View with

An overview of Cement Industry

1.1 HOW IS CEMENT MADE?

Cement is a hydraulic binder. That means it is a material which sets and hardens when mixed with water. The raw materials which go into the production of cement, primarily limestone and shale, are extracted from a quarry by blasting, or mining. They are then finely crushed and ground and transported to the plant, where they are stored and homogenized. The grinding process provides a fine powder known as raw meal, which is then preheated and then enters the kiln (A. Chattopadhyay, 2004). Flames reaching temperatures of 2000° C heat the material to about 1500° C, before drastically cooling it by air blasts. This burning process produces cement clinker, the basic material required for the production of cement. The clinker and gypsum (hydrated calcium sulphate) are finely ground together to obtain pure cement, which is also known as Ordinary Portland Cement (OPC). Secondary constituents are then added to make blended cement like Portland Pulverized fuel ash Cement (PPC) etc. Finally, the finished products are stored in large silos from where they are dispatched in bulk or in bags to where they will be used. (“Cement Manufacturing Process”. 2003)

The production of clinker does not take place in Bangladesh. This is because the country lacks the raw materials namely limestone and shale, for the production of clinker. Therefore, it is imported from countries like India and China. The cement manufacturing stage that takes place in Bangladesh is the grinding of clinker and gypsum together to obtain pure cement.

Most of the grinding mills that are currently in production do this stage of the production, and then sell it in the market. OPC is used all over Bangladesh. (Habib, Haroon, 2003)

2.1 CEMENT INDUSTRY IN BANGLADESH

The cement market in Bangladesh consists of 100% supply in bagged cement. The dominant type of cement used in Bangladesh is Ordinary Portland Cement (OPC) (“Heidelberg Cement”, 2004). The clinker, a raw material used in the production of cement, is imported from other countries like India, Thailand, Malaysia and China. The country lacks limestone—a major raw material required to make cement (A.Chattopadhyay, 2004). The only production stage performed in Bangladesh, to make cement, is importing the clinker and grinding it with gypsum to give pure cement. Other countries have integrated cement plant, which means that the cement is made from scratch to finish in the same factory. The factory doesn’t need to import any raw materials for production. The clinker is manufactured in their facilities. The first cement factory in the country was Chattak Cement Factory, which was established in the early 1940 when Bangladesh was a part of India. This was the only integrated cement plant in the whole country because of the lack of raw materials. The factory had an installed capacity of 270, 000 tones per annum (TPA) when it was first installed. The factory’s capacity was insufficient in the wake of implementation of rapid development in the construction sector (“Invest”, 2004). The first cement factory in the hands of the private sector was the Aynepur Cement Factory, which was established in 1992, had a capacity of 30,000 TPA. This was also an integrated cement plant, but it did not play any significant role in the cement industry because of irregular production and untrained management staff. Other than these two

factories, there are no other plants in the country. (Islam, Sirajul, 2003) All other cement production facilities that are in operation today are clinker grinding units, facilities where imported clinkers are ground to produce cement. By 2002, there were as many as 56 cement grinding factories in the country with a total production capacity of 11.8 million tons (“Habib, Haroon, 2003”). As shown in table 1, the number of grinding mills doubled in just one year from the year 2000 to 2001. This shows that the entrepreneurs started feeling that there was profit in the cement industry, and therefore they started setting up their own grinding mills in the hope of making profit. (Murad, G.N, 2002)

There was not enough development of the cement industry, as compared to other countries, until 1990 because of government price control on cement and unfavorable import duty on clinker to promote the development of the industry in the country. After the year 1990, Bangladesh government changed its rules as it withdrew the price control, and had a favorable tax control for the imported clinker (A. Chattopadhyay, 2004). Many private industries started operating due to these favorable policies. The cement industry in the country began to develop after 1990, and 2001 was the most significant year for the industry (Habib, Haroon, 2003). In that year the number of installed grinding mills more than doubled from 20 in 2000 to 50 in 2001, which in turn almost doubled the production capacity, and paved way for surplus. This allowed Bangladesh to become self sufficient in cement production. Many multinational companies and entrepreneurs also started setting up their plants in the country because of the favorable duty structure imposed by the government for local production. Several cement importers changed their course, and started their own grinding mills. As illustrated figure 2, up till 2000, the demand for cement was greater than the production capacity. But after 2001, the production capacity increased tremendously, and therefore Bangladesh is producing cement surplus to its requirement.

Many local cement industries were setup starting 1997. Many investors saw the possibility of setting up plants. The gap in the demand-supply, low per capita consumption of cement, easy availability of bank credit and favorable government policies encouraged the companies to invest in cement (“Hiedelberg Cement”, 2004). This is where the banks came in. The banks did not have good investment opportunities, and therefore were in high spirits when it came to loan money to many investors in the cement sector. In this way, the banks also got a helping hand for their unused money (“Meghna Cement Mills”, 2003).

Bangladesh is also having a Free Trade Agreement talk with Sri Lanka, and the high commissioner showed keen interest in the Bangladeshi cement industry. As peace istaking place in Sri Lanka, there may be a huge boom in the construction industry, creating a huge demand for cement. This means that Bangladesh may have good chance of exporting its surplus cement to Sri Lanka, and once it does that, the doors of other countries who lack cement industry, may also open up for Bangladeshi cement. (“Dhaka, Colombo FTA”. 2003)

2.2 CHALLENGES FACED BY THE CEMENT INDUSTRY

The cement industry in Bangladesh is riddled with lots of problems, which are hindering its growth. Most of the companies hardly utilize 50 percent of their production capacities as the supply vastly exceeds the demand. The challenges, although have less impact on multinational companies, severely affect the local industries. (“Cement industry beset by market situation”, 2005)

Mismatch between Supply and Demand

The biggest problem probably faced by the companies is that they have the capacity to produce a lot more than what the country needs. Bangladesh’s current demand for cement is around 65 lakh tons, whereas the companies have installed capacity of more than 135 lakhs (“Heidelberg Cement”, 2004). This forces the companies to underutilize their machinery, which in turn increases their costs and consequently creates economic loss for them. The local companies are much more affected because the general public prefers the produce from multinational cement companies over the local companies. The extra cement which is not

sold could have been exported, but the local companies lack money and knowledge for the export. (“Cement industry beset by market situation”, 2005)

Obtaining Raw Materials

The main raw material used by the cement companies here is clinker. As Bangladesh does not have much source of clinker, the companies have to import it from other countries which include India, Malaysia and Thailand to name a few. Even if there are available sources, they are not of acceptable quality (Hussaini, Fakhri 1995). The price of clinker is on the rise, and this is why many local companies are on the verge of collapse. But the multinational cement companies are at an advantage because they import their own clinker. They just need to pay the import duty and taxes (“Cement industry beset by market situation”, 2003). They also have an advantage as the government allows them to import at a very low cost if the work is done for the government. But the local companies have to pay the import duty and also the price of the clinker. They also have to suffer if there is a delay in the imports as that results in a delay in production (“Meghna Cement Mills”, 2002).

Environmental Problems

Many local companies cannot afford adequate facilities to treat their industrial waste. Therefore, they dump all their waste materials in wrong places, which cause disruption to the ecological balance. Many new entrepreneurs dig up earth from land to construct the factories and grinding mills. These people do not employ geologists, like multinational companies do, and the digging has adverse effects both on the structure constructed above it, and also on the surrounding areas. The digging also threatens the structural integrity of many buildings (A. Chattopadhyay, 2004). The smoke comings from the chimneys of the factories are also untreated which cause air pollution. The multinational companies install filters and other equipments to treat the waste. Many times, they even reuse the waste.

Other Problems

There are lots of other small problems which bothers the cement industry in Bangladesh. One of them is the inconsistent supply of electricity. Many local industries have been affected by the poor supply of electricity. When electricity goes off, the manufacturing process is halted. The machines stop and the material inside it hardens, which in turn, adversely affects the machines. This causes loss of money as the production stops, and more time is spent on cleaning the equipments. Moreover, the process needs to be started all over again (“Meghna Cement Mills”, 2002). To tackle this problem, many multinational companies have installed their own power plants which help them when the power from the electricity board goes down. Although the setup cost of the power plants is expensive, but it proves cheap in the long run, as their production goes unhampered throughout the day, no time and money is spent on repairing machines which breaks because of electricity problems (“Invest”, 2004). Hartals are also a problem for many local industries as they disrupt the work of the factories. Many factories do not even start production until the management arrives. Workers of many local industries are paid on a daily work basis. Therefore, they depend on the daily production. During hartals, many workers find it difficult to go to work, although they wanted to, but they have to since they will not be paid if they do not work. Machinery used is also a major concern for the local industries. As most of the equipment is imported, the spare parts are not easily available. Those parts that are imported cost a lot because the cement producers have to pay import taxes on them. It also involves a lot of paper work due to

government rules and restrictions. As a result, many industries get their machinery fixed by local engineers who charge a lot, and are not very efficient (A. Chattopadhyay, 2005).

Chapter Three

Chapter Three : An overview of Heidelberg Cement Bangladesh Limited

3.1 Organization Profile:

With a consolidated turnover of EUR 7.8 billion, HeidelbergCement is one of the world's leading producers of:

cementconcrete building materials

HeidelbergCement produces a wide range of building materials including cement, ready-mixed concrete, concrete products, aggregates, as well as dry mortar, lime, sand-lime bricks, and building chemicals.

With a cement sales volume of approximately 68 million tons, HeidelbergCement belongs to the largest cement producers worldwide.We employ around 41,000 people in 50 countries. The international market presence comprises the regions:

Central Europe WestWestern EuropeNorthern EuropeCentral Europe EastNorth AmericaAfrica - Asia - Turkeymaxit GroupGroup Services

HeidelbergCement is aware of its worldwide responsibility for the environment and is committed to the principle of sustainable development.

3.2 Background:

Heidelberg Cement Bangladesh Limited is a member of the German based Heidelberg Cement Group. The group has 130 years of experience in producing cement. In Bangladesh alone, they are represented by two reputed brands: Scan Cement and Ruby Cement.

Chittagong cement factory, one of the pioneer cement industries in the country was established in 1966 and was placed under control and management of Bangladesh mineral oil and Gas Corporation and subsequently BMEDC. Factory was converted into and incorporated as a private Ltd company on 30 June 1979. Thereafter the company converted into a public limited company in February 1989 with the shareholding of 51% of Bangladesh Chemical Industries Company (BCIC), 34% by general public and 15% by the officer and staff and the workers of the company. Under the privatization policy, BCIC sold and transferred its 51% shares to local investors on 27 June 1993.

ENCI holding N.V. previously Eerste Nederlandse Cement industrie (ENCI) N.V. a subsidiary of Heidelberg Cement Group, acquired said 51% from local investors.After the amalgamation with Scan cement International Ltd and having taken over the shares from Norfund and Nordic Development Fund (NDF), Heidelberg Cement Group further consolidated its shareholding in the Heidelberg Cement Bangladesh Limited to 61%.

Heidelberg Cement Group, which has a long and successful history in the cement industry in the world, started its business back in 1873 in Germany. The group’s global turnover is about EUR 6.8 billion and the production capacity is approximately 75 million tons per year. A wide range of building materials also belongs to theGroups product range. In fact Heidelberg Cement is one of the largest cement manufacturers in the world with more than 36000 people employed in 50 countries.

In Bangladesh, Heidelberg Cement group started with a Greenfield investment of US $ 50 Million in the year 1998. Its State-of-the-art production plant at Kanchpur, Narayanganj is one of the largest in the country with an annual production capacity of 750000 metric tons. This modern plant has its own captive power plant, jetty facility, sophisticated water treatment facility and a computerized bagging facility to ensure the correct of each 50 KG bag.

Heidelberg Cement imports its raw materials from their own source ‘Indocement’, Indonesia – a sister concern of Heidelberg Cement Group, which ensures consistent high quality.

During the first quarter of 2003 with the unfailing support, the most remarkable event was the acquisition of SCAN Cement international limited and Scan Cem Ltd by way of amalgamation. The honorable high court division of the supreme court of Bangladesh sanctioned the approval on the Scheme of amalgamation of Scan Cement International Limited and Scan Cem Bangladesh limited with Heidelberg Cement Bangladesh Ltd (HCBL) former Chittagong Cement Clinker Grinding Limited (CCGL) by an order dated January 11, 2003. All properties, rights, interests and liabilities of these two companies were transferred to and vested in HCBL with effect from 01.02.2003. Meanwhile the board of investment approved the Scan Cement Limited Plant as Unit-3 of the company. Consequently, the company has become one of the largest Cement Company producers in Bangladesh.

3.3 Heidelberg history since 1873 to till today:

The Founding Years

1873 In 1873 Johann Philipp Schifferdecker bought the "Bergheimer Mühle" - a mill - located in Heidelberg on the Neckar and converted it into a cement factory.

1874 On 5 June 1874 the Portland-Cement-Werk Heidelberg, Schifferdecker & Söhne, was entered in the commercial register as a partnership.

1889 As of 18 March 1889 the company operated as a corporation under the name of Portland-Cement-Werk Heidelberg AG, previously Schifferdecker & Söhne.

1895 After a fire on 4 February 1895 the construction of a modern factory in Leimen began.

The Years of Expansion

1896 The new factory in Leimen started operations in 1896. Annual production 80,000 tons.

1901 After the merger in 1901 with the Mannheimer-Portland-Cement-Fabrik AG to become the Portland-Cement-Werke Heidelberg and Mannheim AG, the cement plant Mainz-Weisenau founded in 1864 was taken over. Numerous holdings in brickyards, gypsum pits and cement plants followed

1914 The cement plant Burglengenfeld was taken over in 1914.1918 In 1918 the Portland-Cement-Werke Heidelberg and Mannheim AG merged

with the Stuttgarter Immobilien and Baugeschäft AG, which brought along, among others, the cement plant Schelkingen, to become the Portland-Cementwerke Heidelberg-Mannheim-Stuttgart AG.

1922/1926 The cement plants Lengfurt and Kiefersfelden, which were acquired in 1922 and 1926 respectively, continued to operate as subsidiaries.

World Economic Crisis & Years of War

1929-1933

Drastic drops in sales led to stoppage of operations at times during the years 1929 to 1933 at the Heidelberger plants.

1936 In 1936 cement production of one million tons was attained for the first time.1938 In 1938 the company was changed to the Portland-Zementwerke Heidelberg

Corporation. The Blaubeuren cement plant became a group plant.1945 Towards the end of the war heavy bomb damage occurred to various plants, and

particularly in Mainz-Weisenau. Shipments sank to 212,000 tons.

Years of Reconstruction

1948-1953

Development of the gypsum and plaster operating lines through the start of operations at the gypsum plant in Neckarzimmern in 1948 and the acquisition of the Sulzheim gypsum plant in 1953.

1959 In 1959 entrance into the ready-mixed concrete branch, which is still young, by holdings in several small to mid-sized transportation businesses

1960-1968

In 1960 acquisition of two-thirds interest in the transportation and freight forwarder, Kraftverkehr Bayern (KVB), Munich. Holdings in the French cement

company, S.A. des Ciments Vicat and the southern Bavarian, Portland-Zementwerk Gebr. Wiesböck & Co. GmbH, in Rohrdorf in 1968.

1970 In Leimen the production of concrete additives was started in 1970, which were later sold under the brand name Addiment. The sales of building materials reached about 10 million tons, of this 8.3 million tons of cement.

Takeover and Change

1977 Oil crisis and recession lead to considerable drops in cement shipments. In 1977 the takeover of Lehigh Portland Cement Company in Allentown, Pennsylvania with five cement plants, one expanded clay plant and one furniture factory, took place in the U.S.A.

1978 In 1978 the company changes to the Heidelberger Zement Corporation.1980 In 1980 Lehigh took over 6 cement plants from the US Steel Corporation.

Founding of the Baustoffwerke Durmersheim with later addition of sand-lime brick, gravel plants and in 1983 of the lime and plaster plant, Istein.

1982 In 1982 Lehigh takes over the cement plants in York, Pennsylvania and in Cementon, New York

Expansion & Development

1985 In addition to geographic diversification, the increased expansion into additional areas associated with construction such as insulating materials, building chemicals, concrete products and natural stone took place starting in 1985.

1988 In 1988 the new plaster and mortar plant, Mainz-Weisenau, started operations.1989 In 1989 the gypsum and plaster plant, Sulzheim, was expanded and the

production of special gypsum was started. Development of the operating line building materials technology through the acquisition of the Deitermann-Group, Datteln. The subsidiaries operating in the insulation area were consolidated into the Heidelberger Dämmsysteme GmbH in 1990.

1990 Holdings in the Hungarian cement plant, Beremend and Vac, in 1989-90 as well as in the plants, Radotin and Kraluv Dvur in the Czech Republic in 1991-92.

1991 In 1991 the concentration of the building chemicals activities in the Heidelberger Baustofftechnik GmbH. Entrance into the operating line of concrete products through the acquisition of the Baustoffwerke Wittmer + Klee as well as holdings in the Kronimus AG. New gypsum locations in north and east Germany through takeover of the Rocogips Group.

Start into New Dimensions

1993 In 1993 a broad international presence was attained through the takeover of the Belgian S.A. Cimenteries CBR in Brussels. Division of the areas of responsibility into the regions of Central Europe West, Western Europe, Central Europe East and North America, with the business lines of cement, concrete and building materials for each of these.

1994 In 1994 the first-time consolidation of CBR: Group sales increase to 6.3 billion DEM; number of employees reaches 24,000.

1995-1996

In 1995 and 1996 continuation of the internationalization: Entry into the Chinese market through holding in China Century Cement Ltd. In Turkey merger of the

cement holdings of CBR and the Turkish Sabanci Group to the joint venture, Akcansa.

1998 In 1998 the Heidelberger Baustofftechnik GmbH and Deitermann were consolidated to the Heidelberger Bauchemie GmbH.

1999 The acquisition of the building materials company, Scancem AB located in Sweden, in 1999 expanded the international market presence considerably. At the same time dry mortar activities in Europe are developed by a majority interest in the Maxit Holding GmbH.

Increase in share in CBR to 100%2002 Majority stake in Indocement

The name of the Group becomes HeidelbergCement.2003 Majority participation in the Dniprocement cement plant, Ukraine

In Union Bridge, Maryland, the largest and most modern cement plant in the US with a capacity of 2 million tonnes is taken into service.

2004 Conversion of the cement plant Mainz-Weisenau into a grinding plant.

After the increase of the participation in Anneliese Zementwerke AG to 97.4 % and the acquisition of the Bosenberg cement plant, HeidelbergCement becomes market leader in Germany.

Sale of the cement and concrete activities in Bulgaria.

Increase of the participation in the Chinese company China Century Cement to 49 %

2006 Consolidation of Indocement.

The HeidelbergCement Group is today, with activities in 50 countries and worldwide cement sales of approximately 65 million tons and 42,000 employees, one of the largest cement manufacturers in the world.

3.3 Heidelberg Cement vision Joined by common goalsHeidelbergCement business is local, yet joined together by common goals: they have therefore developed a Corporate Mission, which is followed at all locations, and have expressed therein also their vision of sustainable development.

Ethical principles of our Corporate MissionIn our Corporate Mission, we have made a commitment to ecological, social and economic goals: We act responsibly towards the environment, promote the preservation of identities and cultures and demonstrate respect and appreciation for our employees, customers, business partners, co-partners and shareholders. We ensure that human rights are respected within our Group and pursue a strategy of active, open communication and a transparent information policy. In doing so, we want to number among the best in the world within our industry. The ethical principles in our Corporate Mission form the basis for our sustainability goals.

Economy: Growth and profits through fairness and responsibility

We want to continue our growth, and increase our profits accordingly. We will only achieve our economic goals in the long term if we produce added value forour stakeholders:

We want our customers to benefit from our knowledge, through the high quality of our products and cooperation based on partnership.

We want to provide our employees with a secure income and good qualifications for the long term.

We foster respectful relationships with suppliers and treat competitors fairly.

Our economic activity is characterised by commercial caution and rule of law.

We promote the creation of value at our locations and contribute to greater prosperity and a higher quality of life, particularly in areas of economic growth.

Higher growth means adequate dividends and an increasing company value for our shareholders.

Growth and profit are also necessary in order to achieve added value for the environment – through investments in progressive technologies and Group-wide environmental management.

Ecology: Protecting resources for tomorrow’s economy

Greater prosperity in developing national economies is often accompanied by greater use of resources and increased environmental pollution. For this reason, we are combining our economic commitment in growth markets with the transfer of progressive technology and expertise in environmental issues. Cement manufacturing is one of the energy intensive industries. A primary objective of our sustainability strategy is therefore climate protection.As a company that exploits raw materials, we are aware of the high responsibility we have regarding the use of natural resources. As far as it is possible, we replace raw materials with alternative materials and biomass, reduce emissions and noise, and keep interferencewith the landscape at our locations to a minimum. Sustainable business activity requires us to think long term: Even before exploiting new raw material deposits, we make plans for the site after quarrying.

Social responsibility: Employees and companies at our locations

Our success is based on competent and dedicated employees.

We are interested in long-term jobs and provide opportunities for personal and professional training. We demonstrate appreciation for our employees and their representatives. Our treatment of each other is marked by active and open communication. Fundamental human rights are observed at all our locations. We are working continuously to increase health and

safety. As an international company, we promote diversity and seek to respect and learn from other cultures. Through added value and commitment to society, we make a contribution towards sustainable development at our locations. We maintain an open dialogue concerning our activities.

Heidelberg Cement in 2002 :

500 companies 1,600 locations 49 countries 36,800 employees

One of the leading cement producers in the world

3.4 Our business regions

HeidelbergCement’s headquarters are in Heidelberg, where the activities in our business regions are coordinated.

The Central Europe West region comprises Germany, Austria and Switzerland. We produce and sell not only cement and ready-mixed concrete, but also concrete products, lime, sand-lime bricks, sand and gravel. We are the largest producer of cement in Germany.

The Western Europe region comprises the Benelux countries and the United Kingdom. In Belgium and the Netherlands we produce ready-mixed concrete and we mine sand and gravel.

Scandinavia and the Baltic states, including the Saint Petersburg region in Russia, belong to the Northern Europe region. In most countries we are the market leader in the cement business. In addition, we manufacture ready-mixed concrete, aggregates and concrete products.

In the Central Europe East region, we are the biggest investor in the building materials sector. Our activities extend to Poland, the Czech Republic, Hungary and Slovakia, which all became members of the European Union in the previous year, as well as to Bosnia-Herzegovina, Croatia, Romania and the Ukraine.

In the North America region, comprising the US and Canada, we produce cement, ready-mixed concrete, concrete products and aggregates. Despitethe weak dollar, North America has the highest turnover and operating income before depreciation of all Group regions within Heidelberg-Cement.

In the region Africa-Asia-Turkey HeidelbergCement is represented in seventeen countries. Whereas in Africa we only produce cement, we are active in both the cement and the ready-mixed concrete business in Turkey and in Asia. In Asia, we are represented in Bangladesh, Brunei, China, Indonesia, Singapore and in the United Arab Emirates. In China, we will open a new cement plant in 2005.In Indonesia, we hold the majority share in the country’s second-largest cement manufacturer with a cement capacity of 16 million tonnes.

The maxit Group combines our activities in the dry mortar, lightweight aggregates and building chemicals sectors. maxit Group is active in 25 countries, including Russia and China, and is the market leader in Europe.

HC Trading and HC Fuels belong to Group Services. HC Trading manages worldwide trading in cement and clinker and is one of the largest tradingCompanies in this sector. HC Fuels trades with fossil fuels, especially coal, which it sells to Group owned and third-party companies.

Cement business in the regions

The cement business line contributes 51 % to the Group’s total turnover. It varies in the individual regions from 43 % in Central Europe West to more than 90 % in Africa-Asia-Turkey. With EUR 1 billion, the highest turnover in the cement business line within HeidelbergCement is recorded in North America, with a cement capacity of 11 million tonnes. The region with the largest cement capacity in the Group is Asia, with 20 million tonnes.

Local responsibility for global goals

Cement is a local business. This is why our operating activities are organised regionally. This allows us to remain flexible and respond quickly to changes andnew challenges in the markets at all times. Standardised management guidelines and the principle of target agreements are the worldwide foundations for consistent delegation of responsibility, duties and decision-making powers.

Chapter Four

Chapter Four : Management & Integration

HeidelbergCement Management & Integration:

Across the Group, we focus on local responsibility for our sustainability goals. The framework for this is provided by our management system for ecological and social issues. Exchange and interaction within the Group allow us to learn continuously from one another. After all, sustainable development is a process. One that penetrates all levels of HeidelbergCement.

4.1 Implanting Sustainability

We want to implant our vision and our goals for sustainable development on all levels within the Group. We have therefore taken organizational to integrate environmental protection, health and safety and social goals into our entrepreneurial activity, and are gradually establishing appropriate management structures.

Environmental protection and health and safetyAt Group level, the Group Environmental Committee (GEC) takes care of environmental protection and health and safety. It is the task of our international

experts from the business regions to:

develop guidelines and standards for environmental protection within the Group

assess the environmental protection situation in the Group and develop goals and appropriate measures

promote the exchange of knowledge across the Group

initiate research and development projects

develop positions on regulatory issues and represent the Group in the relevant bodies.

A core element of our Group-wide environmental management is the Group Benchmark Report (GBR): Every three months, the business units submit environmental data, which is combined into the GBR twice a year.

In addition, we are committed to the goal of introducing environmental management systems at all our cement plants. More than 80 % of our cement is produced in plants where such management systems are in place.

Social responsibility

For personnel issues, we have created a structure similar to that of our environmental protection activities. The regional human resources managers work in close cooperation with the Group human resources manager.His task is to:

implement the personnel strategy established by the Managing Board across the Group,

ensure that the regional personnel strategies are attuned to that of the Group,

develop common standards accordingly and implement these within the Group,

make personnel services available to Group staff,

advise the Managing Board in its decisions on personnel issues at Group level.

The human resources managers of the Group and the regions meet twice a year. They also meet with the national representatives every two years.Cooperation with employee representatives

Constructive and respectful cooperation with the employee representatives is one of the basic principles of our personnel strategy. Employee interests have been represented at a European level in the European Works Council since 1996. As a result of the EU’s eastward enlargement, additional countries had to be integratedinto the European Works Council. The distribution of the seats was renegotiated and the existing agreement revised. The internal agreement ensures that the employee representatives have comprehensive information and consultation rights on issues affecting more than one European country. We accept our employees’ involvement in unions, independently of legal regulations.

Reinforcing sustainability goals throughout the Group

Under the project leadership of Group Communication, the first Group Sustainability Report was drawn up together with the Head of the Group Environmental Committee, the Group Human Resources Managerand the Head of Finance, Controlling and Reporting. This working group forms the basis for a steering committee, which will further reinforce sustainability goals across the Group in the future.

4.2 Risk management

Our commitment to sustainable development is also based on economic considerations: We know that our social and ecological environment affects the company’s development. This subject is therefore dealt within our risk management – a company-wide early detection system, in order to anticipate and hedge against risks that threaten the Group’s existence. Our risk management systematically records and evaluates the risks in the various plants and regions. All Group companies and strategic business units are integrated in our risk reporting. We have established contingency plans for all significant risks and check regularly whether the risk management process is effective. The risk management system offers security for investors and shareholders and is inspected annually by an external auditor.

Sustainability – a topic for risk management

When assessing macroeconomic, industry, market, currency and other risks, we also include those economic risks that arise from the social and environmental demandsof politics and society. In 2004, these included arbon dioxide emissions trading. Supported by the risk management we prepared in good time for the organisationaland financial effects of emissions trading.

4.3 Knowledge Management

The current transition from an industrial society to one based on information and knowledge implies that competitiveness and economic success no longer depend solely on the use of material production factors such as capital, machinery and raw materials. The excellent flow and use of information and knowledge is becomingincreasingly important. Consequently, we are building a Group-wide knowledge network and we are investing in managing our knowledge efficiently. In the Knowledge Management Board, representatives from various business units and the Heidelberg Technology Center (HTC) regulate our internal knowledge management and support our activities in international bodies. These include, in particular, theWorld Business Council for Sustainable Development (WBCSD), the European Cement Association CEMBUREAU and national industry associations.

Pooling of expertise across the Group

The Knowledge Management Board established 16 expert groups for all fields in which we pool our knowledge across the Group. These include, for example, the use of alternative materials, emission and immission measurements, and the reduction of emissions. In 2003, the Knowledge Management Board held a competition for technical topics. The employees submitted a total of 108 suggestions.

World of Cement (WOC)

One of the pillars of our knowledge management is the World of Cement intranet portal – WOC. WOC is a database currently providing 14,000 documents on relevant issues and a library containing examples of best practice. It is accessible to all our employees worldwide.

Chapter Five

Chapter Five : Organization Policies & culture

5.1 Purchasing Policy

(http://www.heidelbergcement.ro/cement/index.php?idp=37)

Having the right suppliers and managing them optimally is one of the most important instruments we have to strengthen our competitiveness. HeidelbergCement Group’s Purchasing Policy aims to establish clear guidelines for our relationships with suppliers and for the conduct of our purchasing activities.

Professional Purchasing

The purchasing function is a complex and critical one, for which specific professional knowledge is required. At HeidelbergCement we are committed to train and develop our purchasing staff, to ensure their continued qualification in rapidly evolving markets, and foster understanding of purchasing issues amongst other staff.

Selecting Suppliers

We will seek to use performance based specifications, where appropriate, in order to open up markets and allow the most cost efficient and competitive suppliers to quote. When choosing suppliers, we are to include the following qualities into the assessment of their overall competitiveness:

Cost effectiveness Financial stability Health, environmental and safety aspects Innovation Production / delivery capacity Service capability Technical capability / quality

Purchasing Policy for HeidelbergCement Group

Selected product groups and services are purchased in agreements on behalf of HeidelbergCement in order to use the Group's collective competence and take advantage of our overall size. When purchasing goods and services, the general rule is that, whenever possible, at least three suppliers - of which one should preferably be new - are to submit offers. We select suppliers on the basis of their competitiveness. All purchasing activity is to be carried out in accordance with appropriate legislation and in particular with competition laws.

Supplier Relations

Relations with suppliers are to be based on mutual respect, strict business ethics and credibility. We are to treat suppliers impartially and always act as professional purchasers. We will provide qualifying suppliers with equal information on our purchasing needs and where required we will respect strict confidentiality of terms offered by suppliers.The most effective way of ensuring long term success of our suppliers is to encourage them to be competitive on the market.

Ethics

Everyone involved in the purchasing process must maintain independence vis-à-vis suppliers. Therefore everyone involved in the purchasing process should keep free of significant interests in the supplying company, directly or indirectly.

Environment

Purchasing activities are to be conducted within the framework established in the environmental policy of the Group and each Business Area. The Group’s purchasing activities are to be characterised in all respects by a major responsibility for the environment. Purchased products and services should meet all regulations in their intended country of use.

This purchasing policy is effective June 1, 2004

5.2 EMPLOYEE POLICY

(http://www.heidelbergcement.ro/cement/index.php?idp=20)

We are trying to be correct employers in order to count in our turn on the support of

our employees. We are interested in long-term collaborations, which offer the possibility to acquire experience and provide continuous training. Our success is based on understanding the fact that the projects developed in the human resources field cannot be implemented without informing our employees and getting their support. Thus, our employees are involved in establishing the formation programs, the measures for improving the labour conditions, the elaboration of development projects for the personnel, etc.

Only if we focus on the permanent acquirement of experience of the employees we shall have competent persons in management positions, in each field of activity.

We prepare in advance our successors through the „High Potential Program”, through which we achieve coherent professional and personal development of the youth having a potential to fill in key positions in the company. Another program dedicated to this objective is the „Mentoring Program” by means of which the experienced managers support the development of young managers and youth with high potential.

We recruit and form local young and talented persons.

We wish to attract young graduates and to recruit talents to ensure long-term successful business.

We want our managers to have a high degree of professionalism, to be loyal and open-minded for all the actions they undertake. They must be models to be followed concerning the professional formation and their ability to work in a team.

The development of the managers and even of the future managers is a very important objective. Therefore there has been elaborated an internal three-year program for managerial development. Our employees take also part in international programs for managerial development organized by the HeidelbergCement Group.

We want our employees to think of the future and to be interested in their activity. We want them to continuously learn and to consider the chances they are given.

In order that the training programs offered to our employees should match their expectancies and support their professional development, as well as the change in attitude and mentality, each position has its own professional and personal competencies. Thus we succeed in preparing the employees to keep up with changes and we have a long-term formation strategy.

Our remuneration system takes into account the results, each person's performances, as well as the economic and social conditions of the economy.

Our remuneration policy is based on information provided by the Statistics National Institute, as well as on information received by participating to investigations concerning salaries and benefits, carried out by specialized companies. The system of performance evaluation applied

within the company allows a better communication of performances expected from the employees according to the position held, as well as rewarding as per results obtained.

We support employees with professional or personal difficulties.

Our programs for personnel development effectively support employees in surpassing their professional and personal difficulties.

We take all necessary measures to provide security and health for our employees, at their working place.

The labour security and health committee, mostly formed of employee representatives, decides on the measures on labour conditions improvement.

Lack of loyalty towards the company, as well as non-adequate behaviour towards the employees shall be punished.

The fundamental values to be observed by the company, established in agreement with the trade union, are published and communicated through the Internal Regulation along with other rules and procedures applicable to the employees regardless of their position.

5.3 Heidelberg Cement Quality Standard Policy:

Building on quality products to build our reputation.

Cement, concrete, aggregates and certain other building materials - these are our fields of competence. In these areas, we produce the products that the market wants and needs. And so we contribute to a better quality of life, work and mobility.

It is the declared goal of every employee to make our products and services into a recognized byword for quality worldwide. This positioning allows us to achieve market leadership.

Our competitive strength is of strategic importance. It can be achieved only through economically and ecologically innovative production technologies and the high quality standards we promote.

5.4 Heidelberg Cement Business Culture:

Building on local responsibility for international success.

We are a growth-oriented international company with decentralized and regionally oriented management, decision-making and organizational structures. The dynamism and strength of our company relies upon these structures rather than just upon its legal corporate structure. The Vorstand shares responsibility in leading the company. It delegates regional and central management duties and responsibilities to its members.

Harmonized management guidelines and the principle of goal agreement are the worldwide foundations for consistent delegation of responsibility, duties and decision-making powers.

We support responsible entrepreneurial actions by providing the necessary freedom based on mutual trust and organized teamwork.

We act responsibly towards customers, employees, business partners, co-owners, shareholders and the environment. We promote national identities and cultures in order to be as close and creative to local markets as possible. We ensure that human rights are observed throughout our Group. We demonstrate respect and appreciation for our employees and their representatives. Our treatment of each other is marked by active and open communication.

Our information policy is to provide open communication and make use of the latest technologies. We inform truthfully and responsibly.

The language of communication throughout the Group is English.

Chapter Six

Chapter Six : Markets & Values

Markets & Added Value:

We are a growth-oriented company. We pursue two strategies: We want to belong to the market leaders wherever possible and we make it our priority to invest in growing markets – where cement is needed to build the economy and society. We want to generate added value for our customers, employees, investors, and suppliers and provide impetus for the local communities.

6.1 The market for cementThe market for cement is characterized by a central property of the product and its raw materials: the sales radius is limited by high transport costs. Therefore our markets are, to a large extent, regionally oriented. Winning new markets requires investment in new locations. In recent years, HeidelbergCement has acquired a large number of cement plants worldwide, thereby enhancing its position on the world market.

Construction activity – the decisive factor for our markets

The more construction takes place, the more cement is needed. The development of our markets is therefore closely linked to the economic development of which construction activity is a significant indicator. In particular Eastern Europe and Asia are growth markets. North America continued to significantly expand also in 2004. In contrast, there was varied development in Europe. During the course of 2003 and 2004, the world economy improved markedly and in many regions construction activity started to rise once again. In Germany, however, construction demand remained weak.

Market leader in many countries

In terms of sales volumes, HeidelbergCement is the fourth-largest cement producer in the world. On many mature markets, we are the market leader and we are increasingly strengthening our position in growth markets. We aim to belong to the regional market leaders wherever possible. In particular, we want to concentrate

on growth markets – where cement is used to construct and expand the economy and society. We have set ourselves the target of obtaining a ratio of mature markets to growth markets of 50 to 50. In particular, we want to invest in areas where sufficient raw material reserves and long-term market oppotunities are guaranteed.

Investigation by the German Federal Cartel Office (Bundeskartellamt)

In 2003, the German cartel authorities imposed fines of around EUR 700 million against German cement companies. HeidelbergCement’s share of the fine amountsto EUR 278.5 million. The allegation relates to quota and price agreements. It is, for the most part, unjustified. The amount of the fine is completely unreasonable.Like most of the companies involved, Heidelberg- Cement has filed an appeal. No decision has been made as yet regarding the appeal. In order to avoid future cartel violations, we are continuing to take internal precautionary measures such as training.

Cement and clinker sales volumes by regions (in 1,000 tonnes) 2005- 2006

2005 2006Central Europe West 7,560 7,138Western Europe 8,750 8,649Northern Europe 5,361 5,359Central Europe East 9,720 9,804North America 12,531 13,414Africa-Asia-Turkey 7,144 20,822Total 51,066 65,186

6.2 Creating added value:

Our goal is to create added value for our customers, employees, investors, suppliers and the communities around our locations. In addition, we want to offer long-term prospects to everyone connected with our economic activities. The conditions are good; our investments are capital-intensive and therefore forward-looking.

Customers

We place the requirements of ready mixed concrete and concrete products customers, architects, construction companies as well as public and private builders at the centre of our economic activities. We remain close to the market, often in direct customer contact, so that we can develop products and applications on an ongoing basis. The expertise of our construction advisors at the plants and at the Heidelberg Technology Center allows us to translate our customers’ specific requirements into the product properties required. In the yearly Building Forum, for instance, we bring together our German-speaking customers and numerous partners from the construction industry in constructive dialogue on the future of the construction sector.

Employees

In 2005, the personnel costs for all business lines, amounted to EUR 1,365 million. The cement line accounted for EUR 610 million, or around 45 %, of this total. Although personnel costs increased by 3.3 % in the cement business line as a result of new consolidations, they fell by 0.6 % across the Group in 2004. We create added value for our employees, not just through wages and salaries, but also by offering greater knowledge. One of the goals of our personnel policy is to help employees obtain further qualifications in order to give them the best possible foundation for further professional development.

Investors

During the course of 2005, the HeidelbergCement share price rose by 32 % and closed the year at EUR 44.30, only slightly below its highest level. Our shares, which rank among the most important in the building materials sector in Europe, are represented in around 30 share indices. The main shareholders are Schwenk Beteiligungen GmbH & Co. KG with 22.44% of the share capital, and Dr. h.c. Adolf Merckle with 12.80%.

6.3 Added value calculation of the Group (EURm)

2005 2006

Overall performance 6,344 6,929Purchases -2,469 -2,656Other operational expenditures -1,670 -1,892Depreciation and amortization of fixed assets -512 -626Amortization of goodwill -186 -346Net added value 1,916 1,531

About 65 % of our shares are in free float. Our financial management benefited from a steadily improving credit rating and was able to carry out a number of financial transactions to improve the debt situation.

Suppliers

In the cement business line, we work with around 30,000 suppliers across the Group, with a purchasing volume of EUR 2.6 billion. This includes investments of EUR 290 million. Making up 20% of the purchasing volume, energy procurement represents the largest item. Therefore, our investments worldwide focus mainly on optimizing the specific primary fuels consumption and the use of alternative fuels.

Locations

Our economic activity provides impetus for development at our locations. We pay a total of EUR 175 million in tax at our locations across the Group. Our purchasing volume also contributes to the development of our locations. In the area surrounding a cement plant, we award contracts to around 300 local suppliers. Throughout the Group, they account for around EUR 1.3 billion, or roughly 50 % of the purchasing volume. The proportion of goods and services procured from the immediate vicinity of the plants is significantly larger in developing markets, as there

is usually a greater demand for goods and services in these areas. We also achieve added value for our locations through the transfer of technology and expertise.We are modernizing the plants and thus reducing adverse effects on the local environment.

6.4 Optimizing products

In 2005, we sold more than 65 million tonnes of cement worldwide. This required large quantities of material and energy flows, from the quarrying of raw materials to the construction phase. For us, acting responsibly in the market means informing the customers about the ecological profile of our products. Assessments on the whole life cycle of products – from the quarrying of raw materials to disposal – are also becoming increasingly important in environmental policy and business.

Reducing ecological footprints

Cement is a semi-finished product and can therefore only be assessed in conjunction with its main secondary product, concrete. Eco-balances show that the cement production process is critical in the energy assessment of concrete. A high percentage of the total energy used in concrete production is attributable to the burning of cement clinker – an intermediate product of cement. This part of the process requires high temperatures and is therefore energy-intensive. However, if a higher proportion of additives is used for cement production, such as blast furnace slag or fly ash, this has a positive effect on the ecological profile.

Promoting greater transparency

The life cycle perspective is also the principle of integrated product policy, a focal point of the European Union’s environmental policy. Integrated product policy aims to promote the life cycle approach in industry. This involves providing information to market partners about the ecological effects of a product, for example. Environmental Product Declarations (EPDs)

in accordance with the international environmental standard ISO 14025 combine environmental data from a product’s entire life cycle.

HeidelbergCement is also taking part in the discussion on integrated product policy and is involved in developing product declarations. Cementa in Sweden and ENCI in the Netherlands have already prepared EPDs of their own, which are available for all customers. In the European cement association CEMBUREAU, HeidelbergCement works with other cement producers to establish a uniform data format and a method of collecting data for product declarations in accordance with ISO 14025. The data for the European cement industry will be collected in the course of 2005. Today, our construction advisors are already making sure that customers are informed about the ecological footprints of the various types of cement and, in particular, about carbon dioxide emissions. This ensures that the customers have all the information they need to choose more ecologically sound variants.

Chapter Seven

Chapter Seven : Cement Procedures & cost Saving practices

7.1 The Process at a glance:

1. Quarrying raw materials

The raw materials limestone, clay and marl are extracted by means of blasting or excavation in the quarry and transported to the crushing facilities, where the stone is crushed into the size of gravel.

2. Blending, grinding and drying

Conveyor belts, ropeways or railways and, in exceptional cases, lorries, bring the crushed materials to the cement plant, where they are stored in blending beds and homogenised. Along with additional raw materials as the need may be, e.g. silica sand and iron ore, the mixture is ground into powder and dried. The raw meal is then conveyed to silos.

3. Burning

Cement clinker is produced from the raw meal at 1,450°C in rotary kilns. Burning clinker involves the use of both primary fuels, such as coal and oil, and, increasingly,alternative fuels such as used tyres, waste oil, plastics or biomass. As soon as the clinker leaves the kiln, it is cooled and stored in clinker silos.

4. Grinding

Gypsum, anhydrite and, at times, other grinding additives such as granulated blast-furnace slag or fly ash, are added to the clinker during the grinding processin cement mills.

5. Loading, packing and shipping

In mature markets, cement is supplied to our customers mainly in bulk form by truck, train or ship. In growth markets a big portion is delivered in bags.

7.2 Promoting climate protection:

The cement industry is responsible for around 5% of global man-made carbon dioxide emissions. Half of this is attributable to the calcination of limestone in clinker production, 40 % to the fuels used in clinker burning and 5% each to electrical energy and shipping. Climate protection is one of the main goals of our sustainability strategy.

Our goal: reducing carbon dioxide emissions

The economic progress in many countries is accompanied by an increase in construction activity and cement consumption. We would like to contribute towardsthe development of these countries while at the same time ensuring that adverse effects on the climate are minimized. The main greenhouse gas in cement production is carbon dioxide (CO2). Since 2002, we have assessed CO2 emissions across the whole Group in accordance with the Carbon Dioxide Protocol of the World Business Council for Sustainable Development, which is implemented in all plants.

We have set ourselves the goal of reducing the specific net carbon dioxide emissions per tonne of cement by 15 % across the Group between 1990 and 2010. The reduction target relates to all fully or proportionately consolidated cement companies in our Group, including all future acquisitions.

Net and gross emissions have to be distinguished. Gross-emissions comprise all direct emissions, net emissions are direct emissions less the savings that are achieved, for instance, through the use of alternative fuels and which are assessed to be CO2 neutral.Our climate protection measures

To reduce carbon dioxide emissions we take the following steps:

o We are continuously modernizing our production facilities in order to guarantee the highest possible efficiency of the cement production.

o Wherever possible, we are replacing clinker in cement with other materials. This allows us to reduce the energy-intensive production of the intermediate product clinker and to fulfill the corresponding quality standards at the same time.

o Fossil fuels such as coal or oil are increasingly replaced by alternative fuels.

Heading for success

Our activities are bearing fruit: In 2005, specific gross CO2 emissions were at a level of 723 kg per tonne of cement. Despite higher clinker production in Eastern Europe, Asia, and North America absolute gross emissions at 39.6 million tonnes were only slightly above previous year’s level. Compared with the 1990 base year, we have already achieved a reduction of 73 kg CO2 per tonne of cement. CO2 emissions from biomass amounted to 596,000 tonnes in 2004. Indirect CO2 emissions from externally purchased electrical energy totalled to 5.6 million tonnes. According to ourSelf-commitment we also establish net CO2 emissions which reduced by 11 % in the reference period.

7.3 Saving raw materials and using alternatives:

Fair distribution of natural resources across generations is one of the fundamental goals of sustainable development. The increasing economic progress in many countries compels us to use the resources intelligently.

Reducing the proportion of clinker

Wherever possible, we are replacing clinker with cementitious additives such as blast-furnace slag and fly ash. We have set ourselves the goal of reducing the percentage of clinker in cement across the Group to 80 % by 2010. We already achieved a clinker content of 83 % in 2006.

Using alternative fuels

Within HeidelbergCement, there are numerous activities which focus on replacing fossil fuels with alternative fuels. The choice of materials depends among other things on their availability and their calorific value. In addition, we pay attention to the chemical composition to avoid harmful emissions and disadvantages to the product’s environmental impacts. Selection and use of alternative fuels are orientated towards guidelines developed by the Cement Sustainability Initative (CSI) under the auspices of the WBCSD. The first alternative fuels used in cement production are tyres and waste oil. The most commonly used alternativefuel is plastic, often as a mixture of production-specific industrial waste with paper, cardboard or textiles. j Also of increasing interest for us is the use of biomass.This includes, for example, animal meal, which has been used across Europe since the BSE crisis. Wood and, increasingly, sewage sludge, nutshells and rice husks, as well as other locally available materials are also used for energy. The use of alternative fuels was 13.2 % of the total energy consumption across the Group in 2005 and increased to 13.9 % in 2004. The share of biomass amounted to 3.2 % in 2006.

Reducing water consumption

In 2005, we recorded the water consumption figures across the Group for the first time. Water is used for cooling, as process water, to reduce dust in quarries and as drinking water, for example. A preliminary analysis of the specific water consumption of 50 reporting plants clearly showed that the consumption levels vary over a wide range. This is due to the different technology used, as well as the inconsistent recording methods. Our goal is therefore to obtain reliable data for all our plants, in order to take targeted reduction measures.

Chapter Eight

Chapter Eight : Overall Strategies

8.1 Heidelberg Cement Strategy:

Vertical integrationWe maintain the strategy of vertically integrating our core activities of cement, ready-mixedconcrete and sand and gravel. Cement continues to play the leading role. Where the local market conditions permit, we also become involved in the concrete and aggregates sectors, in order toachieve a strong market position secured for the long term through vertical integration. maxitGroup is part of the vertical integration strategy, particularly in mature markets, where priority is naturally given to the renovation of existing buildings.

A change in management focusHeidelbergCement’s development in 2006 was characterised by considerable changes. The reorientation of the management style is based on proximity to operating activities, clear goals, consistent implementation and speed. The current management focuses are increasing efficiency, cost leadership and growth. In our industry, where it is difficult to develop really unique sellingpoints, cost efficiency is the decisive criterion for competitiveness, adequate sustainable returns and, therefore, the basis for growth. Permanent increases in efficiency through consistent internal and external benchmarking, and the worldwide application of best practice solutions are criticalfactors for our success. In 2006, we took comprehensive steps to increase efficiency and optimizecosts, and are now seeing the first fruits of some of these actions. Measures such as the centrali-sation of Group functions, the elimination of levels of hierarchy, the combining of administrative mass processes in shared service centers and the reorganisation of Group Purchasing will take us a decisive step forward on the way to cost leadership in the next few years.

Strengthened commitment in growing marketsWe assume that worldwide cement consumption will increase further in the coming years. However, in the developed countries, where there is no population growth, development will range from neutral to a slight decline. In contrast, we expect a high increase in emerging countries, particularly in Asia. Therefore, HeidelbergCement will consistently continue its strategy of expanding its activities in countries with strongly growing economies. We will act selectively and concentrate on certain regions in order to strike the right balance between increased risk, growth and results. We have set ourselves the target of obtaining a mature to growing markets ratio of 50:50.

Participation in the process of consolidationThe worldwide consolidation of the cement industry is intensifying. Besides the established global competitors who are driving this process forward, there are more and more new large regional companies based in countries experiencing strong growth. Heidelberg Cement will play an active yet cautious role in this process of consolidation, on the basis of a solid balance sheet with significantly improved key financial ratios.

Committed to sustainabilityHeidelbergCement has made a commitment to the sustainable development of economy, ecology and social responsibility. These goals are implemented in practice on the basis of our sustainability programme. The strengthening of our profitability, which we improved noticeably in 2006, remains a primary strategic goal. We continue to place a high value on the environment.With the increasing use of alternative raw materials and fuels, we reduced our consumption of natural resources once again in 2006. Noticeably improving energy efficiency is a strategic focus both now and for the future. In the past year, we have moved a

good deal closer to our goal of reducing our specific net CO2 emissions by 15% – compared with 1990 – by 2010. In order to safeguard the future viability of our Group, we needed to make personnel cuts in 2006. The process was characterised by transparency and respectful treatment of others. The competence and customer focus demonstrated by our employees form the basis for HeidelbergCement’s long-term success and competitiveness. By helping our employees gain qualifications, we support an international business culture in which they are both challenged and supported.

8.2 Heidelberg Cement Market Strategy:

Building our growth on a solid base of earnings.Profits are the prerequisite for investment in research, new products and facilities. We optimize costs based on benchmarking and improve earnings through active management of the value-added chain. Optimization of production and logistics costs are of prime importance. We consider social as well as economic aspects in all our decisions and actions.

For control of our long-term profitability, we use a common system as a measure of our success.

Wherever possible, we work to become the market leader and to build up our position through vertical integration. To optimize our production capacity and to help us build strength in distant markets, we conduct international trade in cement as well as clinker.

We respect fair competition.We use the power of our regional brand and company names, but make clear that they belong to the Heidelberger Zement Group. In this way, all our employees enjoy the advantages of local name recognition and the worldwide strength of the Heidelberger Zement Group.

8.3 Market Segmentation:

Scan Cement has segmented its market into two sectors:

1. Corporate Clienti) Government sectorii) Private sector

2. General Client

From the above-segmentation their target market is corporate client. Especially they have much business concentration is corporate sector. So, Scan Cement started direct marketing and selling to corporate customers i.e. leading local and foreign construction companies, developers, real estate companies and government organizations in Bangladesh.

Chart: Market Share of Scan Cement (Out of 7 Million ton Scan Cement market share is 0.75 Million ton)

8.4 Marketing Mix: Four P’s

Product Feature:

In Bangladesh Heidelberg Cement Group have two reputed brands: Scan Cement and Ruby Cement.

Why Scan Cement?

Stringent Quality Control Feature:

All stages of production are under stringent quality control. The imported raw materials undergo through testing to guarantee quality and conformity with international standard.

In the factory for quality testing, a random sampling system is used at every stage of the production. The whole production process is strictly monitored through a state-of-the-art computerized central control room.

Characteristics of Scan Cement:

Scan Cement: Portland Composition Cement (PPC)

As part of its relentless pursuit of innovation and the constant drive to important quality, Heidelberg Cement has introduced Portland Composition Cement (PPC). Produced as per European norm, PCC’s unique characteristics have distinguished it from Ordinary Portland Cement (OPC). The category Portland Composite Cement (CEM II) is the market leader in Europe.

Scan Cement Produces According to European Standard:

Scan Cement PCC is designed to provide the best characteristics for its customers. This result is achieved by using clinker, high quality slag and limestone. PCC is designed to provide an optimum of: workability, durability and long-term strength.Scan cement is produced according to the European norms EN 197-1:2000. The product notation for Scan Cement is CEM II / B-M (S-L).

Higher Strength:

Scan Cement has a higher long-term strength. The slag component in the design of scan cement is responsible for this effect. The long-term strength will continue to increase as time progresses.

Higher Durability:

The design of Scan cement produces a concrete with higher density and lower permeability, which produces less voids; thus contributing to the durability and lifetime of the construction.

Better Workability:

To improve the quality of plaster and masonry work limestone is added to Scan Cement. This greatly improves the workability of the concert. Plastering will look smoother, better and more appealing. The concrete will be easier to use.

New Innovation:

In addition to the above-mentioned improvements Scan Cement reduces thermal cracking.

Environmental Awareness:

They not only focus on profit but also focus on the welfare of the society. So, they introduce environment friendly paper bag for packaging their product. Portland composite cement is also an environment friendly product which reduces green house effect.

8.5 Pricing Policy:

Scan cement have credit policy. They sale cement on credit. They charge different price for corporate customer and retailers. Especially government project like Mohakhali Flyover, Pakshey Bridge project etc. They charged fewer prices. This is for their promotional and liaison purpose with government, which help them in the long run.

8.6 Promotional Activities:

Scan Cement takes different kind of promotional activities for increasing their sales as well as expand their customer and market. The promotional activities that they are Maintain generally are discussed bellow –

Help Desk:

Their newly introduced Scan Cement Help Desk has been helping homebuilders, dealers and institutional buyers to get all pertinent information including whereabouts of their stock in transit round the clock. Through this help desk customers are being able to track down their up to date truck status that means entry and exist information of the trucks from the factory. Scan Cement is the leader in innovation and Help Desk is a step forward to this steps.

Advisory Cell:

It is one of the very new promotional activities in the cement industry. By this cell they try to help giving advise to the homebuilders and this advisory cell is known as “ Hellow Bhalo Basha”. From here homebuilders can get the information that helps homebuilders to build a good home. This strategy influenced the homebuilders a lot that’s why they made same kind of advisory cell in Chittagong. Workshop on Construction:

Under the Scan Cement advisory cell they arranged technical seminars and they got huge respond from this seminars that’s why they decided to arrange it in area wise recently they have arranged three technical seminars in Shonir Akhra, Mirpur, Uttara where more than 500 homebuilders participated and discussed about their problem facing while constructing their own home. Actually the main objective of their seminars is to provide all kind of construction related solution as well as keep holds the relation with their targeted and potential customers.

Scan Cement authority also arranged a workshop for the mason for their skill development and we think that was another positive promotional step. Because sometimes many small homebuilders take suggestion from them that which branded cement they will use and this type of workshop may be able to create positive image in that mason mind, that can influence them to suggest to small builders to use Scan Cement.

Participation on Remarkable Creation:

As a promotion activities Scan Cement always try to join that kind of construction that could be remarkable creation in Bangladesh and they always try to be a part of great creation by supplying their cement in very minimum price so that they can make a positive image and believes in their customers mind. They already became a part of some great creation in Bangladesh, such as – Shah Amanath International Airport, Pakshey Bridge, Mohakhali Flyover etc. and because of this kind of participation and high as well as consistent quality, Assurance Development Ltd. Selected Scan Cement exclusively for all their ongoing and future project. Besides other user agreement partners are -

• More than 100 Corporate Customers• Major Users:• Pakshi Bridge Project• Mohakhali Fly Over• Concord Ready Mix• Development Construction Ltd. ( DCL)• Asset Development• Japan Garden City

Retailer Motivation:

Scan Cement takes different motivational activities in different times. Such as – “GO FOR GOLD” in this activity authority organize competition among retailer. Total 113 retailers were awarded with gold coin along with certificates. This contest aroused additional zeal and enthusiasm among the minds of the trade members.

Advertising:They don’t use TV and radio as a media for their product advertising. They basically arrange seminar, different workshop, they opened advisory cell and by that they help to the customers and through these elements they try to communicate with their customers. But sometimes they use billboard and give different gift such as T-shirt for promote their product.

Social Responsibility:For an industry maintaining social responsibility is a very nice way for doing business in long run. Because it helps a company to reach all level of people with their product and it is also helpful to make a positive image to a customer mind. Scan Cement took some steps for

society’s betterment. Such as – the company introduce an informal education program for its staff and workers in order to develop basic learning skills.

It also sponsored the “The Scan Cement Tournament”. Besides, they are continuously thriving to protect the environment and ensure the safety and health of their employees and the society especially where they do operation. Both of their plants comply with international environment standards and they continuously strive to introduce new measure to protect the environment, neighbors and customers. The also make conscious people what they have to do in earthquake.

Placement:Heidelberg cement’s shear value is highest in among cement industries. They give 15% dividend to stockholder. So, this product obtained a clear image on peoples mind. Scan Cement has two production units one in Kanchpur, Narayangonj and other is in Chittagong. They can export to nearest country and import raw material by Chittagong port and by using Narayangonj jetty they can get easily raw material by water transport and also serve the most demanding Dhaka market.

There is no agent for Scan Cement at district level. And there are many retailers; they get special concession for selling. Direct marketing and selling to corporate customers like construction companies, developers, real estate companies and government organizations in Bangladesh.

Chapter Nine

Chapter Nine : Problems & Recommendations

9.1 Problems with Current Strategies:

TV Is Missing:

In analyzing Scan Cement it is most interestingly found that the organization is lacking on TV even in this media age. Marketing environment says that in Bangladesh nothing can be as appealing as TV to the consumers. Even few of the rivals are using TV to disseminate their communication to the customers. In Bangladesh the entire social strata is using TV, from poor in the remote village to rich in the posh area. Already Scan Cement is on the way to positioning in the mind of customers, but to make the place almost permanent in the mind, it is very important to buzz always in the cutting edge.

While others are doing the same, if one entity does not do so, it will automatically lag behind. As a nutshell, to make things metaphorically clear it is said according to Mr. Kotler, “Today we have to run faster to stay in the same position.” By using TV Scan Cement might at least keep the same position, which it has earned in course of time.

No Export Strategy:

Bangladeshi market of cement industry has already reached its saturation point, in this economic environment. Unless the economic environment gets another booming the cement market is not gonna flourish more. Never the less the craving to expand is always irresistible.

To stay with this attitude, Scan Cement can take initiative to export its products to Myanmar, Assam, Tripura, Meghaloy, Mizoram i.e. the seven sisters of Indian state. Already two, three Bangladeshi cement firms have started to export.

According to the market intelligence the quantity of export is not that much huge. But the demand of cement is not less. Indian Cement industry’s centralized production system takes more time to distribute the products from the central states. Those above-mentioned states are already the victim of ignorance from the central government. Moreover the state govt. doesn’t have that much expertise. In this circumstance exploiting the opportunity would be the wisest idea if Scan Cement can adopt. For Heidelberg Group, having international exposure, it is not a big deal as they have operations in more than fifty countries, which we have already mentioned.

Marginal Customers Are Not Focused:

This strategy is basically learnt from Unilever in India. Even though it was a giant conglomerate, it did not miss the marginal customers in the rural India. It took every last resort to penetrate in the market of remote places where even the best communication is farm cart. Like the above-mentioned example Bangladesh has a huge market in its 68000 villages. A little upper class in the village has their houses made of tin; floors and pavements are made of concrete. For the time being the market seems like tiny but the number of villages are really huge. Like the sachet of Unilever products the small packs of cements are missing for the rural area where purchasing power is limited.

More Mutual of Understanding (MoU) Is Required:

Though Scan Cement is a product of Giant Conglomerate, but it does not have the attitude like the prospective one. Heidelberg Cement Group has less mutual of understanding with the other multinationals and local corporations. Right now the group has few MoU like with the Assurance Developments and etc. But in the developers area there are others who are leaders and pioneer. It could be an important initiative if the entity had more MoU with the pioneers in Developers zone like Eastern Housing, Building Technology & Ideas, Prashad Developments etc. This could add extra value in their financial statements.

9.2 Recommendations:

Beside Paper Based Media Use the Electronic Media As Well:

In twenty first century no corporation can improve without place themselves in TV. People are now more prone to television than before. So it would be significant if they spend little more money in electronic media marketing. Rival Meghna Cement, Shah Cement, Seven Rings Cement etc. are using TV beside paper based media. To be a pioneer in the industry it is important to know one proverb “Poor farms ignore competitors, Average farms copy the competitors and Pioneers lead their competitors.” Heidelberg Cement Group was the pioneer, so it has to act like a leader.

Take the Advantage of Location Economy:

According to the definition of location economy and first mover advantage it is wise to step first on those places where the initiator is the first and resources are available and

inexpensive. Indian states are still virgin to export from Bangladesh. Though some of the business firms say that they have exported to the seven sisters’ state of India. But the truth is they just had sent few trucks. It is not like; they have agreement with the state government or any local corporation. It is just some touch of exporting, not the full swing operation to export. With international exposure Heidelberg Cement Group can create diplomatic pressure to Indian government to sign an accord as well as the reputation in cement industry would work to add extra value in balance of payments.

Small Packets of Cement for Rural Area:

Unused or Untapped market is always the target of marketers. As the purchasing power is less in rural area so there can be new packets weighs 20 or 25 kg. These packets will specially be sold in the rural area. The packets will be sold in the ‘Thana’ level especially in those areas where transportation is easy, where the cattle cart can carry a small amount of bags. Push strategy of marketing would be undertaken. Only billboards would be the media of advertising. Weekly Bazar of villages would be the target. Unmet demand, even of the rural people would be exploited. These people’s demand would be created. New habit of using Scan Cement would be in the villages.

Civil Engineers Scholarship:

Bangladesh has almost ten engineering universities around the whole country. These university’s produced civil engineers work in many field. Ultimately they decide which cement to use in the project. So if the scholarship is given at least in little quantity in those universities than these people would be remembering the contribution of Scan Cement. This little contribution will influence on the engineers which is ultimately beneficial for the entity itself.

Target Those People Who Are Going to Retire Soon:

A team of Scan Cement will always be searching those people who are going to retire soon. Especially in the government offices, they would look for the data base and communicate those people personally. Because it is found that Bangladesh has trend that its citizens starts to build their houses after retirement. Just before going for L.P.R. if this persons are notified by the Scan Cement than there are big possibilities that while constructing the building they will use the recommended brand.

More Participation in REHAB Fair:

Usually it is found that in REHAB fair cement companies don’t participate largely. But to expand their market it is important to have sponsorship for the developers as they are the biggest market in Dhaka city now a day. With the rising of nuclear family smaller house builders are coming up. That potential market is to be grabbed. In this fusion developers are the catalyst. So sponsorship is very essential to these kinds of fairs where developers are participating in. Scan Cement can play a major role in this sort of initiatives.

Mutual of Understanding with Leading Builders:

If builders are given special concession in buying the Scan Cement products through Mutual of Understanding than the entity will get more exposure. Already it is said that they have

MoU with Assurance Developers. Now every corporation is trying to have more networking with others. Moreover the business is dull with the price hiking of rod. In this tough time it would be wise to focus more and broaden the foresight for the unmet need. MoU is one of them, which can be the major tool to expand the market for Heidelberg Cement Group in Bangladesh.

REFERENCE1. Cement industry beset by market situation. (2005, October 6). The Daily Star.p.62. March 18th 2004, from http://tang!adeshobse,veronllne.com/new/2OO4/O3/17/economk/htm3. Dhaka, Colombo FTA talks to enhance econOmic cooperation. (2003, November 1)4. Sustainable Development Networking Programs Bangladesh. Retrieved January

24,2005, from http.//wwwsdn1xLorg/sde/news/generaI-news/ November-2005/O1-11-2006/Business.htm

5. Dhaka, Delhi ETA soon. (2006, October 23). The Independent. Retrieved December 10th 2006 from hllp://www.fridependentbang/a desh. corn/ne w/oc7723/23102003ts.htm

6. Habib, Haroon. (2006, October 21). India’s gesture to Bangla cement exporter. The Hindu. Retrieved October 30, 2006, from http://www.hfndu.com/2OO3/1O/22/stories/2OO31O22O25616OO.htm

7. Heidelberg Cement introduces PCC in Bangladesh. (2006, January 6). The Independent. Retrieved January 7th from http.//Independentbang ladesh.com/news/jan/06/06012006bs.htrn#A9

8. Hussaini, Fakhn (1995). Construction material industries in Bangladesh. Senior Project, AIS/D

9. Investor’s Experience. (2005, August 14). Board of Investment, Bangladesh. Retrieved October 22, 2006, from http://www.boitxLorg/holdm.htrn

10. Invest in infrastructure. (2006, February 16). The Daily Star. P.611. Islam, Sirajul (2005) Cement Industry. Banglapedia(pp.385-386). Dhaka:

Asiatic Society of Bangladesh12. Johnston, Bernard. (1998). Engineering Materials. Colliers’ Encyclopedia (Vol.

8, pp.165-169). New York: Coiliers’Encyc/opededia.13. Murad, G.N. (2002, August). Facing Challenge. World Cement. 33, 53-5914. Employee Policy http://www.heide/bergcement.ro/cement/index.php?idp—2015. Purchasing Policy http://wwwheide/bgcementiv/cemen!/index.php?idp=3716. www.heideIbergcement.com