- Estimated Second quarter volume decreased by 15% due to difficult export market.
- The business plans to achieve 12,000 billion VND in revenue and 200 billion VND in profit for 2020.
- In the period 2020-2021, Nam Kim focuses on administrative and managerial mission.
Reporting at the 2020 Annual General Meeting of Shareholders ,
Mr. Vo Hoang Vu, General Director of Nam Kim Steel Company (HoSE: NKG), said that at the beginning of the year, the Covid-19 outbreak worldwide had a significant impact on the steel industry and foreign countries, especially coated steel products. Civil demand as well as investment cannot be recovered in the next few quarters .Although attraction of foreign investment (FDI) is predicted well, coated steel products are considered beneficial in the long term. Still, it is not yet able to have benefit in the short term.
Meanwhile, exports are expected to decline, especially in the second quarter when countries lockdown in April and May to prevent disease, with a recovery in June. Besides that, the steel market is also affected by large supply from China and India, in addition, there is big competitive pressure from many enterprises which are investing in coated steel.
On the above basis, the executive board proposed plan in 2020 including consumption volume of 700,000 tons, an increase of 36%; the revenue of 12,000 billion and profit after tax of 200 billion, which is more than 4 times the implementation of 2019. The maximum dividend is in cash or shares with 10% ratio.
Mr. Vu shared that coming close to the end of 2019, the management board assessed the situation is more optimistic and expected an enormous profit, but after Lunar New Year holiday, anddue to covid 19 pandemic complications, the planned data has to be adjusted. In the 2nd projection to submit to shareholders, the management board maintains VND 200 billion plan – a challenging number but we will try to implement it well.
We are pushing to improve the promotion, increase the frequency of presence of Ton Nam Kim brand at the retail outlet; diversifying export channels to limit focusing on a few markets; Focusing on risk management analysis and making sales policy which depends on time to time to reduce costs; management transformation through SAP-ERP system is urgently implemented which can be deployed in July.
No dividends in 2019
In 2019, the company recorded net revenue of 12,178 billion VND, a decrease of 18.2%; net profit is 47.3 billion VND, drop at 17.4% compared to last year. Due to not meeting the targeted plan, implementing 16% of the profit target, the Board of Directors submitted no dividend for 2019.
Nam Kim did not fulfil the profit target last year because of the increase in iron ore prices due to the dam breach floods in January 2019 of Vale SA Group’s mine exploitation – one of the largest iron ore mining groups in the world. While product prices fell due to oversupply in China, India when the US implemented trade protection in the domestic steel industry.
However, in the second quarter of 2019, Nam Kim liquidated 1st factory in Binh Duong, transferring contributed capital from the Nam Kim Corea project in the second quarter of 2019. The liquidation of assets helped Nam Kim to collect 350 billion VND to repay bank debts. The capital structure helped to reduce financial costs and improve accumulated profit for the whole year.
Export activities account for more than 40% of revenue and 50% of output of Nam Kim. The largest export market is the ASEAN region, mainly for Indonesia; the US market only accounts for 5% of total consumption. Nam Kim uses most of the hot-rolled coil (HRC) raw materials to produce from Hung Nghiep Formosa Ha Tinh Steel and Nippon Steel Trading Vietnam to meet the origin requirement for export to the US.
The enterprise continues to build a new factory in Chu Lai – Quang Nam, specializing in coated steel pipes, with an investment of 150 billion VND, an area of 3.9 hectares to facilitate product distribution to Central and North provinces. The factory is expected to start production officially in the third quarter.
The meeting also conducted the board of directors’ election and the Supervisory Board for the term 2020-2025. The new term Board of Directors includes 6 members, 2 new members including Mr. Nguyen Huu Kinh Luan and Mr. Vo Thoi.
A new member in the Supervisory Board is Ms. Nguyen Thi Bich Nhi, replacing Mr. Vu Dinh Han.
In the steel industry’s oversupply situation, highly competitive when Hoa Phat also participates in the coated steel market, how does the management board have any strategies to deal with ?
Hoa Phat is a leading company in the industry in which the main segment ias construction steel and encroaches on coated steel. However, in recent years, Nam Kim has also faced many other competitors, which have affirmed the brand and product quality in the Southern market, hence, we are not worried much about. The immediate problem that needs to be faced with is the epidemic.
Has the company changed its inventory purchase policy?
Nam Kim’s inventory policy is now extremely cautious by closely following market movements to adjust buying rate.
Please tell us the production progress of Chu Lai factory? What role does this factory play?
Chu Lai factory was granted a construction permit, which is expected to start in August and be completed in the last quarter of the year. Nam Kim would like to reach more customers, hence, we are establishing a warehouse and a steel pipe factory in the Central region. This is a solution to increase output, create a distribution warehouse to access the market.
It is usual for businesses to transport goods to the South or the North because there is always a demand for each products and different sales policies.
Could you please share more details about the effect of Covid-19 on output in the second quarter?
In April and May, the export market was affected dramatically by the pandemic. The situation just got back well in June and July. Meanwhile, domestic consumption was stable and increased slightly. Total production in the second quarter is expected to decline by about 15% compared with the same last time.
When can Nam Kim pay dividends?
In 2019, the situation was difficult, so Nam Kim did not pay dividends, but in 2020 the Board of Directors submitted to share a 10% ratio. For the payment method, the board of directors who own shares here would like to receive cash, but it also depending on our group’s business situation.
Does Nam Kim have a strategy to increase the scale to be in top steel-producing companies?
In the current period 2020-2021, Nam Kim focuses on strengthening internal control, which is administration.
Please share the company’s cash flow? How will the company deal with the long-term epidemic?
In the first quarter, the enterprise had a negative cash flows due to debt repayment, increasing raw material inventory to prevent price fluctuations, promoting sales leading to increased customer debt. By the end of 2019, with a VND 1,000 billion of positive cash flow without having to repay debts to partners, Nam Kim makes short-term financial investments through bonds or short-term deposits., Nam Kim withdrew short-term investments to repay banks and suppliers through the first quarter, reduced VND 700 billion in short-term debt.
In terms of tolerance, from a management perspective, businesses do not need to discuss debt structure with banks
How much is the company’s total capacity?
By the end of 2019, Nam Kim has 4 factories producing coated steel coils and steel pipes with a capacity of around 1.2-1.3 million tons/year.
In what field is the company cooperating with SMC?
The leaders of SMC and Nam Kim have a personal relationship, in which SMC contributes capital to Nam Kim. SMC is also a buying partner, similar to other customers in NAMKIM operations. SMC is a listed company, so investments in Nam Kim must be disclosed on reports. And Mr. Vu himself is a personal investment.
The meeting is ended with the shareholders approved all submissions.