Working Capital ManagementOf Heidelberg Cement Bangladesh Limited

(HCBL).

Farshid Chowdhury073-114-030School of BusinessNorth South University

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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

Information

24

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.

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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 : Building worldwide growth by building a better world.

Business Culture : Building on local responsibility for international success

Employee Policy : Building our business on the knowledge of our people

Market Strategy : Building our growth on a solid base of earnings

Customer Philosophy : Building customer satisfaction

Quality Standard : Building on quality products to build reputation

Commitment to Innovation : Building on new technologies determines our future

success

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

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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 2006Cash 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 2006Payment 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

manufacturing process

Better and systematic inventory

handling with ABC analysis

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WIP (work in progress) control

Easy project management

Accessing the status of the goods

on a click of a button

Fast transmit commodities

through online transactions

Fastens the creation of reports

Reduce paper works and repeated

entry

Quick processing of information

Serving the customer efficiently

in time

Solve the customer problem

quickly

Information based decision

Better finance reports

Better supply chain management

Better vendor management

Reduce process cycle time

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.

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

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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

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

company.

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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.

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

NWC

-

208822000.00 64703000.00 638679000.00

NLB 46997000.00 800973000.00 768453000.00

CLI   27.56 39.40

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Efficiency RatioTotal asset turnover 1.21 1.09 1.08NWC turnover -23.96 86.88 9.97Inventory turnover 6.35 6.51 3.54Day's sales in inventory 57.52 56.03 103.14AVG collection period 37.8 37.56 35.02

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

Market Value Ratioprice earning ratio 6.68 10.95 11.58Earning 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

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on internal financing. As they are subsidiary of Heidelberg group they get lots of

facilities in many areas. This is their competitive advantage.

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.

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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 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.

Conservative Credit Policy :

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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.

The employees should not publish price sensitive information privately before it

published publicly.

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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

http://www.benefitsoferp.com/

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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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