Accounting 330 ACI

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REPORT ON

Analysis on Annual Report of ACI Limited

Article: “ACI provides 60% dividend”

BASED ON A 2008 STUDY OF ACI Ltd

Analysis on ACI Annual Report

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Executive Summary

You know Balance Sheet, Income Statement and Cash Flow Statement

are very important for a company. It lets the corporation to analyze their

past performance, evaluate its present level of performance, and determine

possible future expectation about a new venture. These allow a corporation

to evaluate its operation on a more measurable and attainable level.

Furthermore, it gives the corporation an estimated picture of any future

outcome of a product or service that they are trying to determine. In order

to improve performance and position in the market, the company must have

a ratio analysis. It shows what their product’s condition is in the market and

is there any scope to improve in future. There are lots of product line in ACI

and DATA answers what, why and how about those specific product.

Different kind of statement such as consolidated balance sheet,

consolidated income statement, consolidated shareholder equity, and

consolidated cash flow etc helps to identify the product condition

(success/failure), strengths/weakness, reason behind it, and solve those

types of problems. It will certainly help to go forward the company and get

gain to remain in the market as a successful one.

Methodology

A group of four had been formed. For analyzing ACI was chosen. The Annual

report of ACI has been used for this purpose. The analysis, which was mainly done

through group discussions, was made by integrating the many concepts we have

studied in the course.

Problems


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Some terminologies were not very clear to understand. However, by the help

of our course lecturer we were still able to work on it.

IntroductionWe preferred ACI Limited because ACI has been accepted as Founding Member of the Community of Global Growth Companies by the World Economy Forum which is the most prestigious business networking organization, the membership is a matter of pride for them.

Global Impact

The united nation Global Compact is a voluntary international initiatives that brings companies around the glob with UN agencies, labor and civil societies to support universal environment and social principles outline by the ten(10) principle of global compact which ACI endorsed in 2003. The ten principles are in the areas of:

1. Human Rights2. Labour3. Environment4. Anti-Corruption


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Article

ACI provided 60% dividend (2007)

Publicized: ………………………………………. “The Daily Star”

Date: …………………………………………………. June 27, 2007.

Page: ………………………………………………… 08

Column: ……………………………………………… 01

The financial result presented to the shareholders showed an increase

in sales turn over by 14% over the previous year. The gross profit also

increased by 22.88 % to TK 1176 million and profit after tax increased by

37% to TK 154 million over the previous year. The EPS (Earning per Share)

stood at TK 9.51 this year against TK 6.94 during the previous year.

Analysis:

Total number of share outstanding = 16,170,000

Par value of each share = 10 Taka

60% Dividend paid in June 27, 2007 = Taka 97,020,000

Net Income in 2007 = Taka 340,262,440

Retained Earnings = Taka 243,242,440

Opinion:

If the company can able to remain this dividend in future they will make more profit and shareholder equity.

Recommendation:

We think they should pay the same dividend in next year.


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A.Background:

1. Where is the company incorporated? Where are its primary locations?

Advanced Chemical Industries Limited is a public limited company which was incorporated on 24 January 1973 as ICI Bangladesh Manufacturers Limited. The principle activities of the company are to manufacture pharmaceuticals, consumer brand, public health and animal health products and to market them along with agro chemicals, seeds, and other consumer brand items.

The company is listed with Dhaka Stock Exchange Limited (DSE) and Chittagong Stock Exchange Limited (CSE).

2. Describe the nature of its business, primary products, etc.

ACI is a renowned pharmaceutical company which sells lots of other

renowned consumer products too. It has been enlisted in the Dhaka stock

Exchange for over 30 years nor and in the Chittagong Stock Exchange for

over 15 years. We selected this company because getting information on it

would be easy for us since one of the owners of ACI is a relative of one of

our group members and it’s a company that everyone knows of and one or

more of its products is used in almost every household of Bangladesh.

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 1973 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.


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Advance Chemical Industries (ACI) Limited is one of the leading

conglomerates in Bangladesh, with a multinational image. ACI is a Public

Limited Company with a total number of 19,653 shareholders. Among these,

there are three foreign and fifty local institutional shareholders. The

company has diversified into three major businesses. Besides these, the

company has a large list of international associates and partners with

various trade and business agreements.

ACI has three separate manufacturing plants in the outskirts of Dhaka.

The Pharmaceuticals plant is located at Narayanganj; ACI Formulations has

been setup at Gazipur and the Tetley factory has been built at Konabari.

The company maintains strategically located sales centres in nineteen

different locations across the country. It has developed an advanced

distribution system through its more than 300 skilled and trained manpower

and a large fleet over eighty vehicles. The distribution system is capable of

handling continuing volume of diverse range of products from the various

businesses.

Pharmaceuticals

Consumer Brands & Commodity Products

Agribusinesses:

a. Crop Care and Public Health

b. Livestock & Fisheries

c. Fertilizer

d. Cropex

e. Seeds


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ACI has the following subsidiaries

ACI Formulations Limited

Apex Leathercrafts Limited

ACI Salt Limited

ACI Pure Flour Limited

ACI Foods Limited

Consolidated Chemicals Limited

Premiaflex Plastics Limited

Creative Communication Limited

ACI Motors Limited

ACI Logistics Limited

Renowned consumer products under ACI are ACI Aerosol Spray, Savlon,

ACI Salt, Pure Cooking Masala, etc.

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

Company Vision


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Endeavour 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.

3. What is primary focus of the company’s management letter in the current year?

ACI Limited try to manage the company with full consciousness to all their

stakeholders. They are seriously working towards the mission of improving the

quality of the people of Bangladesh.

ACI remains committed to providing customers with a broad range of quality

products from its business operation.


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B. Income Statement

1. Is this consolidated statement? Explain.

YES, ACI is a consolidated statement.

All significant subsidiaries are consolidated. All significant intercompany

transactions are eliminated. As used here in the term “ACI” company refers to ACI

Formulations Limited, ACI Salt, Limited, ACI Pure Flour Limited, Apex Leather

Craft Limited, Flyban Insecticides Limited, ACI Motors Limited, Premiaflex Plastic

Limited unless context indicates otherwise.

Basis of Consolidation

»Subsidiaries

Subsidiaries are entities controlled by ACI Limited. Control exists

when ACI Limited has the power to govern the financial and operating

policies of an entity so as to obtain benefits from its activities. In assessing

control, potential voting rights that presently are exercisable are taken into

account. The financial statement of subsidiaries are included in the

consolidated financial statements from the date that control commences

until the date that control ceases. The accounting policies of subsidiaries

have been changed when necessary to align them with the policies adopted

by ACI Limited.

»Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized and

expenses arising from intra-group transactions, are eliminated in preparing

the consolidated financial statements. Unrealized gains arising from

transactions with associates are eliminated against the investment to the

extent of ACI Limited’s interest in the investee. Unrealized losses, if any, are

eliminated in the same way as unrealized gains, but only the extent there is

no evidence of impairment.


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2. Are there any extra ordinary items? Discontinued items? Cumulative effects of change in accounting principle(s)? If so, briefly discuss the nature of these items.

Irregular items fall into six categories

Discontinued operations.

Extraordinary items.

Unusual gains and losses.

Changes in accounting principle.

Changes in estimates.

Corrections of errors.

There are no extra ordinary items or even discontinued items in the Consolidated Income Statement. There are no Cumulative effects of change in accounting principles (Note: E-1).

3. What was profit margin percentage in the current year? In the prior year?

2007 2006

Net Income Tk. 340,262,440 Tk 165,585,859

Sales Tk. 5,756,817,829 Tk 4,237,856,136

Net Profit Margin 5.91% 3.90%


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Calculation:

2007,

= 5.91% for year 2007

2006,

= 3.907% for year 2006Interpretation of Net Profit Margin

» In 2006 ACI Limited had a net profit of 3 taka 91 paisa out of 100 taka sales. That means out 100 taka sales the profit was 3.907 taka and the rest was expense. In 2007, it was 5 taka 91 paisa profit out of 100 taka sales.

» it has increased in 2007 compare to year 2006.

» in 2007, the company’s net income and net sales was increased from 2006.

4. How much was earning per share?

2007

Number of shares outstanding 16170000

Monetary valuation of shares issued Tk. 340,216,800

» Earning Per Shares Tk. 21.04


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Calculation:

In 2007, Net Income = Tk. 340,262,440

Total number of share outstanding = 16170000

EPS = = 21.04

2006

Number of shares outstanding 16170000

Monetary valuation of shares issued Tk. 165,585,859

» Earning Per Shares Tk. 10.24

Calculation:

In 2007, Net Income = Tk. 165,585,859

Total number of share outstanding = 16170000

EPS = = 10.24

Interpretation:

» In 2007, ACI Limited’s share holders (13523) had a earning of 21 Taka 4 Paisa per share. In 2006, it was 10 Taka 24 Paisa earning per share.

» The earning per share had been increased double of 2006 in 2007.

» The reason is their net income increased in 2007.


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5. What was the percent of income tax expense to pretax income?

2007

Income Tax expenses Tk. 169224712

Profit before tax Tk. 531811467

The percent of income tax expense to pretax income

31.82%

2006

Income Tax expenses Tk. 122478216

Profit before tax Tk. 290355318

The percent of income tax expense to pretax income

42.18%


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C. Statement of Retained Earnings

1. For the current year, what amount was transferred from the income statement? For the prior year?

Net profit after tax in the year 2006 was 165,585,859 Taka and out this, dividend of 71,172,362 Taka was paid. Hence 165,585,859 - 71,172,362 = 94,413,497 Taka has been transferred to the Statement of Retained earnings in the year 2006.

In 2007, Net profit after tax and interest was, 340,262,440 Taka, and out of this, Dividend of Taka 95,201,895 was paid out and hence remaining was 340,262,440 - 95,201,895 = 245,060,545 Taka, which was transferred to the Statement of Retained Earnings.

2. What total Retained Earnings was reported on the Balance Sheet for the current year?

2006

(Taka)

2007

(Taka)

Net profit 165,585,859 340,262,440

Dividend 71,172,362 95,201,895

Retained Earning

94,413,497 245,060,545


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D. Balance Sheet

1. What was the Net Book Value of the fixed asset at the end of the current year? At the end of the prior year?

Net Book Value of the fixed assets

Net Book Value = Cost – Accumulated Depreciation

2007 2006

Cost Tk. 2,610,354,214 Tk. 1,936,014,079

Accumulated Depreciation Tk. 660,423,664 Tk. 542,619,801

Net Book Value Tk. 1,949,930,550 Tk. 1,393,394,278

2. How many classes of common stock have been issued? Does the stock have a par value? Can the company issue any more stock?

There are three classes of share have been issued:

1. Ordinary

2. Right Share

3. Bonus Share

16170000 number of common stock have been issued.

The par value of the stock is Taka 10.

= 10 Taka per share Share premium


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This represents the amount received against issue of shares at premium in the years 1995 and 1998.

3. Where there any unpaid income tax at the end of the current year? How did this figure compare with income tax expense?

Taka 83680237 were unpaid or deferred tax income in 2007.

The company recognized deferred tax in accordance with the provision of

BAS 12: Income Taxes. Deferred tax arises due to temporary difference deductible

or taxable for the events or transaction recognized in the income statement. A

temporary difference is the difference between the tax base of an asset or liability

and its carrying amount/reported amount in the financial statement. Deferred tax

asset or liability is the amount of tax recoverable or payable in future period(s)

recognized in the current period. The deferred tax asset/income or

liability/expense does not create a legal liability/recoverability to and from the

income tax authority. Deferred tax also arises due to revaluation of property, plant

and equipment. The resulting impact of deferred tax assets/liabilities on

revaluation reserve in included in the statements of changes in equity.

Income tax comprises of both current and deferred tax.

Deferred tax liabilities

2007

Taka

2006

Taka

Deferred tax liability on revaluation reserve 126,386,419 92,629,381

Deferred tax liability on temporary differences 3,985,215 9,695,948

130,371,634 102,325,329


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4. Does company have any outstanding lease obligations? If so describe.

YES, ACI Limited has an outstanding lease obligation

Obligation under finance lease:

2007

Taka

2006

Taka

Payment due within one year 10,220,408 14,076,453

Payment due within 5 years but later than one year 8,082,683 15,336,353

Payment due after 5 years - -

Obligation under finance lease 18,303,091 29,412,806

5. Does the company have any outstanding pension and or postretirement benefit obligation? If so describe.

Yes, the company has pension or postretirement benefit obligation. It has mentioned in the Note 19(A) which is the part of the consolidated other creditors. In the note section, it says that they have two types of provident funds.

6. What is breakdown of their investment (e.g., investment in bond, investment in stocks or other marketable securities etc.)?


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2007 2006

No. of shares

Face value per share

Called and paid up capital

Share holding

Value Value

Taka Taka % Taka TakaInvestment valued at cost:Mutual Trust Bank Limited 332,640 100 100 3.33 20,000,000 29,375,000Central Depository Bangladesh Limited

2 1000000 1000000 0.58 2,000,000 2,000,000

Computer Technology Limited

200 100 100 40 20,000 20,000

ACI Agrochemicals Limited 18,00022,020,000 31,413,000

Investment valued under equity method:Tetley ACI (Bangladesh) Limited

450,000 100 100 50 (1,859,093) 1,881,200

Asian Consumer Care (Pvt.) Limited

1,079,445 10 10 24 907,018 (3,241,054)

ACI Godrej Agrovet (Pvt.) Limited

800,000 100 100 50 41,604,435 8,322,242

Stochastic Logic Limited 2,000 100 100 20 (627,168) (305,830) 40,025,192 6,656,558

Total carrying amount of Investment

62,045,192 38,069,558

7. Does the company have any long terms debt maturing in the current year? Any major refinancing?

Long-term loan – current portion


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2007

Taka

2006

Taka

Standard Chartered Bank 58,021,601 -

The Hongkong and Shanghai Banking Corporation Limited 4,483,001 -

62,504,602 -

Consolidated long term loan – current portion

2007

Taka

2006

Taka

Standard Chartered Bank 58,021,601 -

The Hongkong and Shanghai Banking Corporation Limited 46,943,021 46,247,311

Citibank, N.A. 49,840,076 _________

154,804,698 46,247,311


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E. Notes to the Statements

1. What accounting principle makes it necessary to have these notes to the financial statements?

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

Basis of Consolidation

Subsidiaries

Transaction eliminated on consolidation

Property, plant and equipment

Recognition and measurement

Depreciation

Subsequent cost

Goodwill

Trade and other receivables

Advance, deposits and prepayments

Cash and cash equivalent

Provision

Contingencies

Income tax expenses

Current tax

Deferred tax

And so on.


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2. What is subject of the first note?

The subject of the first note is Reporting Entity which has been described below.

1. Reporting entity

Advanced Chemical Industries Limited is a public limited company which was incorporated on 24 January 1973 as ICI Bangladesh Manufacturers Limited. The principle activities of the company are to manufacture pharmaceuticals, consumer brand, public health and animal health products and to market them along with agro chemicals, seeds, and other consumer brand items.

The company is listed with Dhaka Stock Exchange Limited (DSE) and Chittagong Stock Exchange Limited (CSE).

1.1 Description of subsidiaries1.1.1 ACI formulation Limited1.1.2 ACI Salt Limited1.1.3 ACI Foods Limited1.1.4 ACI Pure Flour Limited1.1.5 Apex Leather Craft Limited1.1.6 Flyban Insecticides Limited1.1.7 ACI Agrochemicals Limited1.1.8 ACI Motors Limited1.1.9 Creative Communication Limited1.1.10 Premiaflex Plastic Limited

[The description is mentioned in the appendix]


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3. How are the inventories stated?

Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operation capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Stock in transit represents the cost incurred up to the date of the balance sheet for the items that were not received till to the date of balance sheet. Inventory losses and abnormal losses were recognized as expenses.

Consolidated Inventory

2007

Taka

2006

Taka

Finished goods 644,727,561 539,313,374

Work-in-process 36,229,138 37,007,215

Raw materials 602,323,616 427,780,936

Packing materials 141,316,259 136,025,682

Stores and spares 13,998,250 6,285,159

Stock in transit 197,259,809 125,354,620

Others 5,715,173 6,192,426

1,641,569,806 1,277,959,412

Less: Provision for slow moving and damaged goods

58,521,441 38,801,086

1,583,048,365 1,239,158,326


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4. What depreciation methods are used?

In the Annual Report of ACI Limited, did not mention any method regarding of depreciation which they used.

5. Are there any other footnotes that are unusual and/or distinctive to this company?

A segment is a distinguishable component of ACI Limited and its

subsidiaries that is engaged either in providing related products or services

(business segment), or in providing products or services in within a particular

economic environment (geographical segment), which is subject to risks and

rewards that are different from those of other segments. ACI Limited and its

subsidiaries’ primary format for segment is based on business segments. Segment

information is presented only on the basis of the consolidated financial statements.


Particular Rate of depreciation

Land 0%Building 2.5%Plant & Machinary 10.0%Furniture & Fixture 10.0%Electrical and other office appliances

10.0%

Office machinery 10.0%Vehicles 20.0%

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Appendix


Accounting 330 ACI

Documents

study of aci

owners of aci

public limited company

ratio analysis

previous year

consolidated income

primary products

products condition