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Governance at Vietnam's dairy giant gets a modern makeover

Vinamilk expects better transparency to attract investors and aid expansion

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Vinamilk products are displayed at a Fivimart supermarket in Hanoi. Domestic demand still drives the company's growth.   © Reuters

HO CHI MINH CITY Things are shaking up at Vietnam's biggest dairy company, which is overhauling its governance with an eye to attracting investment and expanding its global reach.

Shareholders in Vietnam Dairy Products (Vinamilk) approved changes to the company's corporate governance structure at the annual general meeting on April 15, including adopting management committees like those commonly seen among listed companies in the West.

While Chairwoman Le Thi Bang Tam and chief executive Mai Kieu Lien will remain in place, three independent directors will join the board. Each will head a subcommittee -- for auditing, personnel and remuneration. Vinamilk's inspection committee, for example, will be recast as an internal auditing committee answering to the board.

Mai Kieu Lien, Vinamilk's chief executive, is considered one of Asia's most influential business leaders.

Vinamilk is the first listed Vietnamese company to adopt this type of management structure since the country amended the Law on Enterprises in 2014, which governs state, private and foreign businesses.

"The independent directors will protect the rights of shareholders, and balance and supervise other directors to ensure further transparency in all company operations," Lien told the Nikkei Asian Review.

The number of board directors for the five years through 2021 has been increased to nine from seven. Two come from Vietnam's State Capital Investment Corp. and two from Vinamilk's biggest foreign investor, Singapore-based Fraser and Neave.

As of December 2016, SCIC owned a 39.33% stake in the dairy company, while Fraser and Neave owned 16.35% through subsidiaries F&N Dairy Investments -- 13.65% -- and F&N Beverages Manufacturing.

Vinamilk targets annual growth of 12.3% over the next five years, and hopes to rack up yearly sales of 80 trillion dong ($3.52 billion) by 2021.

DOMESTIC FOCUS ... FOR NOW At the 2016 general shareholders meeting, Lien said overseas sales would generate 50% of total sales by 2020. The percentage rose 9% to $258.5 million last year, accounting for 18.5% of the total. At the latest shareholders meeting, however, the overseas target was slashed to 25% of total sales by 2021. This means Vinamilk will continue counting on the home market for the bulk of its business. Domestic sales are expected to grow 10% a year until 2021, outpacing the 7% growth for Vietnam's dairy market.

The company dominates Vietnam's dairy product market, with a 54% share of sales for liquid milk, 84% for yogurt, 33% for yogurt drinks, 40% for powdered milk and 80% for condensed milk.

Stepped-up marketing efforts last year boosted Vinamilk's sales expenses by 71% to 10.7 trillion dong. Lien said that along with remaining the No. 1 player at home, the company will improve distribution channels and continue with acquisitions. "We are studying some local and overseas cases, ranging from 3 trillion dong to 20 trillion dong, [to secure our] growth targets," she said.

Vinamilk products are sold through its distributors' 220,000 outlets and more than 200 of the company's own stores. Its product lineup has around 250 items, including 30 the company launched in 2016. It plans to add another 160 by 2021. And with convenience stores rapidly spreading at home and new opportunities emerging in e-commerce, Vinamilk's growth prospects look promising.

Vinamilk's board of directors for 2017-2021 has been increased from seven to nine members.

Preliminary reports for the first quarter of 2017 show that Vinamilk's sales were up 16% on the year and net profit was 34% higher. At the annual meeting, shareholders approved dividends for 2016 at 6,000 dong per share, which represents 83% of net profit -- slightly lower than the 89% approved for 2015.

Over the next five years, Vinamilk will invest $750 million toward developing its production capabilities and its own fields for cattle.

For 2017, the company set aside 10% of net profit for a community and charity development investment fund, and another 10% for a bonus and welfare fund. Half of the dividends will be paid in cash.

SCIC plans to divest its holdings in 100 companies this year, but Vinamilk is not on the list. The state company offered to sell a 9% stake in the dairy business last December, but it managed to unload just 5.4% to a single bidder, F&N. SCIC said it will look for a new way and a suitable time to unload its Vinamilk holdings.

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