TERM PAPER

An Appraisal of Dividend Policy of ACI Ltd

Course Code: FIN 435
Course Title: Managerial Finance
Section : 1
Semester: Fall-2012

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,

Md. Anis Uddin Miah

Md. Shamim Rahman
Md. Tanjirul Islam
Md. Sabit Bin Islam
Gazi Esha Islam

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

Introduction: An Overview of ACI Ltd.......................................................................5

1.2

Scope and Methodology of the study...........................................................................6

1.3

Objective of the study....................................................................................................6

1.4

Limitations of the study.................................................................................................6

CHAPTER 2, AN APPRAISAL of DIVIDEND POLICY of ACI Ltd......................................7

2.1 Historical background of ACI Ltd.....................................................................................7
2.2 Appraisal of Dividend Policy..............................................................................................8
2.3 Analysis of Relevance or Irrelevance theory...................................................................13
2.4 Dividend policy followed by ACI......................................................................................13
CHAPTER 3.................................................................................................................................14
3.1 Findings..............................................................................................................................14
3.2 Conclusion..........................................................................................................................14
REFERENCES............................................................................................................................15

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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Establish harmonious relationship with the community and promote greater

environmental responsibility within its sphere of influence.

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.

1.2 Scope and Methodology of the study

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.

1.3 Objective of the study

i. To present an overview of ACI Limited.
ii. To appraise the dividend policy of ACI Limited.

1.4 Limitations of the study

There was a time limitation of 1 month to complete this project.

This paper is part of our course work and so it has a limited area of research.
Due to time and other limitations we could not collect adequate data, only 5 years data is
collected.
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CHAPTER 2, AN APPRAISAL of DIVIDEND POLICY of ACI Ltd

2.1 Historical background of ACI Ltd.
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 Formulations Limited, a subsidiary of ACI, became a public listed company
through direct listing.
Initially in 1992, ACI started primarily with pharmaceutical business with a turnover of BDT 80
million only but later the new management brought about fundamental changes in the policies
and in the year 2008 turnover grew to over BDT 7,365 million. The Company has diversified
business interest in pharmaceuticals, agricultural including fishery & livestock and consumer
brands. At present, ACI has three strategic business units along with 11 subsidiaries, 3 joint
ventures and 1 associate.
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
theart 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.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.
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. T h e n e c e s s i t y o f p u r e f o o d i n t h e m i n d s o f B a n g l a d e s h i
c o n s u m e r s e s p e c i a l l y i n t h e c o m m o d i t y f o o d b u s i n e s s h a s p u s h e d AC I t o
f i l l u p t h e m a r k e t g a p b y p r o d u c i n g 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.
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ACI Agribusiness is the largest integrator in Bangladesh in Agriculture, Livestock

and Fisheries and deals with Crop Protection, Seed, Fertilizer, Agri machineries, 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, Agri machineries 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. A C I p r o v i d e s s o l u t i o n t o t h e f a r m e r s t h r o u g h a
l a r g e t e a m o f s c i e n t i s t s & s k i l l e d professionals.

Year
2007
2008
2009
2010
2011

Table 1: Capital Structure of ACI ltd

Capital Structure of ACI
Debt Source (Long Term Bank Loan)
Equity Source (Common Stocks+Retained Earnings)
(in Tk)
( in Tk)
62,504,602
708,439,197
104,040,000
1,649,814,482
212,340,000
2,122,516,657
295,781,565
2,885,090,437
256,410,862
3,333,633,607

ACI is using much higher amount of equity source financing than debt source financing.

2.2 Appraisal of Dividend Policy

Dividend refers to that portion of a firms earnings which is paid out to the shareholders.
The dividend policy a firm is maintaining primarily depends on which theory the firm is
following. There are some other factors that can affect a firms dividend policy such as legal
constraints, internal constraints, contractual constraints, growth prospect, owners consideration
and market consideration.
But in this limited area of research we will find the interlink between ACIs Earning per share
(EPS) and Dividend and find out which policy ACI is following and is it the appropriate theory
or reform is necessary in their dividend policy.
We will also see which dividend policy they are following.
There are three theories a firm can follow. These are:
i. The Residual theory of dividend: It says that the dividend paid by a firm
should be the amount left over after all acceptable investment opportunities
have been undertaken.
ii. The Irrelevance theory of dividend: A theory put forth by Metorn H. Millar
& Franco Modigliani (M&M) that in a perfect world, the value of a firm is
unaffected by the distribution of dividends and is determined solely by the
basic earning power and risk of its assets (investments) and that the manner in
8

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:

Table 1: All the required information

Year

Net Income
After Tax
(Tk in million)

EPS
(in Tk)

Cash Dividend per

share
(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

Net Income after tax

TK in million
Growth in %
308
1076
249.35%
990
-7.99%
592
-40.20%
681
15.03%

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.
10

Table 4 : Cash dividend of ACI limited from 2007-2011

Year
2007
2008
2009
2010
2011

Cash Dividend per share

Amount in Tk
Growth in %
8.5
10
18%
10.5
5%
12
14%
10
-17%

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.

Table 5 : Stock dividend in percentage for ACI limited from 2007-2011

Stock Dividend
Year
% Dividend
2007
0
2008
20%
2009
0
2010
0
2011
20%

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
11

Year
2007
2008
2009
2010
2011

Dividend payout ratio

Dividend payout ratio in %
44.67
21.65
20.59
39.36
28.87

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.

2.3 Analysis of Relevance or Irrelevance theory

From the above analysis and from analyzing the interlink between EPS and Dividend per share,
we can understand that ACI ltd is following Dividend Irrelevance Theory. As they retain more
12

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.

2.4 Dividend policy followed by ACI

From the above analysis of dividend payment of ACI ltd, we can understand that the company is
following Regular Dividend Policy as they are paying cash dividend of Tk 8.5, 10, 10.5, 12, 10
per share respectively from 2007-2011. So, the company is paying a fixed percentage of earning
as dividend and is increasing the dividend time to time when there is a proven increase in earning
and when the prospect of the company is bright.
This policy provides the owners with positive information, thereby minimizing their uncertainty.
Firms that use this policy increase the regular dividend once a proven increase in earnings has
occurred. Under this policy, dividends are almost never decreased. For ACI ltd, dividend of 2011
has slightly decreased as they have high retention ratio for this year.

CHAPTER 3
3.1 Findings
By analyzing ACI ltds Net Income, EPS, Dividend Payment and Retention Ratio we have
found the following:
13

 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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Annual Report of ACI ltd for the year 2007-2011

Principles of Managerial Finance by Lawrance J. Gitman; 12th edition.

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