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