Working Capital Management

Of Heidelberg Cement Bangladesh Limited

(HCBL).

Farshid Chowdhury
073-114-030
School of Business
North South University

1
Table of Contents

Serial Topic Page

1 Executive Summary 2
2 Company Overview 3
2.1 Corporate Mission 3
2.2 Brief History 4
2.3 Products & Innovation 4
2.4 Characteristics of ScanCement / RubyCement: 5
3 Daily Cash Inflow and Cash Outflow 5
4 Changes in Short Term Loan Account 6
5 Seasonality impact in Cash Inflow and Cash Outflow 6
6 Geographical Spread and Customers 7
7 Collection Procedure 8
8 Cash Disbursement Procedure 9

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9 Credit Policy 10
10 Working Capital Needs 10
11 Collection Method 11
12 Electronic Method For Managing 12
12.1 Advantages of ERP 13
12.2 Disadvantages of ERP 14
12.3 ERP inventory management 15
13 Cash Flow Timeline 17
14 Financial Analysis 18
15 Problems and Recommendation 21
16 Other Recommendations 23
17 Secrecy of Price Sensitive 24
Information

18 Why not recommend about high inventory 24

19 Conclusion 25
20 Reference 26

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Executive Summary:
In this report we have presented the overall working capital management of Heidelberg
Cement Bangladesh Limited (HCBL). We have gather maximum information from the
annual reports and by taking interview of Board of Director, M. Abul Hashem;
Company Secretary. In this report we have tried to match the terms and conditions that
we learned in FIN340 with HCBL’s working capital management. We have done
financial analysis and gave recommendation.

4
Company Overview:
Heidelberg Cement Bangladesh is one the largest producers of quality cement in
Bangladesh. Heidelberg Cement Group from Germany, one of the world’s leaders in
construction and building material with operations in more than 50 countries, owns 61%
shares of the company. In 1998 Heidelberg Cement Group established its presence in
Bangladesh by setting up a floating terminal with on board bagging facilities in the port
of Chittagong and by distributing the cement to the key markets of Dhaka and
Chittagong. In 1999 the group further strengthened its position in Bangladesh and built a
greenfield manufacturing plant near Dhaka namely “Scancement International Limited”
with an installed capacity of 0.750 million tons per year. In 2000 Heidelberg Cement
group also bought a minority position in Chittagong based company namely “Chittagong
Cement Clinker Griding Co. Limited (CCCGCL)” quickly followed by the acquisition of
a in controlling stake. The plant in Chittagong has an installed capacity of 0.7 million ton
per year. In 2003, the two companies were amalgamated and the company’s name was
changed to Heidelberg Cement Bangladesh Limited.

Corporate Mission:
The Corporate Image
Business Culture
Employee Policy
Market Strategy
Customer Philosophy
Quality Standard
Commitment to Innovation :
success
: Building worldwide growth by building a better world.
: Building on local responsibility for international success
: Building our business on the knowledge of our people
: Building our growth on a solid base of earnings
: Building customer satisfaction
: Building on quality products to build reputation
Building on new technologies determines our future

Brief History
Heidelberg Cement Bangladesh Limited meets 13% of the Bangladesh demand for
cement from two plants located at Dhaka & Chittagong. Heidelberg Cement Bangladesh
Limited employs 260 people across the country. The company with 1.5 million tones
annual cement production has become a major force in the Bangladesh Cement industry

5
over the last eight years. In Bangladesh, Heidelberg group is one of the largest foreign
investors having an investment of 100 million US$ with more than 260 employees
working round the clock to materialize the mission of this great global company. By
satisfying the needs and aspirations of its customers, employees, shareholders and the
wider community, the company is able to maintain its position of strength as a
sustainable cement provider without compromising commitment to long term stability
and environmental responsibility. Heidelberg Cement Bangladesh Limited is a sister
concern of Heidelberg Cement Group.

Environmental Policy
Heidelberg Cement Bangladesh Limited Protection of the environment is an integral part
of Heidelberg Cement Group’s strategy. As natural resources are the basis of cement,
measures for sustainable environmental care are adopted in all our operations. In
Bangladesh, our policy is to produce high quality cement, optimize operations to save on
natural resources and prevent pollution in order to create a cleaner and safer environment.

Products & Innovation

Portland Composite Cement (PCC)
As part of its relentless pursuit for innovation and constant drive to improve quality,
HeidelbergCement has introduced Portland Composite Cement (PCC) during 2003.
Absorbing European Norms in cement producing made HeidelbergCement Bangladesh
Ltd. the pioneer in this sector. Now-a-days all the cement factories of Bangladesh are
producing cement as per European Norm. The category Portland Composite Cement
(CEM II) is the market leader in Europe.

Cement produced according to the BDS EN

ScanCement and RubyCement are designed to achieve the best characteristics for its
customers; this result is achieved by design using clinker and high quality other
constituents. PCC has the optimum of: Durability, Long-term strength and workability.
ScanCement and RubyCement are produced according to the European norms BDS EN
197-1:2003.

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Characteristics of ScanCement / RubyCement:
Higher Strength
ScanCement and RubyCement have higher long-term strength than a standard Portland
Cement (OPC). The slag part in the design contributes that the gap in long-term strength
with OPC is widening as time progresses.

Higher Durability
The design of ScanCement and RubyCement increases the density of concrete (lower
permeability). Smaller voids are the effect of the reaction between the clinker and the
slag. This density contributes to the durability and lifetime of the construction.

Better Workability
To improve the quality of plaster and masonry work Limestone is added to the design of
ScanCement and RubyCement. This improves strongly the workability of the concrete.
Plastering will look smoother, better and more beautiful. The concrete is easier to use.

Other Improvements
On top of the above-mentioned improvements ScanCement and RubyCement reduces
thermal cracking. Due to the slag in the design less heat is generated which reduces the
risk of thermal cracks. Furthermore our brands use less water to achieve the required
workability. This contributes to the strength and quality of the construction.

Daily Cash Inflow and Cash Outflow:

Here we have presented the daily cash inflow and outflow of HCBL.
2008 2007 2006
Cash received from customers 6,332,191,000 5,573,231,000 4,963,425,000
Cash received from other operating
income 84,205,000 49,963,000 14,630,000

Cash Inflow through out the year 6,416,396,000.00 5,623,194,000.00 4,978,055,000.00

Daily Cash Inflow 17,579,167.12 15,406,010.96 13,638,506.85

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 2008 2007 2006
Payment for financial expense (68,293,000) (55,096,000) (96,760,000)
Income tax paid (206,802,000) (96,947,000) (35,495,000)
Cash paid to suppliers (5,480,284,000) (3,835,873,000) (3,334,740,000)
Cash paid for operating expenses (628,326,000) (507,571,000) (501,761,000)

Cash outflow through out the year (6,383,702,992.00) (4,495,484,993.00) (3,968,753,994.00)

Daily Cash outflow (17,489,597.24) (12,316,397.24) (10,873,298.61)

Net Daily Cash Inflow 89,569.88 3,089,613.72 2,765,208.24

Cash inflows and outflows are not perfectly synchronized. Here we have net cash inflows
in 3 years; it shows that HCBL had sufficient money supply to finance its operation
efficiently.

Changes in Short Term Loan Account:

The HCBL don’t have any marketable securities account in balance sheet. In
2006 the company has a short term loan of 467884000 and in 2007 & 2008 the
company has short term loans of 654441000 & 829715000. From 2006 to 2007
there is an increase in Short term loan account of tk.186557000. And from 2007
to 2008 the short term loan has increase by Tk.175274000. Over the period the
short term loan has increased over the period. The loans were mainly taken from
their sister concern Meghna Energy Limited.

Seasonality impact in Cash Inflow and Cash Outflow:

Seasonality Variations in Cash flows from sales:
Highest sales: We have come to know from our interview that there is seasonality is
present in Heidelberg cement. Their peak in sales and variation in cash flow is
approximately quarterly basis. It has peak of the sales during January to March. In this
time they have to maintain large inventory. At these time their sales increase, as a result
gross profit and revenue increase and cash inflow also increases in this 1st quarter. They
have also good sales from October to April. Normal cash inflow comes during this time.
From May to September their sales usually decrease because of rainy season.

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Cash Outflow:
When sales increase marketing and transportation expenses increase. As a result, cash
outflow increases at this time. As raw materials are mainly imported from there inter
company trade that’s why they don’t have to pay immediately a huge money when they
import RM. They get a flexible credit term.

Geographical Spread and Customers:

Heidelberg Cement has divided their business in 6 divisions in Bangladesh. They have
two main branches in Dhaka and Chittagong. They have also sales agents in other four
divisions. But most of the sales generate from Dhaka and Chittagong divisions. Then
Sylhet and sales in other 3 divisions are approximately same. They do not have any
physical export of goods. If they sell goods to EPZ area and if they get paid in dollars,
this is termed as export. The over all market share of Heidelberg Cement is 13%. The
industry saturated. Still they have chance to gather more market share in the industry.
They are facing some restriction because they are multinational company.

They have 3 types of customers:

1. Dealers
2. Corporate customers (e.g. developers, contractors)
3. Government projects (e.g. Mohakhali Flyover, Lalon Shah Bridge, Karnafuli
Bridge, Banani Bridge)
Except these they have also very few retailers who are very close to them. But usually
they do not deal with retailers.

Collection Procedure:
Checks/pay order:
Most of the time, they receive payments through checks. They also receive payments by
pay order which is very limited. Generally, they do not allow any other ways of
payments. They don’t have any cash transaction.

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Collection Points , Concentration Banks, Deposit banks, Lock Box:
There are collection points. The customers pay through the local branches of Dhaka
Bank, Dutch Bangla Bank and Marcentile Bank. These banks work as collection points.
As these local banks have lots of branches in Bangladesh it helps a lot in collection
process. Through the online banking system the money from these local Banks are easily
accessible from the principal branch. Then Heidelberg cement collects money from these
banks and deposited in the Standard Charted Bank and Citi N.A bank. 95% of collected
money is deposited in Standard Charted Bank and rest of the 5% is deposited in City
N.A. bank are. Here Standard Charted Bank and Citi N.A. bank are used as concentration
banks. They transfer the money from the collection bank at the end of the month whether
the money is collected at 1st week of the month. Because they have ample money in hand
they are lazy to transfer the money at concentration banks. But they are very efficient in
collecting the money from customers in due date. Because of having no lockbox system
in Bangladesh, they do not use lockbox system.
As there group policy they have restriction on depositing money in local banks. The local
banks are usually responsible for collecting payments.

Cost:
In standard chartered and Citi N.A the service charge is little higher than the service
charge taken by other banks. Banks are responsible for disbursing payments, handling
LC, payment of salary etc. There is very low risk, because they follow some strict laws
like:
• They do not give dealership without bank guarantee.
• They follow conservative credit policy.
• They encourage cash sales.
On an average their credit term is of 18-20 days. In government projects their credit term
is usually flexible.

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Cash Disbursement Procedure:
Suppliers:
There are mainly two groups who receive money from the Heidelberg cement. One is the
Raw material suppliers and then another is the suppliers of different utilities.
The raw material suppliers are mainly the subsidiary of Heidelberg Group. Generally
they take raw materials from Indo Cement; Indonesia, Heidelberg Cement; India and
Heidelberg Cement; Japan.

Payment Methods, Disbursement Banks:

They are mainly importing raw materials. So they pay through LC. They do not have any
cash payments. They pay through Standard Charted Bank. The Standard Charted Bank
works as disbursement bank and processes all the formalities. Sometimes Citi N.A also
works as a disbursement bank.

Authorization:
They follow centralized Disbursement policy. All checks are signed in the Head quarter.
Payments are made through mainly finance department. If the payment is less than $6
million, it needs the joint signature of head of finance department and in group B consist
of three directors from them any one have to sign. But if payments exceed $6 million it
needs joint signature of finance department and Manager Director.

Float:
Although directly they do not take the help of floating, sometimes they try to write check
on Wednesday/Thursday. As a result, payments can not be transferred to suppliers Banks
before Sunday. In directly they are taking the advantage of inefficient banking system in
Bangladesh.

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Credit Policy:
Normally they have a conservative credit policy. They are not willing to flexible their
credit policies to increase their sales & revenue. They cannot provide smooth credit
policy, because as a MNC they cannot collect payments by pressure. Also they have to
maintain some Government rules and regulations. They usually emphasize on quality, as
a result they maintain premium price. They have to go by the law. That’s why they are
not investing that much in A/R. They are not willing to increase the risk.

When collecting payments, they give two warnings after exceeding the credit limit. If
they fail to collect payment despite these, then they realize the bank guarantee.

They provide up to 60 => days of credit limit to Government Projects, 30 days to

corporate customers. But they maintain more strict credit policy to the dealers, because of
reliability. They give credit to the dealers only if they can give bank guarantee.
Only to the renowned developer’s they sale on credit. They have credit term on average
of 18-20 days.

Working Capital Needs:

They are very efficient in cash management. That is why they have enough cash to
finance working capital. Also they have huge idle money. They cannot deposit all
portions of money in banks. As a result, they finance the working capital requirements by
internal sources. Sometimes they also take loan from the subsidiaries of Heidelberg
group. They took loan from Meghna Energy Limited which is the subsidiary of
Heidelberg group too. But at present (2009-2010) they are not taking any short term loan.
As they are multinational company they can not remit money in parent company without
the help of dividends. So every year they are having huge retained earnings in their
account. With that money they are financing their short term needs. Also with the help of
high tech softwares they had become more efficient in managing the business. They are
remitting money as technical know how fees which is 3% of prior years net sales.

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Heidelberg group helps a lot to their subsidiary in terms of technology, experience etc. As
they are more capable of internal financing in 2008 they don’t have any long-term loans.

Collection Method (#9):

HCBL has some Paper information flow attached to invoice. This attachment contains the
Order size, order no, time of delivery and the date of payment. The payment is made to
the Collection Bank and the dealers get the receipt from the bank. Because the checks are
account payee checks, so they can easily track which customer paid the payment. The
company by the time get knows about the payment by ERP software which is connected
with Banks. The bank process the payment system and it takes a little time for the
company to get notified and deposited because all party are connected through ERP
software. Bank processing fees are the cost involved in this Process. If the payment is not
made by the dealers they realized the bank guarantee after giving two warnings. Basically
Credit policy for Government projects are flexible than the usual customers.

Electronic Method for Managing HCBL:

ERP:
Heidelberg Cement Bangladesh Ltd. (HCBL) use an Enterprise application software
named Enterprise Resource Planning(ERP) which has a market price of almost Tk.
20,000,000-Tk.30,000,000 (2-3 crore TK.). They have got this software in one sense free
initially. But they are paying off these fees as “technical r knowhow fees” in every year
which is 3% of prior years net sal . This software Provide a single information system for
organization-wide coordination and integration of key business processes. This is a
competitive advantage for Heidelberg cement. ERP connects all key business process
(e.g.- manufacturing and production, accounting and finance, human resources, sales and
marketing) and connects the suppliers & Dealers together in a single place. By this all
department can share information which helps business increase efficiency or evaluates
their output.

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 1. ERP also enables to Ordering equipment, preparing inventory, sending them to
sites, activating them followed by routine maintenance is a chain of daunting
tasks. If there is a missing link in this extremely complex process, they will be out
of business in the fiercely competitive market.

Earlier it took nearly thirty minutes to generate a purchase order but now it takes a few
seconds. The entire process is flawless and tamperproof as a robust computer controls it
centrally. Heidelberg Cement has deployed two such servers in different locations to
ensure that one takes over in case the other computer fails.
They can track every employee’s output and assess them accordingly. It perfects the
evaluation process of the company’s human capital. By using ERP, Efficiency of
Heidelberg’s employees increased 99 percent. ERP maximize profit and minimize costs,
while providing superior service to its customers.

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Advantages of ERP:
• ERP is software which integrates all functionalities of the organization in a single
database. It streamlines all the business processes and gives desired result on a
click of a button.

• ERP software incorporates a large amount of industry specific business

functionalities which will ensure less customization or sometime no
customization (except reports) to make the package suitable to your business
operations.

• Most important advantage of ERP software is integration of all the business

solution in a single platform, which reduces unnecessary paper work,
documentation, repeated entry, cycle time etc. The software also comes with its
framework of upgrades to changing technologies.

• In the ERP software business functionalities and operating processes are built into
standard software codes, thus it require lesser time to understand process related
issue of implementation and gives industry specific best practices.

• ERP can be useful is order tracking. When a company receives orders for a
product, being able to properly track the orders can allow the company to get
detailed information on their customers and marketing strategies. If different
software packages are being used, this data may not be consistent.

• ERP software automates the business processes and also forces its own logic
(industry specific) on the business.

• Accounting applications is another advantage of ERP. It can integrate the costing,

profit, and revenue information of sales that are made etc.

Other Advantages :
• Speeding up the whole • Better and systematic inventory
manufacturing process handling with ABC analysis

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 • WIP (work in progress) control • Serving the customer efficiently
in time
• Easy project management
• Solve the customer problem
• Accessing the status of the goods
quickly
on a click of a button
• Information based decision
• Fast transmit commodities
through online transactions • Better finance reports

• Fastens the creation of reports • Better supply chain management

• Reduce paper works and repeated • Better vendor management

entry
• Reduce process cycle time
• Quick processing of information

Disadvantages of ERP:
• Perhaps one of the biggest disadvantages to this technology is the cost. As the
company is an MNC they get this software for free. They are paying off this cost
as “Technical Knowhow Fees” throughout the years.

• Expert needed to run the ERP system. The employees must be continually trained
on how to use it, and it is also important for companies to make sure the integrity
of the data is protected. The success of the system is fully dependent on how the
workers utilize it.

• Even if a company has enough money to implement ERP, they may not be able to
successfully use it if they do not have enough money to train their workers on the
process of using it.

• One of the biggest problems with ERP is that it is hard to customize. Very few
companies can effectively use ERP right out of the box. It must be modified to
suit their needs, and this process can be both expensive and tedious.

16
 • Most ERP vendors will not allow the structure of the software to be altered.ERP
vendors may charge additional license fees, putting a strain on companies that do
not have enough resources to pay for them. The technical support of ERP
departments has been questioned, and a number of problems could arise due to
security, since corporate representatives must give sensitive information to the
tech support department.

ERP inventory management: ERP inventory management handles everything from

ordering, physical inventory count, scheduling, shipping, receiving, purchasing, and
supply chain planning. Changes in inventory are automatically updated. It no longer takes
hours (sometimes up to 24) before the changes are recorded. This helps inventory
management employees of HCBL to be able to see if an item is currently in stock. Faster
service means better customer service. HCBL ERP management uses bar codes to keep
up with inventory items. This makes tracking stock much easier. As the bar-coded items
leave inventory, they get scanned and their product information is entered into the ERP
inventory management system. Placing bar code labels on stock helps HCBL save money
because it keeps the list of stock updated. Employees can easily see when certain
quantities are low and need to be re-stocked. Customer service also benefits from this
because businesses and customers can see what products are immediately available.

Advantages : ERP inventory management has many advantages. The main advantage
for a company is that the ERP system is company-wide and involves only one software
system.

Some other advantages include:

• Proper communication between different areas.

• Tracking of orders from the time the order was received to its delivery.
• Keeping up with the revenue cycle from when the invoice is issue through when
the payment is received.
• Provides a ‘top down’ overview of the workings of a company.
• Reduces the risk of loss of information

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 • Sets up a form of security to protect against theft from outside or within a
company.

Disadvantages : Despite the advantages HCBL receive from using ERP inventory
management, there are also some problems with it. Most of these disadvantages stem
from inadequately trained employees as well as compromised data. But there are other
concerns that can arise from this type of system.

• Reformatting a business to make it more compatible with an ERP system and thus
conform it to industry standards may cause a loss of advantage over the
competition.
• By creating a company-wide system that connects all areas, it makes it hard to
figure out accountability. Problems that may arise in one area could mistakenly be
blamed on a different area.
• Not all departments in a company are willing to share information. This
withholding of sensitive data can interrupt the workflow.
• ERP inventory management systems may to too complex for the needs of a
company.

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Cash Flow Timeline:

Here we have showed the cash flow timeline of HCBL of 2006,2007,2008

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Financial Analysis:
Financial analysis of Heidelberg Cement Ltd.

Liquidity Ratio 2006 2007 2008

NWC to assets -0.05 0.01 0.11
current ratio 0.87 1.03 1.27
quick ratio 0.48 0.71 0.66
cash ratio 0.06 0.40 0.32
interval measure 851.40 1637.28 1499.92
CCC -1.26 -17.99 36.53
Days Inventory held 57.52 56.03 103.14
DSO 37.80 37.56 35.02
Operating Cycle 95.32 93.59 138.16
DPO 96.59 111.57 101.63
-
208822000.0
NWC 0 64703000.00 638679000.00
800973000.0
NLB 46997000.00 0 768453000.00
CLI 27.56 39.40

Efficiency Ratio
Total asset turnover 1.21 1.09 1.08
NWC turnover -23.96 86.88 9.97

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Inventory turnover 6.35 6.51 3.54
Day's sales in inventory 57.52 56.03 103.14
AVG collection period 37.8 37.56 35.02

Profitability ratio
net profit margin 0.1 0.11 0.09
ROA 0.13 0.12 0.1
ROE 0.22 0.22 0.18
payout ratio 0.17 0.23 0.31

Market Value Ratio

price earning ratio 6.68 10.95 11.58
Earning per share 96.92 110 104.86

From 2006 to 2007 their operating cycle decreased and DPO increased significantly.
When their DPO was increasing it does not create any problem in relation with the
suppliers. Because the suppliers are mainly the subsidiary of the hiedelberg group. So
they got advantage in those years. And that is why the company’s CCC decreased in
2007. In 2006 and 2007 the company’s CCC were negative and it was -1.26 and -17.99
days respectively, that means the company doesn’t need any external financing. They
were very efficient in managing the cash. So that without investing in Inventories and
A/R they were efficiently running the operation. Although they had sufficient cash in
their hand. From2007-2008 the company’s Operating cycle increased significantly and
DPO decreased slightly. As a result in 2008 the company’s CCC increased to 36.53 days.
This increase was a result of a high Days inventory Held (103.14 days). In 2008 they
brought a very high amount of inventory from their sister concern company from
Indonesia named Indocement. so the company need financing from somewhere. They
have sufficient amount of cash and from that liquid cash the company was financing their
operation. They don’t need any external financing for that time lag. They mostly depend
on internal financing. As they are subsidiary of Heidelberg group they get lots of
facilities in many areas. This is their competitive advantage.

21
By net liquid balance we can cover the working capital requirements. As past years
shows that the company’s NLB is growing, so it is a good sign for the company to run its
day to day business. For many years they were not facing any kind of liquidity problem.

In 2007-2008 the CLI was increasing. And it is positive number. CLI represents the Cash
against to cover it’s the current liabilities. The CLI for past year shows that the company
has high CLI; this means the company has ample cash to cover its current debts.
The company has a positive and a high amount of net working capital. This means some
of Company’s Current assets were financed by the long term sources of fund. Here the
company has not that much long term loan in 2006-2007 period compared to its short
term loan and there were no long term loan in 2008, they paid off all of their long term
loans in 2008. The Excess liquidity of the company was financing their day to day
business.

From the time period of 2006 to 2008 the company’s current ratio has improved over the
period And the company’s quick ratio improved from 2006 to 2007.

Total asset turnover, NWC turnover and inventory turnover is on

average much better and Day’s sales in inventory is acceptable.
Average collection period is lower which is a good indicator for the
company. Therefore, the efficiency level of the company is really good.

Profit margin, ROA and ROE tells that, this is a dream company at
cement sector. All these three ratios are high over the period. Payout
ratio tells that the company does give regular dividend.

For this company, P/E ratio is very much high compare to its industry.
It has also a high EPS. Overall, the company has a good market book

22
ratios and it indicates that investors are very much interested to invest
to this firm. It is the highest valued share than any other company in
the cement industry.

We take sales growth rate as the growth rate. Company’s growth rate,
13% is much lowers the industry growth rate, 47.84%. It proves that
other companies are capturing the growing market.

Free cash flow of the company is getting higher and higher day by day,
so they have enough free cash to invest and meeting current liability.
HCBL’s cash flow from operation is also impressive.

Problems and Recommendation:

This problems and recommendations are based on the statements of
year ended 2006, 2007 and 2008. At present 2009 they have done
some improvements.
Too much idle cash :
They have too much idle cash because of their efficiency and working
capital management, conservative collection procedure and mainly
they are remitting less money in parent company through dividends.
They were keeping lots of retained earnings in Bangladesh and not
investing in new project. Also in 2008 they had decrease in net cash
flow but because of opening balance in cash the closing balance
showed a huge number. This proves that they had huge idle cash. The
analysis will show the more clear picture.

2006 2007 2008 Average

Net cash (decrease) /
increase during th eyear 71,339,000 759,976,000 (82,749,000)
Opening Balance 19,888,000 91,227,000 851,203,000

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Closing Balance 91,227,000 851,203,000 768,454,000
Number of shares 5,381,295 5,650,360 5,650,360

EPS 97 110 105

TOTAL CASH AVAILABLE
PER SHARE 16.95 150.65 136.00
Cash Dividend per share 16 25 33
Average
Net Cash Remain After
Dividend per share 0.95 125.65 103.00 77
Cash Remain After Dividend 5126276 709944000 581992120 432354132

Net cash remain per share

after EPS 81 85 72 79
Cash remain after EPS 435884914.3 480280600 406825920 440997145

This analysis clearly shows that on an average this company retained

77 taka per share per year in this 3 years. On an average they have
sufficient cash per year 432354132 Taka.

They should invest this huge idle fund in any value added
project or if there is no any scope they can remit this money by
giving more cash dividends. By giving cash dividend more they
can add more value to their parent company. In 2010 they
have declared that they are using their own fund of Tk. 1260
million to expand their production by double in chittagong
factory.

Aggressive Marketing and Market share :

The market is saturated and still HCBL has chance to increase their
market share. Because local cement companies are growing day by
day because of low pricing. HCBL stands on high quality and price
leadership.

They can do more aggressive marketing to increase their sales

and increase market share.

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Conservative Credit Policy :
HCBL’s credit policy is not very flexible. They don’t encourage credit sales to increase
their sales. They don’t want to increase the risk of credit. As they are MNC and face legal
bindings in collecting if customers don’t pay.They have huge idle fund to finance their
A/R but they are not doing this. In this saturated market they have the scope to increase
sales but they are not attempting for it. They are not willing to take risk. But in business
you have to take risk and HIGH RISK means HIGH CHANCE OF RETURN.

They should make more flexible credit policy to increase their sales and to gain
more market share. By increasing sales they can also remit more money by “Tech
know how fee”

Other Recommendations:
• They can give more focus on Ruby cement. They are giving mainly focus on Scan
cement.
• They can do more CSR activities as they have ample money. This CSR activities
will increase their goodwill.
• They can train more their maximum employees to operate the ERP software to
smoothing the process more.
• They can give all the employees the option of PROFIT SHARING this will
motivate the employees to work hard.

Secrecy of Price Sensitive Information:

When we took the interview at April 12, 2010 from one of their employees we came
to know that their EPS of 2009 is Tk. 151.00 and cash dividend would be 38%.
Although board meeting held at April 13, 2010 and the price sensitive information
published in DSE website at April 15, 2010. If the employees declared this kind of
information before Board meeting it’s illegal and unethical.

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The employees should not publish price sensitive information privately before it
published publicly.

Why Not Recommendation About High Inventory In 2008 :

In normal view one will recommend at 2008 that why they stocked huge inventory
and which in turn cost them less CFFO and net decrease in cash . They had huge idle
balance that’s why they stocked inventory. But the real reason is opened at 2010.
Cement industry was in recession in 2008. Also Heidelberg Group faced Recession in
2008. But HCBL did not face any recession in 2008. where in this industry other
firms showed a huge decrease in EPS. But they maintained EPS of 105, which is
extraordinary. They import RM from their sister concern at a cheap rate. That’s why
they maintained a high EPS .

The Cement industry at 2008 perfectly anticipated that the price of RM will go up in
2009. that’s why many company stocked inventory in 2008 also HCBL did this. We
can prove our argument by that in 2009 most cement producers EPS has increased by
almost 400% and HCBL’s EPS also increased in 2009. In this saturated market wvery
company can not make huge profit than previous year only by selling more cement.
This EPS also the result of stocked inventory in 2008.

That’s why we did not recommend to reduce inventory in 2008.

Conclusion:
HCBL is doing well in working capital management but they have huge idle money
that’s why they are not giving that much of emphasis in managing their capital more
efficiently. As they are the subsidiary of Heidelberg group they maintain maximum
modern policy of collecting and disbursing cash. They get many competitive
advantages as Heidelberg group helps them a lot with technology. They mainly trade
with their sister concerns. HCBL is the leading company in the cement industry. But
they have to think about managing the idle money to add value to HCBL.

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Reference :

Web Sites:
• www.heidelberg.com
• www.heidelbergcementbd.com
• www.dsebd.org
• http://www.nickmutt.com/advantages-of-erp.htm

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• http://www.benefitsoferp.com/

• http://www.askdeb.com/inventory-management/erp/

Books :

• Short Term Financial Management by TERRY S. MANNES

Lectures :

• Class lectures of FIN 340.2

Interview Taken of :

• Board of Director, M. Abul Hashem; Company Secretary

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