FINANCIAL MANAGEMENT II BBPW 3203

FACULTY OF BUSINESS & MANAGEMENT

SEMESTER MAY / 2015

BBPW 3203
FINANCIAL MANAGEMENT II

MATRICULATION NO:

820822065772001

IDENTITY CARD NO.

820822-06-5772

MOBILE PHONE NO.

016-338 2477

E-MAIL

junegsj2000@yahoo.co.uk

LEARNING CENTRE

SHAH ALAM LEARNING CENTER

FINANCIAL MANAGEMENT II BBPW 3203

Table of Contents
1

Introduction.............................................................................................................2

Companies Financing Sources...............................................................................3

Comparison of the Companies Financing Sources................................................6

Summary.................................................................................................................6

FINANCIAL MANAGEMENT II BBPW 3203

1 Introduction
(i)
TH Plantations Berhad
TH Plantations Berhad (THP) was established in Malaysia as a private limited
company on 28th August 1972. On 26th May 2005, it was converted into a public
limited company and assumed its present name of TH Plantations Berhad. THP was
listed on the main market of Bursa Malaysia Securities Berhad on 27th April 2006.
The core activities of THP are investment holding, cultivation of oil palm, processing
of fresh fruit bunches (FFB), marketing of crude palm oil (CPO), palm kernel (PK)
and FFB and provision of management services. THP commenced operations in 1972
with the first plantation, Ladang Kota Bahagia in Pahang. Over the years, THP
gradually expanded its land bank and to date, THPs land bank stands close to 110,000
hectares.
THP currently operates 36 oil palm estates in its stable spread throughout Malaysia as
well as 3 rubber plantations in Sabah. THP also currently operates 7 palm oil mills
with a total milling capacity of 250 metric tonnes per hour.
(ii)
Chin Teck Plantations Berhad
Chin Teck Plantations Berhad (Chin Teck) was incorporated as a limited company in
Malaysia on 14 August 1958 under the name of Chin Teck Plantations Limited. On 1st
October 1968, it was converted to a public limited company and assumed its present
name. Chin Teck was listed on the Main Market of Bursa Malaysia Securities Berhad
on 10 March 1970.
The core businesses of Chin Teck are cultivation of oil palms, process and sale of
fresh fruit bunches, crude palm oil and palm kernel and is predominantly carried out
in Malaysia.
The estates of Chin Teck in Malaysia are located at Mukim of Jimah, Daerah of Port
Dickson, Negeri Sembilan Darul Khusus, Mukim of Ketil, Daerah of Gua Musang,
Kelantan Darul Naim and Mukim of Keratong, Daerah Rompin, Pahang Darul
Makmur. Chin Teck also participates in joint ventures on oil palm plantations in
Indonesia. Besides that, Chin Teck also participates in joint venture on property
development.

FINANCIAL MANAGEMENT II BBPW 3203

Companies Financing Sources

One of the most important issues facing all businesses, whether a business in the startup phase or well-established, is the obtaining of appropriate levels of financing.
Whether it is needed for investing in land, buildings or equipment, hiring new
employees, investing in inventory or moving into new markets, obtaining sufficient
financing to accomplish these goals is a dilemma nearly all business owners face.
Also when a business expands, keeping the cash flow healthy can be challenging, as
financial pressures can be constant. There are few options of financing sources can be
used by a company to provide financial relief for various business needs there are
short, intermediate or long term financing.

Short-term financing: Short term financing is business financing that usually

obtain for a term of one year or less. It can be divided into four main categories,
which are accruals, accounts payable, bank loans and commercial papers. Other
sources of short-term financing are such as factoring, accounts receivable,
inventory and bank overdraft.

Intermediate-term financing: Intermediate term financing referred to borrowings

with repayment schedules of between one and ten years with interest, usually by
regular periodic payments is called term loan.

Long-term financing: Long-term financing generally refers to financing with a

maturity of more than five years. Long-term financing is often used to finance
long-lives assets, such land or equipment, or construction projects. Long-term
financing includes mortgage loans, bond and other.

(i)

TH Plantations Berhad

To identify the finance sources of TH Plantations, the financial report of year 2013 of
TH Plantations was studied. From the equity of Balance Sheet there comprises of
capital reserve and retained earnings.
Capital reserve is a resource created by the accumulated capital surplus of TH
Plantations. It was reserved for long-term capital investment projects or any other
large and anticipated expenses that will be incurred in the future. This reserve fund
was set aside to ensure that the TH Plantations has adequate funding to at least
partially finance the project excluding any unforeseen circumstances. Few capital

FINANCIAL MANAGEMENT II BBPW 3203

reserves were found in the balance sheet of TH Plantation, there are share capital,
share premium and others reserves.
Meanwhile, retained earnings was the sum of the TH Plantations profits that are not
distributed to shareholders as dividends but are either reinvested in its core business
or kept as a reserve for specific objectives such as to pay off a debt or purchase a
capital asset. The figure shown under the heading retained earnings of the balance
sheet is the sum of the all profits retained since TH Plantations inception.
TH Plantations use share option reserve as capital reserve method. The share option
reserve comprises the cumulative value of employee services received for the issue of
share options. When the option is exercised, the amount from the share option reserve
is transferred to share premium. When the share option expire, the amount from the
share option reserve is transferred to retained earnings. Other reserves are the reserves
relates to fair value adjustment on initial recognition of financial instruments and
adjustment to the premium of share issued for the acquisition of subsidiaries.
Next, we also can find the financing sources of TH Plantation from its Liabilities
which was also recorded under its Balance Sheet. Under non-current liabilities, there
are loans and borrowings, deferred tax liabilities and trade and other payables.
Meanwhile, under current liabilities there are loans and borrowings, trade and other
payables, current tax payables and liabilities classified as held for sale.
Loans and borrowings are borrowings that TH Plantation obtains from bank as a
source of financing in exchange for future repayment of the principal amount along
with interest. Two secured loan were taken by the subsidiaries of TH Plantations
Group are secured over property plant and equipment (leasehold land). A secure loan
is a promise to pay a debt, where the promise is secured by granting the creditor an
interest in specific property belongings to the debtor. In the case the debtor defaults on
the loan, the creditor can recover the money by seizing and liquidating the specific
property used as collateral on the debt. Besides that, TH Plantations also obtained two
medium term unsecured loan with Lembaga Tabung Haji in nominal value up to
RM1.0 billion. This type of loan is a promise to pay a debt by replying on the
creditworthiness and reputation of the borrower to repay the obligation.
On the other hand, there was an amount of deferred tax liabilities recorded. Deferred
tax liability is a kind of debt that has been accumulated over a period of time, but has
not been paid yet due to the deductible temporary differences do not expire under
current tax legislation. This deferred tax have not been recognized in respect of these
4

FINANCIAL MANAGEMENT II BBPW 3203

items because it is not probable that future taxable profit will be available against
which TH Plantations can utilize the benefits there from for certain companies as at
31st December 2013.
In addition, there also an amount recorded under trade and other payables. Accounts
payable is a form of finance generated from credit purchases and represents a major
sources of unsecured short-term financing. This amount shown in TH Plantations
Balance Sheet are the amount due to related companies is unsecured, no profit margin
applied and stated at amortised cost. This amount is not expected to be repaid in the
next twelve months.
(ii)

Chin Teck Plantations Berhad

Same as TH Plantations, the equity of Chin Teck Plantations consist of share capital,
share premium, other reserves and retained profits. Share capital is a type of capital
reserves. It funds raised by issuing shares in return for cash other considerations.
Share capital is a long-term source of finance. The amount of share capital a company
has can change over time because each time a business sells new shares to the public
in exchange for cash, the amount of share capital will increase.
Meanwhile, share premium is the amount received by a company over and above the
face value of its shares. Share premium is a non-distributable reserve. Chin Teck
Plantations can use it only for the purposes that are defined in the bylaws of the
company. Share premium can usually be used for paying equity related expenses such
as underwriters fees. It can also be used to issue bonus shares to the shareholders.
The cost and expenses relating to issuance of new shares can also be paid from the
share premium. Other reserves comprises of asset revaluation reserve, foreign
currency translation reserve and fair value adjustment reserve.
Same as TH Plantation, Chin Teck Plantations reported an amount of trade payables
and income tax payables under its current liabilities. It can served as a source of shortterm financing as these monies will only be paid within 30 to 90 days terms. Chin
Teck Plantations can utilise this trade payables amount to improve companys cash
position. In additions, we also can find the deferred tax liabilities in Chin Teck
Plantations balance sheet. As explained before, thia deferral arises because of timing
differences between the accrual of the tax and payment of the tax. With these monies,
Chin Teck Plantations use it as short-term fund for its daily operations.

FINANCIAL MANAGEMENT II BBPW 3203

Comparison of the Companies Financing Sources

From the balance sheet, we can found that the amount of share capital of TH
Plantations in year 2013 is higher than year 2012, which difference about
RM76,073,000. The increase of share capital of TH Plantations may be due to selling
of new shares to public is more higher in year 2013 in exchnage of cash. Meanwhile,
for Chin Teck Plantation, the share capital are same for year 2013 and year 2012,
which was reported an amount of RM91,363,00. If compared between these two
companies, the share capital of TH Plantations in year 2013 is obviously higher about
RM348,893,000 than Chin Teck Plantations.
However, the share premium of TH Plantations has decreased by 13.76% from
RM484,206,00 in year 2012 to RM417, 559,000 in year 2013. This decreasing in
share premium was due to the TH Plantations used these monies to pay bonus shares
to its members. The objectives of the bonus issue are predominantly to reward the
shareholders for their continued support and also to enhance the marketability and
trading liquidity of TH Plantations. Meanwhile, the share premium of Chin Teck
Plantations was reported the same amount in year 2012 and year 2013, which was
RM19, 654,000. However, if compared between these two compaines, a huge
difference amount was reported in year 2012, which about 146% or RM464, 552,000.
If compared with other reserve, TH Plantations has recorded a negative amount of
RM82,557,000 in year 2013 while Chin Teck Plantations recorded an amount of
RM11,467,000 in year 2013. The negative amount recorded in other reverse account
of TH Plantation was due to adjustment on initial recognision of financial instruments
and adjustment to the premium of share issued for the acquisition of subsidiaries. The
retained profits of Chin Teck Plantations in year 2013 was recorded higher by 21.3%
as compared with TH Plantations. Chin Teck Plantations distribute cash divident
payments amounting to RM99,060,804 to its ordinary shareholders out of its entire
retained profits. The remaining amount of the retained profits of RM349, 767, 055
may be distributed under its tax exampt income of RM11, 914,500 and under the
single tier system of RM337,852,555.
From the libiliaties record, we can see the payables amount of TH Plantations in year
2013 and year 2012 are very much higher than Chin Teck Plantations. The payables
amount of TH Plantations has increased from RM470, 562,000 in year 2012 to
RM997,513,000 as compared to year 2013. Meanwhile, the payable amounts of Chin
Teck Plantations has also reported an increase of 17.26% if compared from year 2012
6

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to year 2013. The payables amounts shown in TH Plantationss balance sheet could be
due to the company invest larger sums of cash into its business as compared to Chin
Teck Plantations. On the others hand, TH Plantations also recorded a very big amount
of deferred tax liabilities in year 2013 if compared with Chin Teck Plantations. Where
TH Plantations reported an amount of RM293,657,000 higher than Chin Teck
Plantations. This amount was mainly due to the deferred tax that have not been
recognised in respect of these items because it is not probable that future taxable
profit will be available against which the TH Plantations can utilise the benefits there
from for certain companies as at 31 December 2013. Same as to income tax payable,
TH Plantations also recorded higher amount by 167% as compared to Chin Teck
Plantations in year 2013. Which mean the amount of tax that need to be paid to
government by TH Plantations is higher than Chin Teck Plantations. We can also
conclude that TH Plantationss income is much higher than Chin Teck Plantations as
the taxes are calculated based the companys net income according to its corporate tax
rate.
4

Summary

To identify the finance source of TH Plantations and Chin Teck Plantations, the
financial report of year 2013 were studied. A few financial sources were identified
from both companiess balance sheet. Examples are capital reserve, retained earnings,
loans and borrownings, accounts paybles, deferred tax liabilities and income tax
payables. As compared between these two companies, TH Plantations having more
and stronger finance source than Chin Teck Plantations.

Total of Words: 2,280