dividend policy of ACI limited
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Transcript of dividend policy of ACI limited
Dividend policy is concerned with taking a decision regarding paying cash dividend in
the present or paying an increased dividend at a later stage. The firm could also pay in the form
of stock dividends which unlike cash dividends do not provide liquidity to the investors,
however, it ensures capital gains to the stockholders. The expectations of dividends by
shareholders helps them determine the share value, therefore, dividend policy is a significant
decision taken by the financial managers of any company.
Relevance of dividend policy
Dividends paid by the firms are viewed positively both by the investors and the firms.
The firms which do not pay dividends are rated in oppositely by investors thus affecting the
share price. The people who support relevance of dividends clearly state that regular dividend
reduce uncertainty of the shareholders i.e. the earnings of the firm is discounted at a lower rate,
thereby increasing the market value. However, it’s exactly opposite in the case of increased
uncertainty due to non-payment of dividends.
Irrelevance of dividend policy
The Modigliani and Miller school of thought believes that investors do not state any
preference between current dividends and capital gains. They say that dividend policy is
irrelevant and is not deterministic of the market value. Therefore, the shareholders are indifferent
between the two types of dividends. All they want are high returns either in the form of
dividends or in the form of re-investment of retained earnings by the firm. There are two
conditions discussed in relation to this approach :
decisions regarding financing and investments are made and do not change with respect
to the amounts of dividends received.
when an investor buys and sells shares without facing any transaction costs and firms
issue shares without facing any floatation cost, it is termed as a perfect capital market.[5]
Residuals theory of dividends
One of the assumptions of this theory is that external financing to re-invest is either not
available, or that it is too costly to invest in any profitable opportunity. If the firm has good
investment opportunity available then, they'll invest the retained earnings and reduce the
dividends or give no dividends at all. If no such opportunity exists, the firm will pay out
dividends.
If a firm has to issue securities to finance an investment, the existence of floatation costs
needs a larger amount of securities to be issued. Therefore, the pay out of dividends depend on
whether any profits are left after the financing of proposed investments as floatation costs
increases the amount of profits used. Deciding how much dividends to be paid is not the concern
here, in fact the firm has to decide how much profits to be retained and the rest can then be
distributed as dividends. This is the theory of Residuals, where dividends are residuals from the
profits after serving proposed investments. [6]
This residual decision is distributed in three steps:
evaluating the available investment opportunities to determine capital expenditures.
evaluating the amount of equity finance that would be needed for the investment,
basically having an optimum finance mix.
cost of retained earnings<cost of new equity capital, thus the retained profits are used to
finance investments. If there is a surplus after the financing then there is distribution of dividends
ACI was established as the subsidiary of Imperial Chemical Industries (ICI) in the then East
Pakistan in 1968. After independence the company has been incorporated in Bangladesh on the
24th of January 1971 as ICI Bangladesh Manufacturers Limited and also as Public Limited
Company.
This Company also obtained listing with Dhaka Stock Exchange on 28 December, 1976
and its first trading of shares took place on 9 March, 1994. Later on 5 May, 1992, ICI plc
divested 70% of its shareholding to local management. Subsequently the company was registered
in the name of Advanced Chemical Industries Limited. Listing with Chittagong Stock Exchange
was made on 22 October 1995.
Advanced Chemical Industries (ACI) Limited is one of the leading conglomerates in
Bangladesh, with a multinational heritage. The company has diversified into three major
businesses. Like
Pharmaceuticals
Consumer Brands & Commodity Products
Agribusinesses
1.2: Company Mission
ACI’s mission is to enrich the quality of life of people through responsible application of
knowledge, skills and technology. ACI is committed to the pursuit of excellence through world-
class products, innovative processes and empowered employees to provide the highest level of
satisfaction to its customers.
1.3: Company Vision
To realize the mission ACI will:
Endeavor to attain a position of leadership in each category of its businesses.
Attain a high level of productivity in all its operations through effective and efficient use
of resources, adoption of appropriate technology and alignment with our core
competencies.
Develop its employees by encouraging empowerment and rewarding innovation.
Promote an environment for learning and personal growth of its employees.
Provide products and services of high and consistent quality, ensuring value for money to
its customers.
Encourage and assist in the qualitative improvement of the services of its suppliers and
distributors.
Establish harmonious relationship with the community and promote greater
environmental responsibility within its sphere of influence.
1.4: Company Value
Quality
Customer Focus
Fairness
Transparency
Continuous Improvement
Innovation
1.5: Business Policy:
1.5.1: Quality Policy
ACI's mission is to achieve business excellence through quality by understanding, accepting, meeting and exceeding customer expectations.
ACI follows International Standards on Quality Management System to ensure consistent quality of products and services to achieve customer satisfaction. ACI also meets all national regulatory requirements relating to its current businesses and ensures that current Good Manufacturing Practices (cGMP) as recommended by World Health Organization is followed for its pharmaceutical operations.
The management of ACI commits itself to quality as the prime consideration in all its business decisions. All employees of ACI must follow documented procedures to ensure compliance with quality standards.
The pool of human resources of the company will be developed to their full potential and harnessed through regular training and their participation in seeking continuous improvement of work methods
1.5.2: Environmental Policy
ACI is committed to maintain the harmonious balance of our eco-system and therefore constantly seeks ways to manufacture and produce products in an eco-friendly manner so that the balance of nature remains undisturbed and the environment remains sustainable.
In pursuit of this goal, ACI will:
Comply fully with all local and national environmental regulations.
Conserve natural resources like water and energy for sustainable development, and adopt environmentally safe processes.
Ensure appropriate treatment of all effluents prior to discharge, to prevent pollution or degradation of environment.
Ensure appropriate communication and cooperate with internal and external interested parties on environmental issues.
Create awareness on environmental issues among our employees and suppliers. Adopt modern waste management technology.
1.6: Ten principles are:1.6.1: Human Rights
To support and respect International Human Rights within the company's sphere of influence.
To make sure that their own corporations are not complicit with Human Rights Violation.
1.6.2: Labuor
To end discrimination in the workplace. Abolition of child labour. The right to collective bargaining and recognition of freedom of association. To eliminate the use of forced and compulsory labour.
1.6.3: Environment
To support a precautionary approach to environmental challenges. To undertake initiative to promote greater environmental responsibility. To encourage the diffusion of environmentally friendly technology.
1.6.4: Anti-Corruption
To work against all forms of corruption, including extortion and bribery.
ACI pledges to keep all its employees, customers, shareholders and suppliers regularly informed about the compact and the company’s initiatives to uphold the principles
1.7: Business Unites
Strategic Business Units:
Pharmaceuticals
Consumer Brands & Commodity Products
Agribusinesses:
Crop Care Public Health
Livestock & Fisheries
Fertilizer
Cropex
Seeds
Motors
1.7.1: Pharmaceuticals
ACI carries the legacy of ICI- world renowned British Multinational in providing the
people of Bangladesh with quality medicines and healthcare products. Its state-of-the art
pharmaceutical plant represents Bangladesh's quest for a truly world class manufacturing facility.
ACI's rich heritage leads to innovative and higher value added formulations.
The comprehensive product range of ACI pharmaceuticals include products from all
major therapeutic classes and in various dosage forms like tablet, capsule, dry powder, liquid,
cream, gel, ointment, ophthalmic and injectable. ACI Pharma also has state of the art plant on
Novel Drug Delivery System (NDDS). It produces world class Modified Release drug and
medicine to cater the requirement of pharmaceutical manufacturer of domestic and international
market.
It exports high quality pharmaceuticals to a good number of countries of Asia, Africa &
South America.
1.7.2: Consumer Brands & Commodity Products
The Consumer Brands Division boasts in having an unequivocal presence in consumers'
heart with the market leading brands like ACI Aerosol, ACI Mosquito Coil, Savlon. These are
the persistent performers in keeping the household clean and free from germs and harmful
insects.
The necessity of pure food in the minds of Bangladeshi consumers especially in the
commodity food business has pushed ACI to fill up the market gap by producing commodity
products such as Salt, Flour and Spices. Now the customers of Bangladesh are ensured with
100% pure Salt, Spices products and Wheat products under the brand name of "ACI Pure".
ACI also represents the world renowned product range of Colgate, Nivea, Tetley, Godrej
& Dabur in Bangladesh through distribution and forming joint ventures.
1.7.3: Agribusinesses
ACI Agribusiness is the largest integrator in Bangladesh in Agriculture, Livestock and
Fisheries and deals with Crop Protection, Seed, and Fertilizer, Agrimachineries, and Animal
Health products. These businesses have glorified presence in Bangladesh.
CC & PH supplies crop protection chemicals, Seed supplies Hybrid Rice, vegetable and
Maize seeds, Fertilizer Supplies Micronutrient and Foiler fertilizer, Agrimachineries supplies
Tractors, Power Tiller and Harvester and Animal Health supplies high quality Nutritional,
Veterinary and Poultry medicines and vaccines.
ACI Agribusiness is having strong partnership with national and international R & D
companies, universities and research institutions. Before introducing any product, it is
elaborately tested in the laboratory and farmers field. ACI provides solution to the farmers
through a large team of scientists & skilled professionals.
1.8: ACI has the following subsidiaries:
ACI Formulations Ltd.
Apex Leather crafts Limited
ACI Salt Limited
ACI Pure Flour Limited
ACI Foods Limited
Premiaflex Plastics Limited
Creative Communication Limited
ACI Motors Limited
ACI Logistics Limited
1.9: Joint Ventures:
ACI Godrej Agrovet Private Limited
Tetley ACI (Bangladesh) Limited
Asian Consumer Care (Pvt) Limited
1.10: Department of ACI
1.10.1: Administration department
Administration department specially work to maintain friendly environment through
proper monitoring with the company policy.
1.10.2: Finance and planning
ACI Finance and Planning function is the nerve centre of the conglomerate. The major
areas of its activities include:
Corporate Finance
Treasury
Insurance and risk management
Costing
Credit Management
Accounts payable management
General accounting
Taxation
New business management
1.10.3: Commercial department
Commercial department of ACI ensure all RM & PM to run smooth business.
Also maintain a good liaison with the customer both national and international.
1.10.4: MIS department
MIS department of ACI ensures the overall IT related supports for the company.
Manages a smooth operation of software's, hardware trouble shooting and business
databases related to sales and inventory.
MIS provides customized report and data analysis to the management.
1.10.5: Distribution department
The company maintains strategically located sales centers in nineteen different
locations across the country.
Distribution system through it’s more than 100 skilled and trained manpower and a
large fleet over eighty vehicles.
Capable of maintaining a cold chain for vaccines and insulin.
1.10.6: Training department
Training activity of ACI is to build up for all members of ACI family through the training, skill
development, and workshop.
1.10.7: HR department
HR Policies and procedures for Recruitment & Selection, Manpower Planning and
succession planning.
The combination of qualitative aspects and Balanced Score Card for performance
appraisal.
Policies regarding car loan, gratuity, provident fund and hospitalization. We offer
performance bonus, leave fare assistance, festival bonus and workers profit
participation fund during different times within a year.
ACI is a place to learn, grow and contribute for improving the quality of life of people.
1.10.8: Facilities:
ACI believe that all members of ACI are assets so company tries to fulfill staff want and
demand.
Two special Eid bonuses for all members of ACI
To provide handsome incentive program for field level.
To provide tours national and international in every year.
To provide advance money due to field tours and others occasions.
ACI provide medical bill if any members are admitted in the hospital.
1.10.9: Financial Statement
The maximum financial support comes from the bank due to consolidated long term and
short term bank loans. The support banks are:
Long term bank loans
Standard Charterd Bank
Citibank N.A.
The Hongkong and Shanghai Banking Corporation Limited
Eastern Bank Limited
The City Bank LimitedShort term bank loans
Standard Charterd Bank
Citibank N.A.
The Hongkong and Shanghai Banking Corporation Limited
Eastern Bank Limited
The City Bank Limited
Commercial Bank of Ceylon Plc
AB Bank Limited
BRAC Bank Limited
1.11: Six Years Comparative Statistics 2004-2009
Analysis and dividend policy:Year Net Income2007 65.532008 203.292009 160.332010 91.612011 146.85
2007 2008 2009 2010 20110
50
100
150
200
250
Net Income
Net Income
Year
Taka
in M
illio
nm
Explanation: From the graph and as well as from the table we see that there was fluctuation in net income over the year. Initially we see that net income was lower and then in 2008 it increased massively but after that it started to behave in decreasing trend till 2010. In 2011 there was slight increase in net income.
Year Net Income
Dividend
Dividend
Payout Ratio
2007 65.53 0 0%2008 203.29 75 36.89%2009 160.33 75 46.78%2010 91.61 90 98.24%
2011 146.85 225 153.22%
2007 2008 2009 2010 20110
50
100
150
200
250
Dividend Payout Ratio
Net IncomeDividend
Year
Taka
in M
illio
n
From the above we can see that there was no dividend in 2007. But from 2008 to 2010 company ensured standard dividend for its investors. But in 2011 it has given comparatively huge amount of dividend than that of its previous years, which is even more than its particular year’s net income.
Year Dividend
Cash Dividen
d
Stock Dividen
d
Cash Dividen
d %
Stock Dividen
d %2007 0 0 0 0 0
2008 75 25 50 33.33333
66.66667
2009 75 75 0 100 02010 90 90 0 100 0
2011 225 75 150 33.33333
66.66667
2007 2008 2009 2010 20110
20
40
60
80
100
120
140
160
0
25
75
90
75
0
50
0 0
150
Clasification of Stock & Cash Dividend
Cash DividendStock Dividend
Year
Taka
in M
illio
n
In the initial year company had decided to consider all its net income as retained earnings. It started to pay dividend from 2008. In that year it gave higher stock divided than cash dividend and the ratio was 1:2. After 2008 it gave only cash dividend in the two following years. Then it again gave higher stock dividend than cash dividend in 2011 where the ration was again 1:2.
Year Net Income
Dividend
Retained
Earnings
Retained Earnings as % of
Net Income
2007 65.53 0 65.53 1002008 203.29 75 128.29 63.112009 160.33 75 85.33 53.222010 91.61 90 1.61 1.762011 146.85 225 -78.15 -53.22
2007 2008 2009 2010 2011
-60
-40
-20
0
20
40
60
80
100100.00
63.1153.22
1.76
-53.22
Retained Earnings as % of Net Income
Retained Earnings as % of Net Income
Year
% o
f Net
Inco
me
In the initial year company kept all Net Income as Retained Earnings for exploring the opportunities that in later years followed a downward trend. In the year 2011 it even hasn’t kept any retained earnings rather I gave more dividend than its net income.
Year Earnings Per Share
2007 2.672008 8.132009 5.32010 3.052011 4.89
2007 2008 2009 2010 20110123456789
2.67
8.13
5.3
3.05
4.89
Earnings Per Share
Earning Per Share
Year
Taka
Per
Sha
re
Over the year the earnings per share fluctuated a bit. In the initial year it was Tk. 2.67 per share that boomed in year 2008 by ensuring Tk. 8.13 per share. In Following two years it followed a downward trend but in 2011 it shown a positive turn.
Year Dividend
Retained
Earnings
2007 0 65.532008 75 128.292009 75 85.332010 90 1.612011 225 -78.15
2007 2008 2009 2010 2011
-100
-50
0
50
100
150
200
250
Retained Earnings Vs. Dividend
DividendRetained Earnings
Year
Taka
in M
illio
n
YearNet
Income
Dividend
Change in % of Dividen
d2007 65.53 0 02008 203.29 75 0.00%2009 160.33 75 0.00%2010 91.61 90 20.00%
2011 146.85 225 200.00%
2007 2008 2009 2010 20110
0.20.40.60.8
11.21.41.61.8
2
Change in % of Dividend
Change in % of Dividend
Year
2007 2008 2009 2010 20111EPS 2.67 8.13 5.3 3.05 4.89Cash Div 0 25 75 90 75Stock Div 0 50 0 0 150