June 2015 - Plant and Machinery in Crisis

Breaking news

Dong Nam International is a member of the Southeast Appraisal and Consulting Corporation (SACC) which is a professional appraisal company, with 20 offices across Vietnam. DNI is the first international and local team with extensive services and geographic coverage in Vietnam and ASEAN. Dong Nam International announces the appointment of Leon Cheneval as general manager. This is a real first, Leon can now undertake all valuation work and be compliant with the Ministry requirements.

Plant and machinery in crisis ASAEAN

ASEAN has many challenges in the near future as it works towards TPP and ASEAN 2015 policy this will bring more competition and the question is whether or not industry is up to the task. Industry in Vietnam does very little value adding that is well debated and many businesses appear undercapitalised to invest in new machines and technology to enhance the value add process.

Technology needs to be the platform for growth and as large overseas companies like Samsung invest more heavily in Vietnam this may be warning signals for those Vietnamese businesses. Recently a qualified speaker on the economy and then further reported in Economic Insight – South East Asia Q2 2015 quotes “manufacturing also needs to clean up or move out". As global manufacturing moves toward cleaner and greener there is a real concern that industries in Vietnam produced high CO2 emissions something that manufacturing businesses need to think about sooner that they expect.

Never wanting to be the pessimist it must be noted that the manufacturing sector in Vietnam continued to expand, HSBC manufacturing PMI score in May was 54.8. 50 being the line that separates expansion from contraction. Manufacturing investment in Vietnam is growing at a noticeable and favourable rate. Samsung announces another $1.4bn investment in Saigon hi-tech park to manufacture consumer electronics. This is just one of many key investments by the Korean giant.

Where are we now?

Many manufacturing companies with large plant and machinery investment are in my opinion at a cross road. They currently have operating equipment that is simply too old or not operating to its best capacity. Many production lines as I have experienced have been made out of necessity and are manufactured to suit.  This in itself creates problems as they are normally inefficient and subject to failure or are low in quality of production. Recently inspecting a large manufacturing facility it was obvious that improvements could be made. I watched manufactured goods simply fall off a production line due to no guards and quality inspection resulted in a lot of rejections this is obviously costly in terms of revenue and profitability.

Quality equipment is an investment and needs to be treated that way. There are some great news stories of successful Vietnamese manufacturing facilities and many Joint Ventures also see high quality machines matched with quality local staff produce quality products. But that’s not always my current experience or observation.

Machines are also often represented as imported when they are after investigation not made in the country of origin that the buyer was led to believe. So thorough due diligence is needed. This is very evident in our job as we are instructed by a finance company or insurer to investigate and verify. Personally I have seen some machines purchased at very high prices to be de-valued drastically when the real country of origin was verified.

Asset proofing your plant and equipment portfolio

The condition of many manufacturing units during my career varies from very hi-tech and well maintained manufacturing lines and processes to the other end of the chart where some machinery as itemized on on inventory is now either unable to be located, sold or now parts for other machines.

The business owner has a valuable asset with some machines retailing for millions of dollars. One experience I would like to re-tell was the inspection of 2 identical machines estimated to be worth in excess of US$2mil. They were in an industrial park in the north and produced bags with specialized printing. The first machine was in operation and identified clearly with its origin in Germany the 2nd was in pieces as it had just be relocated to the same factory. The outcome was that as it was a precision German machine the manufacturer would not validate its warranty and emphasized that such a machine was to be installed by their technicians. The end result was that the second machine was not considered good security for a loan. Having your quality machines serviced in accordance with manufacturer’s requirements may be time consuming or considered inconvenient or costly where needed to hire a 3rd party but that’s part of your asset proofing model that you need to consider. Having a very clear asset register and tagging is critical when seeking funding for expansion and new purchases.

That’s where I see the manufacturing sector a cross road. Investment in the future is critical and that will result in the expansion as Vietnams GDP growth rate for the period 2015 – 2020 is predicted to be 6% that’s better than most of our Asian neighbours and higher that the total ASEAN GDP average.

The next section is some friendly but professional advice on how to get your facility and list of assets in order. The key points made below are a good structural tool for business owners and when consulting our clients on plant and machinery values we take time to assist in improving systems and procedures. 

Keep record and keep it up to date

An asset register allows you to keep track of your assets and provides a fair estimate of their worth for reconciliation by a lender. It can also help you with taxation, statutory and sale-of-business obligations. Values can be tracked logically and based on age and use and also you can take advantage of any depreciation allowances that equipment may be entitled to for tax.

Asset register is the best tool to track, record and update serial numbers, make, model, etc. Take time and dedicated trained staff as it’s a critical document for your manufacturing business. Your organisation needs an asset register to:

  • Process the purchase of fixed assets in accordance with your organisation's authorisation and record-keeping procedures
  • Maintain legible records of assets-cost, its description, and very important… where they are kept
  • Maintain a record of depreciation allowances or write downs
  • Keep dates of last usable date… when a machine is either now part of a parts bank or its sold or disposed of
  • Provides you with a tool to plan future asset investments, dates and timelines

Should you need funding and approach a lender then you can start your asset register by recording all physical assets, regardless of the funding source although if for financing the lender will want to know the amount of debt, particularly if a re-finance.

The types of physical assets that need to be recorded include:

  • Office equipment
  • Motor vehicles
  • Furniture
  • Computers
  • Communications systems
  • Equipment in manufacturing and support

In general record each asset separately except where a multiple asset/scombine to perform one function if the value of the individual components is less than say $2,500 but the total value of the asset is more than $2,500. Such as a computer with monitor, keyboard and central processing unit.Common error in my experience is to record replacing assets as a maintenance cost and if you don’t know the purchase cost record the asset at the cost of a comparable item at current prices, Google it.


The comments above does raise some issues for the local manufacturing sector but the writer also wants to outline that with TPP and ASEAN 2015 policy are substantial opportunities laid before Vietnam and business owners and manufacturers can benefit it is a matter of being ready, well-funded and having some simple processes in place to asset proof your business.

General Manager - Dong Nam International

Leon has an extensive knowledge of plant and equipment valuations and has along with the team at Dong Nam valued many varied assets. Our experience extends to sewerage plants, electrical power stations and facilities plus pig farms and feed lots. We have a vast client network of both local and international banks providing solution based services for large corporations and institutional clients in the area of securitised mortgage valuation process and risk analysis for plant and machinery. Dong Nam International strives to provide outstanding property knowledge and consultancy. Leon undertakes valuations in Vietnam on a daily basis he is an active Valuer and lecturer on residential, industrial, commercial, resort and hotel and plant and machinery sectors. As a Ministry of Finance approved valuer and as a foreigner he combines his international knowledge with local qualifications. That’s how Dong Nam International started.

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