Why do auditors question TMT's going concern?

According to the audited financial report for 1H 2024, TMT reported net sales of almost VND 1,323 billion, a 13.4% decline from the same period last year. The slower reduction in cost of products sold reduced the company's gross profit by 92.5% to slightly over VND 9.6 billion compared to the same time in 2023.

During the period, the company's financial revenue fell by nearly half compared to the same period, to nearly VND 2 billion; financial expenses fell by 38.4% compared to the same period, to more than VND 49 billion; and sales and administrative expenses in the first half of the year fluctuated little compared to the same period.

After deducting expenses, the company reported a net loss from business activities of over VND 100 billion, and after-tax losses of nearly VND 99 billion, compared to a profit of over VND 1 billion in the same period last year. These results were largely consistent with the company's previously self-prepared financial statements.

In the statement accompanying the 2024 interim standalone financial report, the company's management ascribed the losses to 2024's severe economic troubles, which impacted companies in general. Economic crisis, a frozen real estate market, a dramatic fall in public investment, growing inflation threats, and tighter consumer spending all contributed to a large drop in automotive sales, despite ongoing price cuts by manufacturers and distributors to clear inventories.

TMT was no exception. In 2024, to ensure liquidity and reduce interest expenses, the company had to deeply discount prices to clear inventory, resulting in a gross loss of VND 48.7 billion. Additionally, the company acknowledged the need to restructure its product lines, focusing on better new products.

The company's management ascribed the loss of more than VND 99 billion in the audited consolidated interim financial report to changes in the parent company's standalone financial report.

The loss of more than VND 99 billion in the first half of 2024 not only erased all of TMT's achievements over the years, as the accumulated profit of nearly VND 53 billion at the start of this year was completely erased, but it also raised concerns among auditors about the company's ability to continue as a going concern.

TMT reported a VND 99 billion loss as of June 30, 2024, with short-term liabilities exceeding short-term assets by VND 120.7 billion. These occurrences, combined with the risks discussed in notes 38.2 and 38.3, point to the presence of significant uncertainties that may throw doubt on TMT's ability to continue as a going concern.

TMT responded to the auditor's qualified conclusion by explaining that the business has approximately VND 60 billion in unpaid tax obligations as of June 30, 2024. To assure payment and cut interest expenditures in the second quarter of 2024, the corporation had to lower selling prices in order to clear inventories. Furthermore, the corporation has decreased its workforce, lowered expenses, and recognized the need to restructure its product lines, focusing on superior new items.

"TMT prepares its financial reports on the assumption of going concern, as the company has plans to liquidate fixed assets, investments, and recover customer receivables to supplement business capital and cover due debts. TMT expects to be able to repay due debts and continue operations in the next accounting period," TMT's management explained.

According to the Vietnam Automobile Manufacturers Association (VAMA), overall market sales in the first half of 2024 were 134,884 units, down 2% from the same time in 2023. Passenger cars reached 97,295 units, a 3% decrease; commercial vehicles reached 36,441 units, a 2% increase; and specialized vehicles reached 1,148 units, a 4% decrease. Domestically built car sales fell 15%, while imports rose 16% compared to the same time previous year.

VAMA thinks that in the current setting, the vehicle market has several difficulties and obstacles, and that tax and fee policy changes are critical, affecting enterprises, the public, and the stability of the socioeconomic system in order to achieve sustainable growth. The proposed Special Consumption Tax Law has a significant influence on vehicle manufacture, assembly, and imports in the country.

To combat climate change and achieve net zero emissions by 2050, tax, fee, and automobile industry policies, environmental protection, greenhouse gas emission reduction, and fuel consumption reduction aimed at facilitating green transition must be implemented in a synchronized and comprehensive manner to ensure balanced development, preserve corporate resources, and protect national revenue.