BBGO4103

CLUSTER OF BUSINESS & MANAGEMENT

JANUARY 2019

BBPW3203

FINANCIAL MANAGEMENT II

MATRICULATION NO : 901216065582-001
IDENTITY CARD NO. : 901216-06-5582
TELEPHONE NO. : 012-9386836
E-MAIL : nirupa16121990@oum.edu.my
LEARNING CENTRE : TEMERLOH LEARNING CENTRE

1
 BBGO4103

TABLE OF CONTENTS

1) INTRODUCTION OF THE SELECTED COMPANIES 3-8

2) ANALYSIS OF COMPANIES DIVIDEND PAYOUT BASED

ON RELEVANT FINANCIAL RATIO FOR THE YEARS
2013, 2014, 2015, 2016 AND 2017 8 - 18

3) EVALUATION OF THE COMPANIES DIVIDEND PAYOUT

FOR THE YEARS 2013, 2014, 2015, 2016 AND 2017 19 - 22

4) COMPARISON OF THE COMPANIES DIVIDEND PAYOUT 22 - 24

5) SUMMARY 24

6) REFERENCES 25

2
 BBGO4103

Company listed in the energy sector of the main market of bursa Malaysia that I
have selected is Deleum Sdn. Bhd. whereas company listed in the technology sector that I
have selected is VSTECS Berhad. Wholly-owned subsidiary Deleum Services Sdn. Bhd.
is formerly known as Delcom Services Sdn. Bhd., it participated in the oil and gas
industry in the year 1982 and established itself as a service company in the Malaysian oil
and gas industry. Deleum Sdn. Bhd. was incorporated in November 2005. In 2006,
Deleum Sdn. Bhd. was converted to a public limited company and was named as Deleum
Berhad. Deleum Berhad, an investment holding company, was listed on the Main Market
Of Bursa Malaysia Securities Berhad on 1 June 2007. Deleum Berhad through its
subsidiaries, provides a diverse range of supporting specialized products and services to
the oil and gas industry, particularly in the exploration and production sector. Deleum
Berhad business venture has made respectable progression from merely agent-principal
relationships to joint ventures, partnerships, and self-operated operations, over the years.
Deleum success is based on their strong belief of achieving equitable business advantage
through its relationships with customers and long term business partners. Deleum Berhad
vision is to be the Market Leader in their operating segments domestically and a regional
presence by 2020 whereas it’s mission is to provide sustainable growth and enhance
stakeholders' value. Deleum Business activities is divided into two, which is products and
services. There is 8 products and 13 services that Deleum provide.

3
BBGO4103

4

Deleum range of products and services is distinguish according to their three core
business segments as below :-
Power
and
Machinery
Integrated
Corrosion
Solutions
OILFIELD SERVICES
· Provision of wireline
equipment and services
· Integrated wellhead
maintenance services
· Provision of oilfield
chemicals
· Other oilfield products
and technical services
Oilfield
Services
INTEGRATED
CORROSION
SOLUTIONS (ICS)
 Provide low dust,
environmentally
friendly blasting
technology for surface
preparation
 Passive fire
protection services
 Pipeline field joint
coating
 Coating removal by
controlled induction
heating  processing solution
 Composite repairs
 Hot and cold
insulation work (using
conventional and non-
BBGO4103
POWER AND
MACHINERY
 Provision of gas turbine
packages
 Supply of gas turbine
and gas compressor parts
 Gas turbine and gas
compressor overhaul,
maintenance and technical
services
 Combined heat and
power plant
 Provision of gas
 Supply, installation,
repair and maintenance of
valves and flow regulators
 Motors, generators and
5
 BBGO4103

conventional methods transformers maintenance

technology) services
 Pipe spool  Other production
fabrication and equipment and related
replacement services
 Minor fabrication
and structural piping
(including onsite
welding and cutting)
 Corrosion
prevention for riser
maintenance

VSTECS Berhad (VSTECS) or formerly known as ECS ICT Berhad or ECSB, is

an MSC-Status company. Its subsidiaries (“the Group”) started in 1985 with the
establishment of VSTECS KU Sdn. Bhd. or formerly known as ECS KU Sdn. Bhd.
Today, the Group is a leading distribution hub for Information & Communications
Technology (“ICT”) products in Malaysia via VSTECS PERICOMP Sdn. Bhd. (formerly
known as ECS PERICOMP Sdn. Bhd.) and VSTECS ASTAR Sdn. Bhd. (formerly
known as ECS ASTAR Sdn. Bhd.). On 15 April 2010, VSTECS is listed on the Main
Market of Bursa Malaysia Securities Berhad. VSTECS is an associate company of
VSTECS Holdings (Singapore) Limited (formerly known as ECS Holdings Limited),
which is one of the leading ICT distributors in Asia Pacific, accessing to a network of
more than 25,000 channel partners across Malaysia, Singapore, China, Thailand,
Indonesia, Philippines, Cambodia and Myanmar. VSTECS Holdings (Singapore) Limited
is the wholly-owned subsidiary of VST Holdings Limited, a Company listed on the main
board of the Stock Exchange of Hong Kong Limited in 2002. VSTECS distributes a
comprehensive range of ICT products comprising notebooks, personal computers,
smartphones, tablets, wearable, printers, software, network and communication
infrastructure, servers, and enterprise software from more than 30 leading principals like
Hewlett Packard, Asus, Lenovo, Apple, Dell, Microsoft, Cisco, Samsung, VM Ware and

6
 BBGO4103

IBM. VSTECS also provides value-added product support and technical services, with a
nationwide channel network of more than 5,500 resellers comprising of retailers, system
integrators and corporate dealers. VSTECS vision is to be the leading provider of
Information & Communications Technology products and value-added services. We
strive for sustainable growth to achieve optimum return to shareholders whereas the
mission is we shall strive to be a leading provider within Malaysia of reputable, quality
hardware, software, services, computer systems, and support for our customers, we shall
conduct business with our valued customers and suppliers with professionalism and
integrity, we shall have an environment to develop, motivate and reward our staff by
providing training and incentives for productivity, we shall achieve the profitability for
future growth and to give an adequate return to shareholders and we shall be good
corporate citizens with social responsibilities to our communities. The Group business
segments comprise of the following:

7
 BBGO4103

VSTECS
Group Business
Segments

ICT Distribution :
Distribution of Volume
ICT products to
resellers, comprising
mainly of retailers
ICT Services :
Provisioning of ICT
systems and services.
Enterprise Systems :
Distribution of
Enterprise ICT products
to resellers, comprising
mainly of system
integrators and
corporate dealers

To calculate dividend payout ratio, first we must find dividends per share and
earnings per share. The formula to calculate is as below :-

8
 BBGO4103

Deleum Berhad calculation for the year 2013.

The calculation is based on 2013 Annual Report. This outcome did not take into account
the adjustment made on Earnings Per Share (bonus issue and share split) according to
2014 Annual Report.

9
 BBGO4103

Deleum Berhad calculation for the year 2014,

10
 BBGO4103

Deleum Berhad calculation for the year 2015

11
 BBGO4103

Deleum Berhad calculation for the year 2016

12
 BBGO4103

Deleum Berhad calculation for the year 2017

13
 BBGO4103

VSTECS Berhad calculation for the year 2013

14
 BBGO4103

VSTECS Berhad calculation for the year 2014

15
 BBGO4103

VSTECS Berhad calculation for the year 2015

16
 BBGO4103

VSTECS Berhad calculation for the year 2016

17
 BBGO4103

VSTECS Berhad calculation for the year 2017

18
 BBGO4103

Dividend Payout Ratio For Deleum Berhad and

VSTECS Berhad
120%
60.9%
100%
Percentage (%)

36.8% 36.7% 35.8% 34.3%

80%
60% 53% 53% VSTECS
51% 51% 48%
40% BERHAD
20% DELEUM
0% BERHAD
2013 2014 2015 2016 2017
Years

From the graph above, can be seen that Deleum Berhad company’s dividend
payout is quite consistent which is between 51% to 53%. However in year 2015, the
company’s dividend payout drop to 48%. Deleum remains committed to its dividend
policy of distributing dividends of 50% of the Group’s annual profit to shareholders of
the company, subject to the availability of adequate distributable reserves, operating cash
flow requirements, financial commitments and expansion plans to sustain its existing
operations and to support its future business growth. In the year 2013, a wholly-owned
subsidiary of Deleum, Deleum Oilfield Services Sdn. Bhd. (Deleum Oilfield), had been
awarded multiple contracts from various Production Sharing Contract (PSC). With this
award, our number of operating slickline units have increase from 26 units in year 2012
to 50 units in year 2013. In year 2014, the company’s important achievements was the
breakthrough by Deleum Primera Sdn. Bhd. (Deleum Primera), which joined the Group
in 2012, having secured its first medium term contract from Petronas Carigali Sdn. Bhd.
for the provision of painting and alternative blasting for Peninsular Malaysia and East
Malaysia operations. Year 2015, is a year that presented many challenges stemming from
the drop in crude oil prices, and the upstream sector of the oil and gas industry. The year
2016 was another challenging year for the oil and gas industry. The resilience of all oil

19
 BBGO4103

and gas players across the value chain continued to be tested by subdued trade growth,
volatile crude oil prices and further pressures on already low operating margins. Coupled
with cost-cutting measures by oil majors, many players suffered a marked contraction in
business activities and registered significantly reduced margins. Deleum was not spared
the effect of the year’s deteriorating market conditions. Despite implementing aggressive
cost saving measures to defer non-critical capital spending as well as closely monitoring
their working capital and cash flows to meet their scheduled commitments, they turned in
a lackluster performance for the year 2016. Our results were affected primarily by
compressed margins and a lower level of oil and gas activities. In the first half of 2017,
industry players had to contend with a lower oil price environment, excess supply and
subdued trade growth amidst reduced spending by oil majors. All of these elements led to
a further drop in already low operating margins and business activities. Having kicked off
the year in a relatively low-key manner, the industry welcomed a rise in oil prices
towards the later part of the year. It is expected that the price of crude oil will stabilize to
some degree which augurs well for the industry as a whole. Deleum were able to come
through this challenging period to deliver a steadfast performance as we leveraged on the
Six Key Focus Areas of our Strategic Plan that called for our businesses to be
streamlined, strengthened and made more sustainable. By introducing various cost
control measures, consolidating resources across our three core segments, and tapping
into new areas of opportunity, amongst other things, we were able to come through the
year sturdier than the previous year.

From the graph above, can be seen that VSTECS Berhad company’s dividend
payout is quite consistent which is between 34.3% to 36.8%. However in year 2015, the
company’s dividend payout increase drastically to 60.9% from 36.7%. The ICT sector in
Malaysia faced a largely volatile year as the softer economic outlook adversely impacted
ICT spending amongst consumers and corporations. It’s said that, the ICT sector
witnessed increasing demand for mobility products of tablet PCs and smartphones, given
the highly-versatile features over their traditional counterparts of desktop PCs and
notebooks. “2014 proved to be a challenging year as several macro-economic factors
such as the sharp decline in crude oil prices since mid-2014 and weaker world trade

20
 BBGO4103

dampened sentiments in the Malaysian economy.” Malaysia’s ICT industry in 2014

continued to be spurred by strong consumer demand. However, corporate ICT spending
was sluggish as numerous public sector ICT projects were deferred, while the private
sector faced price pressures due to intense competition. One of the most impactful events
during year 2015 was the implementation of the Goods and Services Tax (“GST”) in
Malaysia, where most goods and services became 6% dearer from 1st April 2015
onwards. As a result, consumer and corporations’ spending charted a sharp spike in the
first quarter in order to enjoy goods at lower prices, only to taper off in the subsequent
quarters as these segments adjusted consumption patterns in the higher-cost environment.
The overall sentiment was also adversely affected by macroeconomic uncertainties,
brought on by the steep decline of crude oil prices in the year under review. These
accumulated concerns resulted in a weaker Ringgit versus major international currencies,
including the United States Dollar (“USD”). This has resulted in higher prices for ICT
products and dampened market demand from consumers as well as corporate customers.
Under the challenging business environment, the Group has managed to achieve
acceptable results for the year 2016 thanks to our comprehensive range of ICT products
and a strong nationwide channel of resellers to maintain our position as the leading ICT
distributor in the country. Our Group’s results for year 2017 have been impacted by the
tough market conditions as a result of lower ICT spending for the year. Despite the better
economic conditions, the ICT market has remained challenging during the year due to
lower consumer spending as well as lower corporate and public sector expenditure on
ICT projects.

Dividends are irrelevant, or are a passive residual Both company that I have
selected uses passive residual theory. Investors are indifferent between dividends and
capital gains. The ultimate desire of the investors is to earn higher return on their
investment. If the firm has adequate investment opportunities which yields a higher rate
of return in-comparison with the cost of retained earnings the investors would be content
with the firm for retaining the earnings. In the opposite case, if the retention is less than
the cost of retained earnings, investors would prefer to receive earnings or dividends. So,
it is needless to mention that a dividend decision is nothing but a financing decision. In

21
 BBGO4103

short, if the firm has profitable investment opportunities, it will retain the earnings for
investment purposes or if not, the said earnings should be distributed by way of dividend
among the shareholder/investors.

Deleum Group recorded a new high profit after tax and non-controlling interest of
11.5% which is RM49.6 million from RM44.5 million in year 2012. This commendable
result is attributed to the stronger performance achieved by each of the business
segments. This indirectly causes the dividend payout to increase from 50% in the year
2012 to 51% in the year 2013. VSTECS Berhad continued to improve in year 2013, from
RM1.28 billion in year 2012 to RM1.33 billion, an increase of 3.9%. Revenue from the
Group’s ICT Services also grew in the year under review by 9.6% from RM13.4 million
to RM14.7. However, VSTECS Berhad was affected by the weaker Malaysian Ringgit
against the US Dollar in the third quarter, as well as less favorable product mix in the
Enterprise Systems segment. The company’s net profit decreased by 10.0% from RM29.9
million in year 2012 to RM26.9 million in year 2013. This indirectly causes the dividend
payout to drop from 50.2% in the year 2012 to 36.8% in the year 2013.

Deleum Group recorded a new high profit after tax and non-controlling interest of
19.7% which is RM59.3 million from RM49.6 million in year 2013. Deleum Berhad
continued to strengthen with its total assets standing at RM670.1 million, from RM500.4
million, an increase of 33.9% and the shareholders’ fund expanded by 13.6% from
RM241.9 million in year 2013 to RM274.8 million in year 2014. Expanded shareholder’s
fund indirectly causes the dividend payout to remain same for the year 2013 and 2014
which is 51%. VSTECS recorded an impressive growth of 20.0% from RM1.3 billion
previously to RM1.6 billion. The company shows 9.5% growth in net profit from RM
26.9 million previously to RM29.4 million in the year 2014. This net cash position allows
the company to undertake any business expansion plans. Busineess expansion causes the
dividend payout to differ a bit with slight drop in the dividend payout, which is from
36.8% in the year 2013 to 36.7% in the year 2014.

22
 BBGO4103

Deleum company posted a profit after tax and non-controlling interest of RM45.4
million, which was 23.5% lower than the year 2014, which is RM59.3 million. This
indirectly causes the dividend payout to drop from 51% in the year 2014 to 48% in the
year 2015. The remarkable achievement was propelled by strong growth within VSTECS
Distribution segment, where sales expanded by 28.5% from RM1.1 billion in year 2014
to RM1.4 billion in year 2015, this is due to higher demand for PCs, notebooks and
mobility products, namely tablets and smartphones. The company’s healthy turnover
growth and lean operating structure resulted in net profit increasing 10.4% from RM29.4
million in year 2014 to RM32.5 million in year 2015. As for exposures to foreign
exchange, the Group continued its strategy of hedging forward our USD-denominated
purchases as protection against currency fluctuations. This policy effectively shielded the
Group from major bottomline impact in year 2015. This indirectly causes the dividend
payout to increase drastically from 36.7% in the year 2014 to 60.9% in the year 2015.

Deleum company posted a profit after tax and non-controlling interest of RM26.5
million, 41.6% lower than the previous year, which is RM45.4 million. This decrease was
attributed to a contraction in contributions from the Power and Machinery segment and
lower associates’ results. It was, however, cushioned by stronger performances from both
the Oilfield Services and Integrated Corrosion Solution segments. This indirectly causes
the dividend payout to increase from 48% in the year 2015 to 53% in the year 2016.
VSTECS registered total revenue of RM1,823.4 million for the year 2016, 4.2% decline
from a revenue of RM1,903.3 million recorded in the year 2015 because of lower
contributions from all three business segments. The lower revenue for year 2016 was
mainly due to a slowdown in ICT spending and the exceptional high sales during the first
half of year 2015 boosted by the implementation of Goods and Services Tax. Our net
profit for year 2016 was reduced by 7.2% to RM30.1 million from RM32.5 million in
year 2015. This indirectly causes the dividend payout to drop from 60.9% in the year
2015 to 35.8% in the year 2016.

Deleum generated profit after tax and non-controlling interest of RM32.3 million,
which is 21.9% higher than previous year, RM26.5 million. Our borrowings had reduced

23
 BBGO4103

by 30.7% to RM76.0 million from RM109.6 million previously as a result of scheduled

repayments made during the financial year. Scheduled repayments made during the
financial year indirectly causes the dividend payout to remain same for the year 2016 and
2017 which is 53%. VSTECS registered a total revenue of RM1,855.0 million for the
year 2017, increase by 1.7% from the previous year which is RM1,823.4 million, mainly
from higher sales in the ICT Distribution segment. Accordingly, our net profit for year
2017 was reduced by 12.9% to RM26.3 million from RM30.1 million in year 2016. The
Group invested RM12.2 million in a joint venture that owns the office building and
warehouse. There is no significant change in performance, financial position and liquidity
for FY2017 as compared with the previous financial year. The investment made
indirectly causes the dividend payout to drop from 35.8% in the year 2016 to 34.3% in
the year 2017.

Deleum Berhad and VSTECS has paid their dividend for 5 years continuasly,

from the year 2013 to 2017. Both the company have paid their dividend after taking into

consideration the financial performance of the company. Both the company uses Passive

Residual Theory in paying their dividend payout to their shareholder’s. If the company is

in profit than the dividend payout is higher, whereas if the company is undergoing loss

than the dividend payout to shareholder’s is lower. Anyway, both this company able to

pay their companys shareholders dividend eventhough there is up and downs in the

dividend percentage. Not like certain company that is not paying dividend to their

shareholders when their company is under loss.

2942 words

24
 BBGO4103

REFERENCES

1) Dr Huson Juhor Aliahmed (April 2014 ). Dividend Policy In Open University

Malaysia (OUM), April 2014, BBPW3203 Financial Management II (Second

Edition)

2)  https://www.deleum.com/

3) https://vstecs.com.my/

4) https://www.investopedia.com/terms/d/dividendpayoutratio.asp

5) https://www.investopedia.com/ask/answers/012015/how-do-i-calculate-dividend-

payout-ratio-income-statement.asp

6) http://www.accountingnotes.net/financial-management/dividends/top-3-theories-

of-dividend-policy/7387

7) https://godfreychege.blogspot.com/2014/01/dividend-theories-and-dividend-

policies.html

8) https://www.investopedia.com/terms/f/financialperformance.asp

9) https://www.simplilearn.com/financial-performance-rar21-article

25