MarineCorp

CASE 2 living by numbersValue creation or profit?

Abdul Kudus Abdul Muthalib 0930395Nurfazlina Mohd Jaffar 1029088Yazlin Mohamed Yusof 0920890

Synopsis

MarineCorp(1992) -maritime solutions provider for Suria group of companiesWholly-owned subsidiary by SuriaTwo subsidiaries ( Green Port Sdn Bhd & Sungai Emas Sdn Bhd)Regulate and enforce conformance to its policy on maritime activitiesVessel inspection and vetting was the major businessProvide marine consulting services to Suria and its related contractorsEstablished strategic alliances with Marine Dept, Ministry of Transport

SubsidiariesGreenport and Sungai EmasMajor activities include pilotage & marine support, emergency response, port management & operations, navigational safety and marine servicesGreenports tangible assets financed through Surias funds no fixed repayment termsMarineCorp and Sungai Emas accumulate cash balances from net cash inflowSungai Emas operated the port facilities owned by Surias associated companies involving crude oil processingMain IssuesISSUE 1: Adopting VBMConflict between President of Suria and Hafiz Performance of company linked to performance evaluation and appraisal of employeesValue of a company measured by economic earnings = profit earned in excess of investors expected return Positive economic earning value created Negative economic earning value destroyedMarineCorp 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 port- crucial 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 holdersprofits 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 performanceSuggestions on how to improve organization performancePressure from GMs of Green Port and MarineCorp

Ranking of companies based on financial performance ( net PAT ) Economic Earnings

NOPAT (WACC x Avg Invested Capital)

GreenPort Sungai EmasMarineCorpEconomicearnings-14,588,2325,030,56314,274,611Ranking of companies based on financial performance ( using EE ) THANK YOU