Working capital management of Heidelberg Cement

Bangladesh Limited (HCBL)

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 HCBLs working capital management. We have done financial analysis and
gave recommendation.
Company Overview:
Heidelberg Cement Bangladesh is one the largest producers of quality cement in Bangladesh.
Heidelberg Cement Group from Germany, one of the worlds 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 companys 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 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 Groups 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.
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 throughout 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

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 dont 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 1
st
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.
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 thats why they dont 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
dont have any cash transaction.
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 1
st
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.
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.
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. Thats 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 developers 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. 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 dont
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.
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 employees output and assess them accordingly. It perfects the
evaluation process of the companys human capital. By using ERP, Efficiency of
Heidelbergs employees increased 99 percent. ERP maximize profit and minimize costs, while
providing superior service to its customers.
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
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 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.
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
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
Efficiency Ratio

Total asset turnover 1.21 1.09 1.08
NWC turnover -23.96 86.88 9.97
Inventory turnover 6.35 6.51 3.54
Days 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 companys CCC decreased in 2007. In 2006
and 2007 the companys CCC were negative and it was -1.26 and -17.99 days respectively,
that means the company doesnt 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
companys Operating cycle increased significantly and DPO decreased slightly. As a result in
2008 the companys 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 dont 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.
By net liquid balance we can cover the working capital requirements. As past years shows
that the companys 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 its 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
Companys 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 companys current ratio has improved over the
period And the companys quick ratio improved from 2006 to 2007.
Total asset turnover, NWC turnover and inventory turnover is on average much better and
Days 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 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. Companys 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.
HCBLs 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
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 :
HCBLs credit policy is not very flexible. They dont encourage credit sales to increase their
sales. They dont want to increase the risk of credit. As they are MNC and face legal bindings
in collecting if customers dont 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
its illegal and unethical.
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 thats 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. Thats why they maintained a high EPS .
The Cement industry at 2008 perfectly anticipated that the price of RM will go up in 2009.
thats 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
HCBLs 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.
Thats 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 thats
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.