	T12.22
					Iron ore	Hard Coking Coal
			Movement in inventories provision
1,500	1.50	1.45									1.60
					1.28	1.31		1.22			1,242
1,200
								1.04		1.20
									0.98
									899
900								762
												0.80
600
300					236	187						0.40
	63		66
-												-
	Q2-21	Q3-21	Q4-21	Q1-22		Q2-22	Q3-22	Q4-22
				Inventory provision	Revenue/COGS

• The "hot at the beginning but suddenly freezed after that" movement of real-estate market was the main reason for decline in steel consumption, drop in price and as the result, the gradual fall in revenue over each quarter of 2022
  Vietnam's real-estate market started quite excitedly at the begining of 2022, but suddenly reversed in the middle of Q2-2022 and fell into idle situation that lasted until the year end due to unresolved difficulties in fundings. It led to drop in the demand and price of construction steel, one of Hoa Phat's current key products, which were consumed more than 70% domestically. Vietnam market and Hoa Phat steel comsumption reached the highest level in Q1-2022 and decreased over three following quarters. Construction steel price strongly climbed in Q1-2022 and made an U-turn by mid-May 2022 with 19 consecutive downward adjustments to the end of the year. Total price reduction was 4.2 VNDm/ton, equivalent to 25% mark down over the pre-adjustment price. This is the main reason explaining for downward movement of Hoa Phat quarterly consolidated revenue.
• Main raw materials prices have skyrocketed due to the crisis from geopolitical conflicts, combined with slow consumption and low selling prices due to weak demand, causing the cost of goods sold to be under overlapping pressure.

Excessive panic about the coal supply shortage resulted from Russia-Ukraine crisis has pumped the price of coking coal, one of two key raw materials for BOF steel production to the nonsence level, which trippled the "should be" price at two peak point in Mar and May, 2022. The coal price was remained at

1. times higher than 2021 price for the rest of the year. Weak steel demand and as the result, the slow consumption, has lengthened the normal feedstock cycles, coking coal bought at the highest price has not been fully absorbed in Q3-2022 production cost and moved to those of Q4-2022. Along with that, in Q4-2022, Hoa Phat has cut it steel production capacity down in some factories to fit current market demand. On the one hand, it helps reducing the pressure of maintaining high-priced inventories for the next quarters later. However on the other hand, it increased depreciation and other fixed costs in the product cost structure of Q4-2022 to some extent.
   In addition, late 2022, early 2023, althought there were some slight upward adjustment in steel price, as the previous decrease was too deep, together with higher production cost, this quarter Hoa Phat kept providing an additional inventory provision of 343 VNDb, which raised the total inventories provision amount at the year end to more than 1.2 VNDtrl. It put an additional layer on cost of goods sold burden for Q4-2022.
   Compared to Q3-2022, consolidated revenue declined by 24% while there was only a smaller shrinkage in cost of goods sold by 19%, causing a significant drop in gross profit, which went down by more than

1. VNDtrl from more than 1 VNDtrl in Q3-2022 to negative 880 VNDb in Q4-2022. Along with a rise in SGA expenses due to inflation and high energy prices, although net financial income has improved slightly, profit after tax for Q4-2022 was still lower than Q3-2022 and hit the bottom over 30 year operating history.

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3,000			Financial expenses 2021-2022
											2,309
									2,033
										1,688
2,000
	768622		821600	968	1,174	1,111	1,090	1,013	933
1,000		675	630	597	717	837
			58		49	122
-
Q1-21(29)	Q2-21	Q3-21			Q4-21	Q1-22			Q2-22	Q3-22	Q4-22
(1,000)				(303)									(361)
			Financial expenses			Interest expense			Net FX (Gain)/Loss

USD Exchange rate 2021-2022

24,900
24,100
23,300
22,500	Feb-21			May-21	Jun-21	Jul-21		Sep-21		Nov-21	Dec-21		Feb-22			May-22	Jun-22	Jul-22		Sep-22		Nov-22	Dec-22
Jan-21	Mar-21	Apr-21	Aug-21	Oct-21	Jan-22	Mar-22	Apr-22	Aug-22	Oct-22
			Hoa Phat bank debt and interest expenses 2021-2022
80,000																					933		1,000
																	837
70,000
														717							800
60,000							675
	622		600				630			597
50,000
																						600
40,000
30,000																							400
20,000																							200
10,000
-																							-
	Q1-21		Q2-21		Q3-21		Q4-21		Q1-22		Q2-22		Q3-22		Q4-22
							LT debts		ST debts		Interest expense

Bank debt structure by currencies

30 JUN 2022		31 DEC 2022
				USD		VND
					29%
70,019	44%			57,900V

56%	VNDb	NDb
		71%

HOA PHAT GROUP

QUARTER SUMMARY - Q4-2022

* USD rate rose sharply during the year and suddenly reversed in Dec 2022

While the USD price remained at a fairly stable level in 2021, in 2022, it began to rise right from Mar and experienced a rapid escalation until Nov, hitting the highest point recorded over the last 20 years and surprisingly went down during the last weeks of Dec, 2022. USD fluctuation range was more than 2000 points during the year and the gap between the beginning and the end of 2022 was over 800 points. With feedstocks mainly coming from importing sources against income mainly from domestic market, along with a considerable USD borrowing balance, Hoa Phat always has net USD payables, which exposes it to the risk of exchange loss when USD price goes up and exchange gain when the rate falls. Q4-2022 recognised a net foreign exchange gain of 361 VNDb, not enough to cover the loss in two previous quarters (more than 1 VNDtrl each), delivering a total net exchange realized and unrealized losses for the year 2022 of more than 1.86 VNDtrl.

* Interest rate was stable for the 1H2022 and sharply surged over the second half

FED has raised the interest rate for 7 consecutive times during 2022 to curb inflation in the US, bringing this rate to the highest level over the last 15 years since 2007. As Vietnam's credit market held a long lag to the effects of tight monetary policy from global market, VND interest rate was remained at comfortable level for the whole 1H2022, but escalated in the second half of the year. While Hoa Phat's outstanding loans and interest expenses moved in the same directions in 2021 due to the stable interest rate, they began to follow two opposite trends since Q2-2022 with gradual increase in interest charged against the reduction in the outstanding loans over each quarter to the year end. Interest expense for Q4-2022 was 933 VNDb, going up by 30% compared to those of 2022 while borrowing balance at the year end was reduced by 17% compared with the highest level as at 30 Jun 2022.

Hoa Phat considers 2022 as not only a tough year, but also an opportunity to test its endurance and adjust its management policíe to adapt

* Reduce outstanding loans to the safe level

Prudent perspective in cash and leverage management, which aims to maintain safe liquidity, has helped Hoa Phat to be proactive in choosing the best fitting borrowing balance. While medium and long term loans that finance for capital expenditure/CAPEX have been kept on the right track, Hoa Phat's strategy is to tighten working capital to reduce short term debts. Total bank debts at the year end decreased by over 12 VNDtrl compared to those of 30 Jun 2022 to avoid excessive borrowing cost burden for the last 6 months.

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HOA PHAT GROUP

QUARTER SUMMARY - Q4-2022

		Changes in inventory cycle
200				172
	157
154
150		110	108		126	122
98	92	102
100
	68	67		62
			61
50	59			63
49			57	55
	38	36
-
Q2-21	Q3-21	Q4-21	Q1-22	Q2-22	Q3-22	Q4-22
	Total inventory	Raw materials	Finished products

Changes in inventory structure

70,000
							58.317
		39.867	46.072	42.370	40.223	21,214	44.779
					35.727
40,000
	12,818	17,215	14,452	13,278	5%	20,184
		4%	15,944
		4%	4%	5%			2,368
									34,450	6%
		25,369	27,016	26,068	24,977	22,227
10,000				17,775
		Q2-21		Q3-21	Q4-21	Q1-22		Q2-22	Q3-22	Q4-22
(20,000)
		Raw materials			Tools & Accessories		Finished products

* Reduce offshore loan proportion in borrowing structure.

The Group keeps monitoring market fluctuations and flexibly balances between the competitiveness of foreign capital against domestic currency and its expossure to foreign exchange rate risks to determine the optimized loans structure by currency.

In the condition of high exchange rate volatility, along with faster increase in USD interest rate increases over those of VND, the gap between USD and VND was no longer large enough to cover the exchange rate risk, Hoa Phat has lowered its offshore loans total balance from 1.3 USDb as at 30 Jun 2022 to 700 USDm by the year end. USD offshore loan proportion therefore decreased from 44% to 29%.

• Strictly manage inventories, reduce working capital and improve operating cashflow

Hoa Phat's inventories at this year end fell to the lowest level over the last two years with the absolute decrease by 22,590VNDb, equivalent to 40% from 58,317 VNDb to 35,727 VNDb compared to the highest level as at 30 Jun 2022.

The Group has made some adjustment in inventory structure since Q3-2022 and maintained it for Q4- 2022, which reduced raw materials proportion to lower working capital pressure and relief the pain from finance cost. Inventory turnover continued to be shortened compared to Q3-2022, from 126 days to 122 days, raw materials to 61 days, finished products and production in progress to 55 days.

Cashflow from operating activities for 2022 was significantly improved compared to those of 2021. For 2021, net working capital upsurged resulting in the decrease in operating cashflow by 11.5 VNDtrl, constituted from 16.9 VNDtrl in inventories, 3 VNDtrl in receivables and offset by over 9 VNDtrl increase in payables. In 2022, net working capital went up by just over 1.9 VNDtrl, derived from a reduction in payables by 14.6 VNDtrl, offset with the diminution in inventories by 8 VNDtrl and 4 VNDtrl from collecting of receivables.

After taking into account of these improvements in working capital, the big gap between operating profit of 2022 and those of 2021 (which are 19.2 VNDtrl and 44.2 VNDtrl respectively), was narrowed from 25 VNDtrl to 15.4 VNDtrl.

Through this year's difficulties which come from external factors, The Group has been tightening its management in order to maintain its internal financial capabilities, ensuring all crutial projects are on schedule, ready to catch up with the demand when the market recovers.

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