Professional Documents
Culture Documents
Prepared for
Dr. Tanbir Ahmed Chowdhury
Professor, Department of Business Administration.
East West University.
Prepared by
Md. Anis Uddin Miah
Id# 2006-3-10-082
Md. Shamim Rahman
2009-3-10-008
Md. Tanjirul Islam
Id# 2009-3-10-087
Md. Sabit Bin Islam
Id# 2010-1-10-205
Gazi Esha Islam
Id# 2010-1-10-264
Amitun Hasin
2010-2-10-081
December 2, 2012
TRANSMISSION LETTER
December 4 , 2012
Dr. Tanbir Ahmed Chowdhury
Professor, Department of Business Administration.
East West University.
Subject: Submission of the Term Paper on An Appraisal of Dividend Policy of ACI Ltd
Dear Sir,
We are glad to submit our term paper on An Appraisal of Dividend Policy of ACI Ltd, as you
authorized us.
It was a pleasure for us to prepare this term paper under your guidance, which really was an
excellent occasion for us. The data used for preparing this term paper includes materials
available from the internet, our text book and information from companys financial statements.
We have worked really hard and tried our level best in order to arrange this term paper. We
believe that it is your encouragement for us which motivated us to get involved with this process
and a way to improve our practical knowledge of dividend policy. We will be very much pleased
to provide further explanation on this term paper whenever it is necessary. If you have any
further query you can contact with us at eshaislam16@gmail.com
Sincerely yours,
Amitun Hasin
EXECUTIVE SUMMARY
ACI Limited was established as the subsidiary of Imperial Chemical Industries (ICI) in the then
East Pakistan in 1968. After independence, the company was incorporated in Bangladesh in 1973
as ICI Bangladesh Manufacturers limited as a Public Limited Company. In 1992, the company
was divested to local management and the name of the company changed to Advanced Chemical
Industries (ACI) Limited. ACI inherited the rich ICI culture of product quality, customer service
and social responsibility. ICI Bangladesh Manufacturers Limited was a subsidiary of world
renowned multinational ICI Plc and was a listed public limited company under Dhaka Stock
Exchange. ACI has ten subsidiaries: ACI Formulations Ltd, ACI Agrochemicals, Apex
Leathercrafts Limited, ACI Salt Limited, ACI Pure Flour Limited, ACI Foods Limited,
Premiaflex Plastics Limited, Creative Communication Limited, ACI Motors Limited and ACI
Logistics Limited. ACI has three Joint Ventures: ACI Godrej Agrovet Private Limited, Tetley
ACI (Bangladesh) Limited and Asian Consumer Care (Pvt) Limited.
It owns many popular brands including ACI Aerosol, ACI Mosquito Coil, ACI Pure salt, ACI
pure sugar, and Savlon. ACI also represents the world renowned brands like Colgate, Nivea,
Tetley, Godrej & Dabur in Bangladesh. ACI also manufactures and markets food products such
as spice, edible oil, snacks, confectionery under its brand name "'Pure" , which are popular
among Bangladeshi consumers.
After analyzing ACI ltds dividend policy we can understand that ACI ltd is following Dividend
Irrelevance Theory. As they retain more of their earnings for reinvestment and less is paid as
dividend to the shareholders. That means they concentrate more on maximizing basic earning
power and thus believe in wealth maximization and long term future capital gain for their
shareholders.
As they are following Dividend Irrelevance Theory, it is also consistent with Residual theory of
dividend which focuses on accepting all acceptable investment opportunities that leads to long
term capital gain by maximizing basic earning power and thus leads to owners wealth
maximization and thus increases the value of the company
In ACIs capital structure in Table 1 we can see that ACI ltd is using much higher amount from
equity source than debt source for funding new financing opportunities. That means they are
using majority of their earnings (retained earnings) for new investment opportunities.
We have also found that ACI ltd is following Regular Dividend Policy as the dividend per share
has increased over time , and that is why ACI ltd. has a positive impact on shareholders and
regular increasing dividend reduces uncertainty and thus the demand for their shares remain
high.
We think they are following an appropriate dividend policy and we will like to follow the same if
we can become a financial manager of any company in future.
TABLE OF CONTENTS
CHAPTER 1, INTRODUCTION.................................................................................................5
1.1
1.2
1.3
1.4
CHAPTER 1, INTRODUCTION
1.1 Introduction: An Overview of ACI Ltd
Advanced Chemical Industries Limited (ACI Limited) is one of the leading conglomerates in
Bangladesh, established as the subsidiary of Imperial Chemical Industries (ICI) in 1968. ACI has
several Strategic Business Units, These are Pharmaceuticals, Consumer Brands & Commodity
Products and Agribusinesses.
ACI has ten subsidiaries: ACI Formulations Ltd, ACI Agrochemicals, Apex Leathercrafts
Limited, ACI Salt Limited, ACI Pure Flour Limited, ACI Foods Limited, Premiaflex Plastics
Limited, Creative Communication Limited, ACI Motors Limited and ACI Logistics Limited. ACI
has three Joint Ventures: ACI Godrej Agrovet Private Limited, Tetley ACI (Bangladesh) Limited
and Asian Consumer Care (Pvt) Limited.
It owns many popular brands including ACI Aerosol, ACI Mosquito Coil, ACI Pure salt, ACI
pure sugar, and Savlon. ACI also represents the world renowned brands like Colgate, Nivea,
Tetley, Godrej & Dabur in Bangladesh. ACI also manufactures and markets food products such
as spice, edible oil, snacks, confectionery under its brand name "'Pure" , which are popular
among Bangladeshi consumers.
ACI's mission is to achieve business excellence through quality by understanding, accepting,
meeting and exceeding customer expectations. ACIs 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
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 properly. ACI has
been accepted as a Founding Member of the Community of Global Growth Companies by the
World Economic Forum which is the most prestigious business networking organization. . It has
been successful in accomplishing a strong market position in most of its product categories by
catering to the needs of the customers. ACI has been competing in the market with the industry
giants and even with world renowned multinationals, and yet has been thriving strongly in the
market.
ACIs vision is to:
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.
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ACIs Values:
Quality
Customer Focus
Fairness
Transparency
Continuous Improvement
Innovation
Mr. M Anis Ud Dowla is the Chaiman and Mr. Arif Dowla is the Managing Director of ACI
Limited. Mr. M Anis Ud Dowla, the Chairman of ACI Limited, is one of the most successful
personalities in Bangladesh business circle. He has maintained a high profile, and has provided
leadership to business community in different capacities. Mr. Dowla served in the British
Oxygen Group of UK in Pakistan, Bangladesh and Kenya for 27 years, including 12 years as
Managing Director of Bangladesh Oxygen Ltd. In 1987, he became the Group Managing
Director of the three ICI companies in Bangladesh. With experience gathered while working with
British Multi-nationals for over 32 years, Mr. Dowla has continued to maintain the multinational
culture and management style in ACI, with especial emphasis on quality, productivity and
customer services.
M. Dowla was the President of Metropolitan Chamber of Commerce & Industry for three terms
in 1975, 1976 & 1977 and the President of Bangladesh Employers' Federation for four terms in
1976, 1977, 1994 and 1995.
The company has more than 4,000 employees.
Area of Research : In this term paper we analyze the Dividend Policy of ACI Ltd.
Time of data: We analyze the dividend policy depending on previous 5 years data.
Research Method: In this term paper we have only used secondary data from the
company website, annual report, Dhaka stock exchange website and our text book.
Year
2007
2008
2009
2010
2011
ACI is using much higher amount of equity source financing than debt source financing.
which it splits its earnings stream between dividends and internally retained
funds does not affect this value. So, this theory is consistent with the residual
theory of dividend.
iii. The Relevance theory of dividend: The theory, advanced by Gordon and
Lintner, that there is a direct relationship between a firms dividend policy
and its market value. The fundamental to this proposition is their bird-in-thehand argument, which suggests that investors see current dividends as less
risky than future dividends or capital gains. That means investors are risk
averse & attach less risk to current as opposite to future dividends or capital
gains.
There are three dividend policies a firm can follow. These are:
i. Constant- Pay out-Ratio Dividend Policy: A dividend policy where a
certain percentage of Net Income is distributed as dividend.
ii. Regular Dividend Policy: A dividend policy based on the payment of fixed
dividend in each period.
iii. Low regular and Extra Dividend Policy: A dividend policy based on
paying a low regular dividend, supplemented by an additional dividend when
earnings are higher than normal in a given period.
ANALYSIS:
Year
Net Income
After Tax
(Tk in million)
EPS
(in Tk)
Stock Dividend
(in %)
2007
2008
2009
2010
2011
308
1076
990
592
681
19.03
55.43
51
30.49
34.64
8.5
10
10.5
12
10
0
20%
0
0
20%
Dividend
Payout
Ratio
(in %)
44.67
21.65
20.59
39.36
28.87
Retention
Ratio
(in %)
55.33
78.35
79.41
60.64
71.13
Table 2 : Net income after tax of ACI limited from the year 2007-2011
Year
2007
2008
2009
2010
2011
In the above chart and graph of Net Income, we can see that net income for ACI has increased
about 250 % for the year 2007-2008, but it has decreased about 8% from 2008-2009 and again
decreased about 40% from 2009-2010 and has an increase about 15% from 2010-2011.
Table 3 : Earning per share of ACI ltd from the year 2007-2011
Year
2007
2008
2009
2010
2011
TK
19.03
55.43
51
30.49
34.64
EPS
Growth in %
191.28%
-7.99%
-40.22%
13.61%
In the above chart and graph of EPS, we can see that EPS for ACI has increased about 191 % for
the year 2007-2008, but it has decreased about 8% from 2008-2009 and again decreased about
40% from 2009-2010 and has an increase about 13% from 2010-2011.
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Year
2007
2008
2009
2010
2011
In the above chart and graph of Cash dividend, we can see that Cash dividend in Tk for ACI has
increased about 18 % for the year 2007-2008, about 5% from 2008-2009 and again increased
about 14% from 2009-2010 and has decreased about 17% from 2010-2011.
We can see that ACI has declared stock dividend in 2008 and 2011.
Table 6 : Dividend payout ratio and Retention ratio in percentage for ACI
limited from 2007-2011
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Year
2007
2008
2009
2010
2011
Year
2007
2008
2009
2010
2011
Retention ratio
Retention ratio in %
55.33
78.35
79.41
60.64
71.13
Growth in %
-51.53%
-4.90%
91.16%
-26.65%
Growth in %
41.60
1.35
-23.64
17.30
We can see from the above graph that retention ratio for ACI is continuously higher than
dividend payout ratio from 2007-2011.
of their earnings for reinvestment and less is paid as dividend to the shareholders. That means
they concentrate more on maximizing basic earning power and thus believe in wealth
maximization and long term future capital gain for their shareholders.
So, this theory is consistent with The Residual theory of dividend. This is because this theory
focuses on making the best investment decisions to maximize share value. As ACI ltd. is
retaining more of its earnings than paying dividend, it means it undertakes most of the acceptable
investment opportunity.
Also, we can see that, they sometimes offer stock dividend which is a substitute of cash dividend
and from the companys point of view there is no cash outflow but shareholders get satisfied by
this approach. This is done by the companies that follow Dividend Irrelevance Theory, as they
are offering less cash dividend.
In ACIs capital structure in Table 1 above we can see that ACI ltd is using much higher amount
from equity source than debt source for funding new financing opportunities. That means they
are using majority of their earnings (retained earnings) for new investment opportunities.
We think that ACI ltd is following an Appropriate Theory i.e Dividend Irrelevance Theory and
no Reform is necessary as following this theory ensures wealth maximization and thus long term
existence in the market.
CHAPTER 3
3.1 Findings
By analyzing ACI ltds Net Income, EPS, Dividend Payment and Retention Ratio we have
found the following:
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The company is following Dividend Irrelevance Theory as they retain more of their
earnings for reinvestment and less is paid as dividend to the shareholders. That means
they concentrate more on maximizing basic earning power and thus believe in wealth
maximization and long term future capital gain for their shareholders.
As they are following Dividend Irrelevance Theory, it is also consistent with
Residual theory of dividend which focuses on accepting all acceptable investment
opportunities that leads to long term capital gain by maximizing basic earning power
and thus leads to owners wealth maximization and thus increases the value of the
company.
We have also found the capital structure of ACI ltd , where we have found that they
use higher proportion of equity financing compared to debt financing. That means
they use retained earnings more for equity financing other than paying high dividend.
We have also found that ACI ltd is following Regular Dividend Policy as the
dividend per share has increased over time , and that is why ACI ltd. has a positive
impact on shareholders and regular increasing dividend reduces uncertainty and thus
the demand for their shares remain high.
Thus, we have found that they are following an appropriate theory and dividend
policy and no reform is necessary. Thus we understand that ACI ltd believes in
shareholders wealth maximization and that is why they have a long term existence in
market.
3.2 Conclusion
After doing the appraisal of dividend policy of ACI ltd, we can understand that ACI is following
an appropriate dividend theory i.e. dividend irrelevance theory which leads to owners wealth
maximization, and an appropriate dividend policy of regular and increasing dividend that in
turn increases shareholders confidence on the company by reducing uncertainty.
We understand that for following an appropriate theory they have established themselves as one
of the largest company in Bangladesh and have been able to maintain such a successful long
existence in such a competitive pharmaceutical and consumer product industry in Bangladesh.
We think that, in future if we can achieve a position like a financial manager of any corporation,
then we will definitely like to follow a dividend theory and policy like ACI ltd. for assuring a
long term existence in the market with such a good reputation and satisfaction of owners and
consumers.
REFERENCES
http://www.aci-bd.com/
http://www.dsebd.org/
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