I.

INTRODUCTION
1.1 Background of the case study
1.1.1. Brief information about Vinamilk:
Company name: Vietnam dairy product joint stock company.
Vietnamese name : Công ty Cổ phần Sữa Việt Nam
Abbreviated name : Vinamilk
Stock code : VNM
Charter capital : VND 14,514,534,290 millions VND
Head office : 10 Tan Trao, Tan Phu Ward, District 7, Ho Chi Minh City
Business registration certificate and tax code: 0300588569 Business Operation and
ProcessManagement and Governance
1.1.2 Business Philosophy:
Continuous development of production, trade and service in the areas of business
activities in order to: maximize profit and enhance the Company’s value in harmony with
the interests of the Shareholders; improve the living conditions, income and working
environment of employees; also to ensure the interests of other stakeholders towards
sustainable and responsible development.
1.1.3 Vision:
To become a world grade brand in food and beverage industry, where people put
all their trust in nutrient and health products.
1.1.4 Mission:
To deliver the valuable nutrition to community with respect, love and
responsibility.
1.1.5 Core values:
- Integrity: Integrity and transparency in actions and transactions.
- Respect: To have self-respect, to respect colleagues. To respect the
Company and partners. To cooperate with respect.
- Fairness: To be fair with employees, customers, suppliers and other parties.
- Ethics: To respect the established ethical standards and act accordingly.
- Compliance: To comply with legal regulations, the Company’s Code of
Conduct, and the Company’s procedures and policies.
1.1.6 Management structure:
- In order to operate the management, the cVinamilk builds the Company’s
structure in a concentrated and unified manner from the top down. Duties and powers are
assigned to each department, each level, clearly and thoroughly from the BOD to the
Executive Committees, managers and staff.

1.2 Objectives of project

a. Objective:
- Products also meet all age groups: yogurt, liquid milk, condensed milk,
Vfresh, ...
- 2017 marked 41 years of Vinamilk’s establishment and development with
the bold mark in the production, business and branding reputation. So far,
Vinamilk is proud to be Dairy Company No.1 in Vietnam, ranking 49th in
the top 50 most profitable dairy companies in the world.
b. Applicable tax rates:
- The companies in the Group are required to pay income tax at rates ranging
from 10% to 40%, depending on principle activities of its factories, on
taxable profits. The Company and its subsidiaries incurred the income tax
charges.
* Reason: - Based on the Circular No. 18/2002 / TT-BTC, the company
has two manufacturing plants while the industry is subject to state
incentives.
- In Clause 1, Article 26, Chapter IV of the Government's
Decree No. 64/2002 / ND-CP of June 19, 2002 on the transformation of
State enterprises into joint-stock companies, prescribing policies for
equitized enterprises, VNM was established in 2003 on the basis of
equitization of enterprises => "To enjoy tax incentives under the Law on
Domestic Investment Promotion as for newly established enterprises
without having to carry out the procedures for granting Certificate of
investment incentives. "
c. Value proposition
 - The business offers customers appropriately healthy products with very
affordable price. Its nutritional values – including calcium value
(110mg/100ml) and fat value (3.5g/100ml) – are just average in the market.
Vinamilk’s target is middle-income population. Vinamilk’s positioning
strategy is ‘the same for less’.
- Meanwhile, the price (29,500VND/1 liter box since 1/2017) is cheaper
than that of major competitors Dutch Lady, TH True Milk and obviously
high-end foreign brands.
d. Development strategy
- The long-term development strategy of Vinamilk is to achieve the target
revenue of USD 3 billion and become one of the 50 biggest dairy
companies in the world in the period of 2012-2017.
 Vinamilk achieve its mission:
- Developing strategic human resource management
- Maintaining and managing activities towards sustainable development
- Planning and implementing Knowledge, Innovation, and Change
management.
 Vinamilk’s strategic priorities are:
- Assets investment plan:
- To achieve the target revenue of USD 3 billion in the period of
2012-2017.
- To maintain dividend payments to shareholders with an annual
dividend rate of at least 30% on par value.
- Customers:
- To be an enterprise with high customer satisfaction on product
quality, affordable prices, and the leading distribution system in
Vietnam
- Corporate governance:
- To be an enterprise with accredited professional management and
structure
- To be an enterprise where the working environment enables
employees to make out their best capabilities and contribution to the
common goals, thus being one of the best working places for
employees.

1.3 Questions of project

 Risks involved to business of VINAMILK?
  How stakeholders assess the risks?
 How company should manage the risks

1.4 Literature review

- Serving this demand, on the one hand, the company has actively invested in
industrial scale farms, on the other hand, constantly improving the purchasing
and development of fresh milk from the households. Vinamilk strengthens
localization of milk material.
- Vinamilk invest in building dairy farms => self-control 17% raw milk input.
Because of unstable raw milk input followed by cooperation with milk farm.
This leads to several consequences such as unstable quality and quantity.

1.5 Methodologies and data

 Methods: Interview, Survey, Questionnaire

Quantitative analysis: Mean, frequency, ANOVA, …

1.5 Analytical results

Probability of Risks
Decline 2
Growth 5
Risk 33,33%

2017 ( VND)

From Product’s sale 49.526.103.800.509

From good’s sale 1.446.258.338.101

From the provision of services 62.526.876.757

Rental income: From renting 17.187.652.809

properties

1.6 Findings and discussions

 1.6.1 Findings
In conclusion, the increase in profit margin leads to the significant rise in ROE.
Therefore, Vinamilk need to have the high profit margin to push ROE high.
Currently, the global milk material goes up; it will hurt the Vinamilk’s net income.
However, depending on the expanding breeding activities, the associations with
the Miraka Factory in New Zealand, the Vietnam CPI expected to decline, etc.,
Vinamilk expect to stay in high and stable in profit. In general, in the period 2015-
2017 Vinamilk does not have abnormal fluctuations in indicators or only minor
fluctuations (as analyzed above).

1.6.2 Implications
Need to invest in Customer satisfaction
1.6.3 Solutions to improve
Improving more capital , high teachnology and eqiupment.....
1.6.4 Limitations
The climate is not good, it effects on the quality of milk .
1.6.5 Conclusions
In conclusion, due to the lack of experience and knowledge, our team only give
some subjective comments. However, the group believes that the above
information can support the initial stages of the audit. In addition, we commit that
the data in the report is accurate and taken from the official report of Vinamilk.

II.BACKGROUND OF VIETNAM DAIRY PRODUCTS JOINT STOCK

COMPANY
2.1 Owner
Ministry of transportation: Can Tho city
Delegated project owner:
2.2 Scope of project
Vinamilk Can Tho farm cluster consists of the third organic farm in Vietnam (after
2 organic farm in Da Lat and Thanh Hoa) implemented through cooperation with Song
Hau Farm on an area of over 6000ha will be a step Vinamilk’s beginning for the potential
dairy industry in the Western region.
 2.3 Stockholder
2.3.1 Project owner
Vinamilk Company
2.3.1.1 Interest
The companies in the Group are required to pay income tax at rates ranging from
10% to 40%, depending on principle activities of its factories, on taxable profits. The
Company and its subsidiaries incurred the income tax charges
- Revenue: VND 51,135 billion, reaching 100.3% of the plan.
- After-tax profit: VND 10,278 billion, reaching 105.6% of the plan.
- In terms of market share: Major product lines have grown dramatically
compared to competitors. Vinamilk's total dairy market share increased by
2% at the end of 2017 compared to that of 2016, outperforming the target
by 1%.

2.3.1.2 Right
2.3.1.3 Obligation
2.4 Context of project
Organic Farm in Can Tho City

2.5 Finance Source

Major source of capital: Head Office
Secondary Capital source: Government of Vietnam
III. ANALYSIS
3.1 Ratio Analysis
3. Financial ratios:
a.Liquidity ratio:
Liquidity ratio is the useful tool to measure the ability of Vinamilk to pay out their short-
term obligation

2015 2016 2017

Current ratio 2.78 2.89 2.99

Quick ratio 2.15 2.19 1.59

Cash ratio 0.23 0.1 0.09

b.Asset management ratio:

Assess management ratio measure how the company using its assets to create sales.
By looking at these ratios, the efficiency of company operational management is
determined.

Asset management ratio 2015 2016 2017

The inventory turnover 6.25 5.4 6.67

Days sale in inventory 58.4 67.6 54.7

Receivable turnover 19.1 16.32 11.12

Days sale in receivable 19.1 17.1 20.8

Payable turnover 10.86 9.55 6.76

Days sale in payable 33.6 35.5 44.4

Cash conversion cycle 43.9 49.2 31.1

c.Profitability ratio:
 The profitability ratio measures the earning to investors. The investors tend to prefer
to invest in the company that generates more profitability ratios. This ratio is the useful
to indicate how efficient the company’s performance.

Profitability ratio 2015 2016 2017

Profit margin 19.38 20.01 20.14

(%)

Return on assets (ROA) 29.0 32.9 32.1

(%)

Return on equity (ROE) (%) 51.5 43.2 44.4

Financial leverage 1.3 1.3 1.4

3.2 Control mechanism

3.2.1 Rewards
High return and become one of the big company in Vietnam.

3.2.2 Penalties
3.3 Monitoring mechanism

3.3.1 Conflict
Orther company : TH true milk, Bavi Milk, Mocchau Milk
3.3.2 Resolutions of conflicts
- Increace the interest and reduce the price of products.
IV. RISKS
4.1 Risks

Type of Description Related Suggested audit

risk accounts procedures
Inherit -Acquisiton of two companies - Increase in - Checking balance
risk Vietsugar and Angkor Dairy Cash and cash of bank accounts
Products Co., Ltd in 2017 equivalents -Checking
-Fixed assets calculation of
depreciation expense
- Checking or
counting a tangible
assets
Inherit The "Just in time" procurement -Decrease in - Checking or
risk, strategy has been applied inventory and counting inventory
control together with the optimization work in process storage
risk of inventory management and - Checking goods
warehouse planning at the receipt and issue
subordinate units that have cycle
brought about remarkable
results in the Company’s
inventory control and working
capital turnover, compared to
the previous year
Inherit, Since mid-November 2017, the - Increase in -Decribing the
Control Company has changed its credit account receipt of a direct
risk policy for domestic customers, receivables written respone from
in which the credit period was Vinamilk’s
increased to support sales customers to verify
better. This change led to an whether the
increase in receivables from information is
customers and reduced accurate or not
receivables turnover ratio from
21.3 to 17.6
Inherit At the end of the year, the - Increase in - Verifying the notes
risk Company applied a new note payables from third-party
payment policy with some sources
banks lending against the value
of the Company's payables to
some suppliers. This policy
helped the Company reduce its
payables turnover to 8.21 in
2017 from 10.29 in 2016.
Inherit -launching nearly 20 new - Increase in -Verifying the
risk products of liquid milk, milk revenue accuracy of the
powder, yogurt, drinking client’s record for
yogurt, baby cereal, soya milk, the sales transaction.
 ice cream and beverages, the -Checking sale
innovation has offered invoices and
consumers richer and more vendor’s invoices
comfortable experiences with
diversified choices of products.
-Market share increased by 2%

Control risk:
- The team evaluate the performance of Internal risk management of Vinamilk:
+ Vinamilk is the pioneering company in Vietnam applying advanced management
model (without control board). Accordingly, the Audit Committee of the Board of
Directors will be responsible for ensuring that the Company has an effective internal risk
management and control system. This model is effective from 15/04/2017.

+ General standards for senior management are defined in the company's Charter and
Management Regulations, including:
• "Careful" Responsibilities.
• Responsibility "Honest and avoid conflicts of interest".
• Responsibility for "information security".
• Caring and loyalty.
This assessment is conducted in two phases: personal self-assessment and direct
assessment management. For executives, the board is also based on the results of the
supervisory review of the CEO
- The company has an ISO 31000 risk management system. In 2017, Vinamilk's
subsidiaries have also set up a comprehensive risk management system based on ISO
9001: 2015, risk-based thinking:
+ Risk is always monitored and updated to take appropriate measures; Employees are
aware and responsible for risk management. The internal self-assessment system actively
contributes to staff awareness of risk management and internal control
+ Business processes are issued, updated and managed by the specialized department.
The results of the internal audit show that compliance with current procedures is very
good;
+ Has been deploying the management system for approval, storage of traditional
processes (hardcopy) to online management system to optimize the time of
implementation steps, convenient for documentation, review , approve, look up
information while limiting errors.
+ Internal Audit Charter, Internal Audit Handbook as well as internal audit practice show
that Vinamilk's internal audit has met the basic requirements of internal auditing when
compared with The internal audit is co-issued by the Ministry of Finance and the World
Bank ("WB").
+ The Audit Subcommittee monitors the effectiveness of activities, measures to prevent
frauds, violations of rules, regulations of the Company, professional ethics or law
violations. At present, the Company has set up a mechanism to direct and implement
fraud prevention measures.
 From these, Vinamilk's internal control team is good and quite effective. The
control risk is low
Reasons for the setting up the materiality: We use three levels to set up the materiality
for each account with: 0- not fluctuate or affect by other account
1- highly doubtful level
5- lowly doubtful level
3- between 1 and 5
+ For Cash and cash equivalents, auditor can check balance of cash account with bank, so
it’s difficult to happen the error so we set level 5 for these account.
+ For inventory, vinamilk has amount of invetory at high level, Vinamilk change early
their method to calculate inventory, some external documents are related to third-party
that can not verify them, so we set the highest level 1 for this account.
+For Investment and development fund or Share capital,these account are not high
fluctuation or stability in 2017 so we set level 0