CASE 2

living by numbers Value creation or profit?

Abdul

Kudus Abdul Muthalib 0930395 Nurfazlina Mohd Jaffar 1029088 Yazlin Mohamed Yusof

Synopsis
MarineCorp(1992) -maritime solutions provider for Suria group of companies Wholly-owned subsidiary by Suria Two subsidiaries ( Green Port Sdn Bhd & Sungai Emas Sdn Bhd) Regulate and enforce conformance to its policy on maritime activities Vessel inspection and vetting was the major business Provide marine consulting services to Suria and its related contractors Established strategic alliances with Marine Dept, Ministry of Transport

Subsidiaries
Greenport and Sungai Emas Major activities include pilotage & marine support, emergency response, port management & operations, navigational safety and marine services Greenports tangible assets financed through Surias funds no fixed repayment terms MarineCorp and Sungai Emas accumulate cash balances from net cash inflow Sungai Emas operated the port facilities owned by Surias associated companies involving crude oil processing

Main Issues
ISSUE 1: Adopting VBM
Conflict between President of Suria and Hafiz Performance of company linked to performance evaluation and appraisal of employees Value of a company measured by economic earnings = profit earned in excess of investors expected return Positive economic earning value created Negative economic earning value destroyed MarineCorp and its subsidiaries registered net profit after tax but somehow the companys actually destroying value based on EE

ISSUE 2 : Pressure from GM of GreenPort on dredging maintenance cost

major expenditure (25m) - dredging of navigation channel for vessels to enter into and exit from portcrucial since vessels were prevented from entering port It has been estimated maintenance dredging required once every 3 5 years interval Anita (GM) proposes to amortize the dredging cost as it is significant, thus improving the profit of the company and achieve the KPI of employees Hafiz opposed saying it should be expensed in the financial year incurred

ISSUE 3: Pressure from GM of MarineCorp on dividend payments

Hafiz recommended on paying dividends to shareholders of MarineCorp cash position will continue to gain strength from future net cash inflows Lee Chong Way (GM) opposed Hafizs recommendation The cash resources of MarineCorp and Sungai Emas would be used to generating interest income on fund investment

Lee Chong Way would prefer to focus on improving the profit since market analysis worldwide look for profits in their evaluation and ranking of companies

Protagonist -> Hafiz Hashim ( CFO) of MarineCorp

companys financial performance was linked to the investment made by its equity and debt holders profits would be compared with investments expected return based on company COC @ 10%

DILLEMA whether to use economic earnings as required by group OR profits as practiced by MarineCorp? Ranking of the three companies in terms of financial performance Suggestions on how to improve organization performance Pressure from GMs of Green Port and MarineCorp

Ranking of companies based on financial performance ( net PAT )

Greenport

MarineCorp

Sungai Emas

Economic Earnings

NOPAT (WACC x Avg Invested Capital)

GreenPort Sungai Emas
5,030,563

MarineCorp

Economic earnings

-14,588,232

14,274,611

Ranking of companies based on financial performance ( using EE )

MarineCorp

Sungai Emas

Greenport

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