SUSTAINABLEFUTURE ADVANCEMENT - smc.vn · MARKET TRENDS “Opportunities come at your most unexpected instants” – Anonymous – 10 ... galvanized steel sheets, color coated steel

2016 ANNUAL REPORT

SUSTAINABLE FUTURE ADVANCEMENT

ABBREVIATIONSSMC : SMC Trading Investment JSCJSC : Joint-stock company AGM : Annual general shareholders’ meetingIZ : Industrial zoneNPAT : Net profit after taxROE : Return on EquityEPS : Earnings per shareBPS : Book value per share BOD : Board of Directors BOM : Board of ManagementBOS : Board of Supervisory

HCMC : Ho Chi Minh CityBRVT : Ba Ria Vung Tau ProvinceJV : Joint-ventureHSX : Ho Chi Minh Stock ExchangeCEO : Chief Executive OfficerTransimex : Thu Duc Import-Export JSCMoIT : Ministry of Industry and Tradeyoy : year on yearASP : average selling priceVSA : Vietnam Steel AssociationForex : Foreign exchange

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SMC Trading Investment Joint Stock Company

CHAIRMAN’S MESSAGE

VISION – MISSION – CORE VALUE

GENERAL INFORMATION ABOUT SMC

1. Overall2. Goods and Services3. Affiliates and Distribution Network4. Historical Development and 2016 Highlights5. Organizational Structure

BOARD OF DIRECTOR

1. Introduction to the Board of Director2. Board of Directors’ Reports and Evaluations

Overview on market conditions and Evaluation on the Company’s financial performance in 2016Review on BoM’s managing activities in 2016Report on implementation of resolutions of the 2016 shareholders’ meetingReport on BoD’s activities within the yearOrientations and Tactics of the BoD in 2017

BOARD OF MANAGEMENT

1. Introduction to the Board of Management2. Board of Management’s Reports and Observations

Overview on Objective and Subjective Factors Influencing Business Performances in 2016Evaluation on 2016 Financial Performance versus Previous Year and TargetKey Financial Data AnalysisOrganizational Structure and Managing Activities in 20162017 Business Plans, Targets, and Orientations

BOARD OF SUPERVISORY

1. Introduction to the Board of Supervisory2. Board of Supervisory’s Reports and Recommendations

CORPORATE GOVERNANCE1. Risk Management 2. Organization and Human Resources3. Shareholder and Investor Relations4. Social-Community Activities and Environmental Safety5. Sustainable Growth

AFFILIATES AND JOINT-VENTURES

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

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06

08

1012141618

20

22242424252627

28

30323234353841

44

4648

505254566162

64

76

TABLE OF CONTENT

HCMC : Ho Chi Minh CityBRVT : Ba Ria Vung Tau ProvinceJV : Joint-ventureHSX : Ho Chi Minh Stock ExchangeCEO : Chief Executive OfficerTransimex : Thu Duc Import-Export JSCMoIT : Ministry of Industry and Tradeyoy : year on yearASP : average selling priceVSA : Vietnam Steel AssociationForex : Foreign exchange

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CHAIRMAN’S MESSAGE

“Smooth seas do not make skillful sailors”– African Proverb –

From the intense experience of losses in 2015, SMC has seriously evaluated and analyzed the specific causes, actively proposed concrete and applicable solutions to overcome difficulties; besides, the Company has also enhanced and built up solid trust from internal resources to external partners in order not to negatively affect the SMC brand and reputation. In any challenging circumstances, we must always be calm, understand the causes and effects, and find reliable and precise solutions to gradually overcome problems.

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At the AGM in 2016, SMC had submitted the business plan with positive expectation and strong confidence, especially the ability to pay dividend to shareholders after remedying 2015 losses. With actual earnings of VND 362.3 bn performed in 2016, SMC had completed the payment of 10% cash dividend (VND 1,000/share), gaining back confidence and faith of shareholders and investors after 2015 incident. In 2016, the BoD also executed bonus scheme to sales staff members for exceeding the assigned target profit, leading to higher inspiration, connection, and motivation within the enterprise.

The Company’s achievements are not just encapsulated in numbers but also seen as a maturing progress where sales volume has been steadily increased over years. Particularly, reviewing the 10-year milestones from 2006-2016, SMC has continuously developed its manufacturing and processing activities; total 05 factories have been invested and installed with total investment costs of VND 750bn, of which the newest steel pipe production plant operated since 2016 has been initially effective. From these plants, SMC has established an increasingly favorable relationship with leading steelmakers in Asia such as Nippon steel (Japan), China steel (Taiwan), Hyundai steel (Korea), and Formosa Ha Tinh. This results in a gradually positive movement of SMC from a purely commercial trading entity to a flat steel processing and producing company with higher profit margins and more stable customer base. In 2016, flat steel segment has accounted for 42% total sales volume and is aimed at 50% contribution in the coming times. These things are repeated to emphasize the proper objectives and long term orientations of the Company.

Dear valued shareholders and investors,Entering into the new year 2017, SMC has overcome its difficulties and has advantages accumulated from the previous year for further positive movements, yet there will also be many challenges that should not be offhand. The global economy is still complicated and unpredictable with unknown impacts and influences from the US new president, the UK brexit, and the Europe crisis. Internally, the Vietnam economy is still struggling to settle and solve problems of bad debts and slow changes of the state management apparatus, which would result in higher risks of capital adequacy, foreign exchange rate, and interest rate.

With SMC, we are confident following the theme of “Sustainable Future Advancement” for 2017, with the expectation that the Company will continue to grow further and stronger from the favorable practicalities of the previous year. After overcoming the serious trial in 2015, there is no such challenge that could prevent the advancement of SMC, although with great cautious, sometimes, the leap is restrained, yet the stability and sustainability of future development will always be ensured.

Sincerely,

Chairman of the Board of DirectorSMC Investment Trading JSC

NGUYEN NGOC ANH

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VISION – MISSION – CORE VALUES

VISION

SMC is committed to comply with the role of a prestigious and professional steel corporation in terms of processing, manufacturing, and distributing different types of steel products, regularly self-improved and innovated to ensure and enhance the quality of goods and services provided, to meet diverse needs of customers and markets.

Being a PRESTIGIOUS AND PROFESSIONAL STEEL DISTRIBUTORMentioning steel, thinking of SMC - Mentioning SMC, thinking of steel

CORE VALUES

Being professional in all activitiesMaximizing customers’ benefits Fulfilling customers’ expectationsMotivated towards common goals and targetsHonoring integrityBeing prestigious and professionalWilling to learn

MISSION SMC desires to focus its capability and know-how for benefits of customers and to contribute to the stable and sustainable future of the domestic steel industry.

BUSINESSPHILOSOPHIES

Understanding others, understanding ourselvesPioneer in all activitiesBalancing all interests

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THÔNG TIN CHUNG

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CATCHINGMARKET TRENDS

“Opportunities come at your most unexpected instants” – Anonymous –

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1. OvErALL

Vietnamese name :CôngtyCổphầnĐầuTưThươngMạiSMCEnglish name : SMC Trading Investment Joint Stock CompanyTrading name : Steel Materials CompanyAbbreviation : SMCHead quarter : 396 Ung Van Khiem st, Ward 25, Binh Thanh District, HCMCTel : (84 - 08) 38 99 22 99Fax : (84 - 08) 38 98 09 09 Website : www.smc.vnCharter Capital : 295,183,610,000 VND Ticker : SMCFace value : 10,000 VNDListed shares : 29,518,361 shares listed in Ho Chi Minh Stock Exchange (HSX)Business activities :

Producing, processing, trading, importing and exporting all kind of steel products, metal goods, construction materials, interior decoration, construction equipment, mechanical equipment, warehouse framework, stainless steel, and aluminum.Construction and installation of civil, industrial, transport, irrigation, and interior design projects in accordance with the laws.Preparation of construction investment projects, consulting, designing, and trading lodgment in accordance with the laws.Trading electrical products, groceries, consumer food and goods.Logistics and warehousing services for domestic and import – export productsTrading real estate and land use rights of the owners or lessee.

SMC

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2. GOOdSANd SErviCES


Hot rolled coil Cold rolled coilRound steel

Welded wire mesh

Steel pipe Purlin Warehouse service

Coil Center

Rebar

Wire rod

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Coil Center system with factories located at BRVT, HCMC, and Hanoi are well equipped with modern machineries and processing lines imported from Taiwan according to Germany technology. Scientific management technique according to ISO 9001:2000 allows the processing systems to professionally split and cut various sizes of cold and hot rolled coils, galvanized steel sheets, color coated steel sheets, and stainless steels with high quality and precision.

Vietnam - Japan JV SENDO steel pipe processing factory with designed capacity of 60,000 - 80,000 tons per year providing various kinds of steel pipe products including round tubes, square tubes, and rectangle tubes in original black steel or galvanized steel.

Vietnam - Japan Weld mesh production plant, specializing in manufacturing high quality weld mesh products.

Coil Center system Steel pipe

Construction steels including Wire rod, Rebar, Round steel, and Deformed steel

Welded wire mesh

Steel pipe

Section steel (H,I,U)

Flat steels including Hot rolled coil, Cold rolled coil, Galvanized steel plates, flat bar.

Purlin

High tensile steel

Secondary steel

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Head Office:SMC TRADING INVESTMENT JOINT STOCK COMPANY396 Ung Van Khiem st, Ward 25, Binh Thanh District, HCMCTel: (84-8) 3899 6067 – Fax: (84-8) 3898 0909Website: http://www.smc.vn

AffiliatesSMC STEEL MECHANICAL CO., LTDStreet 1B, Phu My I Industrial Zone,Ba Ria – Vung Tau ProvinceTel: (064) 3922 933Fax: (064) 3922 969

SMC BINH DUONG ONE MEMBER CO., LTDStreet 05, Dong An Industrial Zone,Thuan An District, Binh Duong ProvinceTel: (0650) 3769526 – 3769573 – 3769678 Fax: (0650) 3783839 – 3765839

SMC TAN TAO CO., LTDLot No. 33, Tan Tao Industrial Zone,Tan Binh District, HCMCTel: (84-8) 3754 7454Fax: (84-8) 3754 5666

SMC STEEL CO., LTDStreet 1B, Phu My I Industrial Zone,Ba Ria – Vung Tau ProvinceTel: (064) 3922 866Fax: (064) 3922 469 SMC STEEL TRADE CO., LTD124 Ung Van Khiem st, Ward 25,Binh Thanh District, HCMCTel: (84-8) 3899 6067Fax: (064) 3512 6018

SMC HA NOI JSCLot No. 47, Quang Minh Industrial Zone,Me Linh District, Ha NoiTel: (84-4) 352501522Fax: (84-4) 3525 1526

SMC HIEP PHUOC CO., LTDLot No. C5A, C Area Hiep Phuoc Industrial Zone, Nha Be, HCMC

3. AFFiLiATES ANd

Affiliates Joint-ventures with foreign partners07 03

diSTriBuTiON NETwOrk


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Joint-ventures with foreign partners

SMC - SUMMIT LIMITED LIABILITY COMPANY (JV between SMC and Summitomo Group Japan)Phu My 1 Industrial ZoneTan Thanh District, Ba Ria – Vung Tau ProvinceTel: (064) 3922 955 - 3922 966Fax: (064) 3922 969Rep Office: 396 Ung Van Khiem, Ward 25,Binh Thanh District, HCMC Tel: (84-8) 3899 2299Fax: (84-8) 3898 0909 SENDO STEEL PIPE JOINT VENTURE CO., LTD(JV between SMC and HANWA)Street 1B, Phu My I Industrial Zone,Ba Ria - Vung Tau ProvinceTel: (064) 3922 955 – 3922 881Fax: (064) 3922 969Website: http://www.sendopipe.com

SMC TOAMI CO., LTD. (JV among SMC - TOAMI Corp - HANWA Co., Ltd.)Street 1B, Phu My I Industrial Zone,Ba Ria - Vung Tau ProvinceTel: (064) 3924 410Fax: (064) 3924 411Website: www.smc-toami.vnRep Office: Level 5 – 396 Ung Van Khiem,Ward 25, Binh Thanh District, HCMC Tel: (84-8) 3899 2299Fax: (84-8) 3898 0909

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4. HiSTOriCAL dEvELOpMENT ANd

Establishment of the Construction Materials

Store No. 15 belonged to the Southern Retail and

Wholesale Construction Materials Center.

1988

Establishing SMC Binh Duong One Member

Co., Ltd and SMC Mechanic Steel One

Member Co., Ltd

2008

Transformation into Manufacturing and

Trading Construction Materials Enterprise

No.1

1996

Establishing SMC Hiep Phuoc One Member

Co., Ltd and Steel Trading One Member

Co., Ltd

2009

Official launch of SMC brand name – which

stands for “Steel Materials Company”

1998

Completing strategic goals for the 5-year

period 2006-2010 with total steel consumption volume of 558,000 tons

2010

Receiving Third Class Labor Medal and

officially introducing SMC logo

2002

Establishing SMC Ha Noi Joint Stock

Company

2011

2016 HiGHLiGHTS


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Oct 2016 – Memorandum of Understanding Signing Ceremony be-tween SMC and Hyundai Steel on HRC Supply and Consumption

Oct 2016 – SMC TOAMI Wire Mesh Factory opening ceremony

1,042,672 tons total Sales Volume

VND 9,441 bn Net Sales Revenue

VND 362.3 bn Net Profit after Tax

2016

Registering trademark certification for

SMC brand

2003

Establishing Joint Venture SMC – Summit between

SMC and Sumitomo Group (Japan)

2012

Equitization and changing into SMC

Trading Investment Joint Stock Company

2004

Receiving First Class Labor Medal and establishing

SMC Tan Tao One Member Co., Ltd

2013

Listed on Ho Chi Minh Stock Exchange with the

ticker SMC

2006

Completing strategic goals for the 5-year

period 2011-2015 with total steel consumption volume of 867,000 tons

2014

Receiving Second Class Labor Medal and establishing SMC Steel

Co., Ltd at BRVT

2007

Establishing Joint Venture SMC – Toami

between SMC – Toami Group (Japan) – and

Hanwa Group (Japan).

Establishing Joint Venture SENDO steel

pipe between SMC and Hanwa Group (Japan)

2015

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DEPUTY GENERAL DIRECTOR OF PRODUCTION

STANDING DEPUTY GENERAL DIRECTOR

DEPUTY GENERAL DIRECTOR OF PROJECT

STORE No. 147 STEEL BUSINESS DEPARTMENT

STORAGE DEPARTMENT

IMPORT-EXPORT DEPARTMENT

PURCHASE DEPARTMENT

PROJECT BUSINESS DEPARTMENT

SMC STEEL Co.,LTD

SMC MECHANICAL ONE

MERBER Co., LTD

SMC STEEL TRAD-

ING ONE

MEMBER Co., LTD

SMC HANOI

JSC

SMC HIEP

PHUOC ONE

MEMBER Co., LTD

SMC TAN TAO ONE

MEMBER Co., LTD

SMC BINH

DUONG ONE

MERBER Co., LTD

PROJECT BUSI-NESS

DIVISION

5. OrGANizATiONALSTruCTurE


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GENERAL MEETING OF SHARE HOLDERS

BOARD OF SUPERVISORS

BOARD OF DIRECTORS

CEO

DEPUTY GENERAL DIRECTOR OF FINANCE & ACCOUNTANCY

DEPUTY GENERALDIRECTOR OF ADMINISTRATION

JOINT VENTURE

FINANCIAL DEPARTMENT PERSONNEL DIVISION

ACCOUNTING DEPARTMENT ADMINISTRATIVE DIVISION

BOARD OF INTERNAL CONTROL MARKETING DIVISION

BOARD OF RISK CONTROL PROJECT DIVISION

ERP DIVISION TECHNICAL DIVISION

SMCSUMMIT LIMITED LIABILITY COMPA-

NY

SENDO PIPE

JOINT VEN-TURE

CO., LTD

SMC TOAMI LIMITED LIABILITY COMPA-

NY

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TAKING ADVANTAGE OFOPPORTUNITIES

“Chance happens to all, but to turn chance to account is the gift of few” – Edward Bulwer Lytton –

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Mr.NGUYEN NGOC ANHYear of Birth: 1957

Qualification: Bachelor of Finance

Chairman of SMC BoD member of Thong Nhat Steel JSC

Mrs. NGUYEN THI NGOC LOAN Year of Birth: 1961

Qualification: College of Business Administration

Vice Chairwoman of SMC

1. iNTrOduCTiON TO THE BOArd OF dirECTOrS

BOARD OF DIRECTORS

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Mr.MA DUC TUYear of Birth: 1958

Qualification: Bachelor of Banking

SMC BoD memberChairman of TransimexBoD member of Real Estate No.9 JSC

Mr.VO HOANG VUYear of Birth: 1978

Qualification: Bachelor of Business Administration

SMC BoD Member

Mr.TAIRA YOSHIYUKIYear of Birth: 1967

SMC BoD memberCEO of Hanwa Vietnam Co., Ltd

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OVERVIEW ON MARKET CONDITIONS AND EVALUATION ON THE COMPANY’S FINANCIAL PERFORMANCE IN 2016Encountering the aftershock of 2015, SMC was prudent and did not set too high expectation on 2016 business and financial performances, as market situations were still complicated and unpredictable. In fact, there were unexpected fluctuations in economic and political factors occurred in and outside the country. In the country, the 2016 GDP growth only reached 6.21%; lower than the target as well as the previous year. The construction and operation of Formosa factory in Ha Tinh province also raised a serious environmental safety issue and concerns on the correlation between economic development and environmental protection. In addition, expectation to join TPP of Vietnam to facilitate the market economy institutions, boost export and restructure export-import markets came into the dead end. Meanwhile, the world circumstances with such events as Brexit or the US new president election also had more or less effects on the market.

However, many opportunities and advantages have continuously occurred to the steel industry in particular and created a very virtuous business opportunity for companies in the industry, stemming from the following factors: (1) drastic restructuring of the coal and steel industries in China, (2) global steel prices rebounded positively from mid March after reaching the bottom, (3) trade protection by domestic government, and (4) vibrant domestic reals estate and construction markets. Ending 2016, total consumption volume of construction steel products of the whole industry reached over 8.42 million tons (+20.6% yoy), total consumption of steel pipe products were over 1.94 million tons (+23.1% yoy), and total steel sheet consumption volume were more than 2.93 million tons (+31.4% yoy).

Thanks to well catching up and making good use of the favorable market conditions, SMC’s business earnings result in 2016 was impressive despite of no significant changes in sales volume and sales revenue. From the heavy losses of nearly VND 200bn at the end of 2015, SMC had officially repaired all the losses after the first half of 2016. The Company continued to perform well and effectively created positive cash flow and earnings in the last 6 months of the year, eventually delivering the accumulated net profit after tax of VND 362.3bn for the whole year 2016.

REVIEW ON BOM’S MANAGING ACTIVITIES IN 2016In 2016, the BoM has well accomplished the business objectives and plans. Although the sales revenue target was not achieved, the sales output target was completed with higher consumption over the previous year and well maintained above 1 million tons per year. Especially, earnings target was excellent accomplished. The BoD’s managing and directing activities were closely attached and monitored along with market conditions, in order to provide and implement timely and appropriate solutions to cope with various market movements. In particular, the BoM was always cautious in purchasing decisions and maintained inventory at reasonable level, despite of goods shortage occasionally, which helped the Company being active with stable and favorable business operating activities. With the positive business results in the past year, the BoD highly appreciated the efforts and management of the BoM, which greatly contributed to the maintenance and development of SMC brand name and belief in the market globally and domestically.

Net profit after taxVND362 bn

2. BOArd OF dirECTOrS’ rEpOrTS ANd EvALuTAiONS

BOARD OF DIRECTORS

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The private placement to strategic shareholder which was expected to be done in 2016, however, due to objective factors, has not been completed on time but is extended to 2017. As approved by the AGM last year, SMC will issue a 15% stake to Hanwa Group at the expected price not lower than book value per share. This capital increase would help SMC fulfil the capital needs for further increases in its steel processing capacity, as well as developments of joint-ventures with foreign partners. As of 30th June 2016, book value per share of SMC was approximately VND 22,000 per share. However, SMC had collected the approval of shareholders on the issue of discounted issuance price for Hanwa at VND 18,000 per share, on the two main reasons as followed:

(1) Hanwa is a strategic partner which has long term business cooperation with SMC. Their cooperation has created the prestige and business efficiency between two parties. They are expected to continue having positive and important contributions and stick to the orientation of long term sustainable development of the Company.

(2) SMC share price traded on the market at the time of private placement price negotiation ranged from VND 17,000 to 18,000 per share.

REPORT ON BOD’S ACTIVITIES WITHIN THE YEARThe BoD has implemented its functions as navigation and surveillance of BoM’s activities in implementing the resolutions of the AGM and the BoD in 2016.

During the financial year 2016, the BoD has held 14 regular and extraordinary meetings with the participations of the BoS and the executive board in order to provide strategic plans and precise and timely commands and decisions to enhance business investment and economic efficiency as well as to ensure sustainable development for the whole system. Besides that, the BoD also organized several meetings in form of consulting the BoD members by written documents to guideline solutions related to such issues as basic construction, human resources development, investment activities, and corporate governance structure amendment; to closely monitor activities of the executive board in implementing resolutions and decisions of the AGM and the BoD, and to issue internal documents and regulations. The resolutions and decisions of the BoD based on not only the consensus of all board members but also the benefits and interests of all shareholders for the Company’s’ sustainable growth in the future.

Cash dividend1,500VND/share

Key items Unit 2016 Targets 2016 Actual % Target

Total steel sales volume Tons 1,000,000 1,042,672 104.3%

- Construction steel Tons 565,000 576,186 102.0%

- Flat steel Tons 330,000 372,418 112.9%

- Other steels Tons 105,000 94,068 89.6%

Total Sales Revenue VND bn 10,100 9,447 93.5%

Net Profit after tax VND bn 60.0 362.3 603.8%

Dividend payment VND/share 0.0% 15.0% n/a

Audit firm selection The BoD selected the DFK Vietnam Audit Firm to perform the Company’s 2016 audited financial statements

REPORT ON IMPLEMENTATION OF RESOLUTIONS OF THE 2016 SHAREHOLDERS’ MEETING

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BOARD MEMBERS AND STRUCTURE IN 2016From the 23rd April 2016, Mrs. Vu Thi Thanh Hong – independent board member – no longer participated in and being a member of the SMC BoD.

No Name Position Share owned % Other positions

1 Nguyen Ngoc Anh Chairman 5,533,463 18.75 BoD member of Thong Nhat Steel JSC

2 Nguyen Ngoc Loan Vice Chairwoman 2,679,099 9.083 Vo Hoang Vu Member 105,667 0.364 Taira Yoshiyuki Member 0.0 0.0 CEO of Hanwa VN Co., Ltd5 Ma Duc Tu Independent

member2,400 0.01 Chairman of Transimex / BoD

member of Real estate No. 9 JSC

CRUCIAL BOARD’S MEETINGS WITHIN THE YEARThe BoD had periodically and quarterly meetings with supervisory board, BoM, executive board, and key members to evaluate the implementation of BoD’s resolutions and the Company’s performance, to discuss and agree on operational guidelines and solutions, and to plan for next quarter business operation and performance. In addition, the BoD also organized extraordinary meetings to timely consider and approve on important issues related to the BoM’s operating activities.

Date Participants Key conclusions from meetings

02.01.2016 5/5 Members - Consensus on guarantee for SMC SUMMIT borrowing at Vietcom-bank, HCMC brand to execute 2016 business plan

04.01.2016 5/5 Members - Consensus on bank loans at VP Bank to employ 2016 business plan19.01.2016 5/5 Members - Summary of SMC’s business operating and financial performance in

2015 and orientations and targets for 201626.01.2016 5/5 Members - Consensus on guarantee for SMC Tan Tao and SMC Steel Trading

Co. to borrow at Vietinbank, Dong Sai Gon branch to employ 2016 business plans

24.03.2016 5/5 Members - Evaluation on Q1/2016 performances, and plans for 2016 AGM- Proposal of candidates for the new BoD and BoS period 2016-2020

23.04.2016 5/5 Members - 2016 AGM approved all the issues proposed, the new BoD for the period 2016-2020 takes responsibility for the AGM’s resolution implementation

2. BOArd OF dirECTOrS’ rEpOrTS ANd EvALuTAiONS

BOARD OF DIRECTORS

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Date Participants Key conclusions from meetings

12.07.2016 5/5 Members - Assessment on 1H2016 business operating and financial performances- Orientations and targets for the last 6 months- Deployment of tasks and objectives in the last 6 months

14.07.2016 5/5 Members - Consensus on guarantee for SMC Binh Duong and SMC Steel Trading Co. to borrow at Vietinbank, Dong Sai Gon branch to employ 2016 business plans

26.08.2016 5/5 Members - Approval on the 1st cash dividend payment for 2016 by 5% face value (500 VND/share)

07.10.2016 5/5 Members - Approval on key targets for 2017- Approval on the private placement plan for strategic shareholder

31.10.2016 5/5 Members - Establishment of vote counting committee of SMC shareholders

16.11.2016 5/5 Members - Collect shareholders comments in writing on private placement issue

22.11.2016 5/5 Members - Deploy the private placement plan

09.12.2016 5/5 Members - Approval on the 2nd cash dividend payment for 2016 by 5% face value (500 VND/share)

ORIENTATIONS AND TACTICS OF THE BOD IN 2017In 2017, the BoD will continue enhance corporate governance capability, closely monitor the actual situations and conditions of global and domestic economy, market and the Company to forecast, instruct, and support the BoM and the executive board in performing the orientations and objectives set out, improve performance efficiency, increase investment activities, and strengthen position and competiveness to create concrete foundation for sustainable growth in coming years.

The BoD persists to organize regular meetings to discuss and approve reports, plans, objectives, and other important issues of the Company in order to timely and effectively instruct the implementation of AGM’s resolutions. The BoD also holds other extraordinary meetings to timely handle problems and issues that arise, continues to strengthen the Company’s management system, enhances corporate governance capability, and focuses on training and developing human resources to meet the development requirements of the whole system

In 2017, the BoD will continue enhance corporate governance capability, closely monitor the actual situations and conditions of global and domestic economy, market and the Company to forecast, instruct, and support the BoM and the executive board in performing the orientations and objectives set out

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“You have to accept whatever comes and the only important thing is that you meet it with courage and with the best that you have to give”

– Eleanor Roosevelt –

STRENGTHENEDCORE VALUES

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PROACTIVEPROBLEM-SOLVING

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BOARD OF MANAGEMENT

1. iNTrOduCTiON TO THE BOArd OF MANAGEMENT

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Mr.NGUYỄN NGỌC ANHCEO Year of Birth: 1957Qualification:Bachelor of Finance

1.

2.

3.

4.

5.

6.

Mr.NGUYEN BINH TRONG Deputy General Director / Accounting and Finance ExecutiveYear of Birth: 1963Qualification:Qualification: Bachelor of Accounting and Finance

Ms. NGUYEN THI NGOC LOAN Deputy General Director / Sales ExecutiveYear of Birth: 1961Qualification:College of Business Administration

Mr.VO HOANG VUDeputy General Director / Production ExecutiveYear of Birth: 1978Qualification:Bachelor of Business Administration

Ms.NGUYEN HONG CHAU Deputy General Director / Project Executive Year of Birth: 1974Qualification:Bachelor of Commerce

Mr.NGUYEN VAN TIENDeputy General Director / HR and Administration ExecutiveYear of Birth: 1953Qualification:Bachelor of Sociology

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BOARD OF MANAGEMENT

OVERVIEW ON OBJECTIVE AND SUBJECTIVE FACTORS INFLUENCING BUSINESS PERFORMANCE IN 2016Objective factors:If the drastic slump in 2015 steel prices drowned most companies in the steel industry, the opportunity emerged in 2016 on the other hand has assisted all steel-making and trading enterprises to perform far from expectations, including SMC.

After more than a year of uncontrollably dropping, steel prices began to stop falling since Feb 2016 and gradually recovered. In addition, restructuring activities for the coal and steel industries were aggressively executed by Chinese government through radical cuts in production and closure of weak, inefficient, and polluted factories. Meanwhile, Chinese trading forces and speculators were

actively stocked up, significantly contributing to the world steel price explosion from Mar 2016. In particular, the HRC price rapidly boosted from USD 295/ton to around USD 500/ton by the end of April 2016, equivalent to nearly 70% price increase just within a short time. The higher the price, the more scarcely of supply. This trend quickly spread from China to other Asia countries and the global catastrophe. Most of the large steel mills in Asia such as Nippon steel, China steel, Posco steel, Hyundai steel… were in shortage of supply, leading to a severe scarcity of volume and rocketing price during the period from Mar to May 2016.

At the same time, in Vietnam, the MoIT on the 7th Mar 2016 issued a provisional anti-dumping duty on imported billets and construction steel products (including wire-rod), with the corresponding tax rate of 23.3% and 14.2%, being effective from 22nd Mar 2016 and applied within maximum 200 days. With both favorable domestic and

2. BOM’S rEpOrTS ANd OBSErvATiONS

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foreign factors facilitating positive trend of the industry, prices of all steel products from construction steel, HRC, CRC, section steel, coated steel, to steel pipe went up strong and fast during March and April. Most domestic steel mills had to operate at full capacity while inventories were running low.

On the 18th July 2016, the MoIT issued an official decision imposing commercial safeguard duties on imported billets and construction steels. In particular, constant tax rate was applied for imported billets at 23.3% and higher tax rate of 15.4% was applied to imported construction steel products, being effective from 2nd Aug 2016 to 21st Mar 2017. The galvanized steel sheets were also subject to a temporary safeguard tariffs ranging from 4.02% to 38.34%, being effective from 1st Sept 2016. As steel demand and consumption in the domestic market remained positive, steel products were officially traded at the new price levels toward the 2016 year-end, which was much higher than the beginning year price level.

Subjective factors:Regarding to SMC, the 2015 performances had brought considerable pressures for the process of overcoming difficulties and recovering losses in all production and business activities of the subsequent years. In 2016, SMC started to implement the self-accounting and self-responsibility method in all affiliates and JVs, step by step stabilizing and enhancing accountability of each member. With the focus and priority on business safety, quality, and efficiency, each unit member has taken advantage of opportunity, searched and materialized operating profits, and handled situations along with market movements quite well, ensuring the overall benefit and profitability for the whole system

The five main solutions in monitoring business activities “4 decreases – 1 increase” including reducing total assets, reducing bank loans, reducing inventory at reasonable level, reducing expenses, and increasing profits are always implemented positively. Also, the prudent and non-greedy slogan is always a prerequisite in every activity. With steady and stable sources of inventories and goods in transit, SMC already had available goods at attractive prices to realize profit and actively participated in the market when steel price was uptrend. Nevertheless, SMC also experienced a shortage of goods occasionally in the first half of 2016, yet the Company still closely attached to the solutions and guidelines set out to ensure the reasonability and safety priorities. In 2016, besides existing relationships with long-term steel partners and suppliers, SMC has developed a good connection with Formosa and Hyundai Steel, creating additional supply sources which positively supported for the operation and business performance of the Company.

In summary, there is no doubt that the favorable market and industry conditions in 2016 were key drivers creating an exceptional opportunity for good business performances of all steel enterprises. However, it should be noticed that when the opportunity comes, determining and capturing opportunity to create and to realize operating profits is not a simple thing that any business can utilize. Steel is a high value industry; the only 5% to 10% changes in steel prices already have significant impacts on steel company’s operating activities and performance results. This hence forces companies to built up and maintain their own management capability, competitiveness, and problem solving ability in order to cope with fluctuations in steel prices.

With steady and stable sources of inventories and goods in transit, SMC already had available goods at attractive prices to realize profit and actively participated in the market when steel price was uptrend

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EVALUATION ON 2016 FINANCIAL PERFORMANCE VERSUS PREVIOUS YEAR AND TARGET

Key items Unit 2015 2016 Actual +/- % 2016

Target % Target

Total steel sales volume Tons 1,004,846 1,042,672 3.8% 1,000,000 104.3%

Net sales revenue VND bn 10,046 9,441 -6.0% 10,100 93.5%

Net profit after tax VND bn -196.1 362.3 n/a 60.0 603.8%

By the end of 2016, SMC consumed more than 1.04 million tons of various steel products, a slight increase by 3.8% yoy and fulfilling 104.3% whole year target. Due to lower ASP, total net sales revenue in 2016 only reached VND 9,441 bn, down 6% over the same period and only equal to 93.5% plan. Yet, benefiting from the faster and stronger steel price recovery than expectation, SMC was finalized in 2016 with a breakthrough net profit after tax of VND 362.3bn, equal to 6.04 times the plan, in which the highest leap occurred in the second quarter, accounting for nearly 46% total earnings of the Company. Thanks to this impressive result, SMC not only offset all the losses incurred in 2015, but also had a sufficient retained earnings source to support for the new development era of the Company. SMC had forecasted that it would take from two to three years to completely overcome the 2015 losses, but the actual results achieved in 2016 has brought excitement, confidence, and power for the whole system pursuing the new growth.

1.04 million tons

VND9,441bn VND362.3bnSales volume Net Sales Revenue Net Profit after tax

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KEY FINANCIAL DATA ANALYSIS

Sales Revenue and Sales Volume

In 2016, total steel sales volume of SMC was 1,042,672 tons, slightly up by 4% from the previous year, and achieving 104.3% whole year target. In the two main product segments of construction steels and flat steels, total sales consumption of construction steels in 2016 reached 576,186 tons, slightly gained 1.6% yoy, meeting 102% full year target and accounting for 55.3% whole system’s total sales volume. Total sales volume of flat steel products in 2016 was almost 440,000 tons, up 12% yoy and accounting for 42% of total consumption. The flat steel segment continues to increase its importance and prominence in the structure and business results. If the construction steel segment has low profit margin, aggressive competition, and heavy dependence on the real estate and construction market, the flat steel segment provides better profit margins, higher efficiency and stability, and has more stable and stronger growth trend.

2016

2015

2014

2013

2012

1,042,672

1,004,846

867,378

717,342

601,669

56.4%

22.9%

12.1%

3.3%

55.3%

21.0%

14.7%

5.1%

0.8%

1.5%

3.0%

1.3%

1.3%

1.3%

Total Steel Sales Volume 2012-2016

Total Steel Sales Volume Break-down for 2015 - 2016

2016

2015

2014

2013

2012

9.441

10.046

10.917

9.651

8.964

Net Sales Revenue 2012 – 2016

VND bntons

Section steel

Steel pipe

Others

Section steel

Steel pipe

Others

Construction steel

HRC

CRC & coated steel

Processed steel

Construction steel

HRC

CRC & coated steel

Processed steel

2015 2016

36

OPERATIONAL EFFICIENCY AND PROFITABILITY

Key items Unit 2015 2016 +/- %

Operational costs and expensesCost of goods sold VND bn 9,901.8 8,716.7 -12.0%Selling expenses VND bn 156.4 177.8 +13.7%General and Administrative expenses VND bn 102.4 119.9 +17.1%Financial expenses VND bn 151.2 103.4 -31.6%Interest expenses VND bn 106.7 89.9 -15.7%Operational efficiency and profitabilityGross profit VND bn 144.7 724.3 +400.7%Financial Revenue VND bn 52.8 64.6 +22.5%Profit before tax VND bn -187.5 401.8 n/aNet profit after tax VND bn -196.1 362.3 n/aGross margin % 1.4 7.7 +6.3%Profit before tax margin % n/a 4.3 n/aNet margin % n/a 3.8 n/aNPAT/Total Assets (ROA) % -6.5 7.8 n/aNPAT/Total Equity (ROE) % -50.1 48.2 n/a

Firstly, global and domestic steel prices surged sharply in 2016. Secondly, SMC had steady and stable import volume when it finished imported orders from the beginning of the year, so the Company was able to have considerable profit margins, beneficial from the steel price increase and good market consumption in 2016. In summary, SMC’s gross profit in 2016 was four times higher than the same period last year, reaching over VND 724 bn. The gross margin was very high at 7.7% versus 1.4% only last year, and was recorded as the highest level ever.

With good margins, SMC has had strong cash flow during the revolving period, taking advantage of the time deviation between cash flow from receivables and payables to optimize cash-flow through short-term deposits, as so accumulated financial revenue

for 2016 increased 22.5% from the previous year. At the same time, SMC also actively reduced loans with good profitability performance, ensuring rapid return on capital, resulting in lower interest expenses by 16% from the year before. In 2016, with the SBV’s foreign exchange stabilization policy, SMC was significantly reduced its financial losses on forex movements compared to 2015, contributing to a 31.6% yoy decrease in total financial expenses in 2016. All the factors above together helped the business performance in 2016 breakthrough with earnings after tax of VND 362.3 bn. Most performance and profitability ratios of the Company including net margin, ROA, and ROE were positive in 2016, of which ROE ratio achieved an impressive result of 48.2%

.

48.2%ROE

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Total assets of SMC at the year-end 2016 was more than VND 4,650bn, considerably increased by 53.6% yoy, equivalent to an increase by VND 1,624 bn, mainly from the increase in current assets. Total current assets at the end of 2016 was VND 3,952bn, up sharply by 70.6% yoy, in which cash and equivalents, account receivables, and inventory were all surged up. Along with a strong recovery in prices as well as the stockpiling of goods prepared for business operations in 2017 under different market conditions from the previous year, the value of inventory at the end of 2016 increased strongly by 193% yoy.

Similarly, with strong and positive business activities in last months of 2016, sales revenue in quarter fourth of

2016 was more than doubled compared to the average sales revenue in previous quarter, and accounted up to 53.7% total sales revenue of the whole year, leading to relatively high account receivables level by year-end. Account receivables at the end of 2016 increased by 58.8% yoy, in which receivables from customers were relatively high at VND 1,089.4bn, up 41% over the previous year, easily leading to concerns of investors on the potential risks of debt collection. If this is not strictly controlled, the emergence of bad debts will definitely negatively influence the Company’s’ business results. However, SMC is always aware and takes the initiative to foresee the problems and have appropriate solutions to ensure the rationality, safety, and business efficiency.


Current Assets VND bn 2,316.4 3.952 +70.6%

Cash & Equivalents VND bn 94.9 265.9 +180.2%

Account Receivables VND bn 832.3 1,321.5 +58.8%

Inventory VND bn 490.6 1,437.0 +192.9%

Non-Current Assets VND bn 710.6 698.7 -1.7%

Total Assets VND bn 3,027.0 4,650.7 +53.6%

TOTAL ASSETSTotal Assets

VND4,650bn

38


Short-term Liabilities VND bn 2,522.9 3,810.3 +51.0%

Short-term bank loans VND bn 1,782.5 2,626.8 +47.4%

Account Payables VND bn 691.7 1,007.2 +45.6%

Long-term Liabilities VND bn 112.9 89.5 -20.7%

Long-term bank loans VND bn 109.3 85.6 -21.6%

Total Liabilities VND bn 2,635.8 3,899.8 +48.0%

Total Owner’s Equity VND bn 391.2 751.0 +92.0%

Total bank loans/Owner’s Equity % 483.6 361.2 -122.4%

Total liabilities as at 31st Dec 2016 of SMC was nearly VND 3,900 bn, an increase of VND 1,264bn or 48% yoy, of which, mainly increased from short term liabilities while long term liabilities downed nearly 21% over the same period. Total short term liabilities at the end of 2016 was VND 3,810bn, up by VND 1,287bn, or 51% yoy from 2015, mainly from short term bank loans increase of VND 844 bn (+47.4% yoy), and account payables increase of nearly VND 316 bn (+45.6% yoy). In addition, long term bank loans at the end of 2016 decreased by VND 23.6bn, equivalent to 21.6% decrease compared to the previous year.

Although in terms of absolute number, total bank loans of SMC at the end of 2016, mainly short-term bank borrowings, increased significantly from the previous year, yet in terms of capital structure, the total debt to equity ratio of SMC in 2016 was considerably improved from 5 times in the previous year to 3.6 times, thanks to efficient business results and positive cash flow, as well as the tight implementation of capital restructuring objectives proposed in previous years. SMC will gradually improve its operating and working capital as well as the debt to equity ratio, sticking to the long term orientation of capital efficiency, the balance between short and long term loans with low financial costs, in order to ensure stable, effective, and sustainable development objectives of the whole system.

ORGANIZATIONAL STRUCTURE AND MANAGING ACTIVITIES IN 2016Operation and Production Management

In 2016, SMC still maintains sales volume of above 1 million tons per year. Total sales consumption of various steel products has increased but not much compared to the previous year, as SMC has mainly focused on efficiency target and sticking to key solutions “4 decreases – 1 increase” throughout last year. Overall, business operation and production management activities in 2016 has achieved the goals of stabilizing market share, increasing sales volume, generating positive sales revenue and cash flow, and achieving impressive business results.

All the Coil Center plants are well performed and achieved high efficiency, significantly contributing to further increase the proportion of flat steel products in total sales volume. If SMC suffered major loss in 2015 mainly due to the hot rolled steel related business activities, the segment would on the other hand have contributed significantly to the overall efficiency and profitability of the whole system in 2016. However, it can be said that the increase in outputs and proportion of flat steel segment in SMC’s operating structure cannot be accelerated as expected because of the

BOARD OF MANAGEMENT


TOTAL LIABILITIES AND OWNER’S EqUITY

Total Owner’s EquityVND751bn

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IMPORT –EXPORT ACTIVITIES


Total export volume Tons 151,750 143,635 -5.3%

Total import volume Tons 427,085 444.248 4,0%

Total export volume/ Total steel sales consumption

% 15.1 13.8 -1,3%

Total export volume of SMC in 2016 reached 143,635 tons of steel, down 5.3% from the previous year and accounted for 13.8% total steel sales consumption of the whole company. Besides current familiar export markets such as Cambodia and Laos, SMC has successfully expanded its exports to Thailand and Australia in 2016 with the satisfactory preliminary results. Hence, the export activities will be increasingly focused on promoting and diversifying both products and markets in the coming time.

Total import volume of SMC in 2016 was 444,248 tons of various steel products, slightly increased by 4% from 2015, in which there were significant shift in the structure of imported goods. Specifically, after the government imposed self-defense tariffs on wire rod items from Mar 2016, the Company’s wire rod

environmental impacts issue of Formosa steel complex, which has slowed the development of the domestic hot rolled coil product.

SENDO steel pipe joint-venture officially came into operation for the first year with many difficulties and challenges, mainly come from the organizational structure and consumption markets. However, the operation of the factory has been gradually improved and stabilized, the export market has been quickly affirmed, developed, and expanded. The performance is relatively positive and the demand for further investment continues to increase, targeting at the new position in the market and better serve the needs of customers.

In 2016, SMC has completed the application for permission and environmental impact assessment to prepare for the construction and implementation of the coil rolled steel bleaching and plating lines. In 2017, SMC will strive to complete this investment project, ensuring the full supply of raw materials for the needs of Sendo steel pipe production factory, with the orientation of more than 100,000 tons of steel pipe productions and consumptions in 2018.

In the external relations, SMC continues to promote good relations with major steelmakers in Asia, and obtains very positive results such as the export activities were accelerated especially exports of steel pipes to Thailand at much higher price than the original Cambodia and Myanmar markets.

imported volume dropped more than half from the previous year. The hot rolled coil imports also fell more than 20% from the previous year due to the balance of inventory between consumption – import – and domestic supply. However, the output of secondary products such as overrolled and slab coil imported in 2016 increased almost 30% yoy. These are special items with good profit margins, high business efficiency, and not widely sold but mainly sold to reputable units with production and processing lines for flat steel products. This shows SMC’s advantage in owning the Coil Center system and deeply involved in these segments as well as its strategic relationship with major counterparts, instead of pursuing normal trading activities that are risky from the Chinese market

Export volume143,635tonsVND751bn

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PROJECT INVESTMENTS AND IMPLEMENTATIONS IN 2016Development and investment activities are still well implemented in accordance with the proposed orientations regardless of difficulties and severe impacts of losses in 2015

In 2016, SMC has been approved by BRVT province council for the implementation and construction of the new bleaching and plating lines. Basically, the Company has completed the environmental impact assessment and prepared for construction and procurement of equipment. It is expected that the bleaching and plating lines will be deployed at SMC Steel Mechanical Co. in 2017 with expected total investment costs of VND 130bn.

In 2016, SMC directly received and contracted the workshop factory for SMC Toami joint-venture, at 20% lower costs than other contractors. The project has been done and handed over to Toami in July 2016 with total factory area of 10,000 m2.

At the same time, in 2016, the Sendo steel pipe joint-venture has invested in two more production lines, increasing total number of steel pipe production lines to 7 by the year-end with total deigned capacity of 5,000 – 7,000 tons/month.

After Sendo came into operation, SMC has started a 750m/m cold rolled coil rolling line, invested one more cutting line, one more splitting line, and three cranes with total investment costs of VND 50bn for the Coil

Center system, in order to increase the capability to meet the development needs of customers and to supply input materials for Sendo factory.

ACCOUNTING AND FINANCIAL MANAGEMENTAfter the 2015 distress, SMC faces a lot of pressures on its credit lines and interest burden in business operations. However, thanks to the good relationship and historical credit rating by domestic and foreign institutions and banks, SMC has been well treated in a normal and reasonable manner. The Company is supported to facilitate stable operations for normal development and step by step overcome difficulties. After first half of 2016, with the positive situations of the steel industry in general and of SMC in particular, SMC has fully recovered the loss of 2015, and actively re-established new position and business conditions, restoring self-possession and balance with banks and credit institutions. In 2016, the depreciation of VND at the year-end has created some negative impacts for SMC from its loans in USD currency, however, the impacts to the Company’s final financial bottom line is not large.

The credit line is gradually increased, coupled with improved financial performance, together have enhanced SMC’s financial strength. The key financial indicators are clearly improved, facilitating more

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41


favorable condition to the new share issuance to strategic shareholders. Basically, the Company has completed the investment capital preparation for the development in 2017, creating a good premise for the implementation of business objectives and development strategies in the new period.

2017 BUSINESS PLANS, TARGETS, AND ORIENTATIONSGeneral Outlook and Business Plan for 2017

With the governments’ GDP growth target of 6.7% for 2017, together with opportunities and challenges, the VSA has a 12% yoy growth rate expectation for domestic steel industry in 2017. The Chinese government is anticipated to continue aggressively cutting approximately 200 million tons of steel by 2020, which would significantly reduce the global steel surplus, thereby would positively impacting steel prices in the coming time. Actually, steel prices at the beginning of 2017 has nearly doubled over the same period last year, due to the significant rise of input costs such as coking coal and iron ore; however, caution should be taken especially since the second quarter of 2017. In fact, steel prices are always difficult to forecast with unusual movements in recent years.

With the possibility of booming steel production activities of both manufacturing and commercial trading enterprises, particularly the implementations of such super projects as Ca Na steel complex and Dung Quat steel complex, promising to increase the competitiveness and more drastic market seizing in coming years. Trade protection with anti- dumping

tax implementations and safeguard measures applied in many countries, including Vietnam, are increasingly on the rise; hence, export activities and export growth will be definitely more difficult. On the other hand, the increase in protection will also benefit some domestic producers, while purely commercial trading enterprises will be increasingly difficult to find profit

Based on the above factors, SMC sees both chances and challenges for its business outlook and targets in 2017. Regarding opportunities, with inventory at reasonable levels both in terms of volume and price, SMC would have more advantages in the early months of 2017 in the steel price uptrend. Processing and production factories which continue to bring positive efficiency and contributions, supporting the further sustainable operations of the Company, are still prerequisite and favorable conditions for further developments in the coming years. Accompanied with other specific competitive advantages including diversified and high quality product portfolio, well-built customers and suppliers relationships, strong financial and sales capability, good information gathering and analysis, business and manufacturing activities are well-developed, investment activities are suitable and effective, all together promising to ensure the achievement of 2017 objectives. However, macroeconomic risk and industry risk are always hidden with unpredictable fluctuations; if they are not cautious, handled and operated well would lead to serious mistakes.

In 2017, SMC anticipates that the profit performance and delivery would not be comparable to 2016; all business targets and plans are well considered and set at a practical level with the minimum expectation, the whole system will strive to achieve better outcomes.

In 2017, SMC anticipates that the profit performance and delivery would not be comparable to 2016; all business targets and plans are well considered and set out at a practical level with the minimum expectation, the whole system will strive to achieve better outcomes

42

2017 KEY BUSINESS OPERATING TARGETS

No Key items Unit 2016 Actual 2017 Target % 2017/2016

1 Total sales volume Tons 1,042,672 1,050,000 100.7%- Constructions steels Tons 576,186 570,000 98.9%- Flat steels Tons 372,418 380,000 102.0%

- Steel pipes Tons 13,861 25,000 180.4%- Others Tons 80,207 75,000 93.5%

2 Total Sales Revenue VND bn 9,447 10,550 111.7%3 Net profit after tax VND bn 362.3 150.0 (*) 22.1%

2017 PRODUCTION INVESTMENT PLANS AND PROJECTSIn 2017, SMC will continue to completely invest into a bleaching and a plating lines for the 700m/m flat steel products, with total investment costs of VND 130bn at SMC Steel Mechanical Co. After the completion and operation, depending on the ability to meet the output and market demand, SMC will continue to invest in the bleaching, pressing, or plating line, to ensure the synchronism and logic, maximizing the efficiency of investment capital usage.

For workshops and warehouses, SMC is in the shortage of space to install factory extension and storage facilities. With the need to develop business and production activities, the search for new premises in 2017 is urgent, targeting at areas of 3-5 hectares. The new premises will be specifically planned and constructed as soon as SMC has one.

For SMC Ha Noi, the Company considers investing into the Coil Center system for hot rolled coil products, in order to utilize and take advantage of the existing relationship and coming operation of Formosa Ha Tinh, in order to expand product portfolio for SMC Ha Noi.

For SMC SENDO, develop the second phase as originally planned, with self-balancing capital structure among accumulated equity and bank loans. Scale of

invested factory is from 12,000-13,000 m2, pipe welding machineries are from 6-7 units, doubling current capacity, expecting to reach the production level of 10,000-12,000 tons per month by mid-2018, in order to meet the output of new production lines from SMC Steel Mechanical Co.

KEY SOLUTIONS TO IMPLEMENT 2017 OBJECTIVESContinue to focus on business safety and efficiency, gradually increase sales consumption under the constant and stable guidelines, aiming at increasing competitive advantages and enhancing effectiveness, in line with increasing income and living standards for employees.

(*) NPAT target for 2017 has been revised up from VND 80bn to VND 150bn after the BoD’s meeting on 8th Mar 2017

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43


Promote member units to actively build up their own business identity, improve self-accountable ability and self-responsibility; SMC head quarter plays the role of monitoring, coordinating, and managing appropriate business activities in line with the directions and current favorable business conditions, is flexible in management and promote the strength of the whole system encountering any challenges.

Continue construction and investment activities targeting at further long term sustainable development and meeting market requirements, actively build up a strong technical apparatus, gradually growth both in width and depth. Construction and investment activities will be carried out in accordance with approved business plans.

Increasingly develop stable flat steel processing and producing segment, cored at the Coil Center system and the steel pipe plant, plus the new implementation of the bleaching and plating lines, targeting at 50% flat steel contribution to total sales in the coming years. With the Formosa steel complex going into operation in 2017, SMC aims to expand its distribution and sales products in both hot rolled coils and wire rods.

SENDO, after the first year of operation, has had some positive results, especially in export activities. In 2017, Sendo targets to double both production outputs and consumptions, with the special active supports from SMC and Hanwa, striving to achieve total output of 90,000 to

100,000 tons per year by 2018. Sendo’s development activities are closely linked with SMC’s other operating activities such as bleaching, laminating, splitting, plating, and purchasing and sales volume development. In 2017, Sendo needs to develop and build up a strong and solid market position and market share, as well as be ready to cope with market fluctuations, soon affirming its position and competitiveness in the steel pipe market.

Financial and accounting works are continuously promoted to endure the financial capability to serve the business operating activities and development strategies; gradually increase the application of information technology in accounting, finance, and business operations according to the development requirements of the Company and the market.

Strengthen the management apparatus at all level, limit the development of low-level personnel, to ensure a streamlined system to complete larger tasks with higher quality, willingness to replace poor cadres who are unable to complete given tasks.

Target to soon achieve the consumption level of 100,000 tons of steels per month, in which priority will be given to products with high margins, which will create higher business efficiency in order to speed up the business development and improve the deb/equity capital structure, put the business into more sustainable route.

Target at the achievement of 100,000 tons consumption per month, in which priority will be given to products with high margins, which will create higher business efficiency in order to speed up the business development and improve the debt/equity capital structure, put the business into more sustainable route.

44

TIGHTENINGINTERNAL CONTROL

45


“The bigger the challenge, the greater the opportunity”- Anynomous -

COLLABORATIONENHANCING

46


Ms.DANG THI THU TRANGMemberYear of Birth: 1980

Qualification: Bachelor of Economic

Ms.LE THI CAM TUMemberYear of Birth: 1981

Qualification: Bachelor of Law

Mr.NGUYEN HUU KINH LUANChief BoardYear of Birth: 1982

Qualification: MBA – Murray University, USA

1. iNTrOduCTiON TO THE BOArd OF SupErviSOrY

47


ACTIVITIES THAT THE BOS PARTICIPATED AND PERFORMED WITHIN THE YEAR:Participate all BoD’s periodic meetings and extra-ordinary meetings (if any) during the year

Occasionally review the Company’s plans, business operating and producing performances, financial statements, and annual report.

Review audited financial statements and reports

Feedback to the BoD on matters of accounting, auditing, and information disclosure

Monitor and feedback to shareholders’ opinions on the Company’s’ activities: the BoS last year did not receive any complaint and/or request of shareholders about the Company’s performance and activities as well as about the BoM and BoD’s managing and executing works.

EVALUATION ON 2016 BUSINESS AND FINANCIAL PERFORMANCE

Key items Unit 2015 Actual 2016 Actual 2016 Plan % Plan

1 Total sales volume Tons 1,004,846 1,042,672 1,000,000 104.3%

2 Total Sales Revenue VND bn 10,046 9,447 10,100 93.5%

3 Net profit after tax VND bn -196.1 362.3 60.0 603.8%

4 Export volume Tons 151,750 143,635 100,000 143.6%

SMC has delivered good results on both total sales volume and export volume in 2016. Total sales volume reached more than 1.04 million tons, slightly over passed the target while total export volume reached nearly 144,000 tons, significantly higher than target by 43.6%. However, because of lower ASP, actual total sales revenue in 2016 was only VND 9,447bn, fulfilling just 93.5% whole year plan. Most importantly, the Company has delivered such a remarkable net earnings number as VND 362.3 bn, over 6 times higher than target and offsetting all the losses occurred in 2015.

Evaluation on audited consolidated financial statementsThe BoS has evaluated the Company’s 2016 audited consolidated financial statements throughout frequent supervise, review, and discuss with the accounting department. SMC has periodically reported and disclosed information in accordance with regulations. The BoS agreed with the auditors’ opinions on the company’s audited consolidated financial statements for the financial period ending 31st Dec 2016. The audited consolidated financial statements are presented honestly and reasonably in accordance with Vietnam accounting standards and other current legal regulations on the content and timing of the completion.

48


EVALUATION ON THE BOD’S DIRECTIONS OF OPERATING ACTIVITIESIn 2016, The BoD has performed well their activities and directions following functions, duties, and powers in accordance with the Enterprises Law and the Charter of the Company.

The BoD has strictly implemented the business plan for the year 2016 as well as the contents in the AGM resolution.

Each quarter, the BoD held a regular meeting to review and evaluate the Company’s quarterly performances, plus propose solutions, targets and directions for the implementation of the next quarter.

Resolutions of the BoD proposed in 2016 are legal

2. BOArd OF SupErviSOrY’S rEpOrTS ANd rECOMMENdATiONS

and in accordance with the Charter of the Company and the AGM resolutions, having long-term orientation effects and offering suitable solutions for business activities.

The BoD’s meetings are practical and help to promptly and effectively resolve emergence problems of the Company. The BoD has well performed the role of directing, supervising, and supporting the BoM, departments and all member units, plus has guided the Company’s operating business activities to overcome difficulties and to maintain the stable operation of the whole system.

All the board members fully comply with the charter, regulations, and resolutions of the AGM and perform their task in a dynamic, committed, and responsible manner.

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There are close coordination among the BoS with BoD and BoM, all meetings of the BoD are attended by the BoS; the contents of discussion and voting are done transparently in accordance with regulations.

Regarding the private issuance to strategic shareholders under the AGM resolution last year, it is expected to be done in 2016. Yet, there is some objective factors affecting the issuance progress, causing the BoD has not completed yet. The new expected time for the issuance completion will be in 1H2017.

EVALUATION ON BOM’S OPERATING MANAGEMENT ACTIVITIESThe BoM has well implemented the AGM resolutions and the BoD’s directions with encouraging business results. The BoD has had flexible managing measures following market situations, was more cautious in making decisions for inventory purchases and always maintained the inventory level at appropriate level. The BoM also proposed appropriate solutions to overcome the disadvantages and difficulties in 2015 and seriously applied and followed it throughout 2016 activities.

EVALUATION ON INVESTMENTS ACTIVITIES- In 2016, Sendo had invested in 2 more production lines, increasing total number of steel pipe production lines to 7 lines by the year-end.

- SMC Toami had constructed and put into operation the new warehouse and factory with total area of 10,000 m2

- SMC has studied and started new investments in the washing and galvanizing lines at Phu My IZ with total expected investment costs of VND 130bn. Besides that, SMC has also invested into 1 more cutting line, 1 more splitting line, and 3 cranes for the Coil Center system with total investment costs of VND 50bn.

The BoS recognized that the Company’s BoD and BoM had seriously and strictly implemented investments plans and activities in accordance with strategic orientations of the business.

BOS’S PROPOSALS AND RECOMMENDATIONS- Continue to maintain internal control, especially focusing on sales activities and debt managements, tightening risk management in business and financial related activities.

- Enhance the forecast of global and domestic prices to develop appropriate business strategies and solutions.

- Develop the decentralization mechanism and supervise the implementation of affiliates and departments, ensuring that all member units have the opportunity to self-develop while still maintain their unity within the whole SMC system

- Speedily complete the current invested projects to put into operation, to increase the investment efficiency of the enterprise.

50

ADVANCEMENTSTEADY

51


“Fire proves gold, adversity proves men”

FOCUSVALUE-DRIVEN

52

CORPORATE GOVERNANCE

To minimize major risks related to the Company’s business operating activities such as market risk, operational risk, and financial risk, the BoD and BoM always adhere to guidelines and directions with the priority goals of safety and efficiency. In addition, SMC also implements internal risk management strategies such as the active presentations of internal control board, materials team, price appraisal team, and debt recovery team… in order to prevent and to deal with the possible risks, ensuring positive results of the entire system.

ECONOMIC AND MARKET RISKSThe economic growth rate is a direct factor affecting the development of steel industry and enterprises in the industry. In 2016, although the country’s GDP growth rate did not meet the target, it was still maintained at a positive level of above 6%, along with the excitement of the RE market and the miraculous recovery of steel prices, all together ensured growths and effective

performances of domestic steel industry as well as steel enterprises. Despite having a positive year, from the lessons of 2015, SMC is always ready to encounter with the unpredictable shakes and fluctuations of market, ensuring flexibly reacting ability to every situation to perform the most effective business result.

Steel industry is a global industry, in which domestic steel industry and steel prices are directly influenced by variations in the world market, most importantly the instability in China. Steel price fluctuations would then have direct effects on the Company’s operating activities and performances. Hence, updating and analyzing steel prices, considering proper time for inventory purchases and selecting appropriate inventory level, minimizing inventory and raw materials risks, and analyzing effects of steel price movements on the Company’s performances are significant activities that always cautiously considered and focused by the BoM and BoD in order to make timely and proper decisions to different market situations.

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BUSINESS OPERATION AND PRODUCTION RISKSWith the incessant expansion of flat steel processing activities over the past ten years, SMC has gradually reduced risks of a purely commercial trading company in the face of construction steel price fluctuations and real estate market instability. Nevertheless, processing and producing activities also present risks of HRC and CRC inventories and price movements to the Company’s business operation and performance. Accordingly, SMC has always built up and maintained good relationships with leading domestic and foreign steel producers and suppliers to ensure the stable and steady supply sources.

In regarding to production risk, SMC always emphasizes the importance of investment in modern technology production lines. SMC has implemented the new, modern, and synchronized machinery and equipment lines which are regularly maintained. Materials used are well controlled in terms of quality and reasonable prices. The whole Coil center and steel pipe production system are strictly controlled to ensure safe and effective operations, where incidents, errors and raw-material wastage are minimized.

FINANCIAL AND CREDIT RISKSSMC has to encounter financial and credit risks of foreign exchange and interest rate fluctuations, bad debt, and liquidity throughout its business operating activity. As import-export are more and more focused and strengthened, playing an important role in escalating

sales volume and supporting other operating activities of the whole group, SMC always considers and balances out loans proportion in VND vs USD to ensure the best interest rates while at the same time have enough USD source for importation activity. Movements of foreign exchange rate and interest are on the market are closely updated and analyzed to have flexible and adequate responses to significant changes. Moreover, building trust and maintaining good relationships with credit institutions and banks also ensures that SMC actively controls and minimizes credit risk, liquidity risk, interest rate risk, and foreign exchange risk.

SMC mainly depends on loans from credit institutions and banks regardless the improvement of the debt to equity ratio in 2016 compared to previous years. In order to cope with the risks of capital needs, interest rate and foreign exchange rate, SMC always actively searches and maintains loans with competitive rates, is flexible in receivables collection and bad debt recovery solutions, and maintains inventory at a reasonable level in order to balance working capital and step by step continue to improve the capital structure among debts and equity.

For the risk of bad debt/receivables, SMC constantly ensures the full application of sales processes and specific credit/debt limit policy applied to different customer groups, based on each customer’s financial situation/capability, collateral assets, and reputation in transactions and payments. They are reviewed periodically on monthly, quarterly, semi-annually, and annually basis, with the participation of the internal control board and the debt/receivables recovery team to minimize the risk of bad debts of the whole system.

To minimize major risks related to the Company’s business operating activities, the BoD and BoM always adhere to guidelines and directions with the priority goals of safety and efficiency. In addition, SMC also implements internal risk management strategies in order to prevent and to deal with the possible risks, ensuring positive results of the entire system.

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In 2016, SMC had established a new Materials Team, with the following specific functions, duties and powers:

The Materials Team:

Functions Duties Powers

Obtain materials for production and processing activities; advise the BoM on price, quality, and quantity for purchasing and selling of materials, production tools and equipments… to meet the requirements and demand for production and business activities of the entire system.

- Find suppliers; exploit sources of materials from import, domestic production and internal production to meet business demands as proposed by each producing plant.- Negotiate on materials’ price, quality, and delivery term according to the purchasing process. - Advice the BoM on materials’ purchasing plan based on the balance among inventory and producing demand of each manufacturing plant.- Build a healthy, dynamic, responsible, and effective materials supply environment.- Create relevant reports as required by the BoM

- Require relevant units and departments to provide data, information, and documents to support the Team’s workload as prescribed.- Inspect and supervise domestic purchasing and transporting activities of related units and departments.

EMPLOYEES’ STRUCTUREAs of 31st Dec 2016, total employees of the whole SMC group are 626 persons, enlarging by 96 people year on year, which is equivalent to an increase by 18.1% from 2015. The Company’s human resources are mainly young, dynamic, and professional with high foreign language skills. They always strive to make a positive contribution and satisfy the Company’s long term development orientations and sustainability.


2016

14.7%

29.9%

55.4%

700

600

500

400

300

200

100

0

person

2011 2012 2013 2014 2015 2016

371390

422

480

530

626

Total employees from 2011-2016 2016 employee structure by category

Management: 92 ppl

Direct labour: 347 ppl

Indirect labour: 187 ppl

2. OrGANizATiON ANd HuMAN rESOurCES Average monthly income of SMC’s employees

VND10.8million

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EMPLOYEES’ INCOME AND WELFAREEmployees are paid according to their rank, position, capability, and the internal salary scale. The average monthly income of SMC’s employees in 2016 is VND 10.8 million, an average increase by 12.5% from the previous year. In addition to monthly income, SMC also implements the rewarding and bonus policy on quarterly basis for individuals and teams’ excellent performances, ensures fully packed welfare to help stabilize staff’s life. With the breakthrough business result in 2016, SMC has executed a positive rewarding procedure, creating encouragement and excitement to all employees.

In addition, SMC also owns a system of various unions including the communist union, the youth union, and the labour union from the head quarter to each affiliate that are constantly ready to support employees when needed. Everyone is encouraged to participate in unions, internal emulation activities, and external units’ exchange. Employees are always supported both mentally and physically in difficult circumstances as well as are always facilitated to improve psychological and material life. The unions carry out tasks of connecting employees directly with the Company’s’ development orientations and promoting the fulfillment of the Company’s’ annual financial and operational objectives..

WELFARE AND BONUS POLICIES:- Monthly, quarterly, and yearly salary and bonus. - Bonus and reward according to capability and performance.

- Employee Stock Ownership Plan (ESOP)- Health insurance, social insurance, unemployment insurance, 24/24 accident insurance

- Yearly regular health check-up. - Maternity benefits, supporting female employees to take care of newborns.

- Subsidies for difficult circumstances- Professional training- Excursion and travel domestically and internationally.- Organizing buses to transport employees back to their hometowns in central provinces for Tet.

RECRUITMENT, TRAINING, DEVELOPING, AND EVALUATING HUMAN RESOURCESFrom 2011 to 2016, total employees of the whole system have increased by 68.7%. SMC always ensures the harmonious combination of recruitment, training, screening, rotating, and promoting personnel in order to achieve optimum efficiency and to prioritize the goals and interests of the entire company. In particular, SMC always attaches the importance of internal training programs on corporate culture and professional expertise with the unique know-how methodology and experiences that the Company has accumulated and selected throughout 28 years of establishment and development. Besides, the Company will consider promoting qualified, excellent and experienced individuals into higher positions within the group, creating favorable conditions to encourage employees to incessantly contribute to the performances of the entire system. In 2016, SMC had promoted and appointed more senior positions within the head office and the groups’ affiliates in terms of individual capabilities and the whole system development needs.

Human resources evaluation mechanism:

HUMAN RESOURCES USAGE AND DEVELOPMENT STRATEGY TO ENSURE THE IMPLEMENTATION OF SUSTAINABLE GROWTH OBJECTIVES- Diversity in structure and reasonable allocation of workforce

- Ensure the health and stable employment for workers.- Integration training and career development- Benefit, welfare, and remuneration policy- Ensure the rights of employees.

Thái độ Kỹ năng

Trìn

h độ

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SMC always pays attention on the importance of transparency to assist investors, shareholders, suppliers, and customers to understand the business situations and performances. The Company also focuses on information disclosure activities, ensures the information clearly disclosed to provide fully relevant contents for investors, shareholders, suppliers, and customers easily access and check, and is always ready for explanation on the Company’s performance requirements.SMC is always active in investor relation activities and disclosure of all information related to business operating perfor-mances on quarterly, semi-quarterly, and yearly basis in full, clear, and transparent manner. Other events and activities of the Company are also updated frequently on the Company’s website at www.smc.com.vn, on HCM stock exchange, and on most major economic and financial media reports and channels. In Nov 2016, SMC hold a seminar at HCM stock exchange to discuss with shareholders and investors on the current steel industry conditions and to update on the Company’s financial and operating performances. The management board has also actively and frequently dis-cussed and replied to shareholders through formal documents, emails, and telephone. As so, SMC’s management and executive board would like to thanks to all contributions and feedbacks from shareholders and investors; SMC would always uphold the timely, sufficient, transparent, and highly accountable information disclosure activities to all investors, shareholders, and partners.

GENERAL INFORMATION ON SMC STOCK

Ticker SMCListed stock exchange HSXCharter Capital 295,183,610,000 VNDCurrent listed shares 29,518,361 SharesMarket Capitalization (as of 31st Dec 2016) 628,741,089,300 VNDEarnings per share in 2016 (EPS) 12,254 VNDBook value per share in 2916 (BPS) 25,440 VNDVN-Index movements in 2016 +15.75%SMC stock price movements in 2016 +208.83%

VN-Index and SMC share price movements in 2016

3. SHArEHOLdEr ANd iNvESTOrS’ rELATiONS

EPSVND12,254

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DIVIDEND PAYMENTWith encouraging and outstanding earnings performed in 2016, the BoD has approved 10% cash dividend payment for 2016 financial period to shareholders, which were divided into 2 payments and already executed as follows:(1) First payment – 5% par value, equivalent to VND 500/share, paid in the 28th Sept 2016(2) Second payment – 5% par value, equivalent to VND 500/share, paid in the 12th Jan 2017The BoD recently had a meeting on the 8th March 2017, and approved to increase 2016 cash dividend from 10% to 15% par value. As so, besides 10% cash dividend already paid to shareholders, SMC will pay 5% par value (VND 500/share) cash dividend more to shareholders, which will be executed soon in April 2017 after the AGM.

SHAREHOLDERS’ STRUCTUREMajor changes and insiders’ transactions within the year:- SMC does not issue any additional shares changing the total number of outstanding and listing shares in 2016.- Transactions of insiders and their related parties have been made during the year are as follows:

TradersRelation

with inside shareholders

Beginning shares owned

Ending shares owned Reason for change

Shares % Shares % Buy Sell

Nguyen Ngoc Anh Chairman cum CEO 5,356,273 18.15 5,533,463 18.75 177,190 0

Nguyen Ngoc Dang Khoa Son of Mr. Nguyen Ngoc Anh – Chairman cum CEO

619,700 2.10 744,310 2.52 124,610 0

Nguyen Van Tien Deputy General Director

570,499 1.93 540,499 1.83 0 30,000

Nguyen Huu Kinh Luan Chief BoS 441,154 1.49 482,474 1.63 41,320 0

Thu Duc Import-Export Trading JSC (Transimex)

Mr. Ma Duc Tu - BoD Member – Chairman of Transimex

80,000 0.00 0 0.00 0 80,000

- Treasury shares buy-back within the year: None

- Transactions and disclosures being reminded and fined within the year: None

- Shareholders information and structure as of 23rd Jan 2017

BPSVND25,440

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Shareholders’ Structure

Domestic shareholders Foreign shareholders Total

Value % Value % Value %

Total Charter Capital 268,296,140 90.89 26,887,470 9.11 295,183,610 100.00

Founding shareholders (*) 87,560,610 29.66 0 0.00 87,560,610 29.66

Shareholders holding >= 5% 0 0.00 14,760,000 5.00 14,760,000 5.00

Shareholders holding 1% - 5% 102,886,640 34.86 7,499,600 2.54 110,386,240 37.40

Shareholders holding < 1% 77,781,710 26.35 4,627,770 1.57 82,409,480 27.92

Treasury shares 67,180 0.02 0 0.00 67,180 0.02

(*) Founding shareholders include 02 shareholders holding more than 5%, 01 shareholder holding 1-5%, and 01 shareholder holding less than 1%

Key shareholders

Ordinary shares Blocked shares Total shares %

Special shareholders 9,462,390 0 9,462,390 32.06

Board of Directors 8,320,629 0 8,320,629 28.19

Board of Management 647,287 0 647,287 2.19

Board of Supervisory 482,474 0 482,474 1.63

Chief Accountant 0 0 0 0.00

Financial Director 12,000 0 12,000 0.04

Shareholders holding > 5% 9,688,572 0 9,688,572 32.83

Nguyen Ngoc Anh 5,533,463 0 5,533,463 18.75

Nguyen Thi Ngoc Loan 2,679,099 0 2,679,099 9.08

Hanwa Co. Ltd 1,476,010 0 1,476,010 5.00

Foreign shareholders 2,688,747 0 2,688,747 9.11

Institutions 2,530,553 0 2,530,553 8.57

Individual 158,194 0 158,194 0.54

Treasury shares 6,718 0 6,718 0.02



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Detailed list of key/important shareholders

Full name Position Ordinary shares

Blocked shares

Total shares %

Nguyen Ngoc Anh Chairman – CEO 5,533,463 0 5,533,463 18.75

Nguyen Thi Ngoc Loan Vice Chairwoman – Dep-uty General Director

2,679,099 0 2,679,099 9.08

Ma Duc Tu BoD Member 2,400 0 2,400 0.01

Hanwa Co.. Ltd BoD Member 1,476,010 0 1,476,010 5.00

Vo Hoang Vu BoD Member Deputy General Director

105,667 0 105,667 0.36

Nguyen Van Tien Deputy General Director

482,474 0 482,474 1.63

Nguyen Binh Trong Deputy General Director

106,788 0 106,788 0.36

Le Thi Cam Tu BoS Member 0 0 0 0.00

Nguyen Huu Kinh Luan Chief of BoS 482,474 0 482,474 1.63

Dang Thi Thu Trang BoS Member 0 0 0 0.00

Do Doan Thanh Cong Chief Accountant 0 0 0 0.00

Truong Tuan Dung Hung Financial Director 12,000 0 12,000 0.04

- List of shareholders having blocked shares: None - List of strategic shareholders having blocked shares: None

18.75%

9.08%

5.0%

67.17%

28.19%

3.82%

9.11%

58.88%

Major Shareholders Structure Special Shareholders Structure

Mr. Nguyen Ngoc Anh

Ms. Ngọc Loan

Hanwa

Others

BoD

BoM & BKS

Foreign

Others

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REMUNERATIONS AND EXPENSES OF THE BOD, BOM, AND BOS IN 2016SMC has paid the remunerations to the BoD, BoM, and BoS in 2016 as follows:

Full name Position 2016 Remunera-tion (VND)

Nguyen Ngoc Anh Chairman cum CEO 400,000,000Nguyen Thi Ngoc Loan Vice chairwoman cum

Deputy General Director360,000,000

Ma Duc Tu BoD Member 320,000,000Taira Yoshiyuki BoD Member 320,000,000Vo Hoang Vu BoD Member cum

Deputy General Director320,000,000

Nguyen Huu Kinh Luan Chief of BoS 240,000,000

Le Thi Cam Tu BoS Member 130,000,000Dang Thi Thu Trang BoS Member 130,000,000Ho Thi Ngoc Tuyet Former Chief of BoS 120,000,000Tran Thuy Bich Han Former BoS Member 50,000,000Nguyen Binh Trong Deputy General Director 140,000,000Nguyen Hong Chau Deputy General Director 30,000,000Nguyen Van Tien Deputy General Director 30,000,000Truong Tuan Dung Hung Financial Director 30,000,000Do Doan Thanh Cong Chief Accountant 110,000,000Total: 2,680,000,000



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4. SOCiAL – COMMuNiTY ACTiviTiES ANd ENvirONMENTAL SAFETY

SOCIAL – COMMUNITY ACTIVITIESSMC always focuses on charity activities to help improving the quality of local community living conditions where SMC’s office and factories located. In particular, SMC has created jobs for the locals, supported people affected by natural disasters, contributed to poor people’s fund in Binh Thanh district, contributed to charity fund of the Vietnam Industry and Trade Union, donated the educational promotion fund for the People committee of Ward 25 Binh Thanh district…

ENVIRONMENTAL SAFETYCurrently, all the processing and manufacturing plants of SMC are located in the fully planned industrial zones for heavy industry with synchronous and well developed infrastructure system that have no impacts on the living environment of the surrounding population throughout the Company’s whole process from investment and construction to completion and production.

Power and energy consumption – all production and processing lines are newly imported and implemented with modern technologies in accordance with European standards, ensuring high productivity with regular maintenance, so the level of power consumption during the manufacturing process is well controlled. Moreover, during the construction of the workshop, SMC has maximized the natural lighting system utilization in order to mostly reduce the possible power consumption. The entire system is driven by automatic and controlled technology, with inverter motive power technology that reduces power and energy consumption the

most yet still ensures high speed, productivity, and product’s quality.

Material consumption/utilization – SMC always manages the quality of raw material inputs used for the processing and producing activities, in combination with modern equipments and machineries to minimize the wastage rate of raw materials throughout the production process. At the present, the whole system’s wastage rate is around 0.5%. The major scrap from SMC’s manufacturing operations are collected and sold to scrap steel mills for billet production. Impacts on the overall environment are minimal.

Waste-water and emissions – SMC has applied the wastewater treatment and completed construction for drainage systems as well as signed contracts with responsible units in the IZ for wastewater treatment activities, ensuring the wastewater is properly treated and has no negative effects on the environment. Regarding emissions the Company’s processing activities do not generate smoke and noxious emissions, yet SMC still improves natural airing and enhances green space in the working environment for employees and workers.

Noise and vibration – mainly arisen during the operations of machineries and equipments. SMC has applied different measures to minimize the effects of noise and vibration to employees working directly and indirectly in the factories such as outfitting rubber and spring damper for vibrated machineries, ensuring regular maintenance, arranging reasonable machineries and equipments in a proper line to avoid noise resonance, and providing adequate labor protections for workers in high noise generating areas.

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5. SuSTAiNABLEGrOwTH

SUSTAINABLE GROWTH STRATEGYSMC has always set the sustainable growth objective as the core focus of the entire organizational operation and development orientations that emphasizes on the successful completion of long-term sustainable growth objectives in combination with accomplishment of other social and environmental goals to ensure harmony of interests of all related parties. From a purely construction steel commercial trading entity, SMC has gradually turned

into a flat steel processing and producing company, on the one hand enhancing business efficiency for long-term sustainable growth strategy, while on the other hand diversifying product portfolio to satisfy the increasing demands of customers and market. The harmony and balance of all three aspects of sustainable growth including Economy – Social – Environment are always guaranteed throughout the whole Company’s cooperate governance and business activities.


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SUSTAINABLE GROWTH – VALUE-DRIVEN FOCUSSMC focuses on developing the business both in depth and breadth counting market share expansion, productivity improvement, import-export activities enhancement, overseas markets development and especially more active and effective engagement in flat steel processing and producing activities to achieve the goals of sustainable growth.

With core business and core values centered tactical directions, SMC has affirmed its position in the domestic steel market with remarkable attainments such as being the largest construction steel distributor and the largest owned Coil Center system in Vietnam. Encountering

various challenges and difficulties throughout the way of formation and development up to now, especially after the 2015 crisis, SMC has continuously stood still to face and overcome problems, to ensure stable operational business activities, and to assert itself in the marketplace following the strategic sustainable growth orientations that brings long-term benefits to all shareholders, investors and partners.

With the responsibility for community and society developments, for reliance and confidence of shareholders, customers, partners, related organizations and all employees, we are determined to constantly critically implement the precise orientations that the Company has been doing so far.

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QUẢN TRỊ DOANH NGHIỆP

“After the tough digging and planting season, the sweet reward will come in the harvest season”

- Venerable Grand Master Hsing Yun -

SUCCESSFULBREAKTHROUGH

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(1) Company having more than 50% ownership of SMC: None(2) Companies having more than 50% ownership held by SMC:

1. SMC STEEL Co., Ltd

Head Office 1B street, Phu My 1 Industrial Zone, Ba Ria Vung Tau Province

Charter Capital VND 60,000,000,000.0

SMC’s ownership 100%

Key business activities Coil Center – processing, cutting, splitting flat steels

Products and Services CRC, HRC, galvanized steel sheets, zinc coated steel sheets, color coated steel sheets, stainless steels, section steels, weld mesh

Key financial items Unit 2015 2016 +/- %

Net revenue VND bn 1,381.6 1,442.0 +4.4 %

Gross profit VND bn 57.9 106.2 +83.4 %

Profit before tax VND bn 13.3 67.4 +406.8 %

Profit after tax VND bn 11.1 56.8 +411.7 %

Total assets VND bn 387.1 606.8 +56.8 %

Total Liabilities VND bn 311.1 455.1 +46.3 %

Owner’s Equity VND bn 76.0 151.7 +99.6 %

Net margin % 0.8 3.9 +3.1 %

Return on Assets (ROA) % 2.9 9.4 +6.5 %

Return on Equity (ROE) % 14.6 37.4 +22.8 %

1. AFFiLiATES

67


2. SMC STEEL MECHANICAL Co., Ltd

Head Office Phu My 1 Industrial zone, Phu My Town, Tan Thanh District, BRVT



Key business activities Coil Center – processing, cutting, splitting HRC

Products and Services HRC, secondary products, galvanized steel sheets



Gross profit VND bn -235.4 271.7 n/a

Profit before tax VND bn -303.5 221.2 n/a

Profit after tax VND bn -302.6 221.2 n/a


Total Liabilities VND bn 516.7 458.1 -11.3 %

Owner’s Equity VND bn -220.3 0.9 n/a

Net margin % -16.6 10.4 +27.0 %

Return on Assets (ROA) % -102.1 48.2 +150.3 %

Return on Equity (ROE) % n/a 24,577.8 n/a

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3. SMC BINH DUONG ONE MEMBER Co., Ltd

Head Office Road No.5, Dong An Industrial Zone, Binh Hoa Thuan An Town, Binh Duong



Key business activities Trading and distributing construction materials and steel products for the South-East region market

Products and Services Reinforced concrete, irons and steels, section steels, wire rod, rebar, steel sheets


Net revenue VND bn 980.8 845.0 -13.8 %

Gross profit VND bn 25.3 18.8 -25.7 %

Profit before tax VND bn 0.6 0.1 -83.3 %

Profit after tax VND bn 0.4 -0.05 n/a



Owner’s Equity VND bn 31.6 29.9 -5.4 %

Net margin % 0.04 -0.01 -0.05 %

Return on Assets (ROA) % 0.3 -0.02 -0.32 %

Return on Equity (ROE) % 1.3 -0.2 -1.5 %

1. AFFiLiATES


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4. SMC STEEL TRADE Co., Ltd

Head Office 124 Ung Van Khiem, Ward 25, Binh Thanh District, HCMCCharter Capital VND 20,000,000,000.0SMC’s ownership 100%Key business activities Trading and distributing construction materials and steel products for the Southern

region markets including western provinces and nearby HCMC areasProducts and Services Construction steels, cement, clinker

Key financial items Unit 2015 2016 +/- %Net revenue VND bn 1,017.0 945.0 -7.1 %Gross profit VND bn 32.3 20.5 -36.5 %Profit before tax VND bn 3.6 -9.5 n/aProfit after tax VND bn 2.4 -10.9(*) n/aTotal assets VND bn 212.3 393.2 +85.2 %Total Liabilities VND bn 183.3 384.1 +109.5 %Owner’s Equity VND bn 29.0 9.1 -68.6 %Net margin % 0.2 -1.2 -1.4 %Return on Assets (ROA) % 1.1 -2.8 -3.9%Return on Equity (ROE) % 8.3 -119.8 -128.1 %

(*) Due to full provisions for short and long term account receivables in 2016, with total provision amount of VND 34.2bn, increasing by VND 16bn from 2015, the 2016 performance was recorded as a loss compared to the previous year.

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5. SMC HA NOI JOINT STOCK COMPANY

Head Office Lot No.47 Quang Minh IZ, Quang Minh Town, Me Linh District, Ha Noi


SMC’s ownership 88.07%

Key business activities Coil Center – processing flat steel products and distributing various steel products for the Northern market

Products and Services Construction steels, flat steels, galvanized steel sheets, inox


Net revenue VND bn 527.5 552.7 +4.8 %







Net margin % 1.0 4.9 +3.9 %


Return on Equity (ROE) % 17.3 17.0 -0.3 %

1. AFFiLiATES


71


6. SMC TAN TAO Co., Ltd

Head Office Lot 33, Center street, Tan Tao IZ, Tan Tao A ward, Binh Tan District, HCMC



Key business activities Coil Center – processing and distributing flat steel products, providing warehouse services

Products and Services HRC, secondary products, high tensile steel products, warehouse services




Profit before tax VND bn 1.1 40.8 +3,609.1 %

Profit after tax VND bn 0.9 32.4 +3,500.0%




Net margin % 0.07 1.9 +1.8 %



72

7. SMC HIEP PHUOC Co., Ltd

Head Office Lot C5A, C Zone, Hiep Phuoc Industrial Zone, Nha Be District, HCMC



Key business activities Connecting SMC and port systems in HCMC, providing warehouse services for steel products trading in HCMC market

Products and Services Various steel products


Net revenue VND bn 0.0 0.0 0.0 %

Gross profit VND bn 0.0 0.0 0.0 %

Profit before tax VND bn -0.6 -0.6 0.0 %

Profit after tax VND bn -0.6 -0.6 0.0 %

Total assets VND bn 27.3 26.6 -2.6 %

Total Liabilities VND bn 0.0 0.0 0.0 %


1. AFFiLiATES


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1. SMC SUMMIT Co., Ltd

Head Office 1B street, Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria Vung Tau

Representative Office 396 Ung Van Khiem, Ward 25, Binh Thanh District, HCMC

Charter Capital USD 4,000,000.0


Key business activities Trading and distributing special and premium steel products

Products and Services Couplers, formed and bended steels


Net revenue VND bn 1,179.5 951.1 -19.4 %







Net margin % 0.5 1.5 +1.0 %



2. JOiNT-vENTurES

74

2. SMC TOAMI Co., Ltd


Representative Office 396 Ung Van Khiem, Ward 25, Binh Thanh District, HCMC



Key business activities Producing, processing, and distributing Weld mesh

Products and Services Weld mesh


Net revenue VND bn 72.8 80.8 +11.0 %

Gross profit VND bn 8.1 2.5 -69.1 %

Profit before tax VND bn 1.0 -9.8 n/a

Profit after tax VND bn 1.0 -9.8 n/a


Total Liabilities VND bn 5.8 73.4 +1,165.5 %


Net margin % 1.4 -12.1 -13.5 %

Return on Assets (ROA) % 1.4 -7.6 -9.0 %

Return on Equity (ROE) % 1.5 -17.4 -18.9 %

2. JOiNT-vENTurES


75


3. SENDO STEEL PIPE JOINT VENTURE Co., Ltd


Representative Office 396 Ung Van Khiem, Ward 25, Binh Thanh District. HCMC



Key business activities Producing, processing and distributing steel pipe products

Products and Services Steel pipes


Net revenue VND bn 20.1 852.4 +4,140.7 %

Gross profit VND bn 0.6 32.7 +5,350.0 %

Profit before tax VND bn -2.8 11.6 n/a

Profit after tax VND bn -2.8 11.6 n/a




Net margin % -13.9 1.4 +15.3 %

Return on Assets (ROA) % -1.8 2.3 +4.1 %

Return on Equity (ROE) % -3.3 6.3 +9.6 %

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“ Past is experience, Present is experiment, and Future is expectation”-J. Stalin-

MOMENTUM FOR FUTURE MILESTONES

78

SMC TrAdiNG iNvESTMENT JOiNT STOCk COMpANY ANd iTS SuBSidiAriES


Report of the Board of ManagementAudited Consolidated Financial statements

For the fiscal year ended 31 December 2016

1. Report of the Board of Management

2. Independent Auditors’ Report

3. Consolidated Balance Sheet

4. Consolidated Income statement

5. Consolidated Cash flow statement

6. Notes to the consolidated financial statements

79

82

84

87

88

90

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rEpOrT OF THE BOArd OF MANAGEMENTThe Board of Management of SMC Trading Investment Join Stock Company (“the Company”) presents its report together with the audited consolidated financial statements of the Company and its Subsidiaries (“the Group”) for the fiscal year ended 31 December 2016.

1. BOARD OF MANAGEMENT AND CONTROLLING BOARDThe Board of Management and Controlling board of the Company in office during the year and at the date of this report is:

Name Position

Mr. Nguyen Ngoc Anh Chairman

Mrs. Nguyen Thi Ngoc Loan Vice Chairman

Mrs. Vu Thi Thanh Hong Member (disappointed since 23 April 2016)

Mr. Ma Duc Tu Member

Mr. Vo Hoang Vu Member

Mr. Taira Yoshiyuki Member

Mrs. Ho Thi Ngoc Tuyet Chief of Controlling board (disappointed since 23 April )

Mr. Nguyen Huu Kinh Luan Chief of Controlling board (appointed since 23 April )

Mrs. Tran Thuy Bich Han Member (disappointed since 23 April 2016 )

Mr. Nguyen Huu Kinh Luan Member (disappointed since 23 April 2016)

Mrs. Dang Thi Thu Trang Member (appointed since 23 April 2016)

Mrs. Le Thi Cam Tu Member (appointed since 23 April 2016)

2. BOARD OF DIRECTORSThe Board of Directors of the Company in office during the period and at the date of this report is:

Name Position

Mr. Nguyen Ngoc Anh General Director

Mrs. Nguyen Thi Ngoc Loan Vice General Director

Mr. Vo Hoang Vu Vice General Director

Mr. Nguyen Binh Trong Vice General Director

Mr. Nguyen Van Tien Vice General Director

Mrs. Nguyen Thi Kim Hong Chau Vice General Director (2016)

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3. COMPANY’S BELONGING UNITS AND SUBSIDIARIESName Address

SMC Steel Co., Ltd Street 1B, Phu My I Industrial Zone, Ba Ria – Vung Tau Province

SMC Binh Duong One Member Company Limited

Street 05, Dong An Industrial Zone, Thuan An District, Binh Duong Province

SMC Steel Mechanical Co., Ltd Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria – Vung Tau Province

SMC Hiep Phuoc Co., Ltd Lot No. C5A, C Area, Hiep Phuoc Industrial Zone, Nha Be, HCM City

SMC Steel Trade Co., Ltd No. 124 Ung Van Khiem Street, Binh Thanh District, HCM City

SMC Tan Tao Co., Ltd Lot No. 33, Tan Tao Industrial Zone, Binh Tan District, HCM City

SMC Ha Noi Joint Stock Company Lot No. 47, Quang Minh Industrial Zone, Me Linh District, Ha Noi City

SENDO Steel Pipe Joint Venture Co., Ltd Street 1A, Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria – Vung Tau Province

SMC – SUMMIT Limited Liability Company Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria – Vung Tau Province

SMC TOAMI Co., Ltd Street 1B, Phu My 1 Industrial Zone, Tan Thanh District, Ba Ria – Vung Tau Province

4. PRINCIPAL ACTIVITIESManufacturing, trading, importing - exporting Iron and Steel, metal products, construction materials, interior decora-tion products, construction equipment, machines, house and storage frames made by aluminum, steel, stainless steel.

Forwarding service for local and export goods.

5. RESULTS OF THE FINANCIAL YEARThe Group’s financial position as at 31 December 2016 and the results of its operations, and cash flows for the year then ended set out in the financial statements on pages 06 to 39.

6. CURRENT ASSETSAt the date of this report, the Board of Management is not aware of any circumstances which would render the values attributed to current assets in the financial statements misleading.

7. CONTINGENT LIABILITIESAt the date of this report, no contingent liabilities have arisen since the end of financial year against assets of the Group.

8. AUDITORSDFK Vietnam Auditing Company has been appointed as the Company’s independent auditors for the fiscal year ended 31 December 2016.

rEpOrT OF THE BOArd OF MANAGEMENT


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9. STATEMENT OF THE BOARD OF DIRECTORS’ RESPONSIBILITY IN RESPECT OF THE CONSOLIDATED FINANCIAL STATEMENTSThe Board of Directors is responsible for the consolidated financial statements of each fiscal year which give a true and fair view of the state of affairs of the Group and of its results and cash flow for the year. In preparing those financial statements, the Board of Directors is required to:

•Selectsuitableaccountingpoliciesandthenapplythemconsistently;

•Makejudgmentsandestimatesthatbarereasonableandprudent;

•Statewhetherapplicableaccountingstandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedand explained in the financial statements; and

•Preparetheconsolidatedfinancialstatementsonthegoingconcernbasis

The Board of Directors confirms that the Group has complied with the above requirements in preparing the con-solidated financial statements for the fiscal year ended 31 December 2016. The Board of Directors is responsible for ensuring that proper accounting records are kept which disclose, with reasonable accuracy at any time, the financial position of the Group, and to ensure that the accounting records comply with the applicable accounting system. It is also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

10. APPROVAL OF THE BOARD OF MANAGEMENTWe hereby approve the accompanying consolidated financial statements which comprise of the consolidated bal-ance sheet, consolidated income statement and consolidated cash flow statement, together with the consolidated notes thereon. These Consolidated financial statements are drawn up so as to give a true and fair view of the state of affairs of the Group for the fiscal year ended 31 December 2016.

At the date of this statement, there are reasonable grounds to believe that the Group will be able to pay its debts as and when they fall due.

On behalf of the Board of Management

NGUYEN NGOC ANHChairman of BOM03 March 2017

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To: THE SHAREHOLDERS - SMC TRADING INVESTMENT JOINT STOCK COMPANY

AUDIT REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTSWe have audited the accompanying consolidated financial statements of SMC Trading Investment Joint Stock Company (“the Company”) and its subsidiaries (“the Group”), which was prepared on 03 March 2017, as set out on page 06 to page 39, comprising the consolidated balance sheet as at 31 December 2016, the consolidated statement of income, the consolidated cash flow statement for the year then ended and the notes to the consolidated financial statements.

BOARD OF DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTSBoard of Directors of the Company is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Vietnamese Accounting Standards, Vietnamese Accounting System and applicable statutory requirements to the preparation and presentation of the consolidated financial statements and is responsible for the internal controls that the Board of Directors determines necessary to enable the preparation and presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITYOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Vietnamese Standards on Auditing. Those standards require that we comply with ethical requirement and plan and perform the audit in order to obtain reasonable assurance as to whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence supporting the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessment, the auditor considers internal control relevant to the Group’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

No.: 128/DFK-BCKTHNAViNdEpENdENT AudiTOrS’ rEpOrT


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AUDITORS’ OPINIONIn our opinion, the accompanying consolidated financial statements give a true and fair view in all material respects of the financial position of SMC Trading Investment Joint Stock Company and its subsidiaries as at 31 December 2016 and the results of its operations and its cash flows for the year then ended in accordance with Vietnamese Accounting Standards, Vietnamese Accounting System and applicable statutory requirements to the preparation and presentation of the consolidated financial statements.

Ho Chi Minh City, 03 March 2017DFK Vietnam Auditing Company LimitedDIRECTOR

NGUYEN LUONG NHANAudit Practice Certificate No: 0182-2013-042-1

AUDITOR

LE DINH HUYENAudit Practice Certificate No.: 1756-2013-042-1

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CONSOLidATEd BALANCE SHEET

ASSETS Code Notes Closing Balance Opening BalanceA. Current Assets 100 3,952,018,830,699 2,316,403,364,432 I. Cash and cash equivalents 110 V.01 265,899,924,680 94,868,546,120 1. Cash 111 156,853,964,530 79,868,546,120 2. Cash equivalents 112 109,045,960,150 15,000,000,000 II. Short-term financial investments 120 778,945,441,677 764,211,632,171

1. Trading securities 121 V.02 7,147,698,766 7,561,430,622 2. Provision for the diminution in value of trading securities

122 V.02 (4,302,257,089) (4,850,881,784)

3. Held-to-maturity investments 123 V.03a 776,100,000,000 761,501,083,333 III. Short-term receivables 130 1,321,468,035,778 832,307,707,426 1. Short-term trade receivables 131 V.04a 1,089,440,430,482 773,839,996,237 2. Short-term prepayments to suppliers 132 V.05a 208,906,016,359 22,095,239,371 3. Short-term loan receivables 135 - 250,000,000 4. Other short-term receivables 136 V.06a 28,376,781,713 39,865,300,761 5. Provision for doubtful debts 137 V.07 (5,255,192,776) (3,742,828,943) IV. Inventories 140 V.08 1,437,003,319,778 490,586,285,883 1. Inventories 141 1,443,344,841,966 497,558,389,617 2. Provision for devaluation in inventories 149 (6,341,522,188) (6,972,103,734) V. Other short-term assets 150 148,702,108,786 134,429,192,832 1. Short-term prepaid expenses 151 V.09a 1,070,327,267 838,375,042 2. Value added tax deductibles 152 100,955,815,123 51,281,817,341 3. Tax and other receivables from the State 153 V.20b 46,675,966,396 82,309,000,449B. Non-current assets 200 698,700,750,272 710,566,401,003 I. Long-term receivables 210 5,012,813,390 6,226,065,443 1. Long-term trade accounts receivable 211 V.04b 100,880,598,980 81,712,108,843 2. Long - term prepayments to suppliers 212 V.05b 475,214,245 475,214,245 3. Other long-term receivables 216 V.06b 5,177,715,477 5,129,187,707 4. Provision for doubtful long-term debts 219 V.07 (101,520,715,312) (81,090,445,352) II. Fixed assets 220 476,473,758,968 437,580,975,565 1. Tangible fixed assets 221 V.10 409,359,940,906 362,131,197,926- Cost 222 664,451,802,466 569,816,321,092- Accumulated depreciation 223 (255,091,861,560) (207,685,123,166)

As at 31 December 2016 Currency Unit: VND


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CONSOLidATEd BALANCE SHEET (continued)As at 31 December 2016 Currency Unit: VND

ASSETS (continued) Code Notes Closing Balance Opening Balance 2. Finance lease assets 224 V.11 27,878,026,146 35,647,248,447- Cost 225 56,344,184,529 56,344,184,529- Accumulated depreciation 226 (28,466,158,383) (20,696,936,082)3. Intangible fixed assets 227 V.12 39,235,791,916 39,802,529,192- Cost 228 41,438,979,341 41,438,979,341- Accumulated amortization 229 (2,203,187,425) (1,636,450,149) III. Investment properties 230 - - IV. Long term assets in process 240 26,443,187,732 55,415,542,439 1. Construction in progress 242 V.13 26,443,187,732 55,415,542,439 V. Long-term financial investments 250 99,090,639,790 117,137,641,840 1. Investments in associates and joint-ventures 252 V.14 70,393,593,790 65,963,096,840 2. Investments in other entities 253 V.15 70,221,110,869 82,470,767,544 3. Provision for diminution in value of long-term financial investments.

254 V.15 (46,524,064,869) (48,296,222,544)

4. Held-to-maturity investments 255 V.03b 5,000,000,000 17,000,000,000 VI. Other non-current assets 260 91,680,350,392 94,206,175,716 1. Long-term prepaid expenses 261 V.09b 74,640,810,796 75,365,157,486 2. Deferred tax assets 262 V.16 17,039,539,596 15,822,619,203 3. Goodwill 269 V.17 - 3,018,399,027TOTAL ASSETS 270 4,650,719,580,971 3,026,969,765,435

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CONSOLidATEd BALANCE SHEET (continued)

RESOURCES Code Notes Closing Balance Opening BalanceC. Liabilities 300 3,899,762,720,203 2,635,751,552,435 I. Current liabilities 310 3,810,291,616,225 2,522,856,637,463 1. Short-term trade payable 311 V.19 1,007,169,909,092 691,697,368,934 2. Short-term advances from customers 312 V.18 62,881,335,815 25,898,869,135 3. Tax and amount payable to the State 313 V.20a 30,361,603,523 9,749,365,296 4. Payables to employees 314 15,188,533,664 1,851,603,530 5. Short-term accrued expenses 315 V.21 13,638,585,637 8,032,571,546 6. Short-term unrealized revenue 318 42,533,288,000 3,225,360,840 7. Other short-term payables 319 V.22 15,110,478,277 451,949,362 8. Short-term borrowings and finance leases 320 V.23a 2,626,800,593,384 1,782,470,548,185 9. Bonus and welfare funds 322 (3,392,711,167) (520,999,365) II. Long term liabilities 330 89,471,103,978 112,894,914,972 1. Long-term unrealized revenue 336 3,835,149,899 3,578,845,999 2. Long-term borrowings and finance leases 338 V.23b 85,635,954,079 109,316,068,973D. Equity 400 750,956,860,768 391,218,213,000 I. Owner's equity 410 V.24 750,956,860,768 391,218,213,000 1. Owner's contributed capital 411 295,183,610,000 295,183,610,000- Ordinary shares with voting rights 411a 295,183,610,000 295,183,610,000 2. Share premium 412 153,531,767,160 153,531,767,160 3. Owner's other capitals 414 5,373,000,000 5,373,000,000 4. Treasury shares 415 (142,489,800) (142,489,800) 5. Investment and development funds 418 97,827,815,909 95,651,669,506 6. Undistributed earnings 421 144,498,511,380 (184,729,259,122)- Undistributed earnings accumulated up to prior period 421a (184,729,259,122) 11,324,780,476- Undistributed earnings of current period 421b 329,227,770,502 (196,054,039,598) 7. Non-controlling interests 429 54,684,646,938 26,349,915,256 II. Other resources and funds 430 - -TOTAL RESOURCES 440 4,650,719,580,971 3,026,969,765,435

As at 31 December 2016 Currency Unit: VND

The accompanying notes are an integral part of the consolidated financial statements

NGUYEN NGOC ANHGeneral Director03 March 2017

DO DOAN THANH CONGChief Accountant

NGUYEN THANH HAOPrepared by


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CONSOLidATEd iNCOME STATEMENT

ITEMS Code Notes Current Year Previous Year1. Revenues from sales of goods and rendering of services

1 9,446,841,233,709 10,050,481,223,199

2. Less deductions 2 5,889,078,904 4,007,276,7143. Net revenues from sales of goods and rendering of services

10 VI.01 9,440,952,154,805 10,046,473,946,485

4. Cost of goods sold 11 VI.02 8,716,645,064,132 9,901,801,120,7485. Gross profit from sales 20 724,307,090,673 144,672,825,7376. Financial income 21 VI.03 64,640,430,280 52,788,072,7347. Financial expenses 22 VI.04 103,384,812,932 151,157,096,960 - Including: interest expense 23 89,899,886,959 106,661,451,2888. Profit (loss) from investments in associates, joint-ventures 24 4,430,496,950 3,729,926,1019. Selling expenses 25 VI.05 177,751,901,261 156,357,963,28010. General and administration expenses 26 VI.06 119,856,620,326 102,371,602,94011. Operating profit / (loss) 30 392,384,683,384 (208,695,838,607)12. Other income 31 VI.07 11,775,448,113 24,731,105,05913. Other expenses 32 VI.08 2,325,339,156 3,560,802,00114. Profit from other activities 40 9,450,108,957 21,170,303,05815. Accounting profit before tax / (loss) 50 401,834,792,341 (187,525,535,549)16. Current corporation income tax expense 51 VI.09 34,579,128,179 9,314,827,54917. Deferred corporation income tax expense 52 VI.10 (1,216,920,393) (1,004,773,980)18. Net profit after tax / (loss) 60 368,472,584,555 (195,835,589,118)19. Net profit after tax attributable to shareholders of the parent

61 362,306,917,961 (196,054,039,598)

20. Net profit after tax attributable to non-controlling interest

62 6,165,666,594 218,450,480

Basic earnings per share / (loss) 70 VI.11 12,254 (6,643)Diluted earnings per share / (loss) 71 VI.12 9,300 (6,643)

For the fiscal year ended 31 December 2016 Currency Unit: VND





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CONSOLidATEd CASH FLOw STATEMENT

ITEMS Code Current Year Previous YearI. CASH FLOWS FROM OPERATING ACTIVITIES1. Profit before tax 01 401,834,792,341 (187,525,533,549)2. Adjustment for:Depreciation and amortization 02 56,458,355,056 40,595,672,735Provisions 03 18,991,269,877 24,399,584,989(Gain) loss from foreign exchange differences 04 7,861,984,117 3,282,681,344(Gain) loss from investing activities 05 (61,595,230,495) (71,568,420,721)Interest expense 06 89,899,886,959 106,661,451,2883. Operating profit before movements in working capital 08 513,451,057,855 (84,154,565,914)(Increase) decrease in receivables 09 (547,660,665,864) 422,931,856,862(Increase) decrease in inventories 10 (945,786,452,349) 675,167,928,822Increase (decrease) in payables 11 420,239,555,989 16,711,071,242(Increase) decrease in prepaid expenses 12 492,394,466 (3,165,323,818)(Increase) decrease in trading security 13 413,731,856 -Interest paid 14 (88,348,002,300) (108,880,723,292)Corporate income tax paid 15 (10,956,628,588) (7,462,922,833)Other cash outflows 17 (1,391,358,875) -Net cash flows from operating activities 20 (659,546,367,810) 911,147,321,070II. CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of fixed assets and other long-term assets 21 (67,060,753,508) (226,658,566,663)Proceeds from sales of fixed assets and other long–term assets 22 869,978,058 -Cash outflow for lending and buying debt instruments of other companies

23 (924,198,916,667) (1,341,602,166,666)

Cash recovered from lending and selling debt instruments of other companies

24 1,225,201,083,333 1,175,653,162,500

Investments in other entities 25 (269,571,116,439) (12,000,000,000)

For the fiscal year ended 31 December 2016 Currency Unit: VND


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CONSOLidATEd CASH FLOw STATEMENT(continued)

ITEMS Code Current Year Previous YearDividend received 27 61,407,222,193 29,604,573,570Net cash flows from investing activities 30 26,647,496,970 (375,002,997,259)III. CASH FLOWS FROM FINANCING ACTIVITIESBorrowings received 33 9,908,262,908,993 9,083,436,442,554Borrowings repaid 34 (9,081,587,859,727) (9,974,675,977,410)Repayments of obligations under finance lease 35 (9,161,322,304) (8,857,946,766)Dividends paid 36 (14,755,821,500) -Net cash flows from financial activities 40 802,757,905,462 (900,097,481,622)Net increase in cash during the year 50 169,859,034,622 (363,953,157,811)Cash and cash equivalents at beginning of the year 60 94,868,546,120 458,542,581,066Effects of exchange rates differences 61 1,172,343,938 279,122,865Cash and cash equivalents at the end of the year 70 265,899,924,680 94,868,546,120





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NOTES TO THE CONSOLidATEd FiNANCiAL STATEMENTSFor the fiscal year ended 31 December 2016(Currency unit is in VND, unless other currencies stated)

These notes are an integral part of and should be read in conjunction with the accompanying consolidated financial statements.

1. GENERAL INFORMATION1. Structure of ownershipSMC Trading Investment Joint Stock Company (“the Company”) is established under the Business Registration Certificate No. 4103002772 on 18 October 2004 and the 11th Amendment Business Registration Certificate No. 0303522206 issued on 6 November 2012 by the Planning and Investment Department of Ho Chi Minh City.Shares of the Company was officially traded at the Ho Chi Minh Stock Exchange with the code of SMC since 30 October 2006 under the License No. 62/UBCK-GPNY granted by the President of State Securities Commission dated 29 September 2006.Form of capital ownership: Share capital.The Company registered their legal capital under the Business Registration Certificate with the amount of 295.183.610.000 VND, which was divided into 29.518.361 shares with the face value of each share is 10.000 VND, and the Company’s shares are entirely common shares.The Company international name: SMC Trading Investment Joint Stock Company.- The Company’s head office is located at: No. 396 Ung Van Khiem Street, Ward 25, Binh Thanh District, HCM City.

2. Business sector: Manufacturing - trade - services - construction.

3. Principal activitiesManufacturing, trading, importing - exporting iron and steel, metal products, construction materials, interior decoration products, construction and mechanical equipment, house and storage frames made by aluminum, steel, inox mixes (not being produced at the head office). Constructing, installing of civil, industrial transportation, irrigational projects. Repairing of house, interior decoration products. Setting up the construction and investment projects. Trading of houses. Trading of machineries and equipments and foodstuff. Forwarding and storage services for the local and export goods.

4. Normal business cycle: 12 months

5. The Group’s structure- Total subsidiaries: 08; Total associates: 02.- Total subsidiaries to be consolidated: 08.- Total subsidiaries not to be consolidated: None.


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6. List of subsidiaries and associates, joint-ventures

Name Address Business line % Holding % Voting rights

SMC Steel Co., Ltd Street 1B, Phu My 1 Industrial Zone, Ba Ria - Vung Tau Province

Manufacturing, trading and service

100.00% 100.00%

SMC Binh Duong One Member Co., Ltd

Street 05, Dong An Industrial Zone, Thuan An, Binh Duong Province

Manufacturing, trading service and construction

100.00% 100.00%

SMC Steel Mechanical Co., Ltd

Phu My 1 Industrial Zone, Tan Thanh, Ba Ria - Vung Tau Province


100.00% 100.00%

SMC Tan Tao Co., Ltd Lot No. 33, Tan Tao Industrial Zone, Binh Tan, Ho Chi Minh City

Trading service and construction

100.00% 100.00%

SMC Hiep Phuoc One member Co.,Ltd

Lot No.C5A, C Area, Hiep Phuoc Industrial Zone, Nha Be, Ho Chi Minh City


100.00% 100.00%

SMC Steel Trading Co., Ltd

No. 124 Ung Van Khiem Street, Ward 25, Binh Thanh, Ho Chi Minh City

Trading service and construction

100.00% 100.00%

SMC Ha Noi Joint Stock Company

Lot No. 47, Quang Minh Industrial Zone, Me Linh District, Ha Noi City


88.07% 88.07%

Sendo Steel Pipe Joint Venture Co., Ltd

Street 1A, Phu My 1 Industrial Zone, Ba Ria - Vung Tau Province


75.00% 75.00%

SMC - SUMMIT Limited Liability Company

Phu My 1 Industrial Zone, Tan Thanh, Ba Ria - Vung Tau Province


50.00% 50.00%

SMC Toami Co., Ltd Street 1B, Phu My 1 Industrial Zone, Ba Ria - Vung Tau Province


25.00% 25.00%

7. Information comparative ability on the consolidated financial statementsInformation comparative ability on the consolidated financial statements are met.

II. ACCOUNTING PERIOD AND ACCOUNTING CURRENCY1. Accounting period begins from 01/01 and ends on 31/12 annually.2. Currency unit used in accounting is Vietnam dong (VND)..

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III. ACCOUNTING STANDARDS AND REGIME 1. Accounting standards and regimeThe Company applies Vietnamese accounting system promulgated under the Circular No 200/2014/TT-BTC dated 22/12/2014 by the Ministry of Finance.The Company presents the consolidated financial statements under the Circular No. 202/2014/TT/BTC dated 22/12/2014 by the Ministry of Finance.

2. Declaration to comply with accounting standards and regimeThe accompanying consolidated financial statements are prepared and represented under the historical cost convention and in accordance with Vietnamese Accounting Standards, Vietnamese Accounting System and prevailing accounting regulations in Vietnam.

IV. PRINCIPAL ACCOUNTING POLICIES 1. Basis of consolidationThe consolidated financial statements comprise the financial statements of SMC Trading Investment Joint Stock Company and its subsidiaries (“the Group”) as at 31 December yearly. The financial statements of the subsidiaries are prepared for the same year with the Company, using accounting policies consistent with the Company’s accounting policies. Adjustments are made for any difference in accounting policies that may exist to ensure the consistency between the subsidiary and the Company.All inter-company balances and transactions, including unrealized profits arising from intra-group transactions, have been eliminated in full. Unrealized losses are eliminated unless costs cannot be recovered.Minority interests represent the portion of profit or loss and net assets not held by the Company’s shareholders and are presented separately in the consolidated income statement and in the consolidated balance sheet.The subsidiaries are consolidated from the date on which the Company obtains control and cease to be consolidated from the date on which the Company ceases to control. Where there is a loss of control over the subsidiaries, the consolidated financial statements still include results for the period of the reporting year during which the Company has control.Except for subsidiaries acquired under common control which are accounted for under the pooling of interests method, other subsidiaries have been included in the consolidated financial statements using the purchase method of accounting that measures the subsidiaries’ assets and liabilities at their fair value at the acquisition date

2. Investment in associatesInvestments in associates are accounted for using the equity method of accounting. An associate is an entity in which the Company has significant influence and which is neither a subsidiary nor a joint venture.Under the equity method, investments in associates are carried in the balance sheet at cost plus post acquisition changes in the Group’s share of net assets of the associates. Goodwill relating to the investment into the associates is included in the book value of the investment and is amortized within ten years. The consolidated income statement reflects the Group’s share in the results of operations of the associate. Where there has a change recognized directly in the equity of the associate, the Group recognizes its share of any changes


NOTES TO THE CONSOLidATEd FiNANCiAL STATEMENTS (continued)For the fiscal year ended 31 December 2016(Currency unit is in VND, unless other currencies stated)

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and discloses this, when applicable, in its equity. Unrealized profits and losses resulting from transactions between the Group and associates are eliminated to the extent of the interest in the associate.The financial statements of the associates are prepared for the same accounting period of the Company. When necessary, adjustments are made to bring the accounting policies in line with those of the Company.

3. Business combinations and goodwillBusiness combinations are accounted for using the purchase method. The cost of a business combination is measured as the fair value of assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange plus any costs directly attributable to the business combination. Identifiable assets, liabilities and contingent liabilities assume in a business combination are measured initially at fair values at the date of business combination.Goodwill acquired in a business combination is initially measured at cost being the excess of the cost the business combination over the Group’s interest in the net fair value of the acquires identifiable assets, liabilities and contingent liabilities. If the cost of business combination is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated income statement. After initial recognition, goodwill is measured at cost less any accumulated amortization. Goodwill is amortized over 10-year period on a straight-line basis.

4. Foreign exchange rate applied in the accounting The Company has transactions arisen by foreign currencies must record on the accounting books and prepared the financial statements in accordance with the general currency unit of Vietnam dong. Converting the foreign currencies to Vietnam dong are carried out as follows:Actual transaction rate applied for transactions arisen by foreign currency:- Actual transaction rate as trading of foreign currency: The rate committed in the foreign currency trading contract between the Company and the commercial bank;- In case of settlement rate is not stated in the contract: The Company records the accounting books in accordance with the principle of:+ Actual transaction rate as capital contribution: Foreign currency buying rate of the bank that the Company opens the account to receive the capital contribution of investors at the date of capital contributed;+ Actual transaction rate as recording accounts receivable: The buying rate of the bank;+ Actual transaction rate as recording accounts payable: The selling rate of the bank. + For transaction of purchasing fixed assets or expenses paid by foreign currency (not recorded at payable account): The buying rate of the bank that the Company makes the payment. Actual transaction rate as revaluating the foreign currency origining items as at the financial statements prepared:- Actual transaction rate as revaluating the foreign currency origining assets: The buying rate of the bank that the Company has transaction. - Actual transaction rate as revaluating the foreign currency origining liabilities: The selling rate of the bank as at the financial statements prepared. All foreign exchange differences are posted in income statement of the fiscal year.

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5. Cash and cash equivalentsCash and cash equivalents comprise cash on hand, cash in banks and short-term, highly liquid investments with an original maturity of less than three months that are readily convertible into known amounts of cash and that are subject to an insignificant risk of change in value.

6. ReceivablesReceivables are presented in the financial statements at the carrying amounts due from customers and other debtors, along with the provision for doubtful debts. Receivables are recorded in details in accordance with receivable maturity, objects and currencies: - Trade receivables includes commercial receivables which arise from purchase - sale transactions.- Other receivables includes non-commercial receivables which do not arise from purchase - sale transactions.Receivables with recover term or payment term under 1 year are reclassified as current assets.Receivables with recover term or payment term more than 1 year and make provision by 100% are reclassified as non current assets.The provision for doubtful debts represents the estimated loss due to non-payment arising on receivables that were outstanding at the balance sheet date. Increases and decreases to the provision balance are recorded as general and administrative expense in the income statement.

7. InventoriesInventories are stated at the lower of cost incurred in bringing each product to its present location and condition, and net realizable value. Net realizable value represents the estimated selling price less anticipated cost of disposal and after making allowance for damaged, obsolete and slow-moving items.Inventories are valued based on the actual cost basis and on a weighted average basis.The perpetual method is used to record inventories. An inventories provision is created for the estimated loss arising due to the impairment (through diminution, damage, obsolescence...) of raw materials, finished goods, and other inventories owned by the Company, based on appropriate evidence of impairment available at the balance sheet date. Increases and decreases to the provision balance are recorded into the cost of goods sold account in the income statement.

8. Fixed assets and depreciationTFixed assets are stated at cost less accumulated depreciation. The cost of an asset comprises of its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Expenditure for additions, improvements and renewals are capitalized and expenditure for maintenance and repairs are charged to the income statement. When assets are sold or retired, their cost and accumulated depreciation are removed from the balance sheet and any gain or loss resulting from their disposal is included in the income statement.



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Land use rights Land use rights are actual expenditures relating to land using, include: expenditure to obtain land use rights, compensation expenses, clearance expenses and registration fees.

Accounting software and software licenseAccounting software and software license are all expenditures which the Company has paid up to the time they are in use.

Depreciation and amortization Depreciation of fixed assets is calculated on a straight-line basis over the estimated useful life of each asset. The rate of depreciation is in accordance with the Circular No. 45/2013/TT-BTC on 25 April 2013 issued by the Ministry of Finance.Plant, buildings 04-20 years Machinery and transportation 03-12 yearsTransportation 03-10 yearsOffice equipment 02-08 yearsSoftware 03-20 years

Finance lease contractLeases assets areas classified as finance leases whenever the terms of the lease contract transfer substantially all the risks and rewards of ownership of the asset to the lessee. All other leases are classified as operating leases.At the commencement of the lease term, finance lease assets shall recognize finance leases as assets and liabilities on Balance Sheet at amounts equal to the fair value of the leased assets or, if lower, the present value of the minimum lease payments. The principal amount of future lease payments of finance lease contract to be recognized as an liability. The interest amount to be recognized to the Income statement of the entire lease term to reflect the constant periodic interest rate on the remaining payable balance.If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, finance lease assets are depreciated on a straight-line basis over the shorter of estimated useful life or the lease term.Machinery and transportation 06-08 years

9. Finance investmentsOther financial investmentsInvestments into other entities and other investments are stated at their acquisition costs. Provision are made for diminution value of transferable investments in market at the balance sheet date.

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Provision for long-term investment diminutionProvision for long-term investment diminution is made for each listed security representing the lower of book value and the market value.- Listed securities: the market price will be the average trading price at the provision date of Hanoi Stock Exchange (HNX), and the closing price of Ho Chi Minh City Stock Exchange (HOSE) at the provision date.- Non-listed securities: the market price will be calculated as follows:+ Securities listed on Unlisted Public Company Market (UPCom), the market price will be the average trading price at provision date+ Securities not to be listed on Unlisted Public Company Market (UPCom), the market price will be calculated based on the trading price provided by three (03) securities companies at the provision date.- For listed securities which transaction is canceled, stopped trading since the 6th trading day onwards is the book value as at the most recent balance sheet date.If non-listed securities not be certainly determined by their market price (fair value), provision for short-term investment diminution will not be recorded.Long-term investments: provision will be made in case of the invested company is in loss situation (except the loss situation determined in the initial investment plan)..

10. Prepaid expensePrepaid expenses comprise of cost incurred in the actual and relating to the operating activity result of many accounting periods and all posted in income statement in the next year.The following expenses are accounted into the prepaid expenses to gradually allocate to the income statement:- Tools expense- Insurance and repairing expenses- Other allocation expenses

11. PayablesPayables are recorded in details in accordance with payable maturity, objects and currencies: - Trade payables include commercial payables which arise from purchase - sale transactions.- Trade payables include non-commercial payables which do not arise from purchase - sale transactions.Payables with recover term or payment term under 1 year are reclassified as current liabilities.Payables with recover term or payment term more than 1 year are reclassified as non current liabilities. 12. Borrowings and finance leasesBorrowings are stated at cost that do not include some expenses relating to the borrowing. Borrowings are presented under payable term. Borrowings with payment term under 12 months since the time point of financial statements prepared are reclassified as current liabilities, and conversely, they are reclassified as non-current liabilities.



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13. Salary, social insurance, health insurance and unemployment insuranceSalary is accounted for the expense according to the labor contract signed. Accordingly, social insurance, health insurance and unemployment insurance are also accounted with the rate of 26%, 4.5% and 2% respectively based on the salary of laborer, of which 22% amount is accounted for expense and 10.5% amount is deducted from laborer’s salary.

14. Borrowing expenseExpenses for borrowing include borrowing interest and other expenses that relating directly to the borrowing.Borrowing expenses are accounted for income statement as incurred, unless they are capitalized as regulated at the accounting standard “Borrowing cost”.Borrowing cost are directly attributable to the acquisition, construction or production of a particular assets are capitalized as part of the cost of that assets. Capitalization of borrowing costs is suspended during the period in which active development of assets is interrupted unless such interruption is considered necessary. Capitalization of borrowing costs is ceased when substantially all the activities necessary to prepare the qualifying assets for its intended use or sale are complete..

15. Accrued expenses payableAccrued expenses payable are recognized for amount to be paid in the future for goods and services received, whether or not billed to the Company.

16. Recording of contributed capitalInvestments of owner are recorded according to the actual contributed capital of owner.Share premium reserve is recorded under the excess or diminution difference between the actual price and face value at the first issue, the subsequent issue or reissue of treasury shares.Owner’s equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or loss is recognized in profit or loss upon purchase, sale, issue or cancellation of the Company’s owner’s equity instruments.

Profit distributionProfit after tax is divided to shareholders after being passed by the Annual Shareholder Meeting and the Company’s funds established under the Company’s regulations and the prevailing laws of Vietnam.

17. Revenue recognitionRevenue from the sale of goods and finished goods shall be recognized when all the 05 following conditions have been satisfied:- The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;- The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;- The amount of revenue can be measured reliably;- It is probable that the economic benefits associated with the transaction will flow to the Company;- The costs incurred or to be incurred in respect of the transaction can be measured reliably.

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Revenue from rendering services is recognized when the outcome of the transaction is determined reliably. Transaction involving in the rendering of services related to several periods is recognized as a result of completed work at the day of balance sheet. Result of transaction is recognized when all 04 conditions have been satisfied:- The amount of revenue can be measured reliably;- It is probable that the economic benefits associated with the services rendered will flow to the Company;- The stage of completion at the balance sheet date can be measured reliably;- The costs incurred, or to be incurred, in respect of the transaction can be measured reliably.

Income from interest, dividends and divided profit shall be recognized when all the 02 following conditions have been satisfied:- It is probable that the economic benefits associated with the transaction will flow to the Company;- The amount of income can be measured reliably;

Income from interest, dividends and divided profit will be recognized based on: Interest is recognized by time and real interest rate of each period; Dividends and divided profit are recognized when shareholders has the right to receive the dividend or capital contributors have the right to receive profit from capital contribution.

Other income: including income from operating activities which occur infrequently, beside of activity make the revenue-generating activities.

18. Recording of cost of goods soldReflecting the cost of products, goods and services.

19. Financial expensesReflecting expenses of financial activity that include expenses or loss relating to the financial investment activity, expenses for loan and borrowing, loss from selling foreign currencies, and loss from foreign exchange differences ...

20. Selling and general administrative expenses Selling expenseReflecting the actual costs incurred in the process of selling products, goods and service providers, including the costs of offering, transportation cost, goods and storage costs, staff expense, brokerage commission,...

General and administrative expenses Reflecting general administration expenses of the Company that include salary expenses of management segment; social, health, unemployment insurances, union fees; office materials, tools, depreciation of assets; land rental, business operation tax; provision for doubtful debts; cost of hired services and others paid by cash.



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21. TaxationSMC Trading Investment Joint Stock Company and its Subsidiaries (“the Group”) is obliged to pay corporate income tax (CIT) at the rate of 20% of the taxable income. The charge for corporate income tax is based on the results of the current year and adjusted for items, which are non-deductible and losses carried forward, if any. The Group has preferential CIT as follows: - SMC Steel Mechanical Company is obliged to pay corporate income tax (CIT) at the rate of 15% for 12 years from the project “SMC Steel Mechanical factory” has been begun. The Company is entitled to corporate income tax exemption for three years from having the taxable income and a reduction of 50% for subsequent 7 years. The year 2016 is the fourth year that the Company is reduced of CIT.- SMC Steel Ltd., Co is obliged to pay corporate income tax (CIT) at the rate of 15% for 12 years from the project “Investing and expanding the manufacturing, processing of steel product factory” has been begun. The year 2016 is the tenth year SMC Steel Ltd., Co is obliged to pay CIT rated of 15% for the processing activity.- SMC Ha Noi Joint Stock Company is obliged to pay corporate income tax (CIT) at the rate of 15% for 12 years from the project has been begun. SMC Ha Noi Joint Stock Company is entitled to corporate income tax exemption for three years from having the taxable income and a reduction of 50% for subsequent 7 years. The year 2016 is the sixth year SMC Ha Noi J.S.C is reduced by 50% CIT. The land rental amount is exempted for 11 years since the project is started.Other taxes shall be paid in accordance with the prevailing laws of Vietnam.The tax payable is the amount that the Group estimated and shown in the accounting books. The tax payables will be adjusted as being finalized by the Tax office.

Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted by the balance sheet date.

Deferred taxDeferred tax is provided using the balance sheet liability method on temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amount for financial reporting purpose. Deferred tax assets are recognized for all deductible temporary differences, carried forward of unused tax credit and unused tax losses, to the extent that it is probable that taxable profits will be available against which deductible temporary differences, carried forward of unused tax credit and unused tax losses can be utilized.

22. Related partyA party is related to the Company if it has the ability to control the Company or exercise significant influence over the Company in making financial and operating decisions. All material transactions in relation with related parties during the period will be noted in the Notes to the financial statements.

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V. ADDITIONAL INFORMATION FOR THE ITEMS ON THE BALANCE SHEET

1. Cash and cash equivalents Closing balance Opening balance

Cash on hand 2,522,859,770 3,576,694,837Cash in bank (1.1) 154,331,104,760 76,291,851,283Cash equivalents (1.2) 109,045,960,150 15,000,000,000Total 265,899,924,680 94,868,546,120

(1.1) Of which, including the cash in bank by foreign currency is 1,628,677.35 USD equivalents to 36,990,904,348 VND. (1.2) Term deposits with duration not over 03 months at the bank, interest rate: 5% - 5.4%/year.

2. Trading securities and provisions

Trading security

Closing balance Opening balanceOriginal value Fair value Provision Original value Fair value Provision7,147,698,766 2,845,441,677 (4,302,257,089) 7,561,430,622 2,710,548,838 (4,850,881,784)

Including:

Quantity of share Buying value Investment

valueProvision

amountNet value of investment

Listed securitiesPomina Steel JSC 158,210 22,371 3,539,306,866 (2,257,805,866) 1,281,501,000Vietnam Ocean Shipping Agency Corporation (*)

11,200 37,543 420,483,700 (160,643,700) 259,840,000

Securities listed on Unlisted Public Company Market (UPCom)International Shipping and Labour Cooperation JSC (INLACO SAIGON)

55,000 33,273 1,830,000,000 (1,703,500,000) 126,500,000

Saigon Packaging JSC 70,000 10,357 725,000,000 - 725,000,000Non-listed securitiesConstruction and Consulting JSC 29,714 21,300 632,908,200 (180,307,523) 452,600,677Total 7,147,698,766 (4,302,257,089) 2,845,441,677(*) In this fiscal year, the Group has received dividends from this company by cash with the amount of 30,240,000 VND.



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3. Held-to-maturity investments

Closing balance Opening balanceOriginal value Book value Original value Book value

a) Short termTerm deposits under 12 months (6,2% - 10,25%/year)

776,100,000,000 776,100,000,000 761,501,083,333 761,501,083,000

b) Long termTerm deposits > 12 months - - 17,000,000,000 17.000.000.000Term Bond (10 years), interest per year

5,000,000,000 5,000,000,000 - -

Total 5,000,000,000 5,000,000,000 17,000,000,000 17,000,000,000

4. Trade receivables Closing balance Opening balance

a) Short term- Seasons Avenue 6,000,000,000 23,111,421,267- China Construction (S.E.A) Co., Ltd 48,325,130,535 35,497,642,910- Siam Commercial Metal Co., Ltd. 13,712,683,843 -- Phu Viet Trade Construction Investment Co., Ltd. 16,226,049,752 -- Metalworld Trading Pte Ltd 61,746,389,779 67,777,494,696- Kirby Co., Ltd. 14,467,151,753 7,053,940,097- ClearWater Metal Viet Nam JSC 31,158,230,840 14,065,754,020- Atad Steel Structure JSC 11,754,272,891 8,294,528,105- An Tam Trade Construction Co., Ltd. 39,487,922,854 4,950,176,958- An Phong Construction Co., Ltd. 47,381,658,838 14,674,928,422- Nguyen Anh Import Export Co., Ltd. 42,872,797,440 -- Duc Khanh Import Export Co., Ltd. 32,666,895,591 -- Receivables from related parties + SMC-SUMMIT Co., Ltd. + SMC TOAMI Co., Ltd.

8,829,635,33634,485,886,250

14,282,049,7293,533,143,632

- Others 680,325,724,780 580,598,916,401Total short term (*) 1,089,440,430,482 773,839,996,237b) Long term- SPC Co., Ltd. 6,367,855,501 6,367,855,501- Kim Long Tan Co., Lyd 11,108,125,525 11,628,125,525- Huu Lien Asia Corporation 17,035,286,577 17,824,286,577- Space Concrete Corporation 8,891,559,997 8,891,559,997- Oil Real estate SJC 11,273,973,263 -

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4. Trade receivables (continued) Closing balance Opening balance

- Others 46,203,798,117 37,000,281,243Total long term (*) 100,880,598,980 81,712,108,843

(*) Of which, including the trade receivables by foreign currency is 5,160,467.25 USD equivalents to 117,178,992,585 VND.

5. Prepayments to suppliers Closing balance Opening balance

a) Short term- Hoa Phat Steel Co., Ltd. 111,911,923,178 -- Dai Thien Loc Steel Co., Ltd. 29,890,256,568 -- Hung Nghiep Formosa Ha Tinh Steel Co., Ltd. 21,117,635,165 -- SMC-SUMMIT Co., Ltd. (related party) - 2,795,036,731- Others 45,986,201,448 19,300,202,640Total (*) 208,906,016,359 22,095,239,371b) Long term- Tam Anh Investment JSC 402,620,981 402,620,981- Others 72,593,264 72,593,264Total (*) 475,214,245 475,214,245

(*) Of which, including the prepayments to suppliers by foreign currency is 810,650.92 USD equivalents to 18,081,396,846 VND.

6. Other receivables Closing balance Opening balancea) Short term- Interest receivables from term deposits, deposits, loans given 15,823,161,968 23,967,376,556- Receivables from related parties - 118,100,000- Receivables related to the trade discounts earned - 6,178,003,114- Receivables related to land rental exempted 536,353,325 --Receivable from HCMC People's Committee regarding of borrowing interest supported 448,379,116 -

- Advances 1,213,940,509 5,105,804,561- Short-term deposits 10,028,857,358 4,189,153,630- Other receivables 326,089,387 306,862,900Total 28,376,781,713 39,865,300,761b) Long term- Deposits at VILC for finance lease assets (*) 4,648,813,390 4,624,285,620- Late payment interest receivable 164,902,087 164,902,087- Deposits for car rental and other deposits 364,000,000 340,000,000Total 5,177,715,477 5,129,187,707

(*) Of which, including deposits by foreign currency is 144,281.00 USD equivalents to 3,276,621,510 VND



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7. Bad debts

Closing balance Opening balanceOriginal value Recoverable

valueOriginal value Recoverable

valueReceivables overdue from 06 months to 01 year

Others - - 2,167,210,225 -

Receivables overdue from 01- 02 years

Trung Nam Construction and Investment JSC

8,720,876,982 - - -

Others 157,049,726 - 1,377,242,778 -Receivables overdue from 02- 03 years

Others 1,177,242,778 - - -

Receivables overdue from more than 3 years

SPC Co., Ltd 6,367,855,501 - 6,367,855,501 -Lam Son Star Co., Ltd 3,563,518,010 - 3,563,518,010 -Gia Tran Construction JSC 3,140,414,858 - 3,140,414,858 -Kim Long Tan Co., Ltd 11,108,125,525 - 11,628,125,525 -Huu Lien Asia JSC 17,035,286,577 - 17,824,286,577 -Space Concrete Corporation 8,891,559,997 - 8,891,559,997 -Khang Thong Corporation 4,109,701,278 - 5,209,704,278 -Others 22,846,169,540 - 24,492,414,770 -

Prepayment to suppliers overdue more than 3 years

Others 475,214,245 - 475,214,245 -

Other receivables (provison 100%)

Number One Construction Co., Ltd.

4,841,709,230 - - -

Oil Real Estate JSC 11,273,973,263 - - -Thuy Thanh Phat Co., Ltd. 3,900,000,000 - - -Others 3,967,184,287 - - -

Total 111,575,884,797 - 85,830,122,385 -

Provision for doubtful debts Current year Previous year

Opening balance (84,833,274,295) (54,511,324,201)Additional (26,766,784,576) (41,978,264,718)Reversal (receivables collected) 4,824,150,783 4,902,157,748Decreased (wirten off) - 6,754,156,876Closing balance (106,775,908,088) (84,833,274,295)

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8. Inventories Closing balance Opening balance

Original value Provision Original value ProvisionGoods in transit 25,978,220,999 - - -Raw materials 650,788,348,532 (1,934,766,347) 232,896,295,543 (2,135,738,620)Tools 581,565,339 - 1,740,346,636 -Finished goods 107,648,282,230 (2,703,806,332) 107,121,398,980 (4,134,266,218)Goods 658,348,424,866 (1,702,949,509) 155,800,348,458 (702,098,896)Total 1,443,344,841,966 (6,341,522,188) 497,558,389,617 (6,972,103,734)

Provision for devaluation in inventories Current yearOpening balance (6,972,103,734)Increased by additional (5,246,580,632)Decreased by reversal 5,877,162,178Closing balance (6,341,522,188)

9. Prepaid expenses Closing balance Opening balanceShort term- Insurance expense awaiting for allocation 176,130,053 181,515,915- Tools expense awaiting for allocation 579,074,608 496,278,244- Opening L/C fee awaiting for allocation 71,213,516 100,205,915- Other expenses awaiting for allocation 243,909,090 60,374,968Total 1,070,327,267 838,375,042

Long term- Prepaid land rental (*) 68,567,843,938 70,531,740,912- Tools expense awaiting for allocation 2,571,204,164 1,124,432,718- Prepaid industrial park infrastructure fee 1,759,894,590 1,811,015,728- Establishment expense 899,192,309 1,387,677,353- Repairing expense awaiting for allocation 449,103,149 -- Expenditure of plant building project awaiting for allocation up to 2017 236,212,888 472,425,775

- Others 157,359,758 37,864,000Total 74,640,810,796 75,365,157,486



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9. Prepaid expenses Closing balance Opening balance(*) Including Sôcuôinăm SôđầunămPrepaid land rental with the term up to November 2046 at Dong An industrial Zone, Thuan An District, Binh Duong Province 1,727,374,850 1,787,629,404

Prepaid land rental with the term up to 16 August 2050 at lot No. 33 - Center Road, Tan Tao industrial Zone, Binh Tan, HCMC 48,113,359,566 49,528,458,377

Prepaid land rental with the term up to 29 December 2048 at Hiep Phuoc Industrial Zone, Nha Be, HCMC 15,394,206,372 15,875,275,320

Prepaid land rental with the term up to 7 May 2018 at Phu My I industrial Zone, Tan Thanh Ward, Ba Ria - Vung Tau Province 3,059,408,996 3,059,408,996

Compensation expenses with the term up to July 2052 at Quang Minh Industrial Zone, Me Linh District, Vinh Phuc Province (at present is Ha Noi City)

273,494,154 280,969,815

Total 68,567,843,938 70,531,741,912

10. Tangible fixed assets Plant, buildings Machinery Transportation Office

equipment Total

Historical costOpening balance 250,507,489,035 228,742,713,857 71,555,896,052 19,010,222,148 569,816,321,092Increase 4,245,970,814 82,026,619,131 9,551,694,961 208,823,309 96,033,108,215Decrease - 842,908,659 554,718,182 - 1,397,626,841Closing balance 254,753,459,849 309,926,424,329 80,552,872,831 19,219,045,457 664,451,802,466Accumulated depreciationOpening balance 61,871,504,451 87,881,313,232 41,746,091,467 16,186,214,016 207,685,123,166Increase 13,241,499,032 26,321,467,745 7,716,236,606 843,192,096 48,122,395,479Decrease - 207,174,230 508,482,855 - 715,657,085Closing balance 75,113,003,483 113,995,606,747 48,953,845,218 17,029,406,112 255,091,861,560Net book valueOpening balance 188,635,984,584 140,861,400,625 29,809,804,585 2,824,008,132 362,131,197,926Closing balance 179,640,456,366 195,930,817,582 31,599,027,613 2,189,639,345 409,359,940,906

Fixed assets increased by new purchasing and construction finished; decreased by selling and capital contributing.Historical cost of fixed assets has been fully depreciated but still in use with the value of 56,823,015,925 VND.As at 31/12/2016, tangible fixed assets with the net book value of 159,047,704,207 dongs is being mortgaged at banks to ensure the Group’s borrowings.

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11. Finance lease assets Machinery Transportation Total

Historical valueOpening balance 52,037,031,929 4,307,152,600 56,344,184,529Increase - - -Decrease - - -Closing balance 52,037,031,929 4,307,152,600 56,344,184,529Accumulated depreciationOpening balance 19,919,255,751 777,680,331 20,696,936,082Increase 7,051,363,534 717,858,767 7,769,222,301Decrease - - -Closing balance 26,970,619,285 1,495,539,098 28,466,158,383Net book valueOpening balance 32,117,776,178 3,529,472,269 35,647,248,447Closing balance 25,066,412,644 2,811,613,502 27,878,026,146

12. Intangible fixed assets Land use rights Software Total

Historical valueOpening balance 33,607,900,000 7,831,079,341 41,438,979,341Increase - - -Decrease - - -Closing balance 33,607,900,000 7,831,079,341 41,438,979,341Accumulated depreciationOpening balance - 1,636,450,149 1,636,450,149Increase - 566,737,276 566,737,276Decrease - - -Closing balance - 2,203,187,425 2,203,187,425Net book valueOpening balance 33,607,900,000 6,194,629,192 39,802,529,192Closing balance 33,607,900,000 5,627,891,916 39,235,791,916

(*) Non-term land use rights at No. 396 Ung Van Khiem Street, Ward 25, Binh Thanh District, HCMC. Land use rights has been mortgaged to secure the Group’s outstanding borrowings.



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13. Construction in progress Closing balance Opening balance- Purchasing of fixed assets 25,793,331,072 50,041,340,047- 5000KVA transformer station and 22KV power lines - 4,590,872,995- 10-ton bridge crane system - 57,223,460- Construction cost of the auxiliary works system (Pressing piles, preventing subsidence) - 394,105,937

- Construction cost of plant 290,000,000 -- Others 359,856,660 332,000,000Total 26,443,187,732 55,415,542,439

14. Investments into associates and joint venture Closing balance Opening balanceInvestments into associates and joint venture (*) 70,393,593,790 65,963,096,840

(*) IncludingInvestment

valueProfit (loss) of the Group in

Associates and Joint Venture Total

Non-listed securitiesSMC - SUMMIT Limited Liability Co., 41,640,000,000 14,658,082,700 56,298,082,700SMC Toami Co., Ltd. 15,934,500,000 (1,838,988,910) 14,095,511,090Total 57,574,500,000 12,819,093,790 70,393,593,790

15. Investments into other entities and provision

Closing balance Opening balanceInvestments in other entities 70,221,110,869 23,697,046,000 (46,524,064,869) 82,470,767,544 34,174,545,000 (48,296,222,544)

Total 70,221,110,869 23,697,046,000 (46,524,064,869) 82,470,767,544 34,174,545,000 (48,296,222,544)

Details for investments into other entities

Quantity of share Face value Buying price Investment

valueProvision amount

Listed securities- Pomina Steel JSC 1,430,000 10,000 23,496 33,599,960,344 (22,016,960,344)Securities listed on Unlisted Public Company Market (UPCom)- Vicasa Steel JSC (*) 451,070 10,000 24,454 11,030,322,412 (6,925,585,412)- Nha Be Steel JSC 93,700 10,000 15,911 1,490,828,113 (781,519,113)- Viet Nam Steel JSC 1,000,000 10,000 10,100 10,100,000,000 (2,800,000,000)- Thong Nhat Steel JSC 1,400,000 10,000 10,000 14,000,000,000 (14,000,000,000)Total 70,221,110,869 (46,524,064,869)(*) In this fiscal year, the Group has received dividends from this company by cash with the amount of 680,505,000 VND.

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16. Deferred tax assets Closing balance Opening balanceDeferred tax assets arising from deductible temporary differences of:- Expenses for provision for bad debts 14,543,855,196 13,300,278,313- Expense for provision for financial investments diminution 36,061,505 61,079,812- Unused taxable losses 627,403,277 762,651,209- Depreciation expense 1,384,059,993 989,280,067- Revaluation of capital contribution by assets intoToami Co., Ltd 767,029,980 715,769,200- Gain from unrealized exchange difference (318,870,355) (6,439,398)Total 17,039,539,596 15,822,619,203

17. Goodwill Closing balance Opening balanceGoodwill (*) - 3,018,399,027

(*) Net book value of goodwill arising from investment into SMC Ha Noi Joint Stock Company awaiting for allocation.

18. Short term advances from customer Closing balance Opening balance- Thanh Loi Co., Ltd. 35,000,000,000 -- SMC TOAMI (related party) - 11,431,875,300- Others 27,881,335,815 14,466,993,835Total 62,881,335,816 25,898,869,135

19. Short term trade payable

Closing balance Opening balance

Amount Amount be able to pay


- Viet Steel Co., Ltd 356,929,902,361 356,929,902,361 145,201,859,480 145,201,859,480- Vina Kyoei Steel Co., Ltd 167,399,465,228 167,399,465,228 235,691,308,607 235,691,308,607- Viet Duc Steel JSC 52,870,939,966 52,870,939,966 20,815,618,010 20,815,618,010- Win Faith Trading Limited 31,385,864,392 31,385,864,392 78,059,090,932 78,059,090,932- Phuong Thinh Co., Ltd. 92,671,421,910 92,671,421,910 - -- Bright Ruby Resources PTE Limited - - 44,374,769,156 44,374,769,156- China Steel Sumikin VN JSC - - 38,998,561,625 38,998,561,625- Payables to related parties + SMC TOAMI + SMC Summit

65,842,32684,645,158,015

65,842,32684,645,158,015

401,596,7469,163,972,568

401,596,7469,163,972,568

- Others 221,201,314,894 221,201,314,894 118,990,601,810 118,990,601,810Total (*) 1,007,169,909,092 1,007,169,909,092 691,697,368,934 691,697,368,934

(*) Of which, including the payables to suppliers by foreign currency is 4,187,383.50 USD equivalents to 95,388,596,130 VND.



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20. Tax and amount payable to the State budget

01/01/2016 Payables Amount be paid 31/12/2016a) PayablesValue added tax 4,069,382,020 302,879,734,458 306,193,077,716 756,038,762Corporation income tax 4,896,067,762 34,579,128,179 10,956,628,588 28,518,567,353Personal income tax 361,047,065 2,879,264,120 2,153,313,777 1,086,997,408Import tax - 84,391,969,147 84,391,969,147 -Others 422,969,449 777,790,992 1,200,659,441 -Total 9,749,365,296 425,507,886,896 404,895,648,669 30,361,603,523b) ReceivablesCorporation income tax overpaid

(1,587,185,479) (4,499,856) (4,499,856) (1,587,185,479)

VAT awaiting for refund (79,886,009,602) (44,563,088,386) (79,362,421,117) (45,086,676,871)Personal income tax overpaid (100,285,991) 5,593,455 (94,692,536) -Import tax overpaid (735,519,377) (807,070,612) (1,540,485,943) (2,104,046)Total (82,309,000,449) (45,369,065,399) (81,002,099,452) (46,675,966,396)

21. Accrued expenses payables Closing balance Opening balance- Interest expense payable 3,540,452,179 1,988,567,520- Borrowing interest differences payable due to borrow by VND with the interest rate by USD 6,518,121,966 4,931,935,723

- Other accrued expenses payable 3,580,011,492 1,112,068,303Total 13,638,585,637 8,032,571,546

22. Other short-term payables Closing balance Opening balance- Union fee 308,243,577 317,862,382- Compulsory insurance payable 2,403,025 158,625- Dividends payable 14,755,821,500 118,491,048- Other payables 44,010,175 15,437,307Total 15,110,478,277 451,949,362

110

23. Borrowings and finance leases

Short termOpening balance Movement Closing balance


Increase Decrease Amount Amount be able to pay

Vietcombank 299,887,108,112 299,887,108,112 1,489,356,552,261 1,491,404,754,594 297,838,914,779 297,838,914,779

Vietinbank 1,433,275,246,093 1,433,275,246,093 8,391,062,849,869 7,538,839,840,576 2,285,498,255,386 2,285,498,255,386

Borrowings from individuals

5,350,000,000 5,350,000,000 7,930,000,000 11,545,000,000 1,735,000,000 1,735,000,000

Current portion of long term borrowings

43,958,193,980 43,958,193,980 - - 41,728,423,219 41,728,423,219

Total (a) 1,782,470,548,185 1,782,470,548,185 9,888,349,402,130 9,041,789,586,170 2,626,800,593,384 2,626,800,593,384

Long term

Borrowings from banks

Shinhan VN 10,548,720,000 10,548,720,000 - 3,168,000,000 7,380,720,000 7,380,720,000

VID Public 33,240,188,800 33,240,188,800 20,904,059,928 6,418,446,557 47,725,802,171 47,725,802,171

Indovina bank 7,952,112,000 7,952,112,000 2,111,949,000 4,033,827,000 6,030,234,000 6,030,234,000

Vietinbank 82,390,000,000 82,390,000,000 - 26,178,000,000 56,212,000,000 56,212,000,000

Current portion of long term borrowings

(34,753,816,340) (34,753,816,340) - - (33,969,271,800) (33,969,271,800)

Total 99,377,204,460 99,377,204,460 23,016,008,928 39,798,273,557 83,379,484,371 83,379,484,371

Financial lease liabilities Previous year Current year

Duration Amount payable as at 01/01/2016

Interest paid Amount paid Amount payable as at 31/12/2016

Interest paid Amount paid

01 year and less 9,204,377,6401,460,754,740

8,857,946,765 7,759,151,419 935,132,306 9,161,322,304From 01 - 05 years 9,938,864,513 - 2,256,469,708 -Current portion of long term borrowings

(9,204,377,640) - - (7,759,151,419) - -

Total 9,938,864,513 1,460,754,740 8,857,946,765 2,256,469,708 935,132,306 9,161,322,304

Total long term borrowings and liabilities (b)

109,316,068,973 85,635,954,079

(a) Short term: - Borrowings from Vietcombank - HCMC branch under the credit contract No. 0104/KH/13NH dated 26/4/2013 and amendment contracts dated 06/10/2016 with the credit limit of 300 billion VND; borrowing duration: based on



111


each debit note but not over 06 months; the interest rate as at 31/12/2016: 5%/year (borrowings by VND) and 2.1%/year (borrowings by USD). This borrowing is guaranteed by the fixed assets of SMC Steel Co., Ltd with the guarantee value of 35,973,778,422 VND. The balance up to 31/12/2016 is 297,838,914,779 VND.- Borrowings from Vietinbank according to 10 credit contracts with the credit limit of 2,739 billion VND; borrowing duration: from 02 - 06 months; the interest rate as at 31/12/2016: 5.0%/year (borrowings by VND) and 1.94% - 2.3%/year (borrowings by USD). This borrowing is guaranteed by the assets formed from borrowing amount, land use rights and project ownership rights at No. 396 Ung Van Khiem street, ward 25, Binh Thanh district, HCM city and property from the third party. The borrowing balance as at 31/12/2016 is 2,285,498,255,386 VND including: 1,903,729,018,337 VND and 16,757,871.53 USD equivalents to 381,769,237,049 VND.- Borrowings from individuals with the duration term of 01 year; the interest rate of 6%/year; and borrowing interest amount shall be paid at the date of 25th of monthly.

(b) Long term: -- Borrowings from Shinhan Bank VietNam according to the credit contract No. SHBVN/2013/SMC/HDTD01 dated 05/4/2013 with the credit limit of 3,645,000.00 USD. Borrowing purpose: to purchase machinery and equipment line for manufacturing of steel; borrowing duration: 05 years; the interest rate as at 31/12/2016: 3.75%/year. This borrowing is guaranteed by the assets formed from borrowing amount. The borrowing balance as at 31/12/2016 is 324,000.00 USD equivalents to 7,380,720,000 VND, of which current portion of long-term borrowing is 144,000.00 USD equivalents to 3,280,320,000 VND.- Borrowings from VID Public - HCMC branch according to 03 credit contracts with the credit limit of 2,699,705.00 USD. Borrowing purpose: to purchase machinery and equipment line for manufacturing of steel; borrowing duration: 05 years; the interest rate as at 31/12/2016: 2.75%/year. This borrowing is guaranteed by the assets formed from borrowing amount. The borrowing balance as at 31/12/2016 is 2,094,868.95 USD equivalents to 47,725,802,171 VND, of which current portion of long-term borrowing is 487,692.00 USD equivalents to 11,110,873,800 VND,- Borrowings from Indochina bank Limited according to the credit contract No. 81/1014/MTL/1031615 dated 17/10/2014 with the amount of 441,000.00 USD; borrowing duration: 60 months. Borrowing purpose: to purchase Spitting Machine SL-1300-032 and interest rate as at 31/12/2016: 2.6%/year. This borrowing is guaranteed by assets formed from the borrowing according to the contract No. 81/1014/HDTCMM with the estimated value of 519,000 USD. The balance borrowing as at 31/12/2016 is 264,600.00 USD equivalents to 6,030,234,000 VND, of which current portion of long-term borrowing is 88,200.00 USD equivalents to 2,010,078,000 VND.- Borrowings from Vietinbank under the contracts as follows:+ The credit contract No. 22/2013-HDTDDA/NHCT946-SMC TAN TAO dated 11/9/2013 and amended text of credit contract No. 22/2013-HDTD-SDBS01/NHCT946-SMC TAN TAO with the credit limit of 82 billion VND. Borrowing purpose: to implement the investment into the project of steel processing center at Tan Tao industrial park; borrowing duration: 78 months; the interest rate as at 31/12/2016: 10.5%/year. This borrowing is guaranteed by the assets formed from borrowing amount. The borrowing balance as at 31/12/2016 is 47,500,000,000 VND, of which current portion of long-term borrowing is 14,400,000,000VND.+ The credit contract No. 12.146001/HDTD.DH dated 12/12/2012 and amended text of credit contract No.12.146011-02/HDTDBS dated 01/11/2014 with the credit limit of 20 billion VND. Borrowing purpose: to imple-ment the investment project “Coil steel processing center” at plot No. 47, Quang Minh industrial park, Quang Minh town, Me Linh district, Ha Noi city. Borrowing duration of 78 months, the grace period is 6 months, the interest rate as at 31/12/2016 is 9.5%/year. This borrowing is guaranteed by the land use rights and assets on land at plot No. 47, Quang Minh industrial park, Quang Minh town, Me Linh district, Ha Noi city under the assets mortgage contract

112

No. 12.146001.HDTC.HTTTL dated 12/12/2012 with the mortgaged assets value of 34,294,000,000 VND. Settle-ment schedule begins from 01/7/2013 with the amount of 792,000,000 VND/quarter. The borrowing balance as at 31/12/2015 is 8,712,000,000 VND, of which current portion of long-term borrowing is 3,168,000,000 VND.- Long-term liabilities regarding to finance lease contracts with Vietnam International Leasing Company Limited as follows:

31/12/2016USD Equivalents to VND

- The contract No. 2011-00090-000 dated 21/10/2011 114,892.21 2,617,244,544- The contract No. 2011-00105-000 dated 04/11/2011 99,410.27 2,264,565,951- The contract No. 2012-00101-000 dated 29/11/2012 134,805.11 3,072,208,457- The contract No.2014-00116-000 dated 23/7/2014 - 1,199,576,469- The contract No.2014-00117-000 dated 23/7/2014 - 862,025,706Total (*) 349,107.59 10,015,621,127

(*) Of which, including current portion of long-term liabilities is 7,759,151,419 VND, including 1,033,538,764 VND and 295,206.48 USD equivalents to 6,725,612,655 VND.

24. Increase and decrease in owner’s equity(a) Owners’ equity movement

01/01/2015 Increase Decrease 31/12/2015Chartered capital 295,183,610,000 - - 295,183,610,000Share premium 153,531,767,160 - - 153,531,767,160Owner’s other capitals 5,373,000,000 - - 5,373,000,000Treasury shares (142,489,800) - - (142,489,800)And development funds 78,999,423,263 16,652,246,243 - 95,651,669,506Financial reserve fund 16,652,246,243 - 16,652,246,243 -Undistributed earnings 12,916,732,729 (196,054,039,598) 1,591,952,253 (184,729,259,122)Non-controlling interests 4,417,957,565 21,931,957,691 - 26,349,915,256Total 566,932,247,160 (157,469,835,664) 18,244,198,496 391,218,213,000

01/01/2016 Increase Decrease 31/12/2016Chartered capital 295,183,610,000 - - 295,183,610,000Share premium 153,531,767,160 - - 153,531,767,160Owner’s other capitals 5,373,000,000 - - 5,373,000,000Treasury shares (142,489,800) - - (142,489,800)And development funds 95,651,669,506 2,176,145,584 - 97,827,815,090Undistributed earnings (184,729,259,122) 362,306,917,961 33,079,147,459 144,498,511,380Non-controlling interests 26,349,915,256 28,334,731,682 - 54,684,646,938Total 391,218,213,000 392,817,795,227 33,079,147,459 750,956,860,768



113


(b) The legal capital under the Business Registration Certificate is 295,183,610,000 VND equivalents to 29,518,361 shares, face value of 10,000 VND/share.

Shares 31/12/2016 01/01/2016Quantity of shares authorized to be issued 29,518,361 29,518,361Quantity of shares issued and fully paid 29,518,361 29,518,361- Ordinary shares 29,518,361 29,518,361- Preferred shares - -Quantity of treasury shares (6,718) (6,718)- Ordinary shares (6,718) (6,718)- Preferred shares - -Quantity of outstanding shares 29,511,643 29,511,643- Ordinary shares 29,511,643 29,511,643- Preferred shares - -

(c) Up to 31/12/2016, the Group has purchased 6,718 shares with the buying price is 21,210 dong/share and trans-ferred to treasury shares.

(d) Undistributed earnings:

Undistributed earnings as at 01/01/2016 (184,729,259,122)- Profit for the year 2016 362,306,917,961- Dividends distributed for the year 2016 (29,511,643,000)- Remuneration for BOM and Controlling board (721,508,903)- Bonus and welfare funds at subsidiaries (669,849,972)- Business investment and development funds at subsidiaries (2,176,145,584)Undistributed earnings as at 31/12/2016 144,498,511,380

(e) Non-controlling interests

Non-controlling interests Closing balance Opening balanceSMC Ha Noi JSC 8,481,518,165 5,275,488,483SENDO Steel pipe Joint Venture Co., Ltd 46,203,128,773 21,074,426,776Total 54,684,646,938 26,349,915,256

25. Off balance sheet items Closing balance Opening blance- Foreing currency (USD) 1,628,677,35 975,798,13- Bad debts written off 7,095,763,147 7,095,763,147

114

VI. ADDITIONAL INFORMATION FOR THE ITEMS ON THE INCOME STATEMENT

1. Net revenue Current year Previous year

Revenue from selling of goods 9,372,836,005,305 10,016,971,635,427Revenue from rending of services 38,623,850,158 29,379,353,927Revenue from project and transferring of real estates 35,381,378,246 4,130,233,845Total 9,446,841,233,709 10,050,481,223,199Less deductions:- Sales returns (1,967,086,325) (2,881,107,175)- Sales discounts (3,670,870,482) -- Sales allowances (251,122,097) (1,126,169,539)Total net revenue 9,440,952,154,805 10,046,473,946,485

2. Cost of goods sold Current year Previous year

Cost of goods sold and services rendered 8,683,760,113,471 9,903,508,666,345Cost of project and real estate transferred 32,254,369,115 5,337,138,576Provision (reversal) for devaluation in inventories 630,581,546 (7,044,684,173)Total 8,716,645,064,132 9,901,801,120,748

3. Financial income Current year Previous year

Bank interest income 61,251,721,102 49,797,244,925Deposits and loan interest income 155,501,091 1,837,000,045Gains on foreign exchange differences 807,543,186 2,474,427Payment discounts received 59,159,632 656,772,897Dividends received 872,826,830 494,580,440Income from selling of securities 1,341,626,800 -Others 152,051,639 -Total 64,640,430,280 52,788,072,734



115


4. Financial expenses Current year Previous year

Borrowing interest expense 89,899,886,959 106,661,451,288Borrowing interest differences due to borrowed by VND with the interest rate by USD

1,941,057,981 13,410,067,135

Provision for financial investments (2,317,311,511) 27,377,511Loss on selling of securities 3,501,083,531 -Loss on foreign exchange differences 10,360,095,972 30,995,109,380Other financial expenses - 63,091,646Total 103,384,812,932 151,157,096,960

5. Selling expenses Current year Previous year

Staff expense 23,840,129,347 19,245,382,510Tools expense 307,616,009 115,507,545Depreciation expense 3,834,143,732 3,692,492,175Costs of hired services- Transportation expense 137,697,497,355 117,952,097,152- Others 5,756,825,440 4,639,402,889Other expenses paid by cash- Commission 2,063,309,004 6,875,217,922- Warehouse rental expense 4,252,380,374 3,837,863,087Total 177,751,901,261 156,357,963,280

6. General and administration expense Current year Previous year

Staff expense 47,359,239,927 23,666,036,018Office tool expense 831,621,763 520,925,436Depreciation expense 10,730,350,308 9,305,549,003Taxes, fees 313,827,486 275,634,264Provisions for bad debts 21,942,633,793 37,076,106,970Cost of hired services

116

6. General and administration expense (continued) Current year Previous year- Bank charge 1,011,747,024 1,229,402,720- LC payment fee 2,552,354,365 4,285,447,934- Maintenance fee, office rental, payment guarantee, electricity... 11,571,578,683 14,538,612,569- Others 7,916,698,952 2,794,983,230Goodwill allocated 3,018,399,027 1,121,955,297Other expenses paid by cash- Business trip cost 416,984,256 674,149,082- Customer conference expense 530,762,921 1,728,043,886- Stationery expense, fuel.... 11,660,421,821 5,154,456,531Total 119,856,620,326 102,371,602,940

7. Other income Current year Previous yearIncome from selling of fixed assets 188,008,302 189,919,210Income from sub-materials sold - 3,290,439,743Income from revaluating of assets regarding of capital contribution 795,299,111 12,327,136,218Income from the compensation received 3,604,990,089 1,823,964,973Income from receiving the support of guarantee fees 1,665,861,499 3,695,189,854Income from treatment of liabilities 463,217,550 780,000,000Treatment of physical counts - 119,162,042Income from electricity charges paid on behalf of Toami 656,670,940 1,033,097,260Income from overdue interest - 814,836,492Income from import tax refunded 3,963,696,784 -Others 437,703,838 657,359,267Total 11,775,448,113 24,731,105,059

8. Other expenses Current year Previous yearExpenses for fixed assets sold - 42,979,690Manufacturing materials expense - 324,486,129Fines expense 868,146,869 1,499,483,518Electricity charges paid on behalf of Toami 656,670,940 1,033,097,260Others 800,521,347 660,755,404Total 2,325,339,156 3,560,802,001



117


9. Current corporate income tax expense Current year Previous yearCurrent corporate income tax expenses arising from:- SMC Trading Investment Joint Stock Company 7,240,264,185 3,275,472,162- SMC Steel Co,, Ltd, 10,610,436,287 2,234,277,355- SMC Steel Trading Co,, Ltd 1,426,362,714 2,045,962,211- SMC Tan Tao Co,, Ltd 8,427,638,315 258,356,704- SMC Ha Noi Co,, Ltd 6,874,426,678 1,500,759,117Current corporate income tax expense 34,579,128,179 9,314,827,549

10. Deferred income tax expense Current year Previous yearDeferred income tax expense arising from taxable temporary differences (deductible) as follows:- Expenses for provision for bad debts (1,243,576,883) (5,454,049,524)- Expense for provision for financial investments 25,018,307 761,450,912- Expenses for provision for devaluation in inventories - 1,558,787,310- Unused taxable losses 135,247,932 3,621,515,180- Depreciation expense (605,100,528) (764,953,970)- Difference from revaluating of assets regarding of capital contribution

159,059,822 (715,769,200)

- Gain on foreign exchange differences 312,430,957 (11,754,687)Total (1,216,920,393) (1,004,773,980)

11. Earnings per share Current year Previous yearProfit after corporate income tax 368,472,584,555 (195,835,589,118)Including:- Non-controlling interests 6,165,666,594 218,450,480- Profit after tax of parent company's shareholders 362,306,917,961 (196,054,039,598)- Distributed to Bonus and welfare funds (669,849,972) -Profit distributed to shareholders owned ordinary shares of parent company

361,637,067,989 (196,054,039,598)

Outstanding ordinary shares in the period 29,511,643 29,511,643Basic earnings per share / (loss) 12,254 (6,643)

118

12. Dilutted earnings per share Current year Previous year-Profit distributed to shareholders owned ordinary shares 361,637,067,989 (196,054,039,598)Profit distributed to shareholders owned ordinary shares after adjusting of diluting items

361,637,067,989 (196,054,039,598)

-Outstanding ordinary shares in the period 29,511,643 29,511,643-Ordinary shares estimated to be issued more 12,500,000 -Weighted average of ordinary shares after adjusted 38,886,643 29,511,643Diluted earnings per share / (loss) 9,300 (6,643)

VII. OTHER INFORMATION1. Events after the balance sheet dateAccordingtothedecisionNo.55/NQ-HĐQTdated22February2017issuedbytheBoardofManagement,theCompany has the plan to sell 12,500,000 shares with the selling price of 18,000 dongs/share. Out of matter as mentioned above, there have no significant events occurring after the balance sheet date which would require adjustments or disclosures to be made in the financial statements.

2. Transactions and balances with related partiesSignificant transactions with related parties during this financial year were as follows:

Related parties Relationship Transaction Amount

SMC - SUMMIT Limited Liability Company Joint Venture

Purchasing of goods (118,813,362,605)Selling of goods 64,783,869,324

538,020,000

SMC - TOAMI Co., Ltd AssociatesSelling of goods 33,073,909,617Project carried out 31,177,841,727Service rendered 1,334,373,740

Board of Directors Income (3,932,539,823)

At the date of balance sheet, the balance not paid for the related parties as follows:

Related parties Relationship Balance Receivable / Payable

SMC - SUMMIT Limited Liability Company Joint Venture

Trade payables 84,645,158,015Receivables 8,829,635,336

SMC - TOAMI Co., Ltd AssociatesTrade payables 65,842,326Trade payables 34,485,886,250



119


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120

4. Financial risk management4.1 Market risk(a) Price riskThe Group invested in non-listed companies and is exposed to risks of price fluctuations of these investments. The risk factors affecting the performance of these investments include business performance and financial posi-tion of invested companies and market conditions. The Board of Directors manages risks regarding of business performance and financial position of invested companies by selecting industries and legal entities to invest in. The risk factor regarding of market conditions is itself affected by general economic conditions in Viet Nam and behaviors of investors, which are all out of the Board’s control. These factors have caused market conditions to be changed in the previous years.

(b) Foreign currencies riskThe Group is exposed to foreign exchange risk on sales and purchases that are denominated in currencies other than VND. This foreign currency risk mainly is United State Dollar (“USD”).The Group ensures that the net currency risk level is kept to an acceptable level by buying or selling foreign cur-rencies at spot rates where necessary to reduce the short-term imbalances. The Board has not used risk preventing transactions since they considers that the cost for using such instruments may exceeding the potential risk of ex-change rate fluctuations.The Group’s currencies exposure to the USD are as follows:

USD Equivalents to VNDFinancial assets- Cash in bank 1,628,677,35 36,990,904,348- Trade receivables 5,160,467,25 117,178,992,585- Deposits 144,281,00 3,276,621,510Total 6,933,425,60 157,446,518,443

Financial liabilities- Short term borrowings and liabilities 17,772,970,01 404,896,841,396- Trade payables 4,187,383,50 95,388,596,130- Long term borrowings and liabilities 1,963,576,95 45,963,890,668Total 23,923,930,46 546,249,328,194Foreign currencies risk (16,990,504,86) (388,802,809,751)

As at 31/12/2016, if US dollar had strengthened/(weakened) by 5% against Vietnam dong with all other variables (including interest rate) being held constant, the profit before tax of the Group for the fiscal year ended 31/12/2016 would have been (19,440,140,488) VND (lower)/higher because of (loss)/gain from foreign exchange difference on the remaining USD denominated financial instruments balance.



121


(c) Interest rate riskInterest rate risk is the risk that the fair value or future cash flows of the financial instrument will fluctuate because of changes in the market interest rate. The Group’s exposure to market risk for changes in interest rate relates primarily to the Group’s short-term term deposits, borrowings.The Group manages interest rate risk by looking at the competitive structure of the market to obtain rates which are favorable for its purposes within its risk management limits.2-percent increasing/(decreasing) of interest rate:

Assets 31/12/2016 Interest rate fluctuation 2%- Term deposits at banks 890,145,960,150 17,802,919,203- Deposits 14,677,670,748 293,553,415Total 904,823,630,898 18,096,472,618Liabilities- Borrowings and Liabilities 2,712,436,547,463 54,248,730,949Total 2,712,436,547,463 54,248,730,949Differences (36,152,258,331)

(*) Interest rate fluctuation 2% = Total assets balances get the interest or Total liabilities balances pay the interest x 2%. Effect of gains/(losses) on the Group’s profit before tax by interest rate fluctuation (with supposed movement of 2%) was (36,152,258,331 VND).

4.2 Liquidity riskLiquidity risk is the risk that the Group will come up against difficulties and cannot conduct the related obligations to financial liabilities. The Group’s policy is to do regularly monitoring the current and expected liquidity requirements to ensure that the Group maintains sufficient reserves of cash in order to meet its liquidity requirements in the short and medium term. The Group’s holdings of cash, together with net cash flows from operations, are expected to be sufficient to cover the Group’s liabilities in due in the next financial year. The table below analyses the Group’s non-derivative financial liabilities in related maturity groups based on the re-maining term from the balance sheet date to the contractual maturity date. The amounts disclosed in this table are contractual undiscounted cash flows.

As of 31/12/2016 Less than 01 year From 01 to 05 years Total- Borrowings and Liabilities 2,626,800,593,384 85,635,954,079 2,712,436,547,463- Trade payables 1,007,169,909,092 - 1,007,169,909,092- Other payables and accrued expenses 28,749,063,914 - 28,749,063,914Total 3,662,719,566,390 85,635,954,079 3,748,355,520,469

The Group stated that the concentration of risk against liabilities payment is very high. The Group believes to be able to reach the necessary capital resources.

122

Secured assetsThe Group has mortgaged their assets including tangible assets, intangible assets for its long-term and short-term borrowings (Note at Item No. 23 - Notes to the consolidated financial statements).Fair value measurementsThe net book value of short-term trade receivables, cash in bank, trade and other payables be estimated to their fair values.Belows are the fair values of short-term and long-term investments:

31/12/2016 Comparison between net realized value and book value Currency unit: 1,000 dongs

Book value Increases Decreases Fair value ProvisionsShort term investmentsListed securities 3,959,791 - (2,418,450) 1,541,341 (2,418,450)UPCOM securities 2,555,000 - (1,703,500) 851,500 (1,703,500)Non-listed securities 632,908 - (180,308) 452,601 (180,308)Term deposits under 12 months

776,100,000 - - 776,100,000 -

Long term investmentsTerm deposits over 12 months

5,000,000 - - 5,000,000 -

Listed securities 33,599,960 - (22,016,960) 11,583,000 (22,016,960)UPCOM securities 36,621,151 - (24,507,105) 12,114,046 (24,507,105)Non-listed securities (*) 57,574,500 12,819,094 - 70,393,594 -Total 916,043,310 12,819,094 (50,826,322) 878,036,081 (50,826,322)

(*) Including investments into joint ventures, associates and other long-term investments..

As at 31/12/2016, the Group could not determine the market value as well as the net book value of other short-term investments, and other long-term investments therefore the provision amount was recorded at the original cost or based on the Board of Directors’ judgment.

4.3 Credit riskCredit risk is the risk of financial loss to the Group if a customer or counterparty of the financial instruments fail to meet its contractual obligations and this risk will be mainly incurred from the Group’s receivables from customers.

Trade receivables and other receivablesThe Group’s credit risk levels are influenced mainly by private characteristics of each customer.The Board has established the credit policies, accordingly, each new customer must be analyzed about its creditwor-thiness before the Group offers conditions and delivery terms. Purchasing limits are established for each customer, which represents the maximum amount that the customer can buy without approval from the Board. Customers that fail to meet the Group’s creditworthiness requirement may trade with the Group only on a prepayment basis.



123


The Group will make the provision to reduce the value in order to reflect the estimated impairment level for trade and other receivables and investments. The main components of this provision are the specific losses regarding of the specific impairment level for each customer and general impairment level of similar financial assets, and be deter-mined as these risks may happened but not yet identified. The general impairment levels are determined based on statistic databases about liquidity in the past of similar financial assets.

Bank balancesThe Group has cash balance in local credit organization. The Board stated that there is not any impairments to the operating results of these credit organizations.The maximum credit risk level of each financial assets group is the book value of that financial instrument presented on the balance sheet. The Group’s major groups of financial assets are cash in bank, trade and other receivables and investments.

Financial assets that are neither overdue nor impairedCash in bank is the cash deposit in the banks which have high credit-rating in Viet Nam. Trade and other receivables that are neither overdue nor impaired are mainly from companies which have good settlement process to the Group.The Group’s trade and other receivables, prepayments to suppliers are neither past due nor impaired with the amount of 1,321,680,872,459 VND.

Financial assets that are overdue and/or impairedThe book value of trade and other receivables are determined to be impaired and the movement of the provision as follows:

Book Value 31/12/2016Gross amount 111,575,884,797Less impairment

Net value 4,799,976,709

Provision for impairment 31/12/2016Opening balance 111,575,884,797Increases (additional provision) (106,775,908,088)Decreases (Reversal) 4,799,976,709Closing balance (31/12/2016) (106,775,908,088)




SMC Trading Investment Joint Stock Company396 Ung Van Khiem st, Ward 25, Binh Thanh District, HCMC

Tel: (84 - 08) 38 99 22 99Fax: (84 - 08) 38 98 09 09

Website: www.smc.vn

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