inamilk had come from zero to an independently strong company that stands in the list of 50 best milk company in the world. However, considering all the crisis that they had to go through last year, are they falling asleep? That was the biggest question in the 2018 annual shareholder meeting of Vinamilk.
whole milk sector had a very rough first quarter of 2018 and therefore their stock price had dropping low.
The voyage beyond the sea started in 1997. I identified that Vinamilk first had to focus on the domestic market. As competitors thousands of miles far away could reach the domestic market, why we did not keep our foothold and then start to export or participate the foreign market under favorable conditions. Since 1997, Vinamilk has directly exported in the Oil-for-Food Program. Before that, we had started to export to Russia but ended up not collecting money even after going to Russia in person and banking transactions between Russia and Vietnam has been extremely difficult until now. Thus, it was considered as the initial probe and played as a springboard for participation in the Oil-for-Food Program.
It was extremely difficult to enter into the market as people thought that Vietnam did know what milk export was and Vietnam milk did not get to be known in the world map. The first thing was to introduce and export then. By this, we carried out 2 charity programs with 2 containers, a less-than-6-month container and a 6-month-to-12-month container in Iraq.
I thought it was war time that children did not have milk to drink similar to that in Vietnam war. We first supported charity for them and then marketed Vinamilk products.
They came to visit Vietnam, closely checked products and found it of high quality, which made them officially inform that they wanted to import from Vietnam. They called me up and said: “Now I want you to directly export”. They ordered me to produce 300 tons within 3 months.
During the 1990s, powered milk of Vietnam, of Vinamilk had not gained in popularity. It means we still produced milk, they asked: “Could you do that?” and informed me of the price. I did not hesitate to agree with them without thinking about profit or losses but to enter into the market by proving our capability first.
At that time, staff were very happy, working 24/24 continuously until 300 tons was delivered to the partner.
No, I was not thinking about that at all.
Upon their receiving and evaluating the products as of high quality, we started to set food on the Iraq market by making tenders. We had wined tenders amounting to USD 160 million and USD 170 million. In 2003, the change in the Government put an end to the Oil-for-Food Program, which made us restart everything. Indeed, the Oil-for-Food Program did not exist and Iraq government did not have money to import more milk then. We had to follow trade route, started to find the distributors and started from zero on.
Of course it was.
How could we enter the market? It was lowered price and high quality that helped us to win tenders. Compared to the world, we were highly competitive. We just followed the lead of a number of multinational corporations.
Actually, what Vinamilk has been now is attributed to sustainable development that means we not only think of our own interests but also others’. And we have followed sustainable development standards of the United Nations and the world milk sector. Vinamilk is required to comply with specific sustainable development standards of the milk sector.
Thus, take cow raising for example, sewage and waste treatment require bioagas to ensure released sewage water compliance with standards. Nowadays Vinamilk adopts sewage treatment program at any farm. And cow waste turned into biogas could be sold to farmers for planting grass and corn in the surrounding area which could in turn be sold to Vinamilk.
It is the global trend, and has emerged recently in Vietnam with people having ever-increasing living stardard to afford these products. They have accepted imported products with much higher price than Vinamilks’ so far. Vinamilk meets requirements of common consumers whose living standards are enhanced everyday. High-end product trend is unavoidable and we have to meet that demand and plan for 5 to 10 years ahead. It’ll be too late if we wait.
It has generated profits already. Generally, cow raising will incur losses during the first 3 years but will make profit from then on. Losses arise from depreciation expenses and low productivity only in 3 years. Thus, Vinamilk has built 10 farms and earn profit of hundreds of billion each year thanks to high productivity and effective price management.
Many people asked me that question. It is unforeseen. While others would want us to see us become diversified, Vinamilk shareholders told me “Please do not invest in any other sectors, but focus on milk instead”.
There are mixed opinions, but I am of flexible opinion that I will grasp the chance when it arises. Our milk sector still has many rooms for development, for example, it is profitable to reduce costs thanks to effective farming development. The milk sector has many things to do. Organic requires raw materials that are not readily available in Vietnam, so Vinamilk has to purchase 5 thousand hectare from Laos. Even though we could buy 2 thousand hectare in Thanh Hoa province, it is complex to carry out land compensation and argument about the farmer-owned land.
I find Laos near us, taking us 6-7 hours to go back Vietnam and Nghe An. I also worked and co-operated with Japanese who were well experienced in cow raising in implementing organic. Indeed, organic is highly potential. Vinamilk owns 51%, Japan partners’ will be 49%.
It is unforeseen in 2018 as 2017 saw an impressive growth of more than 10%. This year it’s The increase by 2-3% so the average of 2 years would be around 7-8%, which is reasonable. In 2018, there is an explosion in stock market and real estates, so distribution is in a difficult condition due to lack of focus.
People focus on investing in real estate and stock, and come back to milk sector by the end of quarter 1 and 2, so business results in quarter 4 is totally different with profit growth of 30% of the corresponding period. Second, some time people said given many things available to drink and eat, milk was the least option. According to a third party, there was an overall decline in the milk sector. It is unprecendented that the milk sector experience negative growth in Vietnam
In order to find the reason why, we had to look close at our distribution system. Anyway, it is over now, I wouln’t talk about it any more. It was stable again in the fourth quarter of 2018.
However, even the milk sector’s growth was negative, Vinamilk still earned marketshares. That’s the most important thing.
Arising opportunities need grasping. So far, China milk has not entered into our market and vice versa as there has been no trade agreement between two countries and they have considered us as the country with foot-and-mouth disease similar to Cambodia. Now, the trade agreement between the two countries is set to be signed after years. When they come to check Vietnam enterprises from farms to manufacturing plans, Vinamilk does not get any notice. We have proposed and waited for the agreement to be officially signed.
In fact, they have participated with us for years as they saw the opportunities. In the past F&N built a milk factory in Binh Duong province. At that time, they carried on big marketing campaigns and all and became our competitor, but have not developed over the last 5 years. In parallel, they invested in Vinamilk. They bought shares at the initial phase in 2004 and 2005 by attending and winning the bid.
At that time, I thought they must be crazy. Share price was at VND 20,000 back then, so it was strange to bid at more than VND 50,000. However, stock investment was still new to us while they were much more experienced to see the chance to invest in the future. They found shares at a fair price and gradually invested in until they now own 20%. They still make financial investment, but not expand in the domestic market as they will become the competitor.
They participate in the Board of Directors to approve any proposals that the Board of Management propose. We have level authority and approval depending on the investment amount. They will analyse the proposals and we have to explain to come to an agreement.
I have well prepared, all ready. I have develop succession plan for 3-4 years which is consulted by a third party in US in the field of human resource and succession rather than I aim for someone in my mind.
I have to hire consultant to make it objective. They interview the team of successors and design customized programs to monitor their improvement over 1 year. If one is not qualified, we need to find others. In general, apart from CEO, other positions all have successors. I think it will be quick, you’ll see, only after 1-2 years, by 2021, it will complete. Succession is of utmost importance as deciding factor is human resource. No matter what company is, our wrong choice is our own fault, so it is not for any person but the whole process and technology to evaluate and do training instead of traditional succession in the past.
I have to hire consultant to make it objective. They interview the team of successors and design customized programs to monitor their improvement over 1 year. If one is not qualified, we need to find others. In general, apart from CEO, other positions all have successors. I think it will be quick, you’ll see, only after 1-2 years, by 2021, it will complete. Succession is of utmost importance as deciding factor is human resource. No matter what company is, our wrong choice is our own fault, so it is not for any person but the whole process and technology to evaluate and do training instead of traditional succession in the past.
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