PNJ Posts Record Loss Due to Diamond, Gold Buyback Provisions

Phu Nhuan Jewelry Company (PNJ), a leading Vietnamese jeweler, has reported a record net loss of nearly VND 283 billion (approximately $11 million) in the second quarter, marking its biggest deficit since it began publicizing financial information in Q3 2008. This substantial loss is primarily attributed to provisions set aside for buybacks. The company's net revenue actually grew by 12% to nearly VND 8,484 billion ($424 million) in the April-June period, indicating that the loss was not due to a decline in business operations. However, gross profit decreased by 4% to over VND 1,563 billion ($78 million), with the gross profit margin falling from 21.5% to 18.4%. This was partly due to a higher contribution from 24K gold products, which typically have lower profit margins. The primary driver of the record loss was a dramatic increase in corporate management expenses, which surged 5.2 times year-on-year to nearly VND 1,063 billion ($53 million). Of this amount, over VND 865 billion ($43 million) was allocated as provisions related to product buybacks, even though these activities occurred after the accounting period closed. PNJ's leadership stated that the provision was determined based on available information and reasonable assumptions at the time of preparing the financial statements. Criteria for provisioning included the value of repurchased diamonds, estimated recovery prices, and adjusted rates for different diamond sizes. Since early July, PNJ has seen a significant rise in demand for diamond jewelry buybacks. As of July 27, the company had bought back over VND 7,000 billion ($350 million) worth of products, predominantly diamonds, gold, and jewelry. This buyback pressure emerged after the director of PNJ's appraisal company (P-Lab) was prosecuted in connection with a diamond smuggling case. Although PNJ's Chairwoman Cao Thi Ngoc Dung asserted that the smuggled diamonds did not enter PNJ's system, the incident has affected customer sentiment and placed considerable pressure on the company's liquidity. Initially, PNJ promised to process payments within 24 hours. However, from July 21, the company adjusted its buyback process, opting for installment payments extending up to 120 days. For customers exchanging for other products, immediate processing and an additional discount are offered. PNJ's consolidated financial statements for the second quarter also reflect its financial health. Total assets reached nearly VND 21,018 billion ($1.05 billion), an increase of VND 854 billion ($42 million) from the beginning of the year. Highly liquid cash and cash equivalents stood at nearly VND 609 billion ($30 million), up 17% from the start of the year. Short-term financial investments grew by 64% to over VND 3,393 billion ($170 million). Conversely, PNJ's total liabilities increased by 3% to over VND 7,105 billion ($355 million). Financial debt decreased slightly by over 5% to VND 3,989 billion ($200 million), all of which are short-term loans from commercial banks like Vietcombank, BIDV, and VietinBank.