An Overview of Bata Shoe, Bangladesh
The Bata Shoe Organization was founded
in 1894 by Czech businessman Tomas Bata in the city of Zlin, what was then
Czechoslovakia. Coming from a family of shoemakers with a long heritage of
eight generations and over three hundred years, Tomas Bata capitalized on
knowledge, expertise and skills to propel his newly founded company forward.
The introduction of factory automation, long distance retailing and modernized
shoe making ensured the profitability of the company from the very beginning.
It is now the world’s largest manufacturer and marketer of footwear operating
across the globe.
Today the Bata Shoe Organization is a
sprawling geo-centric company encompassing operations in more than 70 countries
around the world and is managed by 3 Meaningful Business Units (MBU) across
five continents. It serves over 1 million customers per day, employs more than
50,000 people, operates more than 5,000 retail outlets, manages retail presence
in over 70 countries and runs 27 production facilities across 20 countries.
In Bangladesh, Bata started its
operation in 1962. The company is one of the largest tax–paying corporate
bodies contributing Tk. 1.2 billion (year 2009) which represents approximately
70% of tax paid by the entire footwear sector of Bangladesh. Currently Bata
Shoe Company (Bangladesh) Limited operates two manufacturing facilities– one in
Tongi and the other in Dhamrai. With a production capacity of 110,000 pairs of
shoes daily, the company also has a modern tannery facility with an output of 5
million square feet of leather annually. Annual shoe sales currently stand at
slightly more than 30 million pairs with a turnover for the year 2009 of Tk 5
billion.
Bata is playing a pivotal role in
developing the leather industry of the country. Bata has a firm commitment to
eco-friendly business and a state of the art Effluent Treatment Plant (ETP) has
been set up to provide a pollution free environment for both workers and the
locality.
Fashion would never be complete without
a well-designed pair of shoes. This marketing insight has prompted Bata to
introduce a number of designers’ collections for men, women and children.
Internationally renowned brands such as Bata Comfit, Marie Claire, Hush
Puppies, Scholl, Nike, Bubblegummers, Sandak, Weinbrenner and B’first are a few
names that testify to the momentous change towards branded shoe marketing in
Bangladesh. Specialized shoe categories such as athletic shoes have been
targeted through development of the Power brand. Uncompromising quality with
striking designs have put Bata shoes in a key position to appeal to different
segments of consumers.
Another major change in the Bata
business policy is the segmentation of retail outlets according to profiles of
different market segments and the introduction of novel concepts such as Bata
City Stores. These selective outlets, in conjunction with other types of
outlets such as Bata Bazar and Bata Family Stores, are adding a new level of
consumer satisfaction. The City Stores incorporate spacious floor space
allowing a comfortable shopping experience, modern interior décor enriched with
novel shelving systems, fittings, fixtures and lighting that can be found in
the large retail shops in the Far Eastand Europe. Bata has a network of 242 retail
outlets located strategically in different parts of the country. These retail
outlets are an integral part of our brand marketing. This extensive retail
network is supplemented by an equally extensive network of depots and dealers.
Bata has 13 Wholesale depots covering Bangladesh. Under these depots 390 RWD
(Registered Wholesale Dealers) and 553 DSP (Dealer Support Program) stores are
operating. Bata Bangladesh has already developed its vision up to 2013 showing
significant business growth as well as increased market share.
One of the critical areas associated
with external shareholders and the community at large is the Corporate Social
Responsibility Program of the company. From supporting nationwide sports
sponsorships and disabled persons to addressing environmental concerns,
scholarship programs, charity contributions etc – Bata has always supported
individuals and communities in need. Partnerships with other voluntary and
charitable organizations are another prominent feature of Bata’s corporate social
responsibility.
Bata, in partnership with CARE, extends
assistance to over two thousand rural women in order to become independent
entrepreneurs in the Rajshahi, Comilla and Chittagong division selling shoes
from door to door under its Rural Sales Programme. Since its inception, Bata
Shoe Company (Bangladesh) Ltd. has strived towards one goal – customer
satisfaction. With the vision of building a worldwide family of satisfied
customers and dedicated workers the legacy of Tomas Bata continues strong and
unabated to this day – the tradition is safe.
Listing of Bata Bangladesh in Stock Exchange
Ø Dhaka Stock Exchange
Ø Chittagong Stock Exchange
Dividend Theories
Dividend Irrelevance Theory
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 earnings power and risk of its assets. Bata shoe Bangladesh does
not follow this theory.
Bird-in-the Hand theory
A theory developed
by Myron J. Gordon & Linter that tells Stockholders prefer current
dividend. It also tells that there is a direct link between Dividend Policy of
the firm and its market value. Fundamental to this proposition is that Bird-in
–the-Hand argument suggests that investors are risk averse & attach less
risk to current as opposite to future dividends or capital gains.
We can determine
which Dividend Policy is being followed by Bata Shoe after analyzing some of
its financial data for the last 5 years.
|
Year
|
% Dividend
|
Stock Price in DSE (TK)
|
|
|
2006
|
235.00
|
121.4
|
277,022,059
|
|
2007
|
250.00
|
223.6
|
324,849,273
|
|
2008
|
220.00
|
320.70
|
449,415,702
|
|
2009
|
220.00
|
528.30
|
449,406,445
|
|
2010
|
250.00
|
645
|
543,970,530
|
Table 1: Dividend %, Stock Price and net Income of Bata Shoe
According to available data of Bata Shoe BD from 2006 to 2010, it is
clear that Bata Shoe is following Bird-in -The Hand Theory which is
developed by Myron J. Gordon & Linter. Myron J. Gordon & Linter said
that a company may declare higher dividend because of the following reason:
- Stockholders Prefer current dividend
- Direct link between Dividend Policy of the firm
and its market value
- Investors are risk averse & attach
less risk to current as opposite to future dividends or capital gains.
- Investors
believe that “a bird in the hand
is worth two in the bush”
- Cash Dividend reduce uncertainty – causing
earning at a lower rate
- Fail to provide conclusive evidence in support
of dividend relevance arguments
- Financial manager & stockholders believe
that dividends are relevant.
Bata
Shoe follows Bird-in -the Hand Theory: From last few years, Bata Shoe declared higher dividend and
retained less earnings in order to attract those risk averse investors who
prefer current dividend and think that declaration of higher dividend minimize
the uncertainty of the company therefore share price of its also increases up
to certain level of pay-out ratio that is the indication of Bird-in -the Hand theory.
Dividend Policies
Constant- Pay-out ratio
The dividend policy ratio indicates the
percentage of if each amount earned that is distributed to the owners in the
form of cash. It is calculated by Dividend payout ratio = Cash Dividend Per
Share / E.P.S. With a
constant-payout-ratio dividend policy, the firm established that a certain
percentage of earnings are paid to owners in each dividend period.
The problem with this policy is that if the firm’s earnings drop or if a
loss occurs in a given period, the dividends may be low or even nonexistent
which could adversely affect the firm’s share price.
Regular Dividend Policy
The regular dividend policy is based on the payments of a fixed amount
dividend in each period. This policy provides the owners with generally
positive information, thereby minimizing uncertainty. Often, firms that use
this policy increase the regular dividend once a proven increase in earnings
has occurred. Under this policy, dividends are never decreased.
Low-Regular-And- Extra Dividend Policy
Some firms establish a low-regular-and-extra dividend policy, paying a
low regular dividend supplemented by an additional dividend when earnings are
higher than normal in a given period. By calling the additional dividend an
extra dividend, the firm avoids giving shareholders false hopes. This policy is
especially common among companies that experience cyclical shifts in earnings.
Key Components of Discussion
Net Income
|
YEAR
|
|
GROWTH
(%)
|
|
2005
|
206,638,315
|
-----
|
|
2006
|
(277,022,059 - 206,638,315) / 206,638,315 * 100 = 34.06%
|
|
|
2007
|
324,849,273
|
(324,849,273 - 277,022,059) / 277,022,059 * 100 = 17.26%
|
|
2008
|
449,415,702
|
(449,415,702 - 324,849,273) / 324,849,273 * 100 =38.35%
|
|
2009
|
449,406,445
|
(449,406,445 - 449,415,702)/449,415,702 * 100 = (0.00206)%
|
|
2010
|
543,970,530
|
(543,970,530-449,406,445)/ 449,406,445*100 = 21.04%
|
Table 2: NI and its
growth in the last 5 years
Interpretation:
Growth in net income is even more important than sales because net income
tells the investor how much money is left over after all of the operating costs
are subtracted from sales. From the above table, we can see that Bata Shoe
Bangladesh has earned profit in the years 2006, 2007, 2008 and 2010. But in the
year 2009 it had a negative growth rate of (0.00206) % in profit. In 2009, the
growth of Bata shoe was significantly affected because of global economic
recession. Therefore, consumers concentrated more on essential consumable items
instead of footwear. Moreover, electricity shortage throughout the country has
interrupted production. This is why growth was negative.
Figure 01: Growth in last 5 years
Earnings per Share
An Earnings per
Share (EPS) is the amount of money earned by a company expressed in per share.
Following table provides the information of EPS of Bata Shoe in different
years. It shows that from 2005 to 2008, EPS is increasing but the rate of
increasing is not same. It is fluctuating in this time period. EPS in 2008 and
2009 is same. So the, growth rate for 2010 is 21%.
|
YEAR
|
EPS
|
GROWTH (%)
|
|
2006
|
20.25
|
20.25
- 15.11 / 15.11 * 100 = 34%
|
|
2007
|
23.75
|
23.75
- 20.25 / 20.25 * 100 = 17%
|
|
2008
|
32.85
|
32.85
- 23.75 / 23.75 * 100 = 38%
|
|
2009
|
32.85
|
32.85
- 32.85 / 32.85 * 100 = 0%
|
|
2010
|
39.76
|
39.76-
32.85 / 32.85 * 100 = 21%
|
Table 3: EPS and its
growth in the last 5 years
Interpretation:
From the above chart, we can see that
the Earning per share is increasing each year, which is good for both the firm
and for the shareholders.
Figure 2: EPS for the last 5 years
Information Regarding Dividend, Bata Bangladesh
a.
Dividend Payout Ratio
Dividend payout ratio =
Cash Dividend per Share / E.P.S.
Dividend payout ratio says the % of EPS that is paid
as dividend. It helps us to determine whether it is following dividend
relevance theory or dividend irrelevance theory.
|
YEAR
(1)
|
|
EPS
(3)
|
DIVIDEND
PAY OUT RATIO (4)= (2)/(3)
|
|
2006
|
23.50
|
20.75
|
113.25%
|
|
2007
|
25.00
|
23.75
|
106.26%
|
|
2008
|
22.00
|
32.85
|
66.97%
|
|
2009
|
22.00
|
32.85
|
66.97%
|
|
2010
|
22.00
|
39.76
|
55.33%
|
Table 4: Dividend
Payout ratio for last 5 years
Interpretation:
From the above
table, we can see that the dividend payout ratio is decreasing each year. This
is due to the increase in Cash Dividend is not as much as the increase in EPS.
This indicates that Bata Shoe is trying to retain its earning for future
expansion needs.
b.
Dividend payout &
Retention ratio
|
YEAR
|
Dividend
payout ratio
|
Retention
ration (1-payout ratio)
|
|
2006
|
113.25%
|
0%
|
|
2007
|
106.26%
|
0%
|
|
2008
|
66.97%
|
33.03%
|
|
2009
|
66.97%
|
33.03%
|
|
2010
|
55.33%
|
44.67%
|
Table 5: Dividend Payout and retention
ratio for last 5 years
Interpretation:
In 2006 & 2007 retention ratio was 0
(zero), but Bata shoe company retained 33.03 % of their earning in 2008 &
2009 consecutively. However, they raised the portion of their retained earnings
in 2010 and that was 44.67%, which shows us they are now following dividend irrelevance
theory for their future growth.
c.
Stock Dividend
After analyzing
% Dividend of the last 5 years, we found out that Bata Shoe had not declared
any Stock Dividend to its shareholders. A stock dividend is paid when a company
needs to preserve funds to finance rapid growth. Since, Bata is an established firm;
it has numerous sources for funding. So, it does not required to use Stock
Dividend instead of Cash dividend. This could send a positive signal to
investors thinking that Bata has enough financing power for future growth,
which we can see by observing the increase in its share price for the last 5
years.
|
Year
|
%
Dividend
|
Stock
Price in DSE (TK)
|
|
2006
|
235.00
|
121.4
|
|
2007
|
250.00
|
223.6
|
|
2008
|
220.00
|
320.70
|
|
2009
|
220.00
|
528.30
|
|
2010
|
250.00
|
648.00
|
Table 6: Percentage of Dividend Payments
Interpretation:
From the above
table, we could see that the rates at which Bata Shoe is offering Cash Dividend
to its shareholders is quite attractive. This activity can be attributed to the
cause that Bata Shoe is trying to attract more investors to invest in Bata
Shoe. For this reason, they are trying to give a positive signal to the stock
market through high percentage of dividend payments. We can say that Bata has
been able to attract more investors just by looking at its yearly increase in
stock price.
d. Relation between Dividend Rate and Market Price of Stock
The Chart given
below depicts that market price was low when rate of dividend was lower in
2006. Then the increasing rates of dividend results gradually increase of
market price. Highest the market price growth rate occur from 2007 to 2010. At
this time it has reduced payout ratio substantially. Here we can comment
according to dividend irrelevance theory as it says dividend should be paid
whatever is left after meeting all available investment decision. In last two
years firm follow dividend irrelevance theory and was able to increase
shareholders value.
Figure 3: Relationship between Dividend
and Share Price
Interpretation:
We can see from the above line graph
that the price of Bata Shoe stock is increasing each year as the % of dividend
payments is quite stable.
e.
A comparison of year
end P/E ratio for 5 years
|
Year
|
Year End P/E
|
% Dividend
|
% Dividend Yield
|
|
2005
|
8.22
|
120.00
|
8.06
|
|
2006
|
6.00
|
235.00
|
19.36
|
|
2007
|
9.42
|
250.00
|
11.18
|
|
2008
|
9.76
|
220.00
|
6.86
|
|
2009
|
16.08
|
220.00
|
4.16
|
|
2010
|
16.46
|
250.00
|
3.83
|
Table 7: P/E ratio for 5 years
Interpretation:
It is seen that year end P/E ratio
has been increasing in 5 years which is a good sign for the future growth and
prospect of the company, which will encourage the investors for investing in
the company.
Findings
The findings of the study are as follows….
During
2008 to 2010 Bata Shoe Company paid on an average 63.09% of their net income as
dividend where in 2006 & 2007 those were
113.25% and 106% respectively. That is more than their net income. In that year
firm finance this extra dividend amount from their retained earnings.
According to our theory we can assume that
for reducing dividend payout ratio the stock price of Bata Shoe Company may
fall. But the management team was able to convince the stockholder
that they cut their payout for
increasing growth and running recession. For this
reason their stock price goes up.
Clientele
effect means the tendency of a firm to attract a set of investors who like its dividend policy .If the large number of
investors of the particular company prefer high dividend then company
must pay more dividends to the investors. On the
other hand, if large number of investors of the particular company do not prefer
high amount of dividend then company must retain most of their earnings inside
the organization. In case of Bata Shoe
Company most of the investors prefer more dividends because the company
has small number of wealthy investors.
The company believes that the investors are irrational and they like
bird-in the-hand theory but after a certain payout it started to follow dividend irrelevance theory.
In last five
years they did not pay any stock dividend.
The analysis
shows that dividend was not stable over time.
In the year 2008
and 2009 the firm used the residual dividend model to set payout ratio at a
level that will permit the firm to meet its Financing requirements with
retained earnings.
It is not
following any particular dividend policy. As it is paying varying amount of
increasing dividend rate.
Recommendation
Bata should
continue to follow dividend irrelevance theory for their future growth.
They should
follow any particular dividend policy so that investors can assume their
expected return on the basis of their preference (Short term or Long term).
Bata Shoe is currently trading at
12.5 P/E. With a BDT 542.57 million in 2010 earnings and BDT 96.57 2010 Net
Asset Value per Share, Current price of share is BDT 526.4. So it can easily be
said that the dividend policy adopted by Bata Bangladesh is effective enough.
They usually pay cash dividend instead of stock dividend which satisfy its
investors who want instant income or gain.
Appendix
- http://www.batabd.com/
- http://www.dsebd.org/displayCompany.php?name=BATASHOE
- Ahsan, A 2008, ‘Security price
relation to dividend announcement: evidence from Dhaka stock exchange
Ltd.’ viewed 18 July 2011,
- http://www.bdresearch.org/home.
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