PNJ suffers record losses due to provisions for repurchasing diamonds and gold.

In the second quarter, PNJ reported a loss of nearly 283 billion VND, a record high since it began publishing financial statements, due to a provision of 865 billion VND for product buybacks.

The recently released financial report of Phu Nhuan Jewelry Joint Stock Company (PNJ) shows a consolidated net loss of nearly 283 billion VND, compared to a positive profit of nearly 437 billion VND in the same period last year. This is the largest loss since the company began publishing financial statements in the third quarter of 2008.

The leading jewelry company’s loss is not due to a decline in business operations. From April to June, PNJ’s net revenue still recorded a 12% growth, reaching nearly 8,484 billion VND. 24K gold – a product line with lower profit margins – contributed the majority of this.

This revenue structure resulted in a 4% decrease in gross profit to over 1,563 billion VND. The gross profit margin also adjusted from 21.5% to 18.4% this period. However, thanks to the significant contribution from 24K gold, the company was able to reduce selling expenses by 12% because these products did not incur many direct selling costs.

The main reason for PNJ’s record loss in the second quarter was the increase in business management expenses by 5.2 times compared to the same period last year, reaching nearly VND 1,063 billion. Of this, more than VND 865 billion came from provisions related to product buybacks, even though this activity occurred after the end of the accounting period.

The management stated that the determination of the provision was based on available information and reasonable assumptions at the time of preparing the financial statements. The criteria for provision included the value of diamonds bought back, the estimated recovery price, and the estimated adjustment rate for each diamond size group.

Since the beginning of July, PNJ has seen a sharp increase in demand for reselling diamond jewelry. By the end of July 27th, the company announced it had repurchased over 7 trillion VND worth of goods, primarily diamonds, gold, and jewelry.

The pressure to repurchase products arose after the Director of PNJ’s Appraisal Company (P-Lab) was prosecuted for involvement in a diamond smuggling case. Although the Chairwoman of the Board of Directors, Cao Thi Ngoc Dung, affirmed that the smuggled diamonds did not enter PNJ’s system, the incident still affected customer sentiment and created significant pressure on the company’s liquidity.

In meetings with investors, PNJ’s leadership repeatedly affirmed that the company had sufficient resources to handle the situation and uphold its commitments to customers. However, after the first three weeks of repurchases and payments within 24 hours, the company adjusted its procedures starting July 21st. If the customer sells, the company will pay in installments over a period of up to 120 days. If the customer exchanges for a different product, the process is immediate and includes an additional discount.

The consolidated financial report for the second quarter also reflects the company’s financial health. Total assets reached nearly VND 21,018 billion, an increase of VND 854 billion compared to the beginning of the year.

Of this, PNJ has nearly VND 609 billion in cash and cash equivalents, an increase of nearly 17% compared to the beginning of the year. These are highly liquid assets that can be quickly converted into cash with virtually no change in value.

In addition, the company also has over VND 3,393 billion in short-term financial investments, an increase of 64% compared to the beginning of the year. Of that amount, over 3.294 billion VND consists of term deposits with original maturities exceeding 3 months, maturing within 12 months from the end of June.

(Image caption: Outside a PNJ store on Hai Ba Trung Street, Tan Dinh Ward, Ho Chi Minh City. Photo: Hung Viet)

This period, PNJ’s inventory decreased by more than 2% to 15.560 billion VND, mainly consisting of products, goods, and raw materials. The company provisioned for inventory devaluation of over 410 billion VND for damaged or substandard goods. This figure is nine times higher than at the beginning of the year.

Conversely, PNJ’s total liabilities increased by 3% to over 7.105 billion VND. Of this, financial debt recorded over 3.989 billion VND, a decrease of more than 5%. All are short-term loans from commercial banks such as Vietcombank, BIDV, VietinBank, etc.