COMMERCE SOLUTIONS

MISSION STATEMENT

Nestlé is dedicated to providing the best foods to people throughout their day, throughout their lives, throughout the world. With our unique experience of anticipating consumers' needs and creating solutions, Nestlé contributes to your well-being and enhances your quality of life.

VISION STATEMENT

We envision Nestlé Milkpak to grow in the shortest

possible time into the number one food company in

Pakistan with the unique ability to meet the needs of consumers of

every age group from infancy to old age,

for nutrition and pleasure, through development of a large

variety of food categories of the highest quality.

We envision the company to develop an extremely

motivated and professionally trained workforce, which

would drive growth through innovation and renovation.

We aspire, as a respected corporate citizen, to continue

playing our due role in the social and environmental

sectors of the country.

COMPANY FROM FOUNDATION TILL NOW

1866 Company's foundation

1905

Merger between Nestlé and Anglo-Swiss Condensed Milk Company

1929

Merger with Peter-Cailler-Kohler Chocolate Suisse's S.A.

1947

Merger with Alimentana S.A. (Maggi)

1971

Merger with Ursina-Franck (Switzerland)

1985

Acquisition of Carnation (USA)

1988

Acquisition of Buitoni-Perugina (Italy)

1988

Acquisition of Rowntree (GB)

1992

Acquisition of Perrier (France)

1995

Nestlé acquires Victor Schmidt & Söhne, Austria's oldest producer of confectionery, including the famous 'Mozartkugeln'.

1997

Nestlé, through the Perrier Vittel Group, expands its mineral water activities with the outright acquisition of San Pellegrino.

1998

Nestlé acquires Spillers Petfoods of the UK and strengthens position in the petfood business which began in 1985 with the acquisition of the Carnation Friskies brand.

1999

Divestiture of Findus brand (except in Switzerland and Italy) and parts of Nestlé's frozen food business in Europe.

Divestiture of Hills Bros, MJB and Chase & Sanborn roast and ground coffee brands (USA).

2000

Acquisition of PowerBar.

2001

Nestlé acquires Ralston Purina - Nestlé Purina PetCare Company established.

2002

Perrier Vittel Group re-named as Nestlé Waters.

The key factor which drove the early history of the enterprise that would become The Nestlé Company was Henri Nestlé's search for a healthy, economical alternative to breastfeeding for mothers who could not feed their infants at the breast.

In the mid-1860s Nestlé, a trained pharmacist, began experimenting with various combinations of cow's milk, wheat flour and sugar in an attempt to develop an alternative source of infant nutrition for mothers who were unable to breast feed. His ultimate goal was to help combat the problem of infant mortality due to malnutrition. He called the new product Farine Lactée Henri Nestlé.

Nestlé's first customer was a premature infant who could tolerate neither his mother's milk nor any of the conventional substitutes, and had been given up for lost by local physicians. People quickly recognized the value of the new product, after Nestlé's new formula saved the child's life and within a few years, Farine Lactée Nestlé was being marketed in much of Europe.

Henri Nestlé also showed early understanding of the power of branding. He had adopted his own coat of arms as a trademark; in Swiss German, Nestlé means 'little nest'. One of his agents suggested that the nest could be exchanged for the white cross of the Swiss flag. His response was firm: "I regret that I cannot allow you to change my nest for a Swiss cross .... I cannot have a different trademark in every country; anyone can make use of a cross, but no-one else may use my coat of arms."

Meanwhile, the Anglo-Swiss Condensed Milk Company, founded in 1866 by Americans Charles and George Page, broadened its product line in the mid-1870s to include cheese and infant formulas. The Nestlé Company, which had been purchased from Henri Nestlé by Jules Monnerat in 1874, responded by launching a condensed milk product of its own. The two companies remained fierce competitors until their merger in 1905.

Some other important firsts occurred during those years. In 1875 Vevey resident Daniel Peter figured out how to combine milk and cocoa powder to create milk chocolate. Peter, a friend and neighbor of Henri Nestlé, started a company that quickly became the world's leading maker of chocolate and later merged with Nestlé. In 1882 Swiss miller Julius Maggi created a food product utilizing legumes that was quick to prepare and easy to digest. His instant pea and bean soups helped launch Maggi & Company. By the turn of the century, his company was producing not only powdered soups, but bouillon cubes, and sauces and flavorings.

First came infant and milk nutrition

Innovation and an entrepreneurial spirit have been Nestlé characteristics from the start.

In 1886, while the Page brothers in Cham were building Europe's first condensed milk factory, for the Anglo-Swiss Condensed Milk Co., Henri Nestlé, in Vevey, was developing his infant cereal "Lactous Farina Nestlé " launched in 1867.

The two companies merged in 1905 to become the "Nestlé & Anglo-Swiss Condensed Milk Co.". The former had developed a successful long-life product from fresh milk, a highly perishable raw material, whilst Henri Nestlé had achieved international acclaim due to the remarkable qualities of his invention. Given the highly infant mortality rate, due mainly to the lack of an appropriate breast-milk substitute, his infant cereal respond to a real need.

His name and the Nestlé symbol (Nestlé means "little nest" in German) were guarantee of the consistent quality of his product, the result of painstaking scientific research.

Then came product diversification

Contacts with other leading companies that have innovative ideas led to acquisitions and diversifications.

The company expanded in 1929 through the acquisition of the,

Cailler

Peter and

Kohler chocolate companies,

followed in 1947 by the Maggi group and its culinary products.

Thus Nestlé became the heir to inventions such as Daniel Peter's milk chocolate (1875) and Julius Maggi's vegetable-based soups (1884) and stock cubes (1908).

Nestlé accumulated knowledge, as well as the perseverance and competence of scientists like Max Morenthaler, made possible the huge success of the Nescafe launch in 1938.

Subsequent acquisitions opened doors to new areas, such as

Preserves (Crosse & Blackwell 1960),

Frozen foods (Findus, 1962),

Mineral water (Vittel, 1969)

Pet care (Carnation, 1985).

Others reinforced the company's position in established areas, for example,

Italian cuisine (Buitoni, 1988),

Chocolate and confectionery (Rowntree, 1988)

Performance foods (PowerBar, 2000).

At the same time, reseat at Nestlé resulted in the development of new products such as

Milo (1934),

Nestea (1944),

Nesquick (1948),

NAN (1962),

Yes (1979),

Nespresso (1986),

LC (1994) and

Nestlé Pure Life (1998).

Existing products such as Nescafe, Maggi culinary products or the various dairy products have been constantly improved and adapted to current consumer life-styles.

Today and tomorrow a company that cares about consumers al around the globe

Today, Nestlé is the world's leading food company. Its international R&D network supports the products made in 479 factories in 81 countries.

Being a company dedicated from the start to food, Nestlé remains sensitive to culinary and eating habits, and responds to specific nutritional problems, whilst also setting and matching new trends such as growing out-of-home consumption.

THE ORGANIZATION TODAY

Nestlé Milkpak Limited is a food processing company currently producing 28 products, excluding the variants.

Headquartered in Lahore, the company operates two production facilities at Sheikhupura and Kabirwala and has recently acquired three bottle water companies in Karachi and Islamabad. Through its effective marketing and a vast sales and distribution network throughout the country, it ensures that its products are made available to consumers whenever, wherever and however.

The company meets its raw milk requirements through its raw milk requirements through direct purchases from the farmers under its self collection programmed from over 3000 villages, spread over an area of about 8000 Sq. Km. in Punjab.

Nestlé took a major participation in Milkpak Ltd in 1988. After it assumed the management of the company in 1992, Milkpak ltd. was renamed Nestlé Milkpak Ltd.

PRODUCTION

Sheikhupura factory

Having originally begun operations in 1979, this factory of Milkpak ltd. was producing UHT milk, butter, cream, Desi ghee and Frost by 1988. After Nestlé acquired interests in the company. Nestlé Milkpak drew up an ambitious portfolio of expansion plans.

While reorganizing and reinforcing the existing brands, new production lines were installed. The first to come was a milk powder plant, which began producing NIDO in 1990m. Infant food products CERELAC, NESTUM and LACTOGEN followed this.

More product lines and product ranges were added between 1992 and 1997 which included Everyday, MILO, POLO, ORANGE JUICE, MAGGI NOODLES AND YAKHNI, NESLAC, NESTLÉ RICE AND WHEAT.

In 1998 three new major technologies, added, which produce NESTLÉ PURE LIFE bottled water, Maggi sauces and high & low boiled confectionery.

5-gallon NPL in polycarbonate refillable bottles was launched in 1999. The year 2000 saw extensive efforts in the development of new products. Self foaming exotic Frothe in single serve sachets was launched in early 2000 followed by cold coffee under the brand name NESCAFE Frappe, the range of which was subsequently extended with the introduction of two new flavors" " French Vanilla" and "Mocha".

Several other new products were also introduced during 2000. These included Nestlé Mango juice, Nestlé mango-Orange juice and Nestlé Plain Yogurt. Certain products namely: Desi Ghee, ButterScotch and cream were re-launched in improved packing.

To cater for increased production levels; a National Distribution Center (NDC) was constructed in 2000 to serve as a centralized distribution warehouse. Designed for handling of containerized shipments, NDC has storage Capacity of 8000 pallets of finished products.

Kabirwala Factory

Kabirwala Dairy Ltd., as it was then called, was established in 1983 as a UHT milk processing plant. Nestlé Milkpak Ltd acquired it in 1990 as a subsidiary and installed the MAGGI NOODLES plant in 1992.

Nestlé Milkpak Ltd setup its second milk powder plant at Kabirwala in September 1996 which produces NIDO, GLORIA AND skim milk powders.

A new evaporator was installed and commissioned in 1999, followed by a capacity increase of milk powder production by 150%. The year 2000 also witnessed the launching of premier quality cultured butter in 100gm. And 200 gm. Packing. In 2001 this butter was made available for institutional sale in 10gm. packing.

This factory is now a fully owned unit of Nestlé Milkpak Ltd since April 1997 and is called Kabirwala Factory.

MILK COLLECTION

Since 1988 Nestlé Milkpak Ltd has made great strides in establishing its own milk collection system and a mutually beneficial partnership with farmers, that has focused on increased milk production. A great success story, this partnership has brought property to the farmers through an assured and growing income from sale of milk. It has also enabled Nestlé Milkpak Ltd to collect and process the best quality milk, enabling it to produce international quality UHT milk and other milk products.

Since Nestlé Milkpak Ltd was unable to produce high quality raw milk from the traditional middleman, so essential to the production of quality processed milk and other products, a self collection program was inevitable. Towards this end a large network of village milk collection centers (VMCs)

Was created, sub and main centers equipped with chilling facilities were established and a large tanker fleet was pressed into service. Milk brought by the farmers to the VMCs is tested for quality and fat content before acceptance. It is then transported to the sub centers for consolidation and chilling before being transferred to the main centers and finally dispatched to the factories.

After a monumental effort of 12 years, Nestlé Milkpak Ltd can now rightly proud of having pioneered an extensive and modern milk collection system that works most efficiently.

The corner stone of Nestlé Milkpak LTD's self collection program is its strategic partnership with the farmers. During the last 12 months alone the company has infused over billion rupees in the rural economy by the way of milk purchase.

Soon after the launch of self collection system, Nestlé Milkpak Ltd realized that farmers needed to be made aware of advancements in the dairy sector, particularly animal husbandry practices, fodder cultivation, veterinary care and breed improvement.

The company addressed these issues by establishing an Extension Service and staffing it with the qualified veterinarians. Over the last several years, this department has been rendering extremely valuable services to farmers. Awareness among farmers has been raised to about milk quality and animal husbandry practices through regular village meetings. They are provided free consultation in diagnosis and treatment of their livestock and vaccination at cost.

Realizing that improved feeding means more milk and consequently more milk and consequently more income to the farmers, Nestlé Milkpak Ltd provides high yield imported seeds and cuttings of nutritional fodder to the farmers at cost. They are also assisted in the procurement of cotton seed cake and molasses as feed supplements. Farmers are also educated in converting waste into nutritious and cost effective silage as cattle feed.

Nestlé firmly believes that in the days to come, the initiatives it has launched could provide the breakthrough that the economically disadvantaged class of small farmers has been looking for.

EXPORTS

Nestlé Milkpak Ltd. entered the export market in 1993 with the export of infant Cereals to Afghanistan. In 1994 export to Afghanistan was expanded to products to urban consumers. It helps in arresting environmental degradation caused by the influx of cattle into towns.

The company is also committed to reducing the environmental impact of packaging, without jeopardizing the safety and quality of the products. Special emphasis is placed on seeking packaging solutions that lead to the lowest possible weight & volume as well as increasing the recycleablity of its packages. Care is taken to avoid the use of substances that may adversely impact the environment during packaging, production and disposal. As a result of these measures Nestlé Milkpak Ltd used 325 tons less packaging material between 1994 and 1999.

Conscious of air pollution hazards due to release of obnoxious gases like carbon dioxide, Nestlé Milkpak Ltd stringently monitors its gaseous environment and ensures proper maintenance and operation of fuel consuming equipment at the factories.

CORPORATE INTERNAL AUDIT

The company operates its own Corporate Internal Audit department which independently assists the general management in verifying the application of corporate standards, policies and ethics throughout the group, and gives to the operational management the comfort that:

Internal controls are in place

Management information is reliable

Resources are used efficiently

The auditors cover all administrative and operations functions like finance, purchasing, manufacture, quality assurance, costing, marketing, supply chain, sales etc. in all the units such as the corporate office, factories, distribution centers and sales offices through out the group.

HUMAN RESOURCE ACTIVITIES

In supporting the achievement of company business results the key Human Resource focus for 2001 was: the retention and development of existing talent, and the attraction of those with the potential to contribute to business performance i.e. to be seen as a Preferred Employer.

A compensation and benefits strategy supporting our drive for a more efficient, flatter structure, with increased employee involvement and improved communication was developed. This included the evaluation of 182 executive jobs to determine their relative size, resulting in a reduction from 13 job grades to 4 job groups. In addition , position titles were rationalized to reflect job content rather than an individual's job grade.

Efforts continued for ensuring that the total compensation remained competitive in the Pakistan labor market and represented value for money for the company.

Compensation and benefits practices are regularly compared with other employers to develop the company's compensation and bene741

Fits structure and policies. Any salary review is then based on market practices, company and employee performance, relative job size and skill scarcity.

On the training side, while the major development tool for performance improvement remained on the job training during 2001, other formal programs and workshops were also conducted. This period marked the third and final year in establishing local programs developing employee abilities to :

Manage themselves

Work with others

Lead others

854 employees participated in local training programs, 48 of them were exposed to the overseas training and 10 of them were sent on international assignments for developing their skills and experience.

CONTRIBUTION TO OTHER SECTOR

Economic

Nestlé Milkpak Ltd makes a significant contribution to the economic sector of Pakistan. Through generation of tax revenue, import substitution of milk powder, export and infusion of over 2.3 billion rupees in the rural economy through milk purchases, the company plays an active role in promoting economic growth.

Nestlé Milkpak Ltd continues to make investments in expanding its production lines as well as bringing in new technologies, affirming its faith and confidence in the country's future.

Social

In the social sector, the company has created over 1200 permanent job opportunities for the skilled, unskilled and professional manpower, apart from hundreds of contractual jobs. It has also played a remarkable role in expansion and vitalization of the dairy and livestock sector.

Environment

Another key area where the company is proud to have made a contribution in the environment. By making available the processed and packaged dairy.

Nestlé Milkpak has switched over its fuel supply from heavy fuel oil to gas, as gas burns cleaner than heavy fuel oils. This drastically reduces gases such as carbon di oxide and carbon monoxide from being emitted into the atmosphere and keeps the emissions well below the legal limits.

Steps have also been taken to reduce raw water consumption for cleaning and other purposes.

This positively impacts on the efficiency of our waste water treatment plant, of which BOD & COD is continually monitored by the engineering department.

All waste packaging material is weighted and this information is sent to the management to challenge all departments and suppliers to improve the operations. For example, engineering & production is encouraged to improve the performance of the packaging machines and the supplier to improve the quality of their material supply. Efforts to reduce the quantity of packaging material used for our products, without compromising their quality of their quality, have yielded remarkable results over the years.

Investments has also been made in a new waste incinerator in Sheikhupura factory, which is environmental friendly and fitted with a gas burner that gives off very low gas emissions into the atmosphere. This way tons of material is converted into ash which is safer and easier to dispose off.

Nestlé Milkpak also monitors waste from its process continually to reduce the amount of process waste.

THE FUTURE

Nestlé Milkpak has experienced excellent growth. For the year ending December 2002 its turnover is expected to exceed over RS. 7.7 billion. Given the underdeveloped nature of the food industry in Pakistan and its entry into new food categories, Nestlé Milkpak Ltd is confident to achieve sustained growth in the years ahead.

Include MILKPAK UHT Milk, MILKPAK Cream and Frost fruit drinks, in addition to export of infant Cereal to Bangladesh.

The independence of central Asian Republics offered new business potential enabling the company to export infant cereals, LACTOGEN 1 & 2 and MAGGI NOODLES and confectionery to Uzbekistan, Turkmenistan, Kyrgyzstan, Tajikistan and Azerbaijan. Confectionery was also exported to Bangladesh and Sri Lanka. With the launch in December 1998 of the strategic water brand, NESTLÉ PURE LIFE, this premium quality water quickly found a market in the Central Asian Republics and Nigeria in 1999. In 2000 our exports stood at Rs.231 million.

In 2001, Nestlé Milkpak Ltd became the first Pakistani producer of the milk products to export milk powder to African markets. This not only adds a new product to the country's export list but also holds a great promise as a foreign exchange earner for the future.

This year we have exported Milkpak Cream, UHT milk, infant Cereals, Lactogen, Nido, Everyday, Gloria, Nestlé Pure Life, Maggi Noodles and Ketchup and RTD Juices. By the end of the year we expect our export to reach over Rs. 275 million.

COMPANY DIRECTORY

Registered & Corporate Office 308 Upper Mall, Lahore

PABX : (042) 5757082-95

Fax : (042) 5711820

Factories Sheikhupura

29th Kilometer, Lahore- Sheikhupura Road

Sheikhupura, Punjab, Pakistan

Kabirwala

Khanewal – Kabirwala Road, Kabirwala

District Khanewal, Punjab, Pakistan

Phone : (06512) 411433-36

Fax : (06512) 411432

Auditors A.F. Ferguson & Co. (Chartered Accountants)

Legal Advisors Cheema & Ibrahim (Advocates)

Bankers ABN AMRO Bank

Bank of Tokyo-Mitsubishi Ltd.

Citibank N.A

Credit Agricole Indousuez

Deutsche Bank A.G.

Habib Bank Ltd.

Muslim Commercial Bank Ltd.

Standard Chartered Bank

Standard Chartered Grindlays Bank Ltd.

MANAGERIAL HIERARCHY

The following chart shows the managerial hierarchy of Nestlé Milkpak limited

Managerial Hierarchy

THE MANAGEMENT TEAM

In order to establish the Nestlé culture in the original setup of Milkpak limited, the Nestlé head quarters at Vevey, introduced foreign management in this new venture. Even now, the top management at Nestlé comprises of foreigners. Management of Nestlé Milkpak limited (NML) comprises of experienced and qualified professionals. Nestlé's expatriate staff holds the key management positions at NML. Friedrich G. Mahler is the managing director, Rashid Aleem Qureshi is the marketing manager, Regino Manglimot the finance and control manager and Jan H. Sassen is the factory manager.

Summary of Management Team at Nestlé

FRIEDRICH G. MAHLER MANAGING DIRECTOR

REGINO MANGLIMOT FINANCE AND CONTROLMANAGER

RASHID ALEEM QURESHI MARKETING& SALES MANAGER

JAN H. SASSEN

TECHNICAL MANAGER

THE MANAGEMENT

Nestlé Milkpak Pakistan Limited is headed by the Chief Executive of the company. Presently Mr. Friedrich. G. Mahler is performing the services of the Chief Executive. Directly reporting to the Chief Executive are the six major groups:

1. Nestlé Business Excellence Group.

2. Supply Chain Group.

3. Milk Collection and Agricultural Services Group.

4. Human Resources Group.

5. Corporate Affairs Group.

6. Water Group.

Along with these, Nestl has the following divisions directly under the Chief Executive:

• Technical Operations Division.

• Finance and Control Division.

• Marketing and Sales Division.

The further sub-division of the above three, are shown in the organizational chart. A thorough explanation of the, divisions and sub-divisions can be gathered from the pages to follow.

STRATEGIC MANGEMENT AT NESTLÉ MILKPAK LIMITED

There are sets of policies which are uniform for everyone and strictly enforced. The procedure for policy formulation is transparent; where everyone is given a chance to express one's opinion. The ultimate approval is given by the Chief Executive. Policies are formulated in the various meetings as outlined below.

POLICY FORMULATION

Regular meetings are organized at each level of the organization to keep the company moving in a systematic manner. The main objective behind these meetings is to bring forth the employees at a forum, where they can discuss their problems, give suggestions for improvement and development. Also they can share their experiences with each other.

Some meetings are held at periodic basis which are necessary to keep a check on the progress of the company. These are:

Senior Management Meetings

Cycle Meetings

Department Wise Scheduled Meetings

SENIOR MANAGEMENT MEETINGS

Every month, the Divisional heads and the Senior Managers hold a meeting to discuss major policy issues facing the management. The Human Resources Manager plays the role of a guardian for establishment and development of the policies. At the Senior Management meetings, the suggested policies are presented before the Divisional Heads and Senior Management. The Senior Management discusses the feasibility of these policies. The recommended policy is the one that has the approval of all members. Only after, the whole of this exercise has been done, it is presented before the Chief Executive. He takes the ultimate decision which is always in the best interest of the company and its employees.

CYCLE MEETINGS

Sales personnel of Nestlé Milkpak Ltd. from all over Pakistan hold a meeting or a bi-monthly sales review. The major force behind a giant food company like Nestlé are its sales. Therefore it is extremely necessary to keep a check upon the progress of the various brands and their sales profitability. Information regarding the sales is required at each division of the company. Marketing Managers need it to design methods for stabilizing and building the sales of prosperous brands. The Finance and Control Division needs it to judge the viability of the investments being made and the budget allocation, also for managing the supply against the demand of various brands. Similarly, Technical Purchase Division too needs requisite information for purchasing equipment for product innovations which is based mainly on the sales. At this meeting the Zonal and Regional Sales Managers make presentations and provide figures necessary to make interpretations.

DEPARTMENT WISE SCHEDULED MEETINGS

In addition to the high level meetings and sales preview; every department holds several scheduled and non-scheduled meetings. Scheduled meetings are organized to keep all members of the department up to date about the complete workings of the department. Members discuss their problems; give suggestions for improvements, generate ideas for development of their department and share experiences with each other as well the respective bosses. This helps develop communication through all levels of the hierarchy. And management remains aware of the work being done by the sub-ordinates. Non-scheduled meetings can be called anytime to discuss urgent issues. These do not have any prescribed date/day/time as compared to the scheduled meetings.

MANAGERIAL STYLE

One of the most difficult responsibilities that any manager assumes is that of managing people even if he is responsible for managing a homogeneous group. The difficulty of this task is magnified with the size of the organization and as diversity is introduced to the group (cultural diversity, gender, age, beliefs, disabilities etc.). Nestlé Milkpak Limited is an example of such an organization which is large in size and diverse in culture. The original culture of Milkpak Limited still prevails and the key managers face a tough task of managing the people and making them adapt to the culture the Nestlé team wants to incorporate in the company. No formal data could be obtained on the managerial style for managers at Nestlé Milkpak, the following detail rests on my personal observation.

The relation observed by me, of the managers at different levels with their sub ordinates was that of an "open-door policy". The key to success in managing a diverse work group is encouraging open, two way communication. The employees of a particular department and the organization as a whole knew that not only are they valued, but their opinion is also welcome. The more they feel that their input is valued, the greater the sense of ownership they'll have in their department's mission. This was exactly the case observed at NML.

Therefore, it can be said that a "democratic style" of leadership was observed at the organization. This style describes a leader who tends to involve sub ordinates in decision making, delegates authority, encourages participation in deciding work methods and goals, and uses feedback as an opportunity for coaching. The use of feedback was a very important element observed by me during my training. Being an internee, I was also asked by one of my department heads to give a feedback stating the good and bad points of the employees I was working with including the Incharge himself.

Such elements, go a long way in the success of a large scale and diverse organization like Nestlé Milkpak Limited and the appropriate management style is mandatory in the achievement of targets for the company.

MANAGERIAL POLICY

Managerial policy guidelines are made in consultation with the senior executives of the company. "A Policy and Procedure Forum" is held for the line managers who are responsible to implement the policies approved in their respective departments. If any changes are made regarding the policies or procedures, it is the responsibility of the Human Resources Manager to convey the change to the line managers. Apart from the policies, the managerial styles vary from person to person.

RECRUITMENT PROCESS AT NESTLÉ

According to latest count, Nestlé Milkpak Limited employs more than 1300 people. This is an approximate figure as more hiring has been done in the recent past. Nestlé follows a set process for hiring more employees. The major document in this connection is the "Recruitment Requisition Form". This document is used in all three instances; such as for:

Replacement.

Filling of a near position.

Additions to the existing workforce.

A recruitment opportunity may arise either after discussing or budgeting a position on the resignation of some employee or on an urgent need basis.

In all three situations, the department head has to obtain approval from the Managing Director(MD). If the request is budgeted, then the Divisional Head fills up a "Recruitment and Budgeted Form". This form contains the complete information; i.e. The following particulars:

Date of initiation

Date the employee is needed

Profile

Job description.

After receiving the document the human resource department puts up an advertisement in the newspaper or it directly contacts placement officers at various institutes. Approximately eight to ten best resumes are selected and presented to the divisional heads. On their recommendation the candidates are called for interviews and the most suitable are finally selected.

MANAGEMENT TRAINEES

The procedure for selecting fresh graduates at Nestlé Milkpak is a bit different as the trainees cannot be short listed through their CV's. Management trainees are fresh graduates or they have one year experience at the most. Management trainees are not called directly. They are contacted through their placement officers. Salaries or benefits of the management trainees do not vary with their specialization. Similarly the training period is the same, whether they are selected for marketing or finance.

SUCCESSION PLAN

The succession plan at Nestlé is made by the department head. He chooses his own successor. It is the duty of the departmental head to train someone for his work, so that there is a person to takeover in case he is transferred.

JOB ASSESSMENT

There is a classified system of job assessment at Nestlé. Accountability incentives in the form of business or facilities are provided to employees performing well. Employees form the internal equity of the company. Therefore, equally justifying measures are taken to satisfy and motivate the employees.

PRODUCTION FACILITIES

Sheikhupura factory

More product lines and product ranges were added between 1992 and 1997 which included Everyday, MILO, POLO, ORANGE JUICE, MAGGI NOODLES AND YAKHNI, NESLAC, and NESTLÉ RICE AND WHEAT.

In 1998 three new major technologies, added, which produce NESTLÉ PURE LIFE bottled water, Maggi sauces and high & low boiled confectionery.

Kabirwala Factory

Nestlé Milkpak Ltd setup its second milk powder plant at Kabirwala in September 1996 which produces NIDO, GLORIA AND skim milk powders.

This factory is now a fully owned unit of Nestlé Milkpak Ltd since April 1997 and is called Kabirwala Factory.

PRODUCTS AND BRANDS

DAIRY

Nestlé Milkpak UHT Milk

Launched in 1981, it has become synonymous with quality milk. Backed by a very strong brand name, aggressive marketing and distribution, consistent quality and all year round availability, MILKPAK UHT milk is an extremely successful brand. In September 1999, MILKPAK UHT milk was relaunched under the Nestlé brand, which further strengthened its position. It is available in three pack sizes of 1000, 500 and 250ml.

Nestlé Butter

A continuous butter making machine was commissioned at Kabirwala factory in the year 2000 to produce high quality cultured butter. This new butter was an improvement upon the earlier product and carries Nestlé branding that endorses its superior quality. It has an excellent taste and aroma and is easy to spread.

The new NESTLÉ Butter is available in two pack sizes of 200 gm and 100 gm in new attractive packaging.

MILKPAK UHT Cream

MILKPAK UHT Cream was introduced under the MILKPKAK brand in 1986. It is available in 200 ml pack size in an attractive slim pack. The consumer trust in the brand name and the product has endured its dominant share in the cream category.

MILKPAK Cream was also introduced in the economical 1000 ml pack size in the year 2000 for food services to cover institutions using large quantities of fresh cream.

MILKPAK Desi Ghee

MILKPAK Desi Ghee was introduced in 1986 in tin packaging. The packaging was later changed to Tetra Pak. However, in line with the current market trend, MILKPAK Desi Ghee was relaunched in 870 gm tin packaging in the year 2000. The product was also introduced in 16 kg tin packaging to tap the huge potential of loose Desi ghee.

NESTLÉ NIDO

NESTLÉ NIDO has been present in the Pakistan market since the early 70's and on account of consumer confidence in its quality it has become a pillar of Nestlé's success. Local production commenced in 19990 and within a short period the brand achieved market leader status in the full cream milk powder category. Made from very superior quality milk and with the addition of vitamins A and D, NESTLÉ NIDO is the best quality milk for growing children.

To target all consumers effectively the brand is available in different SKUs ranging from 62 gm to 1000 gm. Due to consistent good quality, aggressive marketing activities and distribution penetration, NESTLÉ NIDO is on its way to becoming a mega brand.

NESTLÉ EVERYDAY

To target the massive potential offered by the tea whitening segment, NESTLÉ EVERYDAY tea whitener was launched in 1992. Supported by integrated marketing activities, focused distribution with sampling drives and excellent consumer acceptance, the brand has shown strong growth and holds great promise for the future.

To offer convenience to all types of customers the brand is available in a variety of SKUs ranging from 40 gm to 1000 gm.

NESTLÉ Plain Yogurt

Launched in November 2000, NESTLÉ Plain Yogurt dominated the yogurt category in 2001. The stay fresh seal, printed expiry date and an exclusive distribution system contributed to the immense popularity and success of the product. After distribution expansion to the northern and central parts of the country and the subsequent launch in Karachi, NESTLÉ Plain Yogurt has become the first national yogurt brand in Pakistan.

NESTLÉ Fruit Yogurt

The year 2001 saw the launch of the first NESTLÉ Fruit Yogurt in 3 variant of strawberry, mango and peach, which offered real fruit pieces. This made a pleasant difference for the consumer, as the local market was only able to offer fruit flavored yogurt so far. NESTLÉ Fruit Yogurt in the stirred yogurt format matches the international quality standards.

CULINARY

MAGGI 2-MINUTE NOODLES

Fast to cook, good to eat - MAGGI 2-MINUTE NOODLES were launched with local production in 1992 and in doing so Nestlé pioneered the category of instant noodles in Pakistan. MAGGI 2-MINUTE NOODLES have special appeal for children, are fun to eat and offer a range of interesting flavors, namely: Chicken, Masala, Chilli and Chatkhara. Affordably priced and backed by focused marketing activities, MAGGI 2-MINUTE NOODLES have shown good progress in 2001, assuming market leadership position.

MAGGI Sauce

Cold sauces were launched in 1999 in three flavors: MAGGI ketchup, Maggi Khati Meethi. In 2001 MAGGI Ketchup was introduced in 4.5 Kg bulk packaging for food services.

INFANT DIETIC

LACTOGEN

LACTOGEN 1 are LACTOGEN 2 are locally produced infant and follow up formulae launched in 1991 and are available in two sizes. The brand provides both affordability and quality.

CERELAC

Launched in 1989, CERELAC is the most dominant player in the growing branded milk based weaning food market. Available in 6 varieties, the brand provides balanced nutrition to infants from 6 months onwards. The variants include CERELAC Wheat 3 Fruit, CERELAC Wheat Honey, CERELAC Wheat Banana, CERELAC Rice and CERELAC Khichri.

CERELAC Khichri was the latest variants to be added in 2000 to the CERELAC range. Offered in 200 gm pack size, it is the first locally adapted savory recipe that enjoys vast acceptance as a traditional food for babies and blends very well with the CERELAC brand.

NESTLÉ Rice

And affordably starter weaning cereal, NESTLÉ Rice offers the flexibility of preparation with a variety of meals. Glutton free, the brand is available in 125 gm pack and especially suited to the needs of infants from 6 months onwards. It was launched in 1994.

NESTLÉ Wheat

NESTLÉ Wheat is a wheat based infant cereal without milk, for infants from 6 months and above. It was launched in 1997 and is available in packs of 125 and 250 gm.

NESLAC

NESLAC is growing up milk, formulated specially for 1 to 3 years olds. It contains just the right balance of proteins, calcium, iron, vitamins and essential minerals in order to cater to the nutritional needs of a growing child during this special age. The product was launched in 1994.

NAN

Locally manufactured NAN 1 and NAN 2 are infant and follow up formulae launched in 2001 and are available in 400 gm soft packs. Earlier, these were being imported in 450 gm tins. The local production of NAN is a landmark achievement, as it brings the expertise of producing an internationally renowned high quality infant product exclusively to Nestlé Milkpak in this region. This also offers the great advantage of affordable pricing.

BEVERAGES

NESCAFE CLASSIC

NESCAFE, Nestlé international flagship brand, is locally packed and marketed in 2 gm and 25 gm sachet, 75 gm bottles and 500 gm soft packs. The brand enjoys a special position in the country's coffee consuming segment.

Recently, NESCAFE has been launched in 50 gm jar.

NESCAFE Frothe

NESCAFE Frothe (Original), a coffee pre mix in 18 gm single serve sachet, was launched in 2000. After its product profile was developed through extensive consumer research, it was offered as a sweet, creamy and frothy coffee.

Following an extremely good consumer response to this cappuccino style coffee drink, French Vanilla and Mocha flavors were introduced the same year to offer a wider choice and to enhance the young and fashionable image of this mixes category.

NESCAFE Frappe

To change the consumer perception that coffee is only a winter beverage and to promote its summer consumption, NESCAFE Frappe was launched in 2000.

This iced, creamy ready to drink coffee in 180 ml slim pack was positioned to appeal to the youth and gain its share from the other summer beverages. The product enjoys a special appeal among urban consumers – both young and old.

MILO Powder

Ever since MILO powder was launched in 1994, it has achieved fairly consistent results. MILO is positioned as an energy drink, both for hot and cold consumption. The product enjoys great popularity, offers a relatively inexpensive alternate to imported products and has an immense potential, particularly among growing children and those involved in sports activities. It is marketed in 200 gm packs and 14 gm single serve sachet.

MILO RTD

To cater for consumer convenience, MILO RTD (ready to drink) was launched in 1995 and is available in 180 ml slim pack. It is an ideal alternate to summer drinks and is popular with all age groups, particularly among consumers who are nutrition conscious or have an active life style.

FROST

A well known fruit drink brand, FROST was introduced in 1986. Positioned as a cold drink and alternate to soft drinks, its strength lies in the convenience attached to its usage.

NESTLÉ Juices

Encouraged by the consumer response to NESTLÉ Orange Juice that was launched in 1996, the category of NESTLÉ juices was expanded with the introduction of Mango Orange and Mango flavors in the year 2000.

This further strengthens the position of Nestlé Milkpak as al leader in the value added and premium drinks market. Consumer response to these new flavors has been very upbeat and is expected to grow further.

WATER

NESTLÉ Pure Life – PET Bottles

The year 2001 saw the successful completion of three years of outstanding business for NESTLÉ Pure Life – PET Bottles of 0.5 and 1.5 liters. The exceptional brand success was the result of expanding national distribution and an increasingly loyal customer base. The brand has revolutionized the Pakistani market by tapping the real consumer need for pure, healthy, and safe water and has successfully dominated a key strategic business

NESTLÉ Pure Life – Home & Office Service

In 2000, NESTLÉ Pure Life established a successful Home and Office (H&O) delivery service in Lahore, which has substantially grown ever since and has come to dominate the 5- gallon market. Successful marketing and sales strategies offer greater convenience and better value to the consumers. The brand is poised for strong growth in future.

AVA & FONTALIA

To expand its H&O water delivery business countrywide, Nestlé acquired major share holdings in both these businesses in 2001. While AVA is an important national player in the branded bottled water category, both in PET and H&O services, Fontalia is a strong player in H&O services in Karachi.

These acquisitions have placed Nestlé in a strong position in the branded bottled water business. Not only has this enabled Nestlé to benefit from the invaluable experience of these two businesses but it has contributed to the extension of its H&O services to major cities.

CONFECTIONERY

Nestlé Milkpak successfully entered the confectionery business in 1996 with the launch of POLO under the Allen's umbrella. The following years saw the introduction of more promising brands like TOFFO and SOOTHERS that are well established by now in their respective categories.

These introductions have helped the brands to penetrate all major segments with high boil, low boil and pressed range of products,

The year 2001 was significant as it witnessed further strengthen of the business through product range expansion. The POLO brand image was enhanced with the launch of new 'saunf' variant that has been very well received in the market. Three new exciting variants: Kulfi Magic, Mint & Mixed Fruits were introduced under the TOFFO brand, making it the only brand of soft chews offering so much variety. Several other interesting product concepts are also in the pipeline.

Special focus on KIT KAT has also brought excellent sales growth, complimenting Nestlé Milkpak's sugar business.

QUALITY CONTROL

A company like Nestlé Milkpak Ltd., which is totally food based, the only way for it to capture and maintain a large portion of the market share, is by competing on the quality of its food products. Quality can be defined as:

"Quality is the totality of features and characteristics of a product, service or process, which bear on its ability to satisfy a given need, from the customer's viewpoint."

Dealing primarily in dairy products and especially infant dietaries, Nestlé has to be highly quality conscious. They are playing a vital role for the health of people using Nestlé's products. For this reason an independent department for Quality Control and Management is an integral part at each of the three production setups of Nestlé.

Nestlé Milkpak Ltd. does not follow any international standard for maintaining quality. Rather, Nestlé Vevey has established its own quality norms. Nestlé setups the world over are compelled to follow these standards. Nestlé officials claim that these standards are stricter than the international standards.

STEPS FOLLOWED TO MAINTAIN QUALITY

Regular Sampling

To maintain a consistent check on the products, the products are regularly sampled through DHL to Nestlé headquarters at Vevey. The headquarters receives samples from factories world over and these samples are verified at the Quality Control and Management Department.

Quality Audit

A quality audit is carried out on a half yearly basis at all production setups i.e. Sheikhupura factory, Kabirwala factory. A team from Nestlé Vevey conducts the audit. The stay of the team varies from four to six weeks depending upon the size of the production setup. The team practically sees for themselves whether the production is being done according to the samples sent regularly and the standard norms. The production setups are then awarded grades for their respective quality performances. The Sheikhupura Factory was awarded A+ grade i.e. the top in the zone for its high quality products and maintenance of standards.

Doubtful Products

Strict quality control ranges to the extent, that even a slight doubt about any of the product is followed by destroying the product, before sending it to the market. Again emphasis, should be laid that Nestlé deals in most products which are vital for health of infants and adults so it cannot take any risks on quality.

Incubation Period

Before releasing any product to the market, some samples from the lot are kept with the Quality Assurance Department to clear all doubts. If there is any problem with the products, the batch is not released. The specific time period, known as "incubation period" varies from product to product.

Traceability

This is necessitated when any complaints about the product are received from either the customers or the retailers. Traceability of the lot is assisted by the policies adopted at Nestlé. Lot wise control is possible as a complete detail of batch numbers and expiry dates are maintained at the production setup. To retrieve all the products of the lot, distributors can easily be traced because of the batch numbers. Products can be called back after incubation period also. Areas of distributors are defined and information maintained.

Safety Audit

Nestlé is conscious about the safety level also. So safety audits are conducted for every product at Nestlé.

RECENT PRODUCTION HIGHLIGHTS

Installation of the "flexible" confectionery line in 1998, capable of producing a variety of high and low boiled confectionery products.

To meet the increased demand for milk powder products, Weigand Evaporator of 12000 liters per hour capacity was replaced with a larger capacity evaporator, the Niro evaporator , of 28000 liters per hour at the Kabirwala factory.

The production process followed for Nestlé Pure Life was a first for Nestlé Milkpak and in Pakistan.

The addition of another "roller dryer" to increase sales volumes at the Sheikhupura factory in 1998.

As a part of normal expansion program for filling 400-500 gm of milk, cereal or coffee etc. , the third sachet filling line was added at the Kabirwala factory with equipment imported from Germany.

To cater the increasing portfolio of products, new filling and packing equipments were purchased in 1998 to package beverages in "Slim Packs" at Sheikhupura.

Prefabricated milk cooling tanks, in ready to build form were imported from Europe for the last four years to meet the growing needs of the milk collection department. Currently 548 milk cooling tanks are installed and this has increased the milk retention in the field considerably.

MARKETING MIX

The most interesting part of business administration is the marketing, this is the latter addition of the business tools. It starts with conceiving idea of presenting a product, traditionally producers were interested in producing those goods only which has existing pull, whereas now because of marketing tools they are producing with the intention of pushing the product into consumer's hand. Marketers use numerous tools to elicit desired response from their target markets. These tools constitute a marketing mix. Marketing Mix is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market. McCarthy classified these tools into four broad groups that he called the four P's of marketing:

Product

Price

Place

Promotion

PRODUCT

Defining the characteristics of your product or service to meet the customers' needs.

PRICE

Deciding on a pricing strategy. Even if you decide not to charge for a service , it is useful to realize that this is still a pricing strategy. Identifying the total cost to the user (which is likely to be higher than the charge you make) is a part of the price element.

PLACE OR DISTRIBUTION

Looking at location (e.g. of a library) and where a service is delivered (e.g. are search results delivered to the user's desktop, office, and pigeonhole - or do they have to collect them).

PROMOTION

This includes advertising, personal selling (e.g. attending exhibitions) , sales promotions (e.g. special offers) , and atmospherics (creating the right impression through the working environment). Public Relations are included within promotion by many marketing people.

MARKETING MIX OF

NESTLÉ MILKPAK LIMITED

Nestlé Milkpak Limited, as evident from the above discussions, is engaged in the production of a variety of products. Although, its prime and only concern is food products, but due to the diversity in their nature each product has its own peculiar characteristics. Due to this reason Nestlé cannot implement a single set of policies for all its products.

The pricing structure differs with the nature of the product depending upon factors like the availability of raw materials, labor engaged in the production, costs of utilities, packaging, advertisements and a very important factor of the imports concerned with the product. Therefore, the pricing of the product has to be different when all the above factors are taken into account.

Promotional policies also vary from product to product. Being food products, seasonal variations also have to be kept in mind. Major products like UHT Milk, powder milk, beverages, coffee etc. employ all modes of advertisements like the print, media, and outdoor promotions. On the contrast, other products like culinary and confectionery, do not get a wide splash on the media networks focusing more on outdoor and print. The choice of the medium is also based on the analysis of the profit each product generates for the company. Also the cost benefit analysis is taken into account. Demand of the customers also plays a vital role for the organization to make the choice of advertisement medium for its wide range of products.

Distribution networks again differ for all the products. For some of the products, like UHT Milk Nestlé has integrated backward in its supply chains and relies on its own transportation for acquiring the raw material. Separate distribution policies are formed for each product for their delivery to the retailers. To meet the high demands and to keep control on the production a National Distribution Center has been setup at the Sheikhupura Factory which coordinates activities with the distribution channels.

All this discussion leads us to conclude, that for such a MNC like Nestlé producing so many diverse products it is difficult to consolidate all the information regarding the marketing mix of all products under separate heads of product, price, place and promotion. This would not only make it boring but also tedious for the reader to comprehend and relate the information.

Therefore, I have classified the various products under their separate brand groups and detailed the varying details about each product's pricing, placement and promotion separately. I would like to mention here that all this information was gathered by making several visits to the marketing section. Concerned Group Brand Managers or Brand managers were contacted to gather first hand information. Once again, I would like to thank all the people who helped arrange these visits and those who took out time from their busy schedules to provide all the details.

This chart reflects the hierarchical structure of the marketing department at Nestlé. As it is evident from the chart, the products have been categorized in various groups according to their similar characteristics.

The Marketing Manager or more popularly known as MM at Nestlé heads this division.

After him, follow the Group Brand Managers. Each Group Brand Manager is responsible for a variety of products.

Group Brand Managers are assigned Brand Managers for each single brand of product.

This kind of setup, has been arranged so that there is no extra burden on any person.

ACTIVITIES OF THE BRAND MANAGERS

The Brand Managers look after their brands and are directly responsible for making all arrangements for their product. These include, setting up sales targets, getting the budgets released for their product, advertising their brands, and regularly informing the supply chain department about the minimum levels required for the product.

Brand Managers are also responsible to keep a check on the varying market trends and to choose their target markets. Environmental Scanning is an essential part of their job. They are the ones who have to make their brand grow. They have to pick up niches in the market for their specific brand. Target markets are chosen keeping in view the nature of their brand whether it would appeal to the younger generation, the elite or mothers. Accordingly, they ask the Human Resource Department for Internees whenever they are about to carry out some innovation in their product and there is a need to study the market trend. Based on this research they plan their advertisement budgets. Nestlé deals with two advertising agencies Orient Ericcson and R Lintas for their advertising strategies. It is again the duty of the Brand Managers to explain their requirements to these advertising agencies. These requirements can be seasonal in nature and also vary with the research conducted for the brands.

Getting budgets allocated for their brands and giving a good reasoning to the top management for the increase in budgets also lies with the brand manager. Only, if he is able to convince his Group Brand Manager, he has a chance with the top management. In this respect, it is necessary to mention that all personnel of marketing department have to be in close touch with the Finance and Control Division. Finance Division handles their budgets so they have to plan their activities in accordance with the figures provided by the division.

ACTIVITIES OF GROUP BRAND MANAGERS

Group Brand Managers are not liable for a single brand rather they have to look after the interests of a variety of brands. They are supervising the Brand Managers. They have had enough experience in their previous tenure as a Brand Manager that the company finds them capable enough to handle a range of products.

Their basic objective is to set out targets for the Brand managers. They are directly reporting to the Marketing Manager, and they need to prove that their group is functioning well. Also, they have the task of motivating their brand managers to achieve the desired results. As they themselves have handled brands so they have complete knowledge about the activities of brand managers. The brand managers can easily walk up to them with their problems.

Brand managers set up the strategies but the final power of approving those remains with the Group Brand Managers. They take their decisions after listening to the arguments presented by their sub ordinates and taking into account their budget allocations.

They are also closely in touch with their outside environment and constantly in search for market loops to suggest to their brand managers to take advantage of. It is a very sensitive position because in a company like Nestlé where its prosperity depends upon the progress of its products, the marketing officials play a pivotal role.

ACTIVITIES OF THE MARKETING MANAGER

The Marketing Manager is the head of the Marketing Division. This is one of the most important positions among the top managers. He is the one directly reporting to the Chairman and the Board of Directors of Nestlé Milkpak Limited Pakistan. Also he has to keep in close touch with the Nestlé Headquarters at Vevey, Switzerland.

Vevey issues special instructions for the marketing divisions in all regions. The basic format suggested by the Headquarters has to be kept in mind before marketing a product. All setups of Nestlé in various countries must adhere to these instructions and it is the duty of the Marketing Manager to ensure this.

Marketing policies laid down by the Marketing Manager must be strong enough to hold and build the market share of the company. Profitability of all the products and in turn the organization depends upon the control established by the marketing head over his employees and brands. He must be a dynamic and innovative person. Also he should be engaged in a thorough judgment of the market to discover new modes of marketing and to increase the demand of the products.

The Marketing Manager keeps a close contact with all the Group Brand Managers and Brand Managers to have first hand knowledge pertaining to all products. He approves all major decisions. For instance, when the group brand managers put up a request for a budget greater than the amount allocated to them already.

Hence, we can say that this is one of the most important posts in a product based company like Nestlé which demands a lot of creativity and professional skill.

ATMOSPHERE OF THE MARKETING DIVISION AT NESTLÉ

I made a number of visits to the Marketing Division at Nestlé to gather the necessary information and to know how products are marketed in a Multinational like Nestlé. Traveling down from the Finance division to the Marketing Division was an experience in itself. One immediately feels the difference between the place of creativity and a place of concentration.

Whereas, in the Finance Division everyone carries out quiet conversations and people are glued to their computers or calculators working on figures, the marketing department presents a completely different picture.

The walls are splashed with posters and colorful buntings and there is a constant buzz going on. Everyone is talking aloud. Discussing ideas with each other and frequently the Board Room is booked with different brand managers discussing their ideas with each other. One can feel the creativity flooding in this division.

The best aspect is that one sees young people every where. They are the ones holding great responsibilities like handling a major brand. There is an open-door policy at all levels. Any brand manager feels free enough to walk into the room of his supervisor and there are no formalities. There is an easy access for everyone.

The degree of decentralization creates a bonding between each employee and the specific brand that he is handling. This sense of affiliation makes them work in the best interest of their brand and the organization. All this would not have been possible had a grim environment been prevalent in the division. There is enough room for the brains behind the brands to carry out their ideas and to try out innovations. They do not have apprehension about their superiors for rejecting their ideas. They feel free enough to openly discuss their point of views.

Every employee who was visited in this section and asked about the degree of satisfaction concerning his work always gave a very positive answer. Although their pay scales may not be very high but job satisfaction soars at high levels. One of the major reasons is the freedom and authority every one enjoys and the prevailing lively environment in this Section.

Water Group

Confectionery Products

Culinary Products

Dietic & Infant Products

UHT Milks & Dairy Products

Coffee & Beverages

NESTLÉ PURE LIFE & BULK WATER

The launch of Nestlé Pure life in December 1998 was a truly historic event. This marks Nestlé Milkpak's entry into the country's fastest growing water market. At the same time Pakistan became the first country where Nestlé launched this new worldwide brand. It has been launched in 11 markets internationally with its lead and best performing market being in Pakistan. The reporting of Nestlé Pure life is not directly under the Nestlé headquarters at Vevey, Switzerland. Rather all the water brands at Nestlé have to report to Perrier Vittel, the pioneer and lead French Brand in the water market. Other than that, all the research concerning the contents is carried out at the Research Center at Vevey.

Mr. Babar Khan, Brand manager for bulk water provided the following information:

PRODUCT

Nestlé Pure Life is distilled water and not mineral water as most of the water brands claim to be. Mineral water can be taken out only from its source and no tampering can be done. In contrast, the water for Nestlé Pure Life is taken out directly from a 500 ft. deep well at Sheikhupura and a six step purification process is followed to make it distilled.

Nestlé Pure Life is a prestigious project both for Pakistan and for Nestlé internationally. It was the first water brand to be named with Nestlé. The unique procurement process of water, enables it to be taken out from any part of the world. The premium standard water can be produced by sticking to the same patent process. This in turn, results in cost efficiency and lower distribution costs.

It is due to this reason, that the name quoted on the bottle is not mineral water but "Premium Drinking Water".

Production Process

Based on state-of-the-art technology, the process involves purification of raw water through distillation, followed by the addition of essential minerals. The water is then filled and packed through a high speed filling and packing line. This concept of packing and filling is also a first for Nestlé Milkpak. The equipment makes pre-forms from PVC granules, which are then shaped into bottles through heating and high pressure compressed air system. These bottles are then rinsed, filled, capped and sealed automatically in an extremely controlled and hygienic environment. To better utilize the factory floor space, an existing building was totally redesigned and refurbished to install the new equipment.

The dedicated efforts of the local engineering team enabled them to master and install this difficult technology successfully and on time, with technical support from Perrier Vittel.

Nestlé Pure Life is available in two convenient sizes of 1.5 liters and 0.5 liters. Encouraged by the overwhelming consumer response to Nestlé Pure Life, 5-gallon home and office Jumbo Service was launched in Lahore in June 2000.

MARKETING

The marketing for Nestlé Pure Life was done at a large scale. It was the due to the dedicated efforts of the marketing team that Nestlé Pure Life captured 60% of the market in the first six months after its launch. The distribution network used for UHT and powder milk was used as a model, for the water brands to market their products.

The target market for Nestlé Pure Life is virtually everybody. Nestlé claims that it is a safe and healthy product which anyone can have.

The first series of media burst, at the time of launching the product, focused on the whole family.

A healthy and happy family, with Nestlé Pure Life a part of their intake. Even, the bottles of NPL carry the embossed shapes of a man, a woman and a child. This further emphasizes their stand point on the importance of purified water for a happy family life.

The second series of media burst which followed this, again focused on the community as a whole, by segregating it into four categories. It showed a cricketer, an engineer, a family and children. There were four target segments this time each representing a major part of the population.

The third series of media campaign was basically an extension of the second one. Its slogan "Piyo Aur Jiyo" was splashed widely on point of sale material and billboards. This campaign was mainly followed in the outdoors promotional activities and less coverage was given on the network as compared to the previous two media bursts.

Apart from that. Nestlé Pure Life was the exclusive official water for the home cricket series between England and Pakistan. Providing 10,000 bottles during the series, from dressing rooms to drink trolleys, NPL was everywhere with its umbrellas and fluttering banners and was extensively covered by the local and foreign media.

Nestlé Pure Life had the distinction of being the official water in Shandur, at 12,500 ft near Gilgit, the highest Polo Ground in the world. It was the biggest event of the season and was witnessed by a large cheering crowd.

BULK WATER

One and a half year after the launch of Nestlé Pure life, it was realized by the Nestlé team that Nestlé Pure Life was being consumed at a very high ratio and had completely overtaken the market. But that consumption was being done out of homes mainly due to the cost constraints. To develop further, it was thought to launch the 5 gallon format at a much lower price to cannibalize the other market. The Jumbo service of Nestlé Pure life 19- liter bottle was launched on June 27, 2000 in Lahore. The new service offers the consumers the much needed supply of safe and quality water for home and office use, which is very economical, compared to bottled water for out-of-home consumption. The water market for Nestlé Pure Life grew at a high pace because of the launch. It was originally launched only in Lahore, and the extension to other major towns followed in due course.

The launch was preceded by intensive training of the sales team. A teaser campaign was initiated prior to the launch, attracting great attention.

A separate distribution channel was established to follow proceedings for bulk water. In contrast to the smaller formats, which are disposed off after consumption, bulk water has to be refilled once a week by the household consumers and two or three times a week by offices.

Bulk water does not go into retail. All activities are controlled at one central office of NPL bulk water situated at 36 C Gulberg Lahore. The motive behind this strategy, is to generate consumer pull from consumers and not by offering higher retailer margins to the retailers.

The profitability of Bulk Water depends upon the number of bottle rotations. After consumption, the bottle is taken back by the distributor who sends it to the factory for refilling. If the company is not able to generate rotations it would kill the operating profits. Presently, Bulk Water is being served to 3100 customers.

The buyer-seller relation, in the case of bulk water is very vital, as this is not a product of impulse buy rather it is a long term decision. Therefore, the head of the family, the decision maker is targeted, and encouraged to provide his family with premium drinking water.

Sales associates of bulk water travel from house to house and offices to market their products. All this has helped Nestlé. Pure Life's market to flourish.

As a step, to launch Bulk Water, at other major towns, Nestlé Milkpak Limited acquired two water brands in the starting six months of the year 2001.

FONTALIA, an under license French brand was acquired in March 2001, serving the city of Karachi.

AVA, nationally the second biggest competitor of NPL was acquired in May 2001, serving the cities of Islamabad and Karachi.

This strategy gave speed to the market for branded water at Nestlé. Efforts are being made, to upgrade the water quality of these brands. The logo of Nestlé cannot be displayed on the product till the quality comes upto the Nestlé standards. Also, a large amount of royalty has to be paid to Vevey, for the use of the brand name of Nestlé.

CONFECTIONERY

With the launch of POLO in 1996, Nestlé Milkpak successfully entered the confectionery business in Pakistan. Ever since, a number of different sweets and toffees have been introduced under the Allen's umbrella brand including:

Toffo

Soothers

Fruit Drops

Butter Skotch

All these are produced on the state-of-art flexible process.

The confectionery line, which was installed in 1998, is called "flexible" as the technology employed is capable of producing a variety of high and low boiled confectionery products. To complete the installation work and begin timely production, a tremendous effort was put in by the engineering team to meet the deadlines.

The year 2000 saw the launch of three new products and variants. First came Butter Skotch in two pack formats. Then it was Polo Tutti Frutti , an addition to the Polo family of pressed "sweets with the hole", and Soothers Wild Cherry that has enriched the brand range with another delicious flavor. In addition to the introduction of new and exciting products, the company continues to improve the existing confectionery range, an example being the re-launch of the bigger and better Toffo at the same price.

CULINARY PRODUCTS

Culinary products group consists of two product lines:

Maggi 2-Minute Noodles

Maggi Cold Sauces

MAGGI 2-MINUTE NOODLES

Fast to cook and good to eat Maggi 2-Minute Noodles were launched with local production in 1992 and in doing so Nestlé pioneered the category of instant noodles in Pakistan. Maggi 2-Miute Noodles have special appeal for children, are fun to eat and offer a range of interesting flavors, namely: Chicken, Masala, Chilli and Chatkhara. Affordably priced and backed by focused marketing activities, Maggi Noodles have shown good progress over the years.

At the time of launching the product, free sampling was carried out at a large scale throughout the country. Special painted branded Maggi trucks would be parked in rush areas and festive places to develop the taste for instant noodles.

Promotional activities now follow a steady pattern with equal distribution of budgets for Point of Sale promotions, television and radio advertisements and price discounts.

Maggi noodles have a fast growing market in Pakistan and Nestlé is building its market share by introducing new flavors regularly.

MAGGI COLD SAUCES

Nestlé entered the Cold Sauces category in 1999 with the launch of Maggi Ketchup, Maggi Mirch Maza and Maggi Khatti Meethi, the first Imli sauce in Pakistan. The innovative taste of Khatti Meethi together with the more traditional tastes of Ketchup and Mirch Maza, were received well by the consumers.

MAGGI MASTER MIND PROMOTION

Maggi came up with a master mind game and a sticker in its Chicken and Chatkhara flavor noodles. The sales got a good boost. Other than POS material and print advertisements, a mastermind quiz show was aired for a month and hosted on PTV World. Other promotional activities included writing competitions at school level and 'question of the day' related to major TV programs. The Maggi team visited homes of the celebrities, asking them to relate interesting incidents about their cooking experience and encouraged them to try out Maggi sauces. Other programs were held at schools, the Lahore Zoo and Sozo world. PTV World awards were also sponsored.

Maggi develops an exclusive recipe for KFC

To develop KFC's needs, Maggi Sweet and Chilli Ketchup has been exclusively developed and supplied to KFC.

This is a relatively new product line, and efforts to build its market are at the top swing.

PEDIATRIC INFANT DIETIC GROUP

Children are the most beautiful gift of God. Proper care of diet with full nutrients and necessities is essential for the child to be healthy. Nestlé being the world's leading giant in food products, also focuses a major portion of its efforts on infant diet.

Pediatric Infant Dietic is a separate food product group at Nestlé, where PID stands for "Product of Infant Dietics".

Dr. Usman Bhatti, the Brand Manager for the PID Group, also handles another small segment which is of "Clinical Nutrition". He briefed us about the PID Group.

PRODUCTS

There is a variant product mix for this group. PID Group develops products on three lines; focusing on children form birth till three years. The variety of products under this group supplies the proper diet for infants according to their respective ages. The three major product groups under this group are:

1. Infant Formula.

2. Infant Cereals.

3. Growing Up Milk.

Infant Formula has four types of products to offer namely:

Lactogen I and II.

Nan.I and II.

AL-110.

Pre-Nan.

Lactogen I and Nan I are suitable for children up to six months of age. Whereas Lactogen II and Nan II should be switched for infants from six to twelve months of age. AL-110 is a diarreheol product which is lactose free. It has the proper combination of formula suitable for infants suffering from diarrhea. Pre- Nan is a formula specifically developed for pre-mature babies.

Infant Cereals

The infant cereal group again offers a series of products:

Cerelac is the most widely recognized product under this head. Following it are Nestlé Wheat and Nestlé Rice, which are prepared by just adding water.. Cerelac further provides a variety of flavors. Cerelac has to be prepared in milk for which Nestlé provides the Nestlé Infant Formula.

Growing Up Milk

Neslac is Nestlé's growing up milk, suitable for children aged 1-3 years. After that Nido is recommended. So Nestlé's products provide a set combination for all ages and proper diet for children in growing ages.

Clinical Nutrition

Clinical Nutrition or Adult Nutrition as it can be termed offers Nutren and Peptones. These have been developed for the weak and adults lacking health.

PRODUCTION

Cerelac and Neslac are produced locally. Whereas Lactogen is available both in local and imported form Nan is available only in imported packing. But Nestlé planned to launch it locally from July'01. AL-110 and Pre-Nan, Nutren and Peptones are imported products.

PRICING STRATEGY

A market driven pricing strategy is followed for these products. The product is positioned according to the price which is to be settled. Nestlé can afford to position its products according to its needs due to its long experience with nutrition meant to provide adequate health and consumer's confidence on Nestlé's products.

PID Group follows different tactics for the variety of products it offers. For instance local Lactogen is priced lower from its counterparts; strategically with its basic aim to hit the masses. Nan being a technically premium product, is priced in a similar fashion. Therefore it is high on quality and high on price both. Although its price not highest in the market but is competitively priced with the rest of the imported infant formula.

Accordingly with the price structure that Nestlé officials have in mind, the product is positioned in the market using skip, penetrate or positioning in a Niche strategy.

PROMOTION

The promotional strategies for this group cannot follow the same track as the rest of the brands. This is the most sensitive product group at Nestlé. As its main consumer is the infant, therefore it is mandatory for it to be 100% correct. PID products especially infant formulas fall under the WHO Codes.

WORLD HEALTH ORGANIZATION(WHO) CODES

The third world countries were exploited in 1981, when a campaign was launched against them. The campaign was that the promotion of infant formulas in these countries serving as a substitute for mother's milk was causing the new-born to die. According to these criticisms, the hygiene conditions and the literary rate of mothers in these countries was not appropriate for the young to nourish.

Hence the WHO developed a code of conduct for the third world countries pertaining to these criticisms. It is known as the "WHO CODE OF MARKETING OF BREAST MILK SUBSTITUTES". It has the proper guideline which instant formula companies should follow. Countries where there is local law for such activities do not require the WHO GUIDELINE. But for places where there is no local legislation, WHO CODE is applicable for infant formula companies. Therefore, the Nestlé Pakistan Ltd. has developed a stricter structure based on the WHO CODE known as the "Nestlé Charter"; an instant document.

According to this the Nestlé cannot contact the buyers directly either through print/non-print media. Products cannot be sampled and no advertising activities can be followed on Radio and TV. Along with that the packing of the product and the description written on the pack should strictly pertain to the guidelines. No picture inducing the mother to buy the product can be made on the pack. Similarly the guideline should be followed for what to write and what not to write on the packing.

The only activity for promotion acceptable for such products is for the company's representatives to go to doctors with technical information about the brand regarding prescription about the formula. It is a prescription driven business and Nestlé extracts 80-85% of its sales through this mode. The other modes of promotion for this product have nothing to do with the company itself. As one is the recommendation through the peers(friends and relatives) to mothers. The other is through the shops where the pharmacist suggests something to the mothers according to the market trend.

Cerelac and Neslac

Cerelac is a product that lies in the grey zone. Government has still not decided what to do about its promotional activities. But its advertisements are aired on the TV and Radio as well as the Print Media. There is no below the line activity for it. Sampling can be done only to the doctors but not the consumers/mothers. Consumer promotions i.e. gifts for babies in the pack or branded bowls with the pack are frequently followed to reward the loyal consumers and also to build excitement around the brand.

Neslac is also advertised in Print and Electronic Media. Detailing activities for these products to doctors are constantly on the run. But no such promotions like posters branded in the doctor's rooms with Nestlé's products and table sets for the doctors are done. Therefore, in contrast to competitors the PID Group at Nestlé follows a strict code of conduct where every product packaging goes to its headquarters at Vevey, Switzerland for verification and approval.

Medical Representatives

Due to the sensitive nature of products handled by the PID Group, the head of the Medical Representatives also sits along with the other product managers of the group. These Medical Representatives are required to follow certain objectives. These are knowledge objectives, which requires these representatives to have up to date information and they are tested every three months. Territory coverage objectives based on detailing activities to doctors are marked on the physician's profile.

COMPETITORS

The major competitor of infant formula for Nestlé in Pakistan is Morinaga (an imported product). Others like Meiji etc are also prevalent. However, in the case of cereals Nestlé is the market leader. There is very low competition with Morinaga and Cow and Gate.

Neslac is the only growing up milk in Pakistan. Other than that, Non Governmental Organization's developed for consumer protection are very vocal in their campaign against infant food producing companies. Nestlé occupying a giant share of the infant food market in Pakistan and it is produced locally mostly under fire of their comments.

ULTRA HEATED TEMPERATURE (UHT) MILK

On Monday, the 16th of July, at around 4 p.m. we visited Mr. Khurram Maqbool, who is the Brand Manager for UHT milk. 'Milkpak' as the name goes, has been in the market for quite a long time now. Almost every Pakistani is familiar with the name and the concept of having milk in cartons. Milkpak was the pioneer in this respect and has played a dominant role consistently.

PRODUCT HISTORY

Nestlé launched Milkpak in 1981. Although like other products its packing had no label of Nestlé but it was making profitable business. It steadily grew as a brand and captured the market.

It began to face losses after the launch of Haleeb by Chaudhry Dairies Limited. The strategy followed by Haleeb to weaken Milkpak as a brand was to capture the market niche where Milkpak was not very strong. That is, with their novel idea of packaging in a quarter of a liter, they targeted the "C" class market. People with extremely low levels of incomes constitute the "C" class market. As majority of Pakistan's population is poor, so Haleeb quickly gained its market share and became a tough competitor for Milkpak. By launching this new size, not only was it targeting the major part of the population, but was also earning a higher price per liter. "C" class market is where people do not buy on a regular basis, so the per capita usage is low, but volumes are high. This factor contributed for gaining a high market share.

Depressed with the situation in 1995, Nestlé under its flagship launched a new UHT Milk with added vitamins A & D by the name of Everyday. But this product did not gain the success as expected.

In 1996, Nestlé started building up its brand image. Ultra Heated Temperature brands are not worldwide Nestlé products. These are restricted only to specific regions where there is high availability of raw materials compared to the products like Nescafe or Maggi which are trademarks of Nestlé worldwide. Eventually, as a comeback step in 1999, Milkpak was launched in the market under the label of Nestlé. Television shows were aired to gain people's attention by stating that something new has happened to Milkpak. From then onwards, it was known as Nestlé Milkpak with a completely new packaging and Nestlé's label right on the top. By 2001, Nestlé Milkpak has taken its leadership back and holds the major share of UHT Milk in the market.

In the "A" class market Nestlé is the market leader with a clear cut share of 70%. Whereas in the "C" & "D" class markets Haleeb leads the way by taking 45% and 55% of the share respectively.

PRODUCT

Nestlé Milkpak offers milk in three formats:

• 1000ml

• 500ml

• 250ml

Nestlé bases the superiority of its product on their unique method of procuring the core raw material i.e. milk. To have a clear understanding of this edge, a brief preview about the milk collection system at Nestlé is necessary:

Milk Collection

The core raw material of Nestlé Milkpak is milk. Over the last twelve years, the Company's prime concern has been to improve the quality and volume of milk for UHT processing and for other milk based products. Driven by its commitment, to quality and having realized that only self collection could eliminate its dependence on poor quality milk available from outside sources, the Company successfully established its own collection system and expanded its operations over a very large milk shed area in Punjab. Owing to this tremendous growth in the volume of an extremely high quality raw milk, Nestlé Milkpak now produces a superior quality and better tasting UHT milk, with longer shelf life.

Today Nestlé Milkpak can boast of the largest milk collection network in the country, unmatched in size, productivity and efficiency. Milk is collected through a vast network of village milk centers (VMC's), sub-centers and centers. At these centers, chillers have been installed to lower milk temperature to 4 0 C for preventing bacteria development during long hauls to the factories, which are undertaken by a large fleet of specially insulated tankers. Due, to this unified system of milk collection the milk reaches the factory latest by seven or eight in the morning.

Here lies the major difference of Nestlé Milkpak with its competitors who have to depend upon contractual milk for production. In that case, the contractor collects the milk and delivers it to the factory. Hence, the milk does not reach in pure form.

Another advantage gained through this collection system is that cost of the product decreases as contractual milk is expensive compared to the milk collected through own sources and transportation.

The marketing and sales representatives of Nestlé Milkpak Limited keep in close touch with the farmers. This steady relationship with the farmers provides advantage to the company. Many efforts are undertaken to help the farmers and to solve their problems.

Service to Farmers

As a service to farmers, Nestlé Milkpak has established an Extension Service, staffed by quality veterinary doctors, who assist them in vaccination and treatment of livestock, improved breeding, good animal husbandry practices, provision of high yield fodder seed etc.. By taking professional help and guidance to their doorsteps, which they otherwise find difficult to access, coupled with incentives and a good and prompt return for their milk, Nestlé has created a mutually beneficial relationship with the farmers, which translates into opportunities of economic uplift for the rural population.

To promote milk production, Nestlé Milkpak is successfully promoting the use of molasses to enrich the fodder and has arranged its distribution to farmers at cost.

Production Process

According to the food law guidelines UHT milk should contain the following ingredients:

• Fats 3.5%

• Solid Non Fats 8.5%

• Overall solid Contents 12.4%

• Water

In terms of quality, the milk collected by Nestlé Milkpak is low in sodium, high in fat and solid non-fats (SNF) and very low in Total plate Count (TPC) which, stated simply means the bacteria count. This was achieved through a comprehensive strategy and sustained efforts to overhaul the milk collection process, intensive education programs for the farmers and milk collection staff, upgrading of milk loading and transportation system, increase in the chilling capacity and above all, adherence to the highest acceptance standards at all milk collection points, including all the factories.

After reaching the factories, milk is transported to huge steel containers called Silo's. Here the milk is boiled and led through pipes to the filling area where it is packaged in different sizes and fitted into trays.

The packaging is obtained from Tetra Pak. It is a six layers packing saving the milk from bacteria attack and chemical reaction. It has a capacity to stop the process for three months. In addition to the bacteria growth, it also saves the milk from light and sun.

The packaged milk is shifted to the warehouses in the factories and sent out to the distributors and retailers accordingly.

PRICING

The pricing strategy for UHT milk is dependent on the forces of demand and supply and the company can not influence the price greatly as it faces a strong competition in the market. Following is the price structure for the three formats of Nestlé Milkpak:

• 1000ml 30 Rs.

• 500ml 16 Rs.

• 250ml 8 Rs.

UHT milk constitutes only a meager share of 2% of the country's total milk market. Processed milk has a market of 3 million liters only whereas the overall market for milk in Pakistan is 20 billion liters. Therefore, processed milk producers cannot afford to bargain for a higher price.

PROMOTION

The promotional activities for UHT milk have to be organized keeping in view the target market and their demands. As it is, this is the pioneer and the major profit earning brand for Nestlé in Pakistan.

Advertising in the print media is not done at a very large scale except for the placement of advertisements in popular newspapers or magazines once or twice a month.

During 1996-98 period, below the line activities for UHT Milk were at their peak. As this is the same period that Nestlé was building its brand image and a platform for the new look of Milkpak. A large number of 'road shows' and 'consumer service' shows were conducted to educate the consumers about the product.

The Point of Sale campaigns are always on the go, with the display of new posters, banners and buntings at all retail outlets. There are about 14 to15 outdoor hoardings of UHT milk nationwide.

Nestlé Milkpak offers discounts to the bulk procurers of milk. This discount is provided at a rate of 20%. The Food Services Channel institutes these contracts and the buyers in this case are the Armed Forces and other major government and private setups.

DISTRIBUTION

Nestlé Milkpak Limited has divided the country into three zones for the sake of convenience in its sales and distribution system. These are:

• South Zone 4 regions

• Center Zone 5 regions

• North Zone 3 regions

Nestlé maintains a comprehensive sales staff, including the Assistant Sales Managers, Regional Sales Managers And Zonal Sales Managers who are reporting to the National Sales Manager.

These people are responsible for the distribution channels of their own particular area. For instance, in Lahore, 50 vans have been hired on a daily basis to deliver the products to the retail outlets. A sum total of approximately 270 vans are required daily to cover the three zones.

As Nestlé focuses on the "A" class market, so its reliance on wholesalers is very less and it maintains close contacts with the retailers. This strategy is not possible for "C" class markets where it is difficult to cover the retail.

MILK POWDER

Nestlé Milkpak Limited is engaged in the production of two different types of milk powders. These are:

• Nestlé Nido

• Nestlé Everyday

Mr. Sajjad Leghari is the brand manager for milk powders at the organization and a session was arranged with him to brief on the marketing mix of this brand.

NESTLÉ NIDO

Nido was introduced to the Pakistani market in the 1950's, when milk powder was first imported through the aid program. Thereafter, it grew in popularity in volumes establishing a significant place for itself. When in 1990's Nestlé went for local production, Nido was already a well-established brand. It came to enjoy this position on account of its high quality, affordability and value for money.

Nido is milk for children aged between 2-4 years. The process of collecting milk for the preparation of this milk powder is the same as for UHT milk. It has retained its leadership position for a number of years now. Supported by years of research and leadership in dairy products, Nido is a class apart in that it is a full cream milk powder, fortified with vitamins A & D and thus especially suitable for children.

The brand has now launched a low unit priced SKU that offers half a liter of high quality milk at a very affordable price. A 62 gm sachet was introduced in February 2000, for low income consumers.

The marketing investments in grassroots activities and the media aimed at educating consumers about powder milk and positioning of Nido as the quality milk for children, have paid dividends.

Advertisements are targeting the mothers by focusing their attention on supreme nutrition for their kids. Supported by a very strong sales effort, the brand has gained formidable presence in the retail channel. After creating the highest ever invoicing and retail per day nation wide record in June, Nido achieved its 1999 OPL annual volume target on July 15, 1999. Today, Nido can proudly claim to be one of the strongest pillars of Nestlé Milkpak Limited.

A review of Nido sales over the past two years shows that the strategically planned promotional activities and the rigorous marketing efforts have successfully established Nido as the best milk

for children and is associated with quality, health and nutrition.

MARKETING HIGHLIGHTS

Nido Spellathon

In line with its positioning, Nido continued to promote educational activities for the mental development of children in association with WWF. It sponsored the Spellathon which attracted a large number of school children. For the past two years, the activity has very successfully projected Nido as quality milk for children and the best option for mothers.

Nido Quiz Contests

Quiz contests were also sponsored by Nido. Several schools competed in this mega-event and the program was aired on TV.

Nido Rolls Out Its New Thematic

TV viewers nationwide witnessed the new Nido Thematic in May 2000. From the production and execution point of view, this was the best Nido Thematic to date. It features a Nido boy who grows up to contribute to the family income. The advertisement is very emotional, highlights a mother's love for her child and shows how Nido helped her in realizing her life long dream.

Mother's Day Shows

Nestlé Consumer Services has continued to play an important role in the growth of Nido. The Mother's Day Shows organized by consumer services in schools have highlighted the importance of milk to help children excel in studies, raise awareness of hygiene in milk and also eliminate misconceptions about powder milk.

Held in an interactive manner, the shows allow Consumer services representatives to discuss these issues with mothers and give free samples. These shows have been a success, as is clear from the tremendous rise in Nido Sales in markets where these shows were held.

Trade Offers By Nido

To support the sales team in pushing the brand to the trade and also reward its loyal retailers, Nido gave a trade offer in its major markets. Retailers were given coupons on the purchase of a pre-decided quantity of Nido, which were also entered in a draw for fabulous prizes. The response was very enthusiastic and sales got a good boost.

Road Shows

In May and June 2000, Nido organized road shows in its key markets to have close interaction with mothers and to provide entertainment. These included a puppet show performed by the Rafi Peer Theatre Workshop, dance performances by folk artists and competitions among children. Free samples were also distributed.

NESTLÉ EVERYDAY TEA WHITENER

"Everyday" is a specialized milk powder positioned as a dairy tea whitener. In 1992, Everyday tea whitener was introduced in the market, offering a premium valued milk powder that brings out a special taste in tea. It was specially suited to the taste of a very large tea drinking population, which consumes over 100,000 tones of tea every year. Due to its excellent taste delivery, this brand has prevailed any competitive forays in the milk powder segment since its launch.

During the last few years Everyday has shown a proverbial growth, thanks to effective marketing efforts, such as heavy sampling among its core target audience.

Everyday's thematic campaign was launched in January 2000 with a bang. It has been an instant success due to its better production, greater emotional and appetite appeal and well known models, Junaid Jamshed and Mahnoor Baloch. Everyday's consistent presence on television, in the print media, on radio and in cinema, has helped the product gain popularity. The largest outdoor campaign, featuring more than 65 sites nationally, created tremendous impact in the outdoor arena. Additionally, all sales regions also focused on the Point of Sale and merchandising campaigns, helping significantly to increase volumes and put the product on its way to becoming a giant in this category.

Nestlé has launched a 40 gm sachet for a mere Rs. 8, a low unit priced SKU especially suited for lower middle class.

MARKETING HIGHLIGHTS

Wet and Dry Sampling for Everyday

Nationwide wet and dry sampling by Nestlé Everyday continued during the year 2000. The activity was significantly reinforced to introduce more consumers to the product. Special town storming drives were also launched in Northern Areas, Interior Sind and Central Punjab.

Caltex - Everyday Promotion

A joint promotion with Caltex in April 2000 gave the brand excellent exposure. Caltex stations were covered with attractive POS material highlighting the promotional offer. More than 300,000 Everyday samples were distributed with petrol sales.

Everyday Sponsors International Music Event

An International Music Festival was sponsored by Everyday in March 2000. A magnificent Everyday stall was set up to ensure maximum brand exposure. Events such as Sozo Laser show, were also sponsored to provide maximum support to the new campaign and the ongoing sampling activity.

Everyday Road Shows

Road shows organized by Everyday, featuring musical groups and attractive puppets created major hype in Karachi, Lahore and Islamabad. Thousands of consumers were involved in this massive activity, which was coupled with wet and dry sampling.

Everyday Premium Prospects

To reward its partners in trade i.e. the retailers, a special lucky draw scheme was launched. More than 10,000 retailers participated in the scheme which offered 20 Umra tickets, 7 tickets to Dubai and 250 gold rings. The launch of new 5 gm sachets of Everyday for offices was a major success.

Supported by aggressive marketing activities, focused distribution with sampling drives and excellent consumer acceptance, the brand has shown good growth and holds good promise for the future.

NESTLÉ YOGURT

A new product from Nestlé Milkpak, Nestlé Plain Yogurt took the market by storm with the dawn of the new millennium. On November 1, 2000, the management and sales teams rode to Liberty Chowk in Lahore in a cavalcade of colorful horse drawn carriages led by a folk dance troupe and followed by a procession of our new yogurt distribution vans and sales staff on motorbikes. It was a great sight.

Fritz Mahler, the Managing Director, unveiled a giant sized NESTLÉ Plain Yogurt cup and moved the teaser message off the hoarding, displaying the campaign launch message at Liberty Chowk. Mr. Dominique Dupont and Mr. Apkar Sutlian from Zone AOA, Vevey, who were visiting Pakistan, were also present and joined the festivities.

Mr. Abdullah the Brand Manager for Nestlé Yogurt gave the following detail.

PRODUCT

Nestlé Yogurt comes in a packing of 450 gm. The product is of a very high quality. It extensively benefits from Nestlé's 125 years of expertise in dairy products and the superior quality milk that Nestlé Milkpak collects in Pakistan.

The major strength of Nestlé Yogurt lies in the culture used to prepare it. Cultures are of two types:

Bulk Starter.

Devious.

Bulk Starter used by all competitors regenerates automatically and can be used over and over again. Whereas Nestlé imports the devious culture which can be used only once for batch production. It leads to best quality and its strength is not reduced with use. Other ingredients include sucrose and stabilizers.

Process

The procedure for preparing the Yogurt is that:

Milk is standardized and the percentage of fat is adjusted. A standard proportion of Fats and Solid Non Fats is maintained. Solid Non Fats include water minerals and vitamins. The quality of the yogurt depends on this proportion of Fats and Non Solid Fats. The minimum level for Fats is 3.5% and for SNF's is 8.2%. This level has been decided through research and Nestlé maintains it at above minimum levels i.e. 3.6% for Fats and 8.3% for SNF's. Sugar content in the yogurt is standardized at 4%.

After standardization the next step to follow is pasteurization

From there, the milk moves on to the filling machine. Milk is poured in the cup containing the bacteria.

The cup with milk and bacteria moves to the incubation room where temperature is maintained at 400C to make the bacteria grow.

From here the cup moves to the glass chillers in a temperature of 40C to stop the growth of bacteria.

After completion of these phases, the cups are moved to the cold store which again maintain a temperature of 40C.

Chilled Distribution Vehicles are used for the distribution of yogurt; where the temperature is more than freezing point ranging between 0-100 C.

The product has an edge over competition that it carries a 21 day expiry date - longest in Pakistan and a Stay Fresh Seal. All products carry an expiry date.

PRICING

Nestlé Yogurt is available at a price of Rs.21/- in the market. The strength of the brand lies in the factor that consumers buy the product on its price.

Nestlé gains this advantage as it is backed by formidable brand strength. Prime followed a strategy of major trade discounting because of the launch of Nestlé Yogurt. But they were able to gain only a short run advantage. Halla remained the major loser by a reduction of 10% in market share.

PROMOTION

A dairy based product, the largest markets for Nestlé Yogurt are children ranging between 4 - 12 years of age. The largest audience for this brand are the decision makers in families i.e. the mothers of these children who are health conscious about the diet of their kids.

As the product has been launched in Punjab only, the TV. Commercials is aired only on Lahore Local Networks. Also advertisements are aired on Radio Channels FM 100 and FM 101.

Outdoor advertising includes MMT's and banners at major roads of Lahore. The launch was preceded by an extensive teaser campaign. The placement of an aluminum seal foil in the newspapers created a great deal of consumer curiosity. On October 31, 2000 a sales function was held at Sozo World in which over 300 guests participated, including the members of senior management, Mr. Dominique Dupont and Mr. Apkar Sutlian and the sales team. Everyone thoroughly enjoyed the food and the music.

Channel promotion is attained by linking Nestlé's name with other small firms. Like Nestlé Yogurt has coupled with Chen One products and prizes are offered on lucky draws at Chen One sales point. Nestlé is chipping in a small amount but is gaining a lot of mileage for its brand.

DISTRIBUTION

As already mentioned Nestlé uses chilled distribution vehicles for delivering its products to the retailers. A total of six to seven vans are used to cover the city of Lahore. Areas have been specified for these vans to deliver the Yogurt to retail outlets

The consumer response in connection with this product has been excellent and the off take very high. Nestlé Yogurt plans to capture the market in South soon, after launching its product in Karachi.

MILKPAK UHT CREAM, DESI GHEE & NESTLÉ BUTTER

These are small brands compared to the rest of the dairy based products but they gather a large proportion of the market share due to their supreme quality. Their production is based on the same milk collection process as followed by the rest of the dairy brands.

MILKPAK UHT CREAM

Milkpak UHT Cream was introduced under the Milkpak brand in 1986. It is available in 200-ml pack size in an attractive slim pack. The consumer trust in the brand name and the product has ensued its dominant share in the cream category.

Milkpak Cream was also introduced in an economical 1000ml pack size in the year 2000. This SKU has been developed for Food Services to cover institutions using large quantities of fresh cream.

MILKPAK DESI GHEE

Milkpak Desi Ghee was introduced in 1986 in tin packaging. The packaging was later changed to Tetra Pak. However in line with the current market trend, Milkpak Desi Ghee was re-launched in 1 Kg tin packaging in the year 2000. The product was also introduced in 16 Kg tin packaging to tap the huge potential of loose Desi ghee.

NESTLÉ BUTTER

Nestlé Butter was launched on January 20, 2001. The venue was the picturesque seaside Carlton Hotel in Karachi where a concert was held to round off the National Marketing and Sales Conference. Against an impressive backdrop, famous singers swung and sang, making it a memorable occasion.

At a cost of over Rs. 19 million, the old butter churn was replaced with a continuous butter-making machine to produce a highly improved product. This close circuit process enables Nestlé to produce cultured butter that is comparable to any international brand. As compared to the non-cultured butter, it provides better taste, aroma and spread ability. Available in new attractive packaging of 200g and 100g, Nestlé Butter has been well received by the consumers, for whom the Nestlé branding is an endorsement of its high quality.

NESCAFE'

Coffee and beverages at Nestlé Milkpak Ltd. includes Nescafe Classic (soluble coffee), Frothe and Frappe. Under the head of beverages are juices and cold drinks.

Coffee or "Nescafe Classic" as it is commonly known is the major trademark of Nestlé. It is the strategic brand at Nestlé. It is the biggest profit maker for Nestlé world wide and the most vital source of revenue generation. The growth of the brand is estimated to be approximately 5-7% annually world over.

As is evident from history there is a highly dominant tea drinking culture in Pakistan. Lever Brothers Ltd. took the first step in this direction in the 18th Century. They added the taste of tea to the milk drinking culture of South Asia, by free sampling of their product. After people formed a habit of drinking tea the vendors profited greatly by putting a price on it. Therefore, today 80% of the country's population is hooked on to tea.

The market size of coffee as compared to tea is just less than 1%. This figure is true if we take into account only the legal import of coffee. Legal imports are less as govt. has imposed heavy duty on such items.

Main hurdle faced by Nestlé Nescafe is to counter the tea drinking culture and to breakthrough the tea drinking habit of people. Its aim is not to deviate people from drinking tea, but simply to replace the numbers of cups of tea drunk in one day, by a single cup of coffee.

We had set an appointment with Mr. Nauman Khan, the Brand Manager for Coffee and Beverages at Nestlé Milkpak Ltd. He as a Brand Manager keeps on conducting surveys to judge people's perceptions about coffee and tea. Even as we were having our discussion with him, he kept questioning us for our views. He told that there is a multitude of negative and positive connotations attached with it.

The platform on which Nestlé places its viewpoints are that tea no doubt is an eye-opener and mind-jolter, but it is a more mature drink that does not go in keeping with the nature of the young masses. It relates to ancient times whereas coffee is a relatively younger and modern concept. It talks about the future, it is modern and upbeat. The key areas attached with it are:

1. It has a sensual appeal.

2. Its aroma can be matched with no other drink.

Recently a new product form was launched i.e. Frothe'. It was developed clearly for the tea drinking cultures of the Asian countries. It has the creamy and frothing effect that normally relates in the minds of traditional Asian cultures. Where coffee relates to a hot drink i.e. beat up with sugar and water and added in a lot of milk to provide the frothing effects.

Frothe' has been made more appealing by adding Vanilla and Mocha flavors.

The major drawbacks restricting the use of coffee remains the seasonal factor. Connotations attached to coffee remain that it is hot beverage stimulating heat in the body and with adverse effects for health in summers, its use is curtailed.

To bridge the seasonality gap to keep alive the tradition of drinking coffee, Nestlé launched a novel product, the first and sole one of its kind in Pakistan. Nescafe Frappe or the "Cold Coffee", a refreshing and tasty drink that has highly appealed to the young masses in the country. Frappe was developed to keep the target market on track of coffee irrespective of the limitations posed by seasons.

Soluble coffee, Frothe and Frappe are three pillars of Nescafe'. Volumes of sales are small compared with tea, still it has made a major inroad in the beverage market.

The target market of Nescafe is the young generation i.e. ages 18-24. This is the 'wanna be' age where youth want to be in keeping with the changing times.

Nescafe also wishes to place itself where the younger crowds are going. It wants to position itself in the area which is not the domain of its competitor. Vending machines with imageries of Nescafe have been setup at various educational institutions. Concerts at institutes and clubs are sponsored by Nescafe mostly. It promotes the renowned singers in the pop cultures. Advertisements are constantly splashed on media and also non-media activities. Internet advertisement is also at its bloom where local chat pages are used for advertising to attract the Pakistani generation.

Nescafe faces a huge task in this respect. Its cover area is the younger generation and from facts it is evident that coffee has only been able to make a breakthrough where tea drinking culture was very dominant. People accustomed to coffee are difficult to move from their taste as its aroma and flavor has no counterparts. Compared to that Japan popular as a chronic tea drinking nation all over the world is the second and fastest growing market for Nescafe coffee. With no formal company as its competitor, the major competition Nescafe faces at Pakistan is Nescafe itself i.e. smuggled goods pouring in the country from all boundaries.

Above all the changes coming globally in the world, due to the emerging trends and novelties are all opening the market for Nescafe. Globalization on and communication all are addressing in the

growth of Nescafe. It is becoming the trend for the younger masses.

All these changes are going in favor of the coffee producers and the tea giants know this. Therefore, they have also started building up their efforts by associating their product with celebrities appealing to the younger generation.

Nauman Khan at Nestlé Milkpak Ltd. Lahore and all brand managers worldwide are very optimistic that they would be successful in adjusting the taste buds of people in hot beverages according to their wishes.

BEVERAGES

Mr. Arsalan Khan; the Assistant Brand Manager briefed us about the Nestlé Beverages and said that cold beverage market at Nestlé is divided into three segments. All beverages come in tetra- pack packing.

1. Fruit Drinks (Frost Mango, Mango Orange etc ).

2. High Quality Juice ( 100% Pure Nestlé Orange Juice ).

3. Value Added Beverages (Frappe, Milo Ready to Drink ).

These beverages are produced locally at Sheikhupura Factory.

Market strategies and dynamics followed in these three segments are totally different from each other:

The Fruit Drink Market has been converted into a trade market. It depends highly on trade rebates and not on consumer pulls. A number of companies offer their fruit drinks in the market posing a great deal of competition for Nestlé Products. No specific trends for customer preference have been witnessed in this market segment. Therefore, it is basically a market that can earn profit by offering attractive deals to wholesale distributors, retailers and the consumers.

High Quality Juice and Value Added Beverage Market are quite similar to each other; they have similar market dynamics and strategies. Both these markets demand high consumer pull. These markets show clear distinctions in consumer preferences. Close substitutes are generally not available other than imported and expensive products, such as Nestlé which is the 100% pure juice market leader by a wide margin. Trade influence in these sectors is lower than the fruit drink market. The target of these segments is the high income class group that prefers to give value for their diet intake.

Cold Beverage Market faces competition from a wide range of companies offering different products (carbonated drinks being the major competitors). These drinks also take the "Pioneer Advantage" as the beverage market in Pakistan was developed primarily by Pepsi and Coke. Other than these, the competition faced by Cold Beverage Market at Nestlé are the Fruit Squashes, Rooh Afza and other fruit drinks in tetra-packing. Along with these bottled Mineral Water also brews up some competition as it is the best alternate for thirst quenching. Promotional activities keep their focus on the consumers. Price-off promotions are frequently rendered to induce new buyers and to reward the loyal consumers. The most challenging task by and far is not to attract new consumers but to keep the consumer base stand where it is.

Point of Sale Material like posters and buntings are constantly being designed and innovated. Where in turn they are forwarded to the retailers to make their shops look attractive and appealing. TV commercials are aired in all peak timings and more often products are also used to sponsor cricket tournaments. Outdoor activities and MMT's are also used to support consumer promotion. Trade activities are constantly on the go. Target incentives are offered to the wholesalers, distributors and retailers to induce them.

Below the line activities i.e. restricted to a specific vicinity, such as sampling and conversation with the target markets are frequently followed. Recently, MILO arranged an inter school cricket competition in Karachi. This not only boosted the sporting spirit in children but also free sampling at these matches created a close association for children with MILO.

Evident from all this narration from the ABM, is that the Cold Beverage Market for Nestlé is very lucrative. And keeping in mind the seasonality effect, which induces the need for thirst quenching beverages, Nestlé can cash from this market segment greatly. Therefore minds at Nestlé are constantly searching for new ideas to gain from this segment.

REGIONAL SALES OFFICES

Karachi F-77/1, Block 7,

Clifton, KDA Scheme 5,

Karachi, Sind, Pakistan.

Phone : (021) 5833935-6

Fax : (021) 5833937

Hyderabad 178, Block C, Unit 2 Latifabad,

Hyderabad, Sind, Pakistan.

Phone : (0221) 860403

Fax : (0221) 863202

Lahore 29-b, Main Gulberg,

Lahore, Punjab, Pakistan

Phone : (042) 5754335-6, 5752582

Fax : (042) 5761491

Multan Surij Miani Road, Chungi No. 1,

Multan, Punjab, Pakistan.

Phone : (061) 515061

Fax : (061) 515057

Faisalabad Al Haq Plaza, 271-A,

Small D Ground, People's Colony

Faisalabad, Punjab, Pakistan

Phone : (041) 546993, 734538

Fax : (041) 543538

Gujranwala 23, D.C. Road.

Gujranwala, Punjab, Pakistan.

Phone : (0431) 256320

Fax : (0431) 256320

Peshawar 201, Block B, 2nd Floor

City Tower, Jamrud Road,

Peshawar, N.W.F.P, Pakistan

Phone : (091) 840859, 842415, 43901

Fax : (091) 45516

Quetta 63 B – D, Chaman Housing Scheme,

Opposite Askari Park

Quetta, Baluchistan, Pakistan.

Phone : (081) 834887

Fax : (081) 822297

Islamabad 74-W, Yaseen Plaza, 1st Floor, Blue Area,

Islamabad, Pakistan

Phone : (051) 2271874-5, 2824328

Fax : (051) 2821899

FINANCIAL ANALYSIS OF NESTLÉ MILKPAK LIMITED

BALANCE SHEET AS AT JUNE 30, 1998 AND

DECEMBER 31, (1998-2001)

All figures in '000's

1998 1998 1999 2000 2001

Share Capital and Reserves

Issued, Subscribed and Paid up Capital 301,759 301,759 452,639 452,639 452,639

Capital Reserves 400,407 400,407 249,527 249,527 249,527

Accumulated Profit 100,913 174,053 160,320 138,524 149,065

Total 803,079 876,219 862,486 840,690 851,231

Non –Participatory Redeemable Capital Secured 343,895 333,459 863,009 300,000 400,000

Long Term and Deferred Liabilities

Deferred Taxation 82,892 137,666 156,855 178,690 178,301

Employee Benefits 24,306 27,832 34,889 38,956

Total 161,972 184,687 213,579 217,257

Current Liabilities

Current maturity of Non -Part. Capital 225,818 225,834 25,818 613,009 200,000

Finances under Mark up Arrangement 58,311 319,023 398,927 346,251 457,468

Creditors, Accrued and Other Liabilities 361,050 465,987 539,761 459,291 705,147

Dividend Payable 90,528 105,616 135,792 203,688 271,584

Provision for Taxation 65,404 - 66,181 62,755 103,797

Contingencies and Commitments - 1,116,460 1,166,479 1,684,994 1,737,996

Grand Total 2,030,977 2,488,110 3,076,661 3,039,263 3,206,484

Tangible fixed assets

Operating Fixed Assets 1,237,432 1,544,156 1,761,024 1,878,516 1,832,292

Capital work in Progress 51,091 133,784 34,376 20,564 6,721

Total 1,288,523 1,677,940 1,795,400 1,899,080 1,839,013

Long term loans, deposits and Prepayments 15,099 9,681 3,161 7,430 4,071

Current Assets

Stores and Spares 89,970 80,551 136,984 169,087 184,033

Stock in Trade 498,871 557,532 985,731 828,874 833,350

Trade Debts 48,527 29,159 22,316 36,015 44,119

Advances, Deposits, Prepayments and other receivables 76,708 109,140 68,553 81,034 89,473

Cash and Bank Balances 13,279 24,107 64,516 17,743 59,418

Total current assets 727,355 800,489 1,278,100 1,132,753 1,210,393

Grand Total 2,030,977 2,488,110 3,076,661 3,039,263 3,206,484

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED, JUNE 30, 1998 AND DECEMBER 31, (1998-2001)

All figures in '000's

1998 1998(6 months)*2 1999 2000 2001

Sales 4,268,433 5,014,710 5,755,482 6,575,221 7,902,202

Cost of Goods Sold 3,038,716 3,489,778 4,079,506 4,782,843 5,679,001

Gross Profit 1,299,717 1,524,932 1,675,976 1,792,378 2,223,201

Administration and Selling Expenses 785,151 854,702 1,038,769 1,141,909 1,293,586

Operating Profit 444,566 670,230 637,207 650,469 929,615

Other income 5,346 9,708 4,458 14,258 15,754

Financial Charges 97,927 102,136 122,317 135,248 129,187

Other Charges 24,373 30,554 37,163 36,658 61,014

Profit before Taxation 327,612 547,248 482,185 492,821 755,168

Provision for Taxation 123,224 160,838 201,702 220,401 291,987

Profit after Taxation 204,388 386,410 280,483 272,420 463,181

HORIZANTAL ANALYSIS

The most straightforward method of analyzing financial statements is simply to compare the current year with the previous year and to note and rationalize any significant changes. This is often performed in analytical review procedures before proceeding to any detailed audit work. It is known as 'horizontal analysis', but its formal title is hardly important as it amounts to the application of basic common sense. It is a form of 'inter temporal' analysis i.e., a comparison between accounting periods.

The line by line comparison must be performed considering

1. The change in turnover

2. The relevance of anything else you may know about the company

HORIZONTAL ANAYSIS OF BALANCE SHEET

AS ON 30 JUNE, 1998 AND 31 DECEMBER (1998-2001)

1998 1998 1999 2000 2001

Share Capital and Reserves

Issued, Subscribed and Paid up Capital 100 100 150.00 100 100

Capital Reserves 100 100 62.31 100 100

Accumulated Profit 100 172.47 92.10 86.40 107.60

Total 100 109.10 98.43 97.47 101.25

Non –Participatory Redeemable Capital Secured 100 96.96 258.80 34.76 133.33

Long Term and Deferred Liabilities

Deferred Taxation 100 166.07 113.93 113.92 99.78

Employee Benefits - 100 114.50 125.35 111.65

Total - 100 114.02 115.64 101.72

Current Liabilities

Current maturity of Non -Part. Capital 100 100.00 11.43 2374.34 32.62

Finances under Mark up Arrangement 100 547.10 125.04 86.79 132.12

Creditors, Accrued and Other Liabilities 100 129.06 115.83 85.09 153.52

Dividend Payable 100 116.66 128.57 150 133.33

Provision for Taxation 100 - 101.18 94.82 165.40

Contingencies and Commitments - 100 104.48 144.45 103.14

Grand Total 100 122.50803 123.65 98.78 105.50

Tangible Fixed Assets

Operating Fixed Assets 100 124.78 114.04 106.67 97.53

Capital work in Progress 100 261.85 25.69 59.82 32.68

Total 100 130.22 107.05 105.77 96.83

Long term loans, deposits and Prepayments 100 64.11 32.65 235.05 54.79

Current Assets

Stores and Spares 100 89.53 170.05 123.43 108.83

Stock in Trade 100 111.75 176.80 84.08 100.54

Trade Debts 100 60.08 76.53 161.38 122.50

Advances, Deposits, Prepayments and other receivables 100 142.27 62.81 118.20 110.41

Cash and Bank Balances 100 181.54 267.62 27.50 334.88

Total Current assets 100 110.05 159.66 88.62 106.85

Grand Total 100 122.50 123.65 98.78 105.50

COMMENTS

The horizontal analysis of a financial statement is carried out to measure the trend whether the items that constitute the statement are moving in a positive or a negative direction. The horizontal analysis of the balance sheet shows that the accumulated profit is decreasing with time due to the reason that the profit is flowing out in the form of dividends. Deferred taxation has increased in 1998 and then continuously decreasing. The employee benefits have risen by more than 10% in 2000 but are again on a decrease. Current maturity increases at a very high rate due to the large amount payable in the year 2000 and after that it is again declining. Finances under markup have increased consistently except for in 2000 where some of the long term fund which was excess was decided to be put into operating cycle. Other liabilities have decreased greatly traditionally but in 2001 it has almost been doubled. The dividend payable has risen by 50% in 2000 compared to the year 1999, and in 2001 again there is a rise of 33% which indicates that even after 11 September catastrophe the company has been able to meet its shareholders expectations. The fixed assets of the company continue to raise even the Indus factory no longer exists which means the company is heavily investing in terms of the machinery imported and new plants set up every year. The deposits and prepayments of the company show a marked positive increase in the year 2000 but again a control sort of thing definitely has been implemented because prepayments have been reduced by 40-45 %. The most significant change in the current assets is evident in the cash and bank balances which fell greatly in the year 2000, due to the acquisitions made by Nestlé Milkpak in the water market but that doesn't stopped the working because the company has again its normal balance available at its disposal in 2001.

HORIZONTAL ANALYSIS OF PROFIT AND LOSS ACCOUNT

FOR THE PRIOD ENDING 30 JUNE, 1998 AND 31 DECEMBER (1998-2001)

1998 1998(6 months)*2 1999 2000 2001

Sales 100 117.48 114.77 114.24 120.18

Cost of Goods Sold 100 114.84 116.90 117.24 118.74

Gross Profit 100 117.33 109.90 106.95 124.04

Administration and Selling Expenses 100 108.86 121.54 109.93 113.28

Operating Profit 100 150.76 95.07 102.08 142.91

Other income 100 181.59 45.92 319.83 110.49

Financial Charges 100 104.30 119.76 110.57 95.52

Other Charges 100 125.36 121.63 98.64 166.44

Profit before Taxation 100 167.04 88.11 102.21 153.23

Provision for Taxation 100 130.52 125.41 109.27 132.48

Profit after Taxation 100 189.06 72.59 97.13 170.02

COMMENTS

The horizontal analysis of the profit and loss account does not provide a good judgment in this case as Nestlé Milkpak Limited changed its Income Year from June to December in the year 1998, and the measures for 1999 and 1998 are taken against a period of six months only. To cope up with this problem the assumption I have taken is that the figures of the period ending 31 December 1998 are doubled. This is being done to make all the 5 periods which I have taken for analysis comparable. And as we all know that comparability is the basic assumption of the financial accounting concept.

Sales have been consistently on the rise with a cumulative percentage of 10-15% annually. Cost of sales has also been invariably showing the same trend.

Administration and selling expenses are also in direct proportion with the sales and CGS, which shows that only the variable portion is influenced with the passage of time.

Operating profit in later part of 1998 has shown a considerable increase, which were because of the increase in prices of major brands like UHT Milk.

Financial expenses have been consistently increasing showing again a consistent trend. This consistent trend has not been influenced by major inflow of non participatory redeemable capital in 1999.

The Net Profit after Tax has also depicting sudden fluctuation in 1998 and 2001, which is because of price regulations being implemented from Vevey.

VERTICAL ANALYSIS

VERTICAL ANALYSIS OF BALANCE SHEET

AS ON 30 JUNE, 1998 AND 31 DECEMBER (1998-2001)

1998 1998 1999 2000 2001

Share Capital and Reserves

Issued, Subscribed and Paid up Capital 15 12 15 15 14

Capital Reserves 20 16 8 8 8

Accumulated Profit 5 7 5 5 5

Non –Participatory Redeemable Capital Secured 17 13 28 10 12

Long Term and Deferred Liabilities

Deferred Taxation 4 6 5 6 6

Employee Benefits 1 1 1 1

Total

Current Liabilities

Current maturity of Non -Part. Capital 11 9 1 20 6

Finances under Mark up Arrangement 3 13 13 11 14

Creditors, Accrued and Other Liabilities 18 19 18 15 22

Dividend Payable 4 4 4 7 8

Provision for Taxation 3 2 2 3

Contingencies and Commitments - 1,116,460 1,166,479 1,684,994 1,737,996

Grand Total 100 100 100 100 100

Tangible Fixed Assets

Operating Fixed Assets 61 62 57 62 60

Capital work in Progress 3 5 1 1 0

Total

Long term loans, deposits and Prepayments 1 0 0 0 0

Current Assets

Stores and Spares 4 3 4 6 7

Stock in Trade 25 22 32 27 26

Trade Debts 2 1 1 1 1

Advances, Deposits, Prepayments and other receivables 4 4 2 3 3

Cash and Bank Balances 1 1 2 1 3

Total

Grand Total 100 100 100 100 100

COMMENTS

All the items of current assets continue to rise as a percentage of the total assets except the cash and bank balances which were reduced in the year 2000 due to the investment made by the company in Universal Aqua Pvt. Ltd.

At the current liabilities side, the figure that proves most critical in the further analysis also, is that of the varying percentage of the current maturity, in accordance with the amounts payable of the redeemable capital each year. The provision for taxation has risen, in order to cater the higher rate of taxes.

The long term liabilities follow a steady pattern over the five years except for in 1999 when heavy funds were acquired for launching PURE LIFE.

The fixed assets continue to rise for the company.

The share capital increased with the subscription of shares in 1999. The capital reserves and accumulated profit show a fall as the cash is flowing out in the form of dividend payments.

The total current assets and fixed assets maintain a stable pattern in the total assets with minor changes.

The long term and short term liabilities rise but not at a very high rate. The long term loan has decreased due to the change in the company's policy to rely on short term advances.

VERTICAL ANALYSIS OF PROFIT AND LOSS ACCOUNT

FOR THE PRIOD ENDING 30 JUNE, 1998 AND 31 DECEMBER (1998-2001)

1998 1998(6 months)*2 1999 2000 2001

Sales 100 100 100 100 100

Cost of Goods Sold 71.19 69.59 70.88 72.74 71.87

Gross Profit 30.45 30.41 29.12 27.26 28.13

Administration and Selling Expenses 18.39 17.04 18.05 17.37 16.37

Operating Profit 10.42 13.37 11.07 9.89 11.76

Other income 0.13 0.19 0.08 0.22 0.20

Financial Charges 2.29 2.04 2.13 2.06 1.63

Other Charges 0.57 0.61 0.65 0.56 0.77

Profit before Taxation 7.68 10.91 8.38 7.50 9.56

Provision for Taxation 7.68 10.91 8.38 7.50 9.56

Profit after Taxation 4.79 7.71 4.87 4.14 5.86

COMMENTS

The percentage of raw and packing materials in the cost of goods manufactured has decreased in the year 2000, although the sales have risen, which is an indicator of good cost controls.

The labor charges and factory overhead remains exactly the same again indicating the high efficiency of the management.

The financial charges have risen over the time. The interest rates may have also changed but the significant changes are due to the change in the principal amount which changes with the payment of current maturities each year.

The provision for taxes keeps on rising indicating that the company is making 100% tax payments.

Selling and administration expenses have been maintained at a steady level although the sales have risen and a 5-7% change is acceptable. This again reflects the tight cost controls of the company.

ACCOUNTING RATIOS

Ratio analysis is a more sophisticated technique for analyzing financial statements. It is the next step after the so called horizontal analysis.

IMPORATANCE OF ACCOUNTING RATIOS

The importance of accounting ratios, that is, relationships worked out among various accounting data which are mutually interdependent and which influence each other in a significant manner, arises from the fact that often absolute figures standing alone convey no meaning. They become significant only when considered along with other figures.

For the purpose of analysis, accounting ratios are indispensable. Suppose sales have increased but profit has fallen. One may be vaguely aware of the causes, but for precise knowledge it will be necessary to analyze all the figures completely. For example, one will have to ascertain the contribution to higher sales by change in prices and by increased or lower sales volume; the consumption of materials will also be analyzed both for the changes in prices and in quantities consumed. Such analysis is greatly facilitated by accounting ratios. I fact, a meaningful analysis of the financial situation and performance is the first great advantage of accounting ratios. This requires ratios and their comparison which may be:

1. For the same firm over a period of years

2. For one firm against another

3. For one firm against the industry as whole or against predetermined standards

4. For one division or department of a firm against other divisions or departments of the same firm

Inter firm comparison and a intra film comparison are thus, possible on the basis of accounting ratios; this can also be attempted in other ways but accounting ratios are indispensable in this respect, for example, to judge which firm has the best overall efficiency, one should compare the rate of profit on capita l employed for the firms concerned--- the size of the profits as such is not relent.

Accounting ratios not only indicates the present position, they also indicate the causes leading unto the position to a large extent. For instance, accounting ratios may indicate not only that financial position is precarious but also the past policies or actions which have caused it. Best results are obtained when ratios for a number of years are put in a tabular form so that the figures for one year can be easily compared with those of other years.

Accounting ratios tabulated for a number of years indicate the trend of change. This helps in preparation of estimates of the future. Ratios also help in ascertaining other figures if one figure is available. Suppose it is known that the ratio of wages to sales is 15%; it is then easy to calculate the amount to be spent on wages if the amount of expected sales is known.

LIMITATIONS

RATIO ANALYSIS is very fashionable these days and is useful but one should be aware of its limitations also. The following are the chief limitations of accounting ratios:--

1. Accounting ratios can only be correct as the data on which they are based. For example, if inventory values are inflated, not only will one have an exaggerated view of profitability of the concern, but also of its financial position. The basic data must be absolutely reliable, if the ratios worked out on its basis are to be relied upon.

2. When two firms' results are being compared, it should be remembered that the firms may follow different accounting policies; for instance one firm may charge depreciation on the straight line method and the other on diminishing balance method. Such differences will not make some of the accounting ratios strictly comparable.

3. Changes in price levels often make comparisons of figures for various years difficult. For instance the ratio of sale to fixed assets in 2001 would be much higher than in 1995 due to rising prices, fixed assets being expressed still on the basis of cost.

4. Accounting ratios may be worked out for any two figures even if they are not sign9ificantly related. For example, a ratio a ratio may be worked out for sales and investments in government securities. Such ratios will only be misleading. Care should be exercised to work out ratios between only such figures as have a cause and effect relationship. And should be also reasonably clear as to what is cause and what is effect.

5. Ratios sometimes give a misleading picture. One company produces 1000 units in one year and 2000 the next year ; the progress is 100% another firm raises production from 6000 to 8000 units --- the progress is only 33 % the second firm will appear to be more active than the first firm if only the rate of increase is considered. It is, therefore, useful if, along with ratios, ratios, absolute figures are also studied --- unless the firms being studied are equal in all respects. In fact, one should be extremely careful while comparing the results of one firm with those of another if the two firms differ in any significant manner, say, in size, location, degree of automation or mechanization, etc.

6. Accounting ratios are expressed in precise figures and that may be misleading unless one remembers that the figures on which they are based are often only estimates and that different figures could also have been worked out legitimately. One should also remember that often the basis of accounting is changed; this will mean that ratios of one period and those of another may not be comparable. In a nut shell, before one works out the ratios, one should be sure of the figures leading to the ratios.

7. Another important point to keep in mind is that there is almost no single standard ratio against which the actual ratio is measurable. Circumstances differ from firm to firm and the nature of each industry is different. Therefore, the standard will differ from for each industry and the circumstances of each firm will have to be kept in mind. For instance, while comparing the rate of return of electricity companies with that in other industries, one must remember that, by law, electricity companies are precluded from making higher profits. One company may have to invest heavily in fixed assets and another industry may have to keep large stocks of raw materials and finished goods. For these reasons, the performance of one industry may not be properly comparable with that of another. For each industry, standard ratios will have to be worked out separately, mostly on the basis of actuals for a few representative companies which may be considered as reasonably sound and competent. The performance of firms in the industry may then be compared but still remembering the circumstances of each firm.

Even when the ratios are worked out correctly, it should be remembered that they can at best be used as a doctor uses symptoms --- indications that some thing is wrong somewhere. Just as the doctor will try to get to real reason, in the same manner the analyst should try to locate the real factor leading to the present state of affairs. Suppose, the ratio of gross profit to sales is low. The reasons may be poor sales, bad purchasing, defective pricing strategy, wastages and losses, etc. ratios thus point out areas which needs investigation- they are only a tool in the hands of the person trying to get to the truth.

RATIO ANALYSIS OF NESTLÉ MILKPAK LIMITED PAKISTAN

Financial Ratio Analysis is an exercise carried out to determine liquidity, credit worthiness, management efficiency and profitability of a business entity.

OBJECTTIVES OF FINANCIAL ANALYSIS

Business concern and Management

For assessment of profitability of the business.

For assessment of stability and financial strength of the business entity.

Assessment of efficiency of resources utilization.

Assessment of potentials of profitability.

Evaluation of different management controls.

SIGNIFICANT RATIOS

PROFITABILITY RATIOOS

1998 1998 1999 2000 2001

GROSS PROFIT MARGIN

GROSS PROFIT / NET SALES * 100 28.81% 30.46% 29.126% 27.26% 28.13%

OPERATING MARGIN

OPERATING PROFIR / NET SALES * 100 10.42% 13.47% 11.07% 9.89% 11.76%

NET PROFIT MARGIN

NET PROFIT / SALES * 100 4.79% 7.78% 4.87% 4.14% 5.86%

RETURN ON ASSET

NPAIT / TOTAL ASSETS * 100 10.06% 7.84% 9.07% 8.96% 14.45%

RETURN ON EQUITY

NPAIT / SHARE HOLDER EQUITY * 100 25.45% 22% 33% 32% 54.40%

RETURN ON CAPITAL EMPLOYED

PBIT / ASSETS - CURRENT LIABILITIES *100 31.00% 45.24% 34.52% 35.81% 60.94%

EPS

NPAIT / NO. OF SHARES OUTSTANDING

RS. PER SHARE 6.77 6.46 6.2 6.02 10.23

EFFICIENCY RATIOS

1998 1998 1999 2000 2001

CAPITAL TURNOVER

SALES / CAPITAL EMPLOYED 3.47 1.05 3.01 4.86 5.38

FIXED ASSET TURNOVER

SALES / FIXED ASSET 3.31 1.49 3.21 3.46 4.3

TOTAL ASSET TURNOVER

SALES / TOTAL ASSET 2.1 1.01 1.86 2.16 2.46

INVENTORY TURNOVER

CGS/INVENTORY

TIMES 5.16 5.46 3.63 4.79 5.58

DAYS 70 66 99 75 65

ACCOUNTS RECEIVABLE TURNOVER

CREDIT SALES/TRADE DEBTS

TIMES 88 86 258 183 179

DAYS 4 4 1 2 2

WORKING CAPITAL TURNOVER

SALES/WORKING CAPITAL

IN TIMES 28.07 - 41.87 10.8 -

ACCOUNTS PAYABLE TURNOVER

TOTAL CREDIT PURCHASES/CREDITORS

IN TIMES 6.056 6 7.08 7.188 6.096

IN DAYS 59 60 51 50 59

LIQUIDITY RATIOS

1998 1998 1999 2000 2001

CURRENT RATIO

CURRENT ASSETS/CURRENT LIABILITIES 0.91 0.72 1.096 0.672 0.696

QUICK RATIO

QUICK ASSETS/CURRENT LIABILITIES 0.173 0.145 0.133 0.079 0.11

ABSOLUTE LIQUID RATIO

CASH AND CASH EQUIVALENT 0.017 0.021 0.021 0.011 0.034

INTEREST COVERAGE RATIO

EBIT/FIXED INTEREST CHARGES

IN TIMES 4.35 6.35 4.94 4.64 6.84

LEVERAGE RATIOS/LONG TERM SOLVENCY RATIOS

1998 1998 1999 2000 2001

DEBT EQUITY RATIO

LONG TERM DEBT/(SHF+LONG TERM LOAN)*100 41.50% 38.96% 50.75% 52.06% 41.34%

DEBT TO EQUITY RATIO

TOTAL DEBT/SHF*100 70.94% 63.83% 103.05% 108.60% 70.49%

FIXED ASSETS RATIO

SHF+LONG TERM LOAN/NET FIXED ASSETS*100 106.54% 85.55% 97.54% 92.34% 78.91%

OTHER RATIOS

1998 1998 1999 2000 2001

RESERVES TO CAPITAL

CAPITAL RESERVE+ACCUMULATED PROFIT/TOTAL CAPITAL*100

Times 1.66 1.90 0.905 0.857 0.88

PROPRITERY RATIO

SHF/TOTAL ASSETS*100 35.22% 39.54% 28.03% 27.66% 26.55%

RATIO ANALYSIS is useful essentially for:

Investors

Assessment of earnings and dividend prospects.

Growth in economic value of investments with respect to the risks undertaken.

Bankers/Creditors concern

Assessment of the ability of the business to service its debt obligations.

Debt coverage.

Proper utilization of assets financed.

Government's concern

Evaluation of the economic contributions of the business entity.

Determination of the entity's financial strength to carry social and developmental programs.

THE ANALYSIS

The financial ratios discussed here are those which are derived simply and directly from financial statements. These ratios are used in analyzing the financial statements in ordinary course of business activity. The ratio analysis can be divided into three broad categories:

The Solvency Ratios.

The Efficiency Ratios.

The Profitability Ratios.

THE SOLVENCY RATIOS

Solvency or more commonly known as liquidity ratios or credit worthiness ratios are calculated to determine the degree of financial risk existing in a business entity before and after making an investment in a project.

Solvency means ability of a company to meet its liabilities. The extent of solvency of an individual company depends on the amount of assets vis-à-vis liabilities.

The following ratios were computed to examine solvency of the company.

Current Ratio

Current ratio is computed as current assets divided by current liabilities.

Current Ratio = Current assets / Current Liabilities

As a rule of thumb, the specialists say that it should be 2:1. However, practically the rule of the thumb can vary with industry, depending upon the nature of assets and liabilities.

Looking at the above chart, we see that the current ratio is declining with time. Presently it is at 0.696 which is very low compared to the comparable standard. One basic reason why the current liabilities are high as compared to the current assets is that Nestlé follows a company policy of investing in projects by relying on short term advances. Although the company is investing in massive long term projects but it tries to depend mostly on internal finances for its needs.

Nestlé Milkpak Limited has acquired 80% fully paid ordinary shares of Universal Aqua Limited in the year 2000. NML has used its own funds to make the acquisition. This is a major reason why there is a fall in the current ratio and as reflected from the balance sheet a fall in the cash and bank reserves of the company.

Therefore according to the conventional pattern that any new investment follows, during the first few years of launch, company profits fall before following a steady pace. Thus this declining trend does not necessarily show a poor performance on behalf of the company in maintaining its short term assets to liabilities ratio.

Quick Ratio

Quick Ratio or Acid Test Ratio is quite similar to the current ratio. It is a bit more severe in the sense that it takes into account only that current assets that can be transferred into cash with a minimum effort. Inventories are excluded form the current assets and the balance is divided by the current liabilities to compute the acid test ratio. As a rule of thumb 1:1 is taken which also meets the requirement of SBP Prudential Regulations.

Quick Ratio = Current assets - Inventories / Current liabilities

In the economic situation of Pakistan, 0.5 is considered to be the bottom line for companies with a positive quick ratio. Following the same pattern as the current ratio the quick ratio is also declining. A major contributor to this factor is the declining amount of cash and bank balances. The fact behind it is that a company that is making huge investments needs to borrow from financial institutions. While putting up a request to borrow and at the same time maintaining high amount of cash is redundant and would not help to serve the purpose.

The declining trend in the quick ratio is also attributed to the acquisition of the Universal aqua Pvt. Ltd. in the year 2000. And the company's banking on internal finance to carry out this acquisition.

The cash balances have also fallen because of the drastic change in the company's credit policy. Whereas, previously the company maintained credit sales now it works only on cash. The cash which it receives is immediately used to service its debt obligations. And also the company does not need to maintain cash for the days sales remain outstanding. Although the quick and current ratios pose a poor position but even then creditors are willing to invest in a MNC that has such a goodwill as Nestlé. Investor's confidence is the major force behind the factor that they are willingly lending to Nestlé.

Absolute liquid ratio

Absolute liquid ratio = Cash and cash equivalents / current liabilities

This is a special type of ratio especially for cash budget people, this help them to estimate whether the organization would be able to meet its immediate cash requirements.

As already discussed that the short term solvency ratio of Nestlé falls far below the required standards, this ratio is no exception. But still it is reasonably good when I will discuss the main reason for not meeting standards.

Main Reason for short term solvency ratios' variations from standards

I have discussed this phenomenon when we were discussing the FCM division. It is that customers are paying in advance. Goods are only delivered when the banks confirms the transfer of fund from distributor to Nestlé. Thus the Trade Debts are almost negligible, creating very little amount for current assets.

Debt to equity ratio

Debt to equity ratio = total debt / SHF * 100

Well the total debt here includes long term debt i.e., redeemable capital and part of it which is short term debt i.e., current portion of it. This ratio signifies that how much the company is externally financed as compared to the internally financed. Nestlé is maintaining this ratio upto 60-70%. In 1999 the company raised non participatory redeemable capital for launching PURE LIFE and acquisition of its water competitors that is why it has shoot up to 103.05%.

Debt-Equity Ratio

The most important ratio calculated by development banks is debt equity ratio or also known as debt capitalization ratio. This ratio is calculated by dividing long term debt by the amount of Total Equity.

Debt Equity Ratio = Long Term Debt / Total Equity + long term debt

The acceptability of this ratio depends upon the economic environment at a particular time. At present the permissible limit is 60:40.

The debt to equity ratio maintained at Nestlé remains favorable during all the periods under observation. The years where it is lower than 40% pertains to the fact that in those particular years current maturities of the long term debt are due and when they are excluded from the long term debt the ratio falls considerably. Again this ratio reflects the company policy of relying less on long term loans and basing its needs on internal financing for the creation of fixed assets.

Debt-Service Coverage Ratio

Debt Service Coverage Ratio = Net Profit before interest & tax

Fixed financial charges

A ratio which is regarded as the most comprehensive ratio to determine the creditability of the business to pay its maturities. A banker is always interested to ensure that the project has the capability of making payments to the bank. Following results were obtained for the years under review:

Debt Service Coverage Ratio follows a strong pattern all through, although the values may show major differences if we exclude the current maturities, but this is not the assumption we are taking on so we have not much variance in it. When we take off current maturities it would be 25,818 in 1999 whereas it rises to 613,009 in '00. Therefore, we conclude that the company is maintain a high debt coverage ratio, considering that a 3 times ratio is significantly good. But even if huge amounts may suddenly become due in a particular year( if current maturities are taken as short term debts and exclude the interest from fix interest charges) still the company maintains strong potential to service its debts.

This ratio is also a positive indicator for the investors who are most conscious about the repayment of their loans.

Fixed Asset Ratio

Fixed asset ratio = SHF + long term loan / fixed assets * 100

The ratio signifies, how much of fixed assets are financed from the long term sources. Nestlé is doing really good by financing its long term assets by current sources. It is a rare observation for any corporate analyst.

Because the short term sources are mostly cheaper and in few cases free of cost to. So it is always better to keep your working capital lesser without hindering the company profile.

THE EFFICIENCY RATIOS

Efficiency Ratios provide measures of asset used and expense controlled. Following are the most commonly computed ratios:

Day's Receivables

It is computed as:

Receivable turnover = credit sales / receivables

Day's receivables = Receivables / Sales per day

The day's receivables figure shows the average number of day's sales remain uncollected. This ratio reflects both the efficiency of management in collecting receivables and the credit policy which the company maintains with its customers. For more than one or two months of receivables outstanding, the company may need to raise additional funds to carry the larger amount of outstanding.

As it is evident from the above calculated figures that the company's credit policy is very much controlled because of advance payments from most of its distributors. Credit is exchanged under severe circumstances only.

Inventory Turnover

The inventory turnover ratio measures the speed with which a company revolves its stocks and shows the relation of the stock of inventories required to support a given level of sales.

Inventory Turnover = Cost of Goods Sold / Inventory

A low turnover ratio may mean that large stocks must be maintained to be assured of meeting production schedules. Where raw materials are imported this is often true. A low ratio means that a sizable amount of funds are tied up; holding funds in form of inventories rather than cash in an inflationary environment is often a necessary company policy.

Following trend was observed for the years under review:

Some imported raw materials are included in Nestlé's production. Therefore, its inventory turnover lies on the low side to cater for these imports and the time lag involved in the import process.

Day's Inventories

An alternative and comparatively easier ratio to use is the number of days inventories are maintained.

Day's Inventories = Inventory / Cost of average days Sales

The chart indicates the trend in the days receivables ratio. Following the same reason as in the case of inventory turnover, due to import of raw materials days inventory remains around the conventional standard of 90 days in 1999. Even then the company wishes to maintain a lower inventory which is evident from days followed, now a days it stands at 65 days.

Accounts payable turnover

This is a very important ratio. It tells how many times the company has paid of his creditors. It is worked out as

=total purchase / accounts payable

the less it is, the good it is. But care should be taken of that the credit worthiness of the company in eyes of its suppliers should not be lowered.

Another very interesting thing is the payable turnover in number of days. This is very important from suppliers point of view, because it signifies the average credit period which the company is availing from its existing suppliers for the time being.

Administrative Expense Control

Administrative & selling expense control=admin & selling expense/sales*100

One of the biggest difficulties faced by rapidly expanding organizations is the control of selling and administration expenses. For unusual changes in the selling and administration expenses the detailed selling and administration accounts should be analyzed and prepared for the income statement.

The trend observed was as follows:

Administrative expense control is a very essential factor for any growing enterprise. Nestlé maintains a very steady ratio over the period, indicating the efficiency of the management in controlling its administrative expenses. This is greatly contributed to the foreign expertise involved in managing the company's affairs.

Capital turnover ratio

Capital turnover = Sales / Capital employed

Capital turnover indicates the speed with which the internal funds are utilized to cater the objectives of the organization. Considering that Nestlé is a gigantic multinational and Pakistan is a very small market for it,(Pakistan's total turnover is 0.26% of Nestlé world over turnover) a 5.38 times turnover is remarkably good.

Fixed asset turnover ratio

Fixed asset turnover ratio = Sales / Fixed Asset

This ratio is also known as Sales to Fixed Assets Ratio. This ratio measures the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means under utilization of fixed assets.

Sheikhupura Factory covers about 8000 kannals of area, where fixed assets worth billions of rupees are installed. It has 2 factories and dozens of offices and a 4.3 times fixed assets turnover is really good which is still showing signs of improvements.

Total asset turnover ratio

Total asset turnover ratio = Sales / Total assets * 100

This is also known as balance sheet utilization. As we know that current assets are not known for generating lot of revenues so the total asset turnover is lower than the fixed asset turnover.

Working capital turnover ratio

Working capital turnover ratio = Sales / working capital

Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio represents the number of times the working capital is turned over in the course of a year.

A high ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high ratio may also indicates the lack of working capital which is not a good sign as well.

In case of Nestlé in 1998 and 2000, working capital is negative. Well surprisingly the company is still cruising you may wonder why? The answer is same old one that the company has very little trade debts because of advance payment from most of the distributors. Which means very little current assets and thus working capital tends to be also very little or negative.

THE PROFITABILITY RATIOS

The long term success of a company depends upon the funds it can generate for reinvestment and growth, along with its ability to provide a satisfactory return on investment. The following ratios are used to determine the profitability of the business:

Net Profit Margin / Return On Sales

This ratio shows how large an operating margin the company has on its sales. The lower the margin, the greater the volume of sales that must be achieved in order to make an adequate return on investment.

Net Profit Margin = NPAT / Sales

Following are the results obtained for the years under consideration:

The Net Profit Margin gradually declines. Although the sales are rising but NPAT is unstable. It even shows a negative trend in some years when compared horizontally. This is because of the change in taxation policies and Nestlé strictly adheres to making 100% tax payments.

Return on Equity

This is one of the most important ratios computed to measure the profitability of a business. It is obtained by dividing the profits after tax by the equity or net worth of the company at the end of the year.

Return on equity = NPAT / Share Capital + Retained Earnings

This ratio is used frequently because it is one of the main criteria by which owners are guided in their investment decisions. It is important for the project analyst to understand the incentives to the owners.

The return on equity rises steadily. The 22% is for the period of six months. The company has been making dividend payments and is one of the few companies to pay 40% dividend. And it has been recognized as so by the Government of Pakistan. Therefore, shareholders are also confident about the company's position.

Return on Capitalization

A heavy amount of debt in the financial structure can increase the return on equity. The return on capitalization shows the amount of profits the company is making on all the investment funds it is using. This can be important when comparing the company against its competitors to see how effectively it is using its term funds.

Return on Capitalization = NPAT + Interest / Equity + Total Debt

The return on capitalization shows a positive trend. With a continuous increase in the amount of fixed assets, this is a good sign. This is an indicator that the company is using its term funds effectively in the creation of fixed assets. By adding fixed assets to its portfolio, the company is not losing its profit.

Return on Total Assets

The earning power of a company's assets is vital for its success and the principal way of calculating the earning power is to compute the return on total assets. Of all the financial ratios, the return on assets comes closest to the rate of return concept used in the economic analysis of projects.

Return on Total Assets = Earning Before Interest and taxes / Total assets

Following are the results for the years under review:

Similarly, the return on assets is also positive. Gradually increasing with time, showing that the fixed assets management at Nestlé is adding benefit to the company.

Gross Profit Margin

Gross Profit Margin indicates the amount of margin available to meet operating expenses. In the capital goods industries the margin of profit is usually on the lower side. Whereas, in the consumer goods industry, the margin of profit is high as the products have to go through many channels where each factor keeps its profits. Similarly, while producing consumer goods more promotional activities are needed.

Gross Profit Margin = Gross profit / Sales

The chart indicates the trend seen in the years under review.

Gross Profit Margin gives an analysis of cost controls. Company's mission is not high level of sales but maximum level of profits. A decrease in gross profit margin is a negative indicator.

From the chart, we can see that the gross profit remains around 27-28% during all these years. This indicates that the company is maintaining cost controls over its operating expenses. The reason behind the variations is the type of new products launched each year by the company and the different methods applied for the promotion of these products. Also, the recent acquisition by the company, led to a lower profit margin.

Another reflectant of the tight cost control is the fact that the sales rise but the cost of goods sold is always below the sales. Hereby, leading the company to maintain a margin for meeting its operating expenses.

An increase in selling and administration is not necessarily bad. The market conditions of Pakistan are volatile, the biggest danger faced is from smuggled goods. For sales promotion of local goods, producers have to give incentives. This is not a weakness on part of the management or a lose cost control, it is because of lack of law enforcing agencies. Also the rise in administration overheads is highly attributed to the sales tax imposed on the services and promotional activities followed for the various brands offered by Nestlé.

Operating Profit Margin

Operating Profit Margin is used to pay off the financial charges and taxes.

Operating Profit Margin = Operating profit / Sales

Following were the results obtained after calculation:

Profit has improved over the years, but tax has increased in the same proportion. Any increase in income tax, is not inefficient on part of the company, it is legislation, and there is always a possibility of a company earning pre-tax profit but incurring loss after the payment of tax.

Nestlé Milkpak maintains an almost stable ratio indicating a rise in profitability in accordance with their needs to service their financial charges and taxes.

COMPARISON

Ratios 1998(Jun) 1998 1999 2000 2001

Gross Profit Margin 28.81% 30.45% 29.125% 27.26% 28.13%

Operating Profit Margin 10.42% 13.47% 11.07% 9.89% 11.76%

Net Profit Margin 4.79% 7.78% 4.87% 4.14% 5.86%

By comparison of the three margins, we find that the operating expenses remain around 22-24%. (Taking the difference between gross profit margin and net profit margin). Therefore, the decline is attributed to the taxation policies.

Earning Per Share

The earning per share is calculated by dividing the profit for the year by the number of shares issued.

Earning Per Share = Profit for the year / Number of Shares

According to the shares increased, in any particular year there is a slight decline in the earning per share. The above chart shows the results obtained for the years under consideration.

OTHER RATIOS

RESERVE TO CAPITAL RATIO

The ratio of reserves created out of profits to share capital indicates the financial position of the company. Higher the ratio the better it is, because that means that any future loss can be easily absorbed. It is worked out as:

Reserve-Capital ratio=Capital reserves+Revenue Reserve / Issued Capital

Propriety Ratio

It is the ratio of funds belonging to the shareholders in the total assets of the company. Funds belonging to the shareholder means share capital plus reserves and surpluses, both of capital and revenue nature. Losses should be deducted. Funds payable to others are not added. Higher the ratio the better it is for all concerned.

It is worked out by:

Propriety ratio = Proprietor's Fund / Total Assets

WRAPPING UP

Seeing all the above calculated ratios in detail, we can financially analyze Nestlé Milkpak Limited from three angles:

Investor's point of view

From the point of view of an investor, NML is a company showing a steady return on equity. It does not maintain reserves to increase its equity instead cash flows out in the form of dividend paid to its share holders. The company has a very good reputation in the Stock Exchange which is favorable for both short term and long term investors.

Banker's point of view

From a banker's point of view, current ratio is not seen as a security, instead it measures whether the company has enough cushion to keep as a going concern. The quick ratio is always in a fraction as the assets against which loans are given is deducted whereas current liabilities are in full amount. 0.5 is an ideal situation for Pakistan, that is after disposal of inventories the company is able to service its debt obligations. However, it varies from company to company depending upon the nature of the business. If a company is able to do well with a lower ratio, then it is in a favorable position.

Same is the case with NML as for the past two years the quick ratio shows alarming figures but lender's confidence is high as the company carries a huge amount of goodwill in the financial environment. Also, the cash has out flowed in the form of investments in the water sector. The company has made the investment by banking on its own cash reserves. Also, it maintains a good reputation in terms of servicing its debt obligations.

Financial Manager's point of view

The efficiency ratios show improving figures with time. Therefore, management is satisfied from that angle. Gross Profit and Operating Profit margins show a steady trend meaning that cost controls are strict also. This is attributed to the foreign management of the company and the management style by which they are able to extract the best results for the company.

PERFORMANCE OVERVIEW

APPLICATION OF REVENUE RS IN MILLION %

MATERIALS 4294 54.4

STAFF COST 488 6.2

FINANCIAL CHARGES 129 1.6

INCOME TAX 292 3.7

DIVIDENDS 453 5.7

RETAINED EARNINGS 10 0.1

DEPRECIATION 304 3.8

OTHERS 1932 24.5

TOTAL 7902 100

NESTLÉ AND ME

It was my first experience to be interviewed for something like getting a job or training. I was confident but feeling bit nervous, but the time proved that there was nothing to be worried about. I was the last person to be interviewed, so I was thinking that it might be a negative point on part of me. Ms Saadia Irfan and Ms Koqub Bilquis were the HR representatives. Courtesy to them I was called to join Nestlé for a 6 week internship. My training program at Nestlé Milkpak Limited commenced on Monday, the 17th of June, 2001. The internees were asked to report at the Human Resource Department, where they were issued their letters of commencement.

Well it was interesting I was the first one to be there, I was exactly on time, but to my surprise not even the staff was there, but it was just a matter of 2-3 minutes when the building was full of people and there was a buzz all around. Soon my first mate Athar was there too, soon Arooj also joined us. We met Ms. Saadia who gave us the appointment letters and the INTERNEE badge without which we no one can walk in the Nestlé building. The badge gave us a psychological satisfaction that we are now Nestlé People at least for 6 weeks (Mean while Bisma also joined us). We were directed to meet Mr. Azhar Usman Janjua, the chief accountant of Financial Accounting department. The person occupying a very high post and very impressive personality. I latter came to know that he is also my line manager. Mr. Azhar Janjua, had a very detailed session with me and Athar, regarding educational background, the various courses studied in the MBA specialization program and our areas of interest. After that he briefed us about the sub sections of his department and the work performed by each.

I was attached with the Finance and Control Division for a period of 06 weeks. I was asked to report to the manger of GLD Mr. Nadeem in the Finance and Control Division.

Mr. Nadeem gave me a tentative outline concerning how my internship program would proceed. After that he took me around the various sub-sections of the Financial Accounting Department, where he introduced me with all the employees.

HIGHLIGHTS OF MY STAY AT NESTLÉ

My most of time passed in Financial Accounting department and thus I have made it a separate head as "Finance & Control Division", in this part. Apart from my stay at Finance and Control Division I was sent to Regional Office with Athar which was in Gulberg. It was one week experience. Well the regional office was very different. People were much busier than one can think, continuous ordering, purchasing, delivering, customers' phones, distributors' claims etc etc. I was back next week but I lost my pal Athar, who had to remain in regional office for rest of his internship period. I was given my Desktop computer and separate cabins for completing projects.

Initially I was assigned two projects, details regarding those projects are in same part under different head.

Along with those two projects I also prepared the income tax returns of Nestlés almost 140 employees. It was fun jumping from text book numericals to actual real life situations.

I am really thankful to Mr. Rana Mushtaq Income Tax Manager (Chartered Accountant), as he gave me a detailed lecture cum discussion on the topic of Deferred Taxation.

I was also a part of Surprise Audit party of ACR section.

The last and most interesting part was to make a presentation on NEFAM (details are present in the project section in this part of my report). NEFAM is the Nestlé's Fixed Assets Management System.

Nestlé's Business Excellence Group or which is more commonly known as Global Project which is in the process of implementation. It is a project of replacing the current software BPCS (Business Planning and Control System) by the International Software 'Global' to make the information easily transferable to Head office in Vevey. It is a very complicated software for which needs adequate training to every employee of Nestlé Pakistan. So this project is also yet to be implemented. I have the great honor of having comprehensive discussion over Global with the Chief Global Coordinator Pakistan. So Global is a Standard Application Program which will full fill the objects of standard processes of external internal data and replacing current IT infrastructure.

FINANCE AND CONTROL

The Finance and Control division at Nestlé Milkpak Limited constitutes the departments which are given in the table on the next page:

The Finance and Control Division at Nestlé Milkpak is headed by the Finance and Control Manager or popularly known as the FCM.

The FCM has six further sections reporting to him.

The Accounts Department is headed by the Financial Accounting Manager.

The Accounts Department has three further Sub-sections namely the General Ledger Department (GLD), Accounts Payable (ACP) and the Accounts Receivable. (ACR).

The Budget Manager is in charge of the Budget and Control Department.

The Treasury Department is headed by the Treasury Manager.

Treasury Department comprises of three sections, the first looking after all the daily transactions with the Financial Institutions, the second sub-section is of Share Registration and the third deals with the Insurance concerns of the organization.

Corporate Purchase Department is headed by the Corporate Purchase Manager.

Corporate Purchase further deals in the Local Purchase and Imports.

Purchase can be of two types either raw and packing material purchase or technical purchase.

The Taxation Department also falls under the Finance and Control Division.

It deals with the sales tax, excise duty and income tax of the employees of the organization.

The Legal Affairs Department deals in all the legal matters of the organization, and Nestlé has employed its own lawyer to look after its best interests.

THE FINANCE AND CONTROL MANAGER

It is a very important position in the organization. The Finance and Control Manager is responsible for a variety of jobs and Mr. Regino Manglicmot was the FCM at Nestlé'. He is also the Company Secretary.

His Budget and Control Manager keeps him up to date about the budgets being allocated for every product. And also about the efficient spending of the allocated budget to each brand. Other than that, the FCM has to be presented with facts and figures to get the budget revised concerning some brand. Only after the FCM is convinced, he would forward the application to the Chief Executive.

The Taxation Department, reports to the FCM, regarding the taxes the company has to pay in the form of sales tax, excise duty and the income tax of employees. This tax calculated is used in the financial statements to determine the profit or losses for the organization.

It is the responsibility of the FCM to see that proper accounts are being maintained and the accounts are kept up to date. Nestlé Milkpak Limited has to send monthly statements of accounts to the Nestlé center at Vevey. It is the duty of the FCM to see that the deadlines are being met. He works closely in interaction with the Accounts Manager and all reports are reviewed by him before forwarding them to Vevey, Switzerland.

He is responsible for maintaining a clear picture about the liquidity position of the company. He has the Treasury Manager directly reporting to him. The FCM after viewing the current position of the company's bank accounts and market conditions draws strategies for the future. He also monitors the company's position on the stock exchange and the placement of the firm in the market.

Any asset to be purchased by the company, may it be of any nature i.e. land, building, machinery, plant or equipment and furniture or fixtures. The purchase proposal request of such items is approved by the FCM. Therefore the corporate purchase department also reports to the FCM.

Although, the Legal Affairs Department is not directly under the FCM, it is the reporting authority for it in absence of the Chief Executive. Also this Department is located in the Finance and Control Division.

The FCM is directly in contact with the Chief Executive here and the Nestlé Headquarters at Vevey. Meetings of the FCM, the NSM and the MM are held frequently with the Chief Executive, where each one makes reports concerning his area of work. The findings from these meetings are reviewed and the future feasible policies of marketing and sales of the organization are designed within its financial framework.

DETAILS REGARDING THE FINANCE AND CONTROL DIVISION

My attachment of 6 weeks at Nestlé Milkpak Limited was with the Finance and Control Division. As seen from the framework it is a large division comprising of many sections and sub-sections. Therefore it was not possible to work with all these departments.

I was assigned to the Accounts Department under the Finance and Control Division. My training period was spent learning the work of all the sub sections of this department. One of the section of my report focuses on my training program and all the details regarding the "Accounts Department" would follow in that section.

During my training, with the help of my bosses I visited every department at the Finance and Control Division to get briefings regarding their work. This was essential to understand the framework of the Finance Division and also its role in the organization. These discussions helped me to interrelate all the departments and I learned how the working of every department helps all the others. All these departments work in collaboration with each other and the flow of documents from one section to another is a feature that distinguishes it from the Marketing Division.

BUDGET AND CONTROL DEPARTMENT

The Management Accounting Department is responsible for preparing budgets for each department and for every product. This department not only has to prepare the budgets but also to control those estimates. That is why, this department is also known as Budget & Control Department. All the work is being performed at brand level in this department. Therefore, this department is close in co-ordination with both the brand managers in the marketing division and the people working in the factory on budget estimates.

REPORTS PREPARED BY THE BUDGET AND CONTROL SECTION

This department prepares the Long Term Plan, which is an estimate for the next three years, and it is for all the brand groups.

On the basis of long term plan, an Operational Plan is prepared which provides estimates for the next one year.

This process continues and the operational plan is prepared annually.

It prepares the product-wise Profit & Loss Accounts and verifies the costs.

This department controls factory costs through variance reports.

The Selling Price Calculations are also made in this department which verify the ones already made at the factory level.

CONTROLS IMPLEMENTED

The budget and control section is responsible for the control of the following expense items of the company.

Pricing structure

The pricing structure is prepared in collaboration with the Accounts Receivable Section of the Finance and Control department. This pricing structure should take into account the distributor and retailer margin.

Variance reports

Variance reports are prepared at the brand level and the differences between the actual values obtained from the Financial accounting department and the ones estimated in this section is measured.

Product Fixed Marketing Expenses

Every brand is allocated an acceptable budget for making ,marketing expenses. The budget and control department sets up suitable limits for these expenses, so that the brands have an idea of how much expenditure they can sustain on marketing.

Factory Overheads

Estimated rates from Commercial Department

Volume from Marketing department of all the products

Estimates of capital expenditures from Corporate Engineering Department

BUBBLE CHARTS

Bubble Charts are prepared by the department for each brand, indicating the trend in which the company wants a particular brand's profitability to rise. This is an overview for the years to come and future positioning of the brand in the market. The size of the bubble grows each year indicating the gain in market share. These charts are made a basis and used as targets by the marketing and sales team who make sustained efforts for attaining those goals.

It is a managerial accounting department making all important decisions like "make or buy", decision by taking strict estimates of the products to be produced. It is working close in co-ordination with the financial accounting department whereas they are working with the actual figures and the budgeting department analyzes the estimates.

TREASURY DEPARTMENT

The Treasury Department is a new department at Nestlé Milkpak Limited. It is a comprehensive department handling various kinds of jobs. It has been structured in a way to deal with all external financial relationships. External financial relations for Nestlé Milkpak are:

• Share holders

• Suppliers or Vendors

• Financial Institutions

As repeatedly mentioned that Nestlé Milkpak has divided the country into three zones for its convenience. The Treasury Department also has links with all the three zones. It works in co ordination with them to know about the actual cash requirements in each zone and their respective regions.

Following is the structure of the Treasury Department at Nestlé Milkpak Limited:

As shown in the above chart, the Treasury Department consists of three sections:

• The Treasury dealing with the payments and receipts connected with every zone.

• The Share Registration dealing with the investor relations i.e. keeping all knowledge about the Stock exchange and the Central Depository Committee of which Nestlé Milkpak is a member.

• The Insurance section dealing with the area of risk management for the assets of the organization i.e. both physical and material assets.

These three sections fall under the Treasury Manager who is responsible to co ordinate and look after the workings of each section. The Treasury Manager is directly reporting to the Finance and Control Manager. Currently Mr. Adnan Masood is the Treasury Manager at Nestlé Milkpak Limited.

The main Treasury receives Sale Receipts from the north, south and central zones on a daily basis. These sale receipts are adjusted at one bank account. Nestlé maintains approximately 80-90 bank accounts in various banks located at different places. But as the company follows a policy of being net borrowers so the inflows are adjusted against the borrowings. This means that as soon as the inflows reach any bank account, they are transferred to a single specified account for adjustment against the borrowed funds. A minimum level of cash is maintained at all the accounts for every region and zone.

Nestlé makes all its payments on 30 days credit basis. Except for the Milk collection areas where payments are made on cash basis. Nestlé has recently restructured its policy of making credit sales and now almost all the sales are on cash basis. Therefore, the Treasury Department has to be very efficient in order to keep track of all these transactions.

SHARE REGISTRATION

Mr. Abdul Hameed is in charge of the Share Registration section at Nestlé Milkpak Limited. He provided the following details about the working of his section.

Historical Perspective

Milkpak Limited was floated in 1980. At the time of floatation, it was under subscribed. If a company is under subscribed, it shares are sold according to the undertaking done at previously decided rates. The undertaking of Milkpak Limited was done by IGI and Packages Limited.

At the beginning, five foreign companies had invested in the business; which are namely:

Name Origin

• DEG German

• IFU Danish

• DTD -do-

• IFC USA

• Tetra Pak Sweden

In 1987, the shares of Milkpak Limited were sold to Nestlé with 15% holding in the company.

A special issue of 12 lakh shares followed in 1988, out of which only 2% were issued to the local shareholders.

In 1993 and 1995, shares worth 4 million rupees were floated in the market.

Issue Of Right Shares

Nestlé also issued right shares 4 times and at face value. For right issue, the Board of Directors decides the amount and the rate of issue and then has to get approval from the Securities and Exchange Commission.

The first issue of right shares was in 1987 and there were 33% right issues, and this issue was done at premium to Nestlé Milkpak Limited. At that time, a conflict arose with ADBP, which also demanded a special issue at premium price.

A clause contained in the right letter states that if the right issue remains unsubscribed, NIT has the right to the shares at par value. In case, NIT or the government does not take the shares, it is upto the directors to decide whether they issue the shares to the employees or keep the shares themselves.

The second issue of right shares followed in 1988, and there was a 100% right issue.

The third issue of rights was in the year 1990, at a rate of 33%

The fourth round followed in 1992, again with a 33% right issue.

Issue of Bonus Shares

Nestlé Milkpak Limited has also issued Bonus shares two times since its establishment. The right issues preceding the bonus issues had a clause written on the right letter, that these right issues did not qualify for bonus shares. The government opposed this clause and a case was launched against it. The government specified a period for settlement of the issue. Finally the bonus shares were issued to the right share holders in 1990.

Central Depository Committee

The Central Depository Committee (CDC) was formed under the 1997 Act. Nestlé Milkpak took a stay on option basis otherwise it was to enter the CDC in 1999. In November 2000, Nestlé Milkpak entered the CDC.

Nestlé is connected through the Internet with the CDC software. This program has been installed by the CDC at the Nestlé Head office. This connection enables the company to carry out online share transactions with the Stock Exchange and the investors. The same software is in use by the brokers.

Two kinds of transactions are involved, in the CDC:

Deposit Approval

Withdrawal Approval

Deposit Approval

For deposit approval of shares in the CDC, information regarding the Volume and Status of the shares is required.

Volume

The volume of shares is entered by the broker. These shares are of a particular company and the brokers e-mail's the shares to the CDC software. A "Security Deposit Form" is issued for the shares.

Status

The status of the shares is approved by the respective company. The company compares the certificate with the transfer deed to check on the various particulars regarding the shares. After that, the issuance certificates return to the share issuing authority. The transfer deed or the share certificate remains with the company and there are no copies with the broker.

Withdrawal Approval

The sale or purchase of all the shares in the CDC is done on the Certificate Numbers. The concept of Distinctive Numbers has been finished from the CDC. These distinctive numbers are not important for either the CDC or the brokers. But for the company, the last count of distinctive numbers signifies the paid up capital of the company.

For the withdrawal of shares, A "Security Withdrawal Form" is created. The previous securities are cancelled and new securities are issued with the same distinctive numbers.

The Central Depository Committee was established when the people's confidence on the brokers shattered and the brokers grew tense on the out of stock transactions.

It became essential for companies to transact their shares in the CDC when the banks issued instructions that those shares which are not in the CDC, loans can not be issued against them.

SOFTWARE

Apart from the CDC software, Nestlé also maintains its own record in a separate system. This system has three options:

Enter: Only authorized people can view the records.

Screen View: to check the records in the P.C.

Printing: if the record is needed for any purpose like tallying with the CDC position, then an option for printing is available.

Transfer In

An option of Transfer In is available in the software to see the shares certificates in deposit with the company.

Transfer Out

Transfer Out keeps a measure of the shares held by various shareholders and all the particulars regarding these shareholders.

DIVIDEND

Two types of dividend are declared by the company:

Interim Dividend : is recommended by the directors

Final Dividend: it is also recommended by the directors but it is approved by the share holders at the Annual General Meeting.

The dividend has to be paid within 45 days of its approval.

INSURANCE

Mr. Zaheer Ahmed who works in the Insurance Section of the Treasury Department provided the following details regarding the working of his section.

Insurance can be defined as the compensation against any loss. Assets and gains both can be insured. Nestlé Milkpak Limited follows a policy of insurance of its assets only. Assets also include its employees. who are covered under the Group Life Insurance.

The compensation value for an asset is its market value. The loss assessor determines this value.

Parties

There are three parties to an insurance deal:

1. The Insured

2. The Surveyor

3. The Insurer

Governing Bodies for the Insurance Agencies

There are two bodies which govern the insurers, they are:

1. Insurance Corporation

The Insurance Corporation monitors the behavior of the Insurance companies with their clients and how they work in the field.

2. Insurance Association

By law, the rules and regulations for the Insurance companies are provided by the Insurance Association. The association keeps a check on the Insurance companies to see that those rules are being implemented.

ASSETS INSURED AT NESTLÉ

Nestlé Headquarters at Vevey have issued a policy that limited perils should be selected for insurance purposes. But the insurance against perils is essential for obtaining loans from the banks. As banks demand insurance claims while lending huge amounts to organizations.

Nestlé Milkpak Limited has Insurance claims for the following:

Factory Hazards

Stocks

Vehicles

Cash

Group Life Insurance

FACTORY HAZARDS

Factory hazards can be of various kinds and for a company like Nestlé with all the production being done at large factory setups, a number of perils have to be insured to minimize the losses. Details of these are as follows:

• Theft

Although theft is a constant peril, but to have a positive impact on its employees, insurance against thefts have not been taken. Maximum security measures are taken at factories and this is an internally controlled matter.

• Fire

Cover has been provided against fire and the allied perils of fire. Fire insurance covers a wide range of causes like electric cause or explosions etc.

• Floods

Floods are a common phenomenon in the regions of Punjab, where all the factories of Nestlé are situated. Therefore, insurance cover has been taken against such calamities due to atmospheric disturbance.

• Earthquake

Cover against earthquakes has not been taken, as the degree of hazard has been measured. Past record shows that both the factories are located in the zone where earthquakes do not exceed a hectare scale limit of 4.7-4.8. The factories have been built with a capacity to sustain earthquakes uptill 6.7-6.8 hectare scale.

• Malicious Damage

As this kind of damage is willful and done knowingly, therefore no cover has been taken against it.

• Aircraft Damages

Factories are located in aircraft training areas and if an aircraft falls on the factory, a cover has been taken against this situation.

• Working Hours

Nestlé has obtained a claim of 24 Hours from the insurance companies as the damage may be due to the work in extra shifts.

• Riot and Strike Damages

Strikes of factory unions are very common and they tend to destroy equipment of the factory during such riots, so the threats from such strikes have also been insured.

• Terrorism

Insurance has been taken against acts of terrorism from outside the factory.

REBATES

A company which employs state-of-the-art technology is on a better position than the rest and it can claim rebates from the insurance companies on its claims. Nestlé Milkpak is on a very good position as compared to other local production setups so it has been given good rebates compared to other factories.

As told by Mr. Zaheer:

Item Rebate (%)

Hydrant lines 20%

Extra Tubewells 2.5%

Sand Buckets 2.5%

Extinguishers 2.5%

Class 1A construction 10%

Sprinklers 10%

All this equipment is installed at the production setups to provide security against the afore mentioned perils.

• Hydrant Lines

Hydrant lines have been installed with 7-8 bars pressure. These lines measure above 90ft. and they can cover a long range of area.

• Extra Tubewells

Extra Tubewells have been setup at the factories and no tank remains empty at any given time.

• Sand Buckets

Certain fires can only be controlled by throwing of sand and water does not help to extinguish them. Sand buckets have been placed at various points in the factories to counter such situations.

• Extinguishers

Areas have been specified for extinguishers within the factory. The insurance agents visit the factory and only then the rebate is taken.

• Class 1A Construction

Class 1A construction refers to the kind of brick construction with adequate amount of openings. All factory buildings of Nestlé fall in this class.

• Sprinklers

Sprinklers are used to cover a sparse area. The specification of the sprinklers installed at the production setups is not according to the insurance companies. Instead Nestlé claims that it has installed better in built sprinklers with the most modern technology.

All these rebates have been provided after a thorough inspection of the factory area by the Insurance agents.

STOCKS

The second item against which Nestlé has taken insurance covers are its stocks. In case of import of products, they may be stocked for more than a year. High fluctuations should not be present. Therefore, the insurance is taken by keeping the fluctuation on the maximum side.

VEHICLES

Vehicles are insured at market value. In case of loss, compensation provided is only for the market value. Because of this reason, the personnel of the insurance department should be very much in contact with the market. They should have complete knowledge about the market prices. This is essential for them to carry out arguments with the surveyor. As surveyors are provided a license by the government so they have high powers. Therefore, the people working in the Insurance department should be fully aware of the market trends.

CASH

This is another asset insured at Nestlé Milkpak Limited. It includes the cash in transit also. In most transactions, the employees are involved in Spot Purchasing, so some sort of assurance has to be provided that they are properly utilizing the cash assigned to them. The fidelity guarantee has only been provided to certain trusted employees. Although, Nestlé employs great confidence in its employees but the hazard still remains. The fidelity guarantee has been finished at the Head Office level but it is still prevalent in villages. As employees have to buy milk from farmers individually.

GROUP LIFE INSURANCE

This is an Insurance cover provided for the employees of the organization. All permanent employees of Nestlé Milkpak Limited have been insured under this policy. The contractual employees or trainees are not included. According to the law, every company having more than 4 employees are liable to maintain a group life insurance policy.

HEALTH INSURANCE

As all medical expenses of the employees are borne by the company, so no health insurance has been taken.

This ends our discussion on the Treasury Department, and it can be seen from the details that it is playing a key role for the organization by monitoring the payments and receipts, maintaining relation with investors and risk management for all Nestlé establishments in the country.

LEGAL AFFAIRS DEPARTMENT

Mr. Azeem Naqvi, who handles the Legal Affairs Department at Nestlé Milkpak Limited, provided us the information on the legal affairs department. Azeem was solely in charge of the section since 1995, but recently due to the workload he has been provided with an assistant. The major share of work still remains with him and he plans to expand his department. So presently, it is a department with a simple structure of 2 people only, but handling very important work for the organization.

ESTABLISHMENT OF AN IN HOUSE COUNCIL

Nestlé Management took control of Milkpak Limited in 1992, by a majority of shareholding in the company. They entered into transactions with third parties. By 1995, most of these contracts were getting mature.

With time disputes arose with respect to these business transactions. Legal complications started arising. Nestlé Milkpak had employed a couple of external lawyers to look after its legal matters, but they were not being sufficiently taken care off. Top managers were too busy in their own activities and co ordination was lacking greatly. Multinational corporations like Nestlé employed foreigners who were easily exploited by the locals.

Therefore an In House Council was established in 1995, to improve co-ordination and to look after the day to day legal affairs of the company; such as drafting of opinions, salary matters and litigation of external lawyers.

MAJOR ROLE OF THE LEGAL AFFAIRS DEPARTMENT

Following major functions are performed by the Legal Affairs Department at Nestlé Milkpak Limited:

Opinion writing.

Drafting of legal documents.

Wetting of agreements.

Co-ordination with external parties.

Explaining the company stand to external parties.

Providing information and documents in legal procedures.

Co-ordination with the Nestlé Headquarters at Vevey.

Ensuring compliance with the legal policies.

Ensuring compliance with the local laws.

Providing periodic guidelines.

Providing legal opinions to various divisions like Finance, Marketing, Sales and Human Resource.

ADMINISTERED BY THE FINANCE AND CONTROL MANAGER

It is the requirement of law, that one person has to be declared as manger for assigning all legal documents on behalf of the company. This power is given to that manager by the Board of Directors. In the case of Nestlé Milkpak Limited, this power has been assigned to the company secretary, who is also the Finance and Control Manager (FCM). Therefore, this department falls under the Finance and Control Division.

The In House Council works closely in co ordination with the FCM. He is responsible for signing of different legal documents and litigation. In the absence of the FCM, all such responsibility goes hierarchically up to the Managing Director of the company.

ROLE OF THE LEGAL OFFICER

Legal officers have a very general role in any company. Any person working in the company has access to the legal officer.

Legal officers co-ordinate directly with the department heads. They have the right to procure any kind of information from all departments and they can access the records of the company.

All matters with the unions of the company are also settled through the legal officer. There are two unions at Nestlé Milkpak. The milk collection centers and the regional offices and these unions are directly in contact with the legal affairs department and carry out their negotiations through the legal officer.

GOALS OF THE LEGAL AFFAIRS DEPARTMENT

Following are the desirable goals of this department so that it can gain maximum benefits for its organization:

• Avoid to the maximum level the legal problems because of the lack of information on the laws of companies.

• To secure the flaws in business transactions and agreements.

• To reduce litigation.

To enforce company stance in disputes, so that the company has a strong legal footing.

CORPORATE PURCHASE DEPARTMENT

The Corporate Purchase department at Nestlé Milkpak Limited is headed by the Corporate Purchase Manager. This department has got two sections:

• Local Purchase Department

• Imports Department

The following chart shows the structure of the Corporate Purchase Department at the Head Office of Nestlé Milkpak Limited.

LOCAL PURCHASE DEPARTMENT

As shown in the chart, this department has two sub sections, namely:

• Raw and Packing Material Department

• Technical Purchase Department

These departments are headed by Purchase Managers. The two departments are taken up separately to discuss their working in detail.

RAW & PACKING DEPARTMENT

The following chart shows the structure of this sub section of the Corporate Purchase Department. Mr. Tariq Saleem, the Assistant Manager of the department provided the details.

MAJOR PURCHASES

The Raw and Packing Department is involved in the purchase of the following major items:

• Raw Materials

• Commercial Chemicals

• Laboratory Chemicals

• Packing Material

• Office Equipment

• Vehicles (cars, motorcycles, cycles)

• Sale of Assets (scrap assets, cars etc.)

PROCEDURE

The general procedure for the procurement of the above mentioned articles is as follows:

A "Purchase Proposal Request" is prepared by the department which requires the object.

Based on the request, quotations are called and the price is checked in the market.

Based on these quotations a "Purchase Order" is drafted.

Three copies of the Purchase Order are prepared; these are :

o Supplier's copy

o Account Departments' copy

o Purchase Department's copy

Afterwards, the material is sent to the plant if it is for factory use.

The Store at the Plant makes a "Goods Received Note" (GRN) and sends a copy to the Accounts Payable section at the Head Office.

Meanwhile, the invoice from the supplier of the material also reaches the Accounts Payable section.

A three way match is made at the Accounts Section after the receipt of the three documents i.e. the Purchase Order, the Invoice and the Goods Received Note (GRN).

After the completion of this process, the payment is made to the supplier as per terms and conditions settled before the contract is signed.

Vehicles

For the purchase of Vehicles, the only difference is that the vehicle is purchased under the name of specific person.

Purchase of Assets

For the purchase of assets, instead of a Purchase Proposal Request, a "Capital Expenditure Proposal" is prepared.

Other than the sales of food items all other sales of assets are handled in this department.

TECHNICAL PURCHASE DEPARTMENT

Following is the structure of the Technical Purchase Department at Nestlé Milkpak Limited.

Mr. Faheem Aslam Janjua, the Technical Purchase Manager provided the details about the working of his department.

MAJOR PURCHASES

This department is directly in interaction with the factory. It is involved in the purchase of machinery and parts of machinery. These include:

Balls

Ball Bearings

Belts

Pipes etc.

PROCEDURE

The following procedure is followed for the purchase of technical items:

The requisition is raised by the factory engineer, in the form of a "Purchase Proposal Request" or by the store keeper through "Store Cards".

To proceed in the purchase department these are the only two documents.

Store Cards

On a daily basis, approximately, 20or more Store Cards are raised. All the history regarding previous purchases of the same items is present on the card. It contains particulars like the previous suppliers, previous rates and provides options of contacting three suppliers for the fresh purchase.

The Purchase Proposal request has three formats, for each of the three establishments of :

o Sheikhupura

o Milk Collection Centers

o Kabirwala

The second step after receiving the PPR is that the Technical Purchase Manager calls for quotations.

He is responsible for making negotiations with the suppliers and settling of discounts.

A comparative statement is made and a Purchase Order is drafted.

5 copies of the purchase order are required for :

o Supplier

o Accounts Payable

o Factory Engineer

o Store (price is deleted)

o Purchase Department

After receiving the goods, the store issues a "Material Inspection Report" (MIR) declaring its acceptance or rejection of the goods and sends a GRN to the Accounts payable (ACP) section at Head office.

The ACP section receives the Purchase Order, the Invoice from suppliers and the copy of GRN, so it makes a three way match and the payment is made with credit terms of 30 days.

IMPORTS DEPARTMENT

The Imports Department is another section of the Corporate Purchase Department at Nestlé Milkpak Limited. Mr. A. D. Bhatti working in the imports section gave the following briefing regarding the work of his department.

Nestlé Milkpak Limited imports a sufficient number of items. Its imports include some food products and machinery for production purposes in local factories. Therefore, the Imports section is busy dealing with importers, and local companies responsible for getting the imported goods cleared at Karachi Port.

PROCEDURE

A systematic procedure is followed for the import of goods at Nestlé Milkpak Limited. It can be described as follows:

Demand requirements for the import of goods reach the Import Section minimum 3-4 months before the need, to provide ample time for the process to take place.

These demands are sent by the originators; either from the marketing section or from the factory.

If it is an item that is imported regularly, then the source is also mentioned on the demand request.

If it is not a regular imported item, then the source is found out by the Imports Section. This source must be one approved by Nestlé Head quarters.

The next step is the negotiation of price between the exporter and the Import Section.

It is the requirement of the Government of Pakistan, that for the import of items, either a Letter of Credit (L/C) should be opened or the import is done on Documentary Collection Basis.

In both these cases, bank formalities have to be seen to, which gives an assurance to the government regarding the fulfillment of obligations by both the parties.

If before fulfilling this requirement, the shipment takes place, it would be against the law and State Bank of Pakistan does not remit the money.

It is the duty of the Imports Section to keep a follow up of the shipment so that no delays are caused and the items reach on time.

Before the arrival of shipment, the Import Section requires the Original Shipping Documents, from the exporter. These include:

o Invoice

o Packing List

o Bill of Lading

o Airway Bill (or by sea)

Other then these documents, according to the Import Policy, certain Certificates are also demanded. This is generally held in case of import of food items. The document certifies that the food is:

o Halal

o Fit for Human Consumption

o Shelf Life is higher than 75%

And other particulars like:

o Date of Manufacturing and Expiry

o Radioactivity Certificate

o Health Certificate

o Certificate of Origin

If the goods are declared fit, they are released from custom and if there is any doubt they are sent to the custom laboratory.

Until these documents are received by the importer, payment is not made to the supplier.

The "Bill of Entry" is filed on behalf of Nestlé by its agent companies, to fulfill the custom formalities.

The custom authorities make an assessment of the following particulars from the Bill of Entry; the cheaque value, duty rate, and the verification of goods declared.

After the completion of assessment, the Bill of Entry is passed.

The payment of government dues is demanded in the shape of Pay order or a Demand Draft.

The custom duty varies according to the items. It ranges from 10%-30%.

After submission of the dues, the goods are sent to the respective factory for quality assurance and to gain information about their state (useable or not) or if there is any discrepancy regarding the shipment.

Once this procedure is completed, the L/C is closed by making the payment to the exporter.

MODES OF PAYMENT USED AT NESTLÉ MILKPAK

L/C's can be of many kinds but Nestlé Milkpak only uses the "Payment on Sight" L/C. The benefit of using this kind is that in a volatile economy like ours it is difficult to judge the exchange rate fluctuations.

"Cash against Document" (CAD) is another mode of import used frequently at Nestlé. The use of L/C is discouraged through this mode. The conditions are fulfilled like L/C, but the banks are not liable for anything. The commission of the banks is very low in this case. Suppliers don't accept CAD unless they are sending the goods to regular customers with high levels of trust. As most imports of Nestlé Milkpak Limited are conducted with Nestlé affiliated companies, so this mode of payment is employed. And this enables the organization to save on bank charges.

TAXATION DEPARTMENT

The Taxation Department at Nestlé Milkpak Limited also falls under the Finance and Control Division. The taxation department has to deal in three different kinds of taxes:

Sales Tax

Excise Tax

Income Tax

Mr. Qayyum. gave the following briefing regarding the work performed at his department

SALES TAX

Sales tax is levied on certain items produced by Nestlé Milkpak. The taxable items include:

Juices

Culinary

Water

Confectionery

Coffee

The non taxable items include:

Milk

Powders

Cereals

It is the responsibility of the Sales Tax department to calculate the figures according to the rates implied by the government. This amount is then added to the price of an item and it is sold at profit to the distributor. The distributor in turn, includes the amount of sales tax in his final price and sells the product to the end consumer. So, the end consumer has to bear the burden of the tax eventually and this is a form of indirect tax for the producer and the distributor.

The rates of sales tax in case of registered to registered firms is 15% and 3% for non registered firms.

The sales tax department calculates these figures and sends them to the Budget and Control section to enable them in calculating the distributor and retailer margins.

EXCISE DUTY

Excise duty is a manufacturing tax implied by the government on certain production items. This tax is calculated at the plant. For Nestlé Milkpak this tax is levied only on the beverages. The government has fixed a rate of 10% as excise duty. The method for implying this tax is that the excise duty is added at the rate of 10% to the price. This gives the "Duty Paid Value" of the item. After this the sales tax rate is applied to the product.

INCOME TAX

Income tax is the tax applied to the total income earned by an assessee throughout the income year. The taxation department has to calculate the tax for two kinds of income tax:

• Corporate Tax

• Employees Income Tax

For corporate tax the rates are fixed by the government during a particular year. And for the income tax of employees, their total income is calculated and decided that which income slab it falls into according to the limits provided by the government. The rates of the slab are implied on the income of employee and the amount of tax calculated. The employees' tax is then deducted from their salary as per calculation and adjusted at the end of the Income Year.

The taxation department plays a very important role, as the amount of tax calculated by them in various categories is sent to different departments. As the total amount of tax calculated for the organization, which involves a very lengthy and tedious procedure moves to the Accounts section where the General Ledger Department uses the figures for calculation of the Profit after Tax in the Profit and Loss Statement. Similarly, as mentioned above, the figures also are needed in the Budget and Control Section for calculation of distributor and retailer profit margins.

INFORMATION SYSTEMS DEPARTMENT

The Information Systems (IS) Department has a very important role in any organization of the modern century. Especially, for such a large scale Multinational Corporation like Nestlé Milkpak limited that has to maintain contact not only with its establishments in the country which it is operating but also with Nestlé Headquarters and Nestlé setups in other countries, Information Systems play a vital role.

The exchange of information is a continuous function and the decision making process is based on this information. Proper hardware and software is necessary to maintain effectiveness and efficiency.

The Information Systems Department comes under the Finance and Control Division at Nestlé Milkpak Limited. Mr. Moeen Khan who is currently working as the Manager Information Systems gave the following details regarding the working of his department.

IS STAFF

Mr. Moeen Khan is the head of the Department. He has a staff of sixteen people working under him employed at various establishments of Nestlé Milkpak. Out of the sixteen people, six are employed for Business Application purposes and the remaining ten for Technical Network support. Of these ten, seven are working at the Head office, two at the Sheikhupura factory and one at Kabirwala.

Business Application

The six people employed for Business Application are working only at the Head office. Business Application is a field related with business reporting. So all the reporting activities are to be conducted from the Head Office to other cities and all other Nestlé setups in the world. Therefore, for this purpose these personnel are not required at other setups.

Technical Network Support

Employees in the IS Department looking after the desktop related problems are working in this category. For day to day problems, at various setups they have to be employed at sites, whereas major problems in the network are solved at the Head Office.

BUSINESS PLANNING AND CONTROL SYSTEM (BPCS)

The system currently in work at Nestlé Milkpak Limited is known as the Business Planning and Control System (BPCS). It is an AS 400 based system. This system covers almost all the business areas like financial processing and budgeting. This system is in work at different departments, with different methods of use and numerous options available to assist the employees. Every department has been provided with a manual which contains instructions on the use of the system.

Wide Area Network

The BPCS system is connected through a Wide Area Network (WAN) with all the five establishments of Nestlé i.e. Sheikhupura, Kabirwala, Milk Collection Centers, Head Office and The Indus Factory. Other than the five establishments, it is also connected with the three zonal offices of North, South and Center zone.

Nestlé Milkpak wishes to expand this facility to a Global WAN in the coming year so that all users can have access to the system.

Use of E-mail

Any confirmed employee at Nestlé Milkpak Limited has access to this facility but only for business purposes. No religious material or personal material can be circulated through the company's user.

PROBLEMS FACED BY THE IS DEPARTMENT

The IS Department faces a few problems, which need to be countered to provide the best results. These problems are:

Firstly, it is a service department, solving the problems of other departments. Employees normally do not have adequate know-how about the working of their computers and IS personnel are kept calling for minor problems. It is the demand of every employee to be catered on priority. Due to a low number of staff, this is not possible for the department. The IS manager plans to change the process, by acquiring a time limit of two hours maximum for solving the problem since it reaches the Help Desk at IS department.

The major problem faced at the IS department is the turnover ratio. It is difficult to retain man power. Employees learn the work in a MNC like Nestlé and after that leave the company as soon as they are offered better packages elsewhere. The opportunities are expanding in the modern field of Information Technology and it is difficult to retain people.

SUPPLY CHAIN DEPARTMENT

The concept of having a Supply Chain Department is a new one in Pakistan. This trend is mostly prevalent in the developed markets. Nestlé Milkpak has recently introduced this concept in its company functions and the supply chain department is passing through various stages of completion. Nonetheless, it has started working and performing vital functions for the organization.

Function of the Supply Chain

The supply chain department performs a range of functions, starting from the procurement of raw and packaging material, the manufacturing process and the distribution of the finished goods to the consumers. Purchase, logistics, production planning are different issues but Nestlé Milkpak has undertook the concept of getting the hurdles attached with these resolved under one umbrella.

Structure

The following chart shows the structure of the Supply Chain Department at the organization:

The structure shows that there are five support departments for the Supply Chain. These are:

Export Marketing

Demand Planning

Customer Order Services

Transportation

National Distribution Center

Out of these five departments, four are headed by the Supply Chain Manager with three working at the Head Office and the National Distribution Center at the Sheikhupura Factory. The fifth department i.e. Export Marketing, falls under the FCM and works at the Head Office.

Mr. Ijaz Ahmad working as the Demand Planner at the Supply Chain gave the following information regarding demand planning.

DEMAND PLANNING

Demand planning or it may be called as short term planning. Demand Planning means analyzing the market demand for various products and arranging the production facilities to meet the demand. The following features highlight a demand planner's job description:

Rolling Sales Forecast

A rolling sales forecast is made by the demand planner ranging for a period of six months. This forecast is made after the National Sales Manager and the Marketing Manager hold a meeting twice in the month to analyze the market trend. This sales forecast is sent to the Factory Manager. The Factory Manager and Production Planner review the sales forecast and identify the capacity constraints involved in achieving the stipulated targets. These capacity constraints can be closing down of the factory for the Annual Repairs and Maintenance.

Monthly Forecast Review

A monthly report is prepared for the production planning and forecast setting. This report is also required by the Factory Manager.

Monthly Operational Review

The senior management meets once in a month, and reviews the operations of the organization. They analyze the operations on the statistics provided by the previous year-to-date target, the present sales achievement and the Real Internal Growth.

Weekly Supply and Demand Review

A weekly supply and demand review is also taken. Every Friday, priorities are outlined for the coming week. Percentages are set for the Net Proceeds from Sales (NPS) and the Real Internal Growth (RIG).

For instance, for the production of UHT Milk in the lean season these figures are calculated by keeping the requirements of homogenizer, the level of demand, the availability of milk due to lean season and the WAPDA constraints in consideration.

The last week of the month is very busy for the department, as it is busy catering the orders in hand.

Stocks Coverage

Although, this is not the primary job of a demand planner, still the expiry dates of the products are marked. And top management is prompted by presenting to them the Liquidation schedule of stocks.

MANAGER DISTRIBUTION OPERATIONS

The MDO is responsible to deal with the labor. He is the Warehouse Incharge and also the Shift Incharge.

Warehouses

Nestlé Milkpak stores its stocks in warehouses. According to its production, it has the following warehouses:

National Distribution Center: the Manager Distributor Operations is responsible for this Center. It has 8000 pallets capacity.

Quarantine Warehouse: all products made at the factories, are sent for a quality test to these warehouses and are kept there for the specified incubation period.

Kabirwala Warehouse: major portion of the stocks at this warehouse is shifted to the NDC, but some products are also dispatched directly.

Karachi Warehouse: this warehouse is used to store chocolates, imported from China.

Rented Godowns: these are rented according to the seasonal requirements e.g. Gloria is stocked for the lean season.

TRANSPORTATION

This department is responsible for hiring trucks from the open market to retrieve the stocks from the warehouses and supplying them in various cities. It has to arrange chilled vehicles or dedicated trucks for the refrigerated products. Five transporters presently have a contract with Nestlé Milkpak handling the distribution.

ORDER PLANNER

The "Stock Availability Report" is prepared by the Order Planner. It is the daily routine of the Order Planner to convey the dispatches to the transporters in the evening.

MODULE

The software used by the Supply Chain Department is known as the Inter market Supply Planning (IMSP). It is a Nestlé software, showing every week's stock, the previous week's actual sales and the forecast sales. The supplier sees the forecast and measures the need for stock.

STEPS TO COMPLETE ESTABLISHING THE SUPPLY CHAIN DEPARTMENT

The following two steps would lead to the completion of the Supply Chain concept at Nestlé Milkpak:

Production Planning

Procurement

Both these departments would eventually form a part of the Supply Chain.

FINANCIAL ACCOUNTING DEPARTMENT

This was the department in which I spent my most time. Athar and I was injected in it on the first day after we took our letters from Human Resource Department.

It is headed by Mr. Azhar Usman Janjua, the great person known for his innovations, creativity which at first seems to be impossible. But I must say that his influence over the work and people doing work over there was just simply remarkable. I have heard of zero day closing concept in certain accounting subjects with a clear expression of its impossibility, but under his captainship the accounting department at Nestlé was doing this. The second remarkable achievement I found there was that customers were paying there debts in advance. Which is not prevalent any where. It means that who ever(The Distributor) wants any product must pay for it, and inventory is dispatched only on confirmation from the bank about the availability of funds.

The first achievement is amazing in itself because this phenomenon is not taking place anywhere in the world even in Nestlé. This is the pride of Nestlé Pakistan of having such a capable and ambitious person on the ship.

The financial accounting department at Nestlé was further subclassified in to three departments. These departments work in close collaboration with other departments.

The details regarding those are on the coming pages.

ACCOUNTS PAYABLE SECTION

Me and Mr. Athar my mate from IBA were first injected into the Accounts Payable Section at Nestlé Milkpak Limited which deals in receiving the invoices from all its creditors. This section plays a very vital role, as a major part of the invoicing concerning the Head Office is carried out in this section. It depends on the efficiency of this department to make timely payments to the creditors, which is necessary to create a good impression of the company in the market.

The Accounts Payable (ACP), is headed by the Assistant Manager (AM) ACP. Presently, Mr. Shabbir Siddiqui is performing the job. He has five people working under him, to cover the various areas of bills and invoices. The following chart shows the structure of the ACP Section and the areas of work for the individuals.

Mr. Shabbir Siddiqui, briefed me about the working of the various officers under him. My 4 days of attachment at his section was divided by allocating the time between the various areas of work according to their importance.

To get a general overview of how the department proceeds after receiving the invoices, I was provided the manual of the department and briefed about the whole process.

GOALS OF ACP

A standard set of procedures has been developed by the company to ensure that the operational practices in the Accounts Payable section achieve the desired goals. These goals are:

Immediate logging of vendor invoice in the Business Planning and Control System (BPCS), after its submission by the vendor, to establish exhaustive awareness of its receipt within the company.

Precise monitoring of invoice movement within the company, to ensure the invoices gets paid within the committed time period.

Thorough verification of every invoice, by the approving departments, to promote a sense of responsibility and ownership amongst them.

Validation of proper approval by the APS to increase efficiency and encourage equitable distribution of work.

SCOPE OF THE GUIDELINES

The procedures and guidelines mentioned in the manual pertain only to the Head Office Purchase Order (PO) Invoice and Non-Purchase Order Invoice transactions of Human Resources, Corporate Affairs, Marketing, Finance and Control Departments.

LIMITATIONS

These guidelines and procedures do not govern those APS transactions and activities that are related to transportation expenses, regional imprest funds, and raw and packing materials.

INVOICE PROCESSING TIME

All the invoices will be considered payable within twenty working days of receipt in Nestlé Milkpak Head Office, unless otherwise stated by the ordering departments on the invoice approved by them. The approving departments will not take more than nine working days for verifying and authorizing payments. APS will process the approved invoice after receiving it from the approving departments and forwarding it to the Treasury Department within four working days. The Treasury Department will issue the relevant cheaque to the vendors within three working days of receiving the approved and posted invoice from APS.

PROCEDURE

Receipt of Invoices in APS

Vendors will submit their original invoice to the APS Incharge. The APS Incharge will affix the following stamp on it:

This invoice will be withheld in APS for payment processing.

Invoice Login

The APS Incharge will ensure the section executives login the invoices in the BPCS on the day invoices are received. The APS Incharge will be authorized to distribute the workload of logging-in the invoices amongst the section executives in a fair and efficient manner.

Distribution of Logged Invoices

Upon completion of the logging-in, the invoice will be immediately filed in the respective department's mail out record. APS will maintain department-wise Invoice Monitoring Registers, that will identify the major data parameters of every invoice received by it. An APS executive assigned by the APS Incharge to this effect, will take the Invoice Monitoring Register along with the requisite invoices to the designated person in the concerned department and get his receiving against each invoice.

Invoice Monitoring

APS will age the invoices according to the date which they become due for payment in the Invoice Monitoring Register. In case, no payment date is mentioned on the invoice, it is to be paid within 30 days from the date of receipt. The APS executive will calculate the due date for

payment and seven workdays remaining date prior to it. The APS Incharge will review this Invoice Monitoring Register daily. When seven working days remain before payment becomes due, the APS Incharge will send information to the concerned department communicating the delay in processing the invoice. If the invoice becomes overdue for payment, the APS Incharge will inform the Chief Financial Controller of this development and he will send information to the concerned department head communicating the delay in processing the invoice.

Receipt of Approved Invoices by APS

Upon proper verification and approval of the invoice by the concerned department, as to the quantity, quality and price of goods and services either ordered or received by Nestlé Milkpak Limited it will be delivered to APS by the designated employee of the concerned department. This designated employee of the concerned department will ensure that an APS executive gives his receiving against each invoice which he will countersign himself.

Verification Under Taken by APS

Each invoice will be checked by APS for its proper approval in accordance with the limits decided in each department's Authority Level Schedules. These Authority Level Schedules will provide the approval and authority levels of various designations in the absence of the concerned persons. It is the responsibility of APS to confirm the proper approval of all the invoices it receives from the approving departments for posting in the PURCHASE JOURNAL VOUCHER (PJV).

The approving departments will be responsible for:

Ensuring that three copies of Purchase Order's (PO) are generated, one each for the ordering department, APS and vendor respectively.

Canceling the PO's as and when the need arises, by affixing the following stamp on them and getting the ordering department head's approval on it.

Verifying the presence and validity of PO reference number on the invoice and posting the invoice number on the PO's.

Maintaining a record of all the advance and partial payments made against each PO by posting the invoice number date and amount on the same.

Getting the advances approved by either the Managing Director or the Finance and Control Manager.

Generating a monthly detail of advances to trade conditions in which aging breakup will be provided.

Confirming the quantities and services rendered mentioned on the invoices with the original Delivery Challan and employee receiving respectively.

Affixing the following stamp on the invoice after it has been properly verified and getting the approving department head's approval on it.

Invoice Entry into BPCS

The APS Incharge will ensure that section executives unlog the logged invoices and post them in the BPCS. The APS Incharge will be authorized to distribute the workload of logging and posting the invoices amongst the section executives in a fair and efficient manner.

PJV Related Responsibility and Authority

The APS executive responsible for posting the PJV will acknowledge this by signing above "Prepared By" on the same. He/she will also be responsible for posting the PJV reference number on the relevant invoice. He/she will also be responsible for the validity of the PJV posting and timely delivery of the same to the Treasury Department for payment.

Distribution and Filing of PJV's

The hard copy of the PJV will be attached to the relevant invoice and at the end of each day an APS executive, assigned by the APS Incharge to this effect, will deliver the completed PJV's to the authorized person in Treasury Department. After the payment has been made against the PJV's, the APS Incharge will accept their return. The APS Incharge will ensure that the section executives immediately file the PJV's according to their reference numbers.

IMPORTS SECTION AT ACP

My major portion of stay at the ACP was spent at the Imports Section. In this section, I learnt in detail the procedure for the closing of Letter of Credits (L/C) established by the company to import goods from Nestlé affiliated companies or elsewhere.

As mentioned earlier, during the discussion of the Imports Department, that establishment of the L/C's is the responsibility of the Imports Department. The Imports Department has to pursue the activities of the importers to ensure that the goods are received on time. A number of documents are needed for this purpose, which has been mentioned in detail earlier. These documents are required by custom authorities for the clearance of goods at the port. After the whole process of the clearance of goods has taken place and the goods reach their desired destination, in most cases which is the plant, these documents are provided by the Imports Section to the Accounts Payable Section. The ACP is responsible for closing the L/C and making payments to all the parties involved in the import of goods.

PROCEDURE

The L/C's are established at the Imports Section. Nestlé Milkpak follows a policy of opening L/C's on the "At Sight" basis only.

The work of the ACP section starts when it receives the "Purchase Order". The Purchase Order is also called the Performa Invoice and it is sent by the Exporter. It has the consent of the exporter to sell a particular commodity.

It contains specifications like the quantity, item, specification and rate. The rate specifies whether the L/C is Free on Board (FOB), Cost and Freight (C&F) or Cost, Insurance and Freight (CIF).

All L/C's established at Nestlé Milkpak limited are based on the C&F rates, where the exporter is responsible for the cost and freight of the goods.

It is the duty of the ACP executive working in this section to ensure that the following documents are attached with the Purchase Order.

The "Debit Advice" or the document pertaining to the bank charges incurred by the company for the opening of a L/C.

Nestlé Milkpak does major of its business with the ABN-Amro Bank Lahore or the Credit Agricole IndoSuez Bank Lahore depending on the origin of import.

The "Insurance Bill" which at Nestlé Milkpak is the responsibility of the company itself. Its major transactions are carried on with the "International General Insurance" company.

The Insurance cover is a mandatory requirement by the banks before opening of the L/C's where FOB and C&F basis are used.

Along with these preliminary documents, the "Bill Of Entry" is also attached with the Purchase Order. The importer i.e. Nestlé Milkpak limited submits the document to the custom authorities. It is used for the computation of duties. Whether duty is imposed on the product or not, the bill of entry has to be submitted to the custom authorities.

Nestlé Milkpak Limited has employed Clearing Agents for the purpose of submitting the Bill of entry to the Custom Authorities.

The duty is charged on the invoice value plus the ITP value or the International Trade Price according to the rules specified by the custom authorities.

Along with the Duty Charges, the clearing agent sends an invoice showing the handling charges, the loading charges, the Karachi Port Surcharge, the Karachi Port Tax, transportation charges, the demurrage paid etc.

The "Packing List" issued by the international firms of packers showing the quantity of goods packed.

When the goods reach the plant, a "Goods Received Note" (GRN) is sent to the ACP section at the Head Office. It contains particulars relating to the usage of the products and whether the shipment was according to their requirement.

After receiving all these documents, the ACP executive is responsible for the settlement of the L/C.

He rechecks all the figures relating to the duties paid, and all other charges paid by the clearing agents.

Separate registers are maintained according to the banks used for establishing the L/C's. These registers maintain a record of the L/C's in order of their establishment. The ACP executive, calculates the total charges incurred for establishing the L/C on this register. The register has separate columns relating to all kinds of charges.

These charges are also posted in the BPCS and document references are given on the register by mentioning their numbers. The main documents used for establishing L/C's are PJV's and LCJV's. The PJV number and LCJV number are specified on the register.

The LC number as issued by the bank is used as the major reference on all other documents in use for settlement of an L/C.

A "Debit Note" containing the aggregate charges paid by the Head Office for the import of goods is issued by the Head Office to the respective factory.

o DHS: debit Head Office to Sheikhupura

o DHK: debit Head Office to Kabirwala

The Debit Note is posted along with its specific number in the BPCS, for maintaining complete record.

A copy of the Debit Note is sent to the GLD Section which maintains the Ledger for all transactions and the third copy is kept at ACP.

After the completion of this process, the L/C is said to be closed or we can say that all the formalities regarding the settlement of an L/C have been fulfilled.

TRAVEL (Domestic/International) BILLS

The ACP section also deals in the Travel Bills of the employees of the Head Office of Nestlé Milkpak Limited. Travel is an important tool in the company's operation and as such constitutes a major investment. It is therefore, important that the most cost effective travel and accommodation suppliers are used in every situation.

The ACP section is provided with following guidelines relating to the domestic and international travel policy of the employees of the company. It is the duty of the ACP executive dealing in travel bills to verify that the procedure being adopted for travel is in compliance with the company policy.

Domestic Travel Policy

Travel

Employees travel by air, rail and road. All travel related activities such as booking air tickets, hotel arrangements and car rental are handled by Administration Services. To ensure cost effectiveness, all air tickets are arranged by travel agencies appointed by the company.

Travel Authorization

All travel requests are completed by the traveler and then submitted for approval by the appropriate authority on the Travel Request Form. Authorized Department Heads approve the domestic travel. Division Heads may approve travel requirements for the company's official guests.

Travel Advances

Majority of the travel expenses is settled directly by the company. In case of any out-of-pocket expenses for business purposes, the amount is reimbursed on submitting a "Travel Expense and Payment Voucher" approved and submitted within 10days of the conclusion of the trip.

International Travel

Travel Authorization

The Managing Director will approve all international travel. Division Heads may approve travel requirements for the company's international official guests.

ROLE OF ACP

The ACP executive Incharge of the Travel Bills is responsible to see that all the Travel Expense and Payment Vouchers have been submitted by the traveler with the proper authorization as indicated in the Company Policy. He verifies the calculations made by the travelers and maintains a record of all the vouchers after assigning them numbers. After that the same process as mentioned for treatment of the invoices is followed and payments made to the creditors.

TRANSPORTATION BILLS

These bills come from the factory to the Head Office. The company has contracts with specific transporters and a pre arranged deal regarding the number of trucks and the load to be carried each day. The invoices from the transporters reach the ACP section. The various rates for the transport of goods from the factories to different cities are charged according to the distance. The ACP executive working on transport bills verifies all the calculations by multiplying the quantity of the different brands with the rates provided to him by the company. He also has the responsibility for making provisions in the price, if any defects arise in the products during their transportation. The process for the posting the vouchers is again followed and payment made to the transporters after provisioning and approval of the bill.

ACCOUNTS RECEIVABLE SECTION

The other important section of the Financial Accounting Department is the Accounts Receivable Section (ACR). Me and Athar were attached for about 5 days with the section, and were given a detailed briefing about the working of the department by the Assistant Manager of Accounts Receivable, Mr. Naeem Sheikh. The following chart shows the structure of the ACR section.

The ACR section is dealing with all the sales statistics. It keeps a record of all the money recoverable by the company from its debtors. This section of the Financial Accounting Department is the monitoring authority for all the zones. As the data collected regarding the sales of the three zones is consolidated in this department of the Head Office. Therefore, the functional structure of the ACR section is as follows:

CUSTOMERS OF NESTLÉ MILKPAK LIMITED

The following table shows the total number of customers of Nestlé Milkpak Limited and their segregation into the local customers and the foreign customers.

Customers Number

Local 171

Export (Third parties) 5

Export (Nestlé Group/ Affiliated Companies) 13

Total 189

The following table shows the business being handled at the Accounts Receivable Section.

Total number of brands in ACR 43

Total number of SKU's* dealing in ACR 256

*Stock Keeping Units

REPORTING DONE BY ACR

The ACR section is responsible for preparing the following reports on a periodic basis or as and when required:

Sales Flash (Water): A single figure regarding the sales flash of water brands has to be calculated, which is sent to the General Ledger Department, which in turn sends it to the Perrier Vittel Head Quarters in Paris, France.

Sales Flash (other than water): This is also a single figure calculated covering all the brands being dealt in the ACR, and this is sent through the GLD department, where it is processed further, to the Nestlé Headquarters at Vevey, Switzerland.

Sales Statistics: This report shows the detail of each and every product's sales and sales tax.

Real Internal Growth (RIG): The ACR section also calculates the RIG of the company. It is calculated both on monthly basis and for a longer period.

Daily Outstanding Customer Reports: This report showing the details of the sales, payments and claims of customers is made on a daily basis. And the net receivables are calculated after accounting for these. This report is made Region wise and Zone Wise separately.

Royalty and Technical Fee: Royalty is paid to the Nestlé Headquarters Vevey, for affixing the Nestlé Logo on specific brands. Technical Fee is paid for the expertise hired from the exporter countries for the installation of new machinery. Both these are charged at 1.5% respectively, which makes a total of 3%. Royalty is treated to be a totally admissible expense as decided by Vevey and is exempted from tax. Whereas tax at the rate of 15% is paid to the State Bank of Pakistan in connection with the Technical Fee.

Sales Returns: The ACR section also calculates the sales returns on a region wise and cumulative basis. A specific module is in use at the ACR section for this purpose and the system itself picks up the "Systematic Sales Report".

Price Structure: The ACR section also prepares the price structure or a list showing the prices of all the products, with respect to their sizes and quantities.

Prices History: The ACR section maintains in its modules a complete history of the prices since the beginning, indicating the rise and fall measured in percentage for the price. This history is very effective when the organization has to take a decision regarding the change in price structure.

Invoices Detail Checking: No other section does a detail checking of the invoices other than ACR. The rates of invoices are decided with the customers and their sequence is maintained by the ACR section.

Sales Credit Notes (SCN): These are the documentary credit notes linked with the distributor. These notes indicate the sales done by the distributor on behalf of Nestlé Milkpak Limited. All the regions after approval from the Zonal Controllers send these SCN's to the ACR. One copy is sent to the distributor, one copy kept at the regional office and one copy along with the original supporting sent to the ACR. The ACR section adjusts the SCN's against the next order of the distributor. The amount of SCN is deducted from his bill. The ACR section also rechecks periodically the SCN's already issued. It is the responsibility of the section to see that the claim was adjusted according to the settlement procedure. Any discrepancies found are removed for avoidance of audit objection.

Dairy Export Customers Handling: The export dairy customers are handled directly through the ACR and not through the regions. These transactions are for the bulk products purchased and connection with the export customers is through the respective brand managers.

System Analysis: The ACR section maintains a check on its system and any discrepancies in the system are reported and resolved through the system administrator.

Procedure Overview: A periodic overview of the procedure is undertaken, so that the Nestlé Guidelines should be followed. The changes in the company's structure are not present in the manuals and they are accommodated according to the business needs.

Distributors Contracts Maintained: It is the responsibility of the ACR section to maintain contracts with the distributors. The distributors which have not signed a contract are liable to do so. The ACR maintains a complete record of these contracts in lieu of their expiry dates.

Handling Fair Price Shop at Head Office: ACR has the responsibility of the stock taking of the Fair Price Shop at the Head Office. Reconciliation is made between the sales and stocks. The calculation of prices for the staff is also done at the ACR.

Resold Recovery: The sales returns from the distributors are resold through the ACR section. The food products that are not fit for human consumption can be used for animal feeds. This record is also maintained at the ACR.

Fixing Market Return: According to the policy, the market return is fixed. 1% return is fixed on the invoice whether the return takes place or not. This is an incentive given to the distributor. Apart from that the percentage varies from product to product when the returns are claimed. These are:

Milk 1%

Juices 0.5%

Confectionery 0.5%

Powder 0.4%

Fixing of Cash Discount: This cash discount is provided to those distributors/customers carrying out transactions on cash advance. This is also an incentive provided to them and a rate of 0.5% is fixed for all.

Close Monitoring Zones Functions: The ACR monitors the functions being performed at the zonal level. These are verified from the accounting point of view.

Co-ordination with other Departments: All the information maintained at the ACR section is used by other departments like:

§ Taxation Department

§ Budgeting Department

§ Zones

§ General Ledger Department

GENERAL LEDGER DEPARTMENT (GLD)

I spent 4 weeks working in the General Ledger Department at the Finance and Control Division of Nestlé Milkpak Limited. This is the most important sub-section of the Financial Accounting Department.

FUNCTIONS PERFORMED BY THE GLD

This department performs a variety of functions, which are:

All Control Accounts of the subsidiary ledgers of the creditors of ACP and the debtors of ACR are handled at General Ledger Department (GLD), which acts as the monitoring agent.

All Inter Company Control Accounts are maintained at the GLD. The Inter Company Accounts show the transactions being made at the Sheikhupura Factory, Kabirwala Factory and the Milk Collection Centers.

It consolidates all accounts to make the final Balance Sheet and the Profit and Loss Account for the company.

It acts as the monitoring agent for the customer allowances, product discounts and volume discounts being offered on different brands.

Nestlé Fixed Assets Management, is handled at this section of the Financial Accounting Department. A module called NEFAM (Nestlé Fixed Assets Management) is used specifically for this purpose.

The transactions relating to the fixed assets such as the calculation of the Insurance Value and the Tax Written Down Value is the responsibility of this department.

Reconciliations are made for the Product Fixed Marketing Expenses (PFME) and the Customer Allowances (CA) etc.

Vouchers are received from different departments like the Treasury, the ACP and ACR for final posting and monitoring at the General Ledger Department. Ledgers of all these vouchers are maintained at the GLD.

Monthly statements are prepared and sent to Vevey and for the water brands to Paris.

Working for such a long period at the department, I was able to examine in detail all the functions performed there. Apart from helping, with these functions I was also assigned some projects by Mr. Azhar Janjua while working in GLD. I was provided with a computer and desk of my own which I utilized for my projects. Mr. Azhar Janjua and Mr. Nadeem Ahmed the Assistant Manager of the GLD section took special interest that I should gain benefit from my stay at Nestlé Milkpak.

PROJECTS

PROJECT I

CALCULATION OF THE TAX WRITTEN DOWN VALUE OF THE FIXED ASSETS (TAX W.D.V)

One very interesting and informative assignment that I was given regarding the fixed assets was the calculation of the tax written down value of the assets. This was calculated in respect of all types of investment other than land i.e. buildings, machinery and equipment, furniture and fixtures, vehicles and information systems. This report relating to the Tax W.D.V has to be provided to the taxation department where it is used for further processing for the calculation of the total income tax of the company.

Working on the Tax W.D.V report, I was able to learn the different kinds of depreciation provided by the income tax authorities for development of the industry and for using as a fiscal tool.

Normal Depreciation

For the calculation of the normal depreciation the Diminishing Balance Method is used till the time the written down value becomes zero. The rates of normal depreciation vary from asset to asset. For example in the case of vehicles it is 20% and for information systems it is 30% per annum. Whenever, a specific rate is not mentioned, a general rate of 10% is applied.

Initial Depreciation

Although, the income tax department has finished this facility last year, but the tax W.D.V was being calculated for assets purchased quite a few years back, so this depreciation had to be calculated for certain specific assets. This depreciation is provided for the asset in the first year of its use. So alongside the normal depreciation, another depreciation could be charged for the first year of purchase of asset.

Re Investment Allowance

The Re Investment Allowance is provided for machinery, plant and equipment. This allowance is provided under the Balancing Modernization and Replacement scheme, where the already present machinery is replaced by new one. It is provided at the rate of 40% per annum.

Extra Shift Depreciation

This is a kind of depreciation provided for organizations working in more than one shift. It is provided on certain types of machinery and plant. Only those, where the general rates of depreciation are being charged i.e. at the rate of 10% and not at specific rates. Double shift depreciation is provided at half of normal depreciation and Triple shift at the rate of 100% of normal depreciation.

The Tax W.D.V of various assets was calculated by me, accounting for all the above kinds of depreciation. The calculation was made according to the schedule of rates provided and the year of purchase of the asset uptill the year 2001 other than the assets who's written down value turned zero before the year 2001.

PROJECT II

BREAKING OF COST CENTER

Nestlé traditionally records all expenses regarding finance department under a single cost center head of "FCM". All the departments, be it corporate purchase, budget and control, financial accounting, taxation, treasury, IS etc., were pooled in it. In year 2002 it was realized that for proper cost controls and closer checks over expenses these expenses should be divided into certain sub cost centers.

It was resorted to sub classify the FCM into following sub centers:

1. FCM

2. Taxation

3. Financial Accounting

4. Budget and control

5. Treasury

6. Corporate purchase

7. IS

It was July when more than half of financial year has already passed by. I was required to analyze the expenses of past 6 months that is the part of year already passed and distribute expenses into these classifications.

Well I must say that it was a hell of job, one can not imagine how many vouchers were there in MNC like Nestlé. There were thousands and thousands of vouchers and I moved around 308 upper mall like a honey bee searching for nectar. For table to table, shelf to shelf and store to store asking people what was the expense where it was spend, on whom it was spend etc.

Well I can say that Nestlé's financial accounting department owes me the system.

One of the very interesting work at Nestlé was a presentation on NEFAM (Nestlé Fixed Assets Management System). The presentation was necessary because the management system was to be decentralized. Previously the assets management was all done at head office Lahore of all the assets present at HO, SkF and KWF. But it was decided that the knowledge and system should be transferred to the factories. For that purpose a lecture was arranged at the Sheikhupura Factory. I assisted Mr. Omar Shehzad in preparation and presentation of the lecture. Mr. Omar first gave me a detailed lecture regarding his area of work. He explained in detail the various fixed assets maintained at Nestlé Milkpak and the procedure of capitalizing those assets. I was provided with a manual regarding NEFAM, and the process explained to me thoroughly before starting my actual assignment.

NESTLÉ FIXED ASSETS MANAGEMENT (NEFAM)

Definition of Assets

Assets are economic resources, which are owned by a company and expected to provide benefit in future operations.

Investment Areas

Production

This consists of factory related investment comprising offices, stores/warehouses, technical raw materials, packing materials and semi-manufactured products, labor etc. as well as regional control labs.

Sales and Distribution

This consists of regional sales offices, distribution centers and depots, as well as manufactured products warehouses of the factories, salesmen's cars and distribution vehicles etc.

Administration

This includes all administration related expenses of the Head Office.

Information Technology

Data processing, information storage, office automation and professional workstations, telecommunication i.e. data and voice communications and all software are included in this area of investment.

THE GROUPS OF INVESTMENT

A distinction is made between three groups of investment. A proposal can be assigned to only one investment group.

I. Replacement and Rationalization

This consists of replacement of existing obsolete assets, rationalization, safety, protection of the environment, energy saving and similar motives.

II. Capacity Increase

Increase of the existing production capacity for products already manufactured in the market concerned are included in this group of investment. The replacement of existing production related equipment may bring an increase in capacity.

III. New Products

It consists of proposals for installations required for the manufacture of products, which are not yet manufactured by Nestlé Milkpak Limited. Additionally, it also includes proposals related to products already manufactured that will undergo significant changes in:

• the product quality

• the packaging presentation/material

TYPE OF INVESTMENT

There can be six types of investments according to the Nestlé Milkpak guidelines. The NEFAM module has allotted numbers 1-6 for these investments:

Land 1

Building 2

Machinery & Equipment 3

Tools & Furniture 4

Vehicles 5

Information System 6

Land

It includes the value of the following:

land, developed and undeveloped

leveling and tracing of land

Land improvements such as roads, railway lines, fence, etc. will be registered as buildings. The value of the land as such must be separated from that of the buildings.

Buildings

Under this type of fixed assets are recorded the following values:

Administrative buildings (head office), warehouses and sales offices including the cost of sanitary, electric and sewerage installations.

Production centers (factories) including the cost of sanitary and sewerage installations and sub structures to take production machines.

Housing including cost of electrical, sanitary and heating installations.

Land improvements such as roads, railway lines, parking lots, outdoor illuminations, water treatment installations, walls, reservoirs, fences, sewers etc.

Buildings under construction including progress payments to construction enterprises are also shown under this heading. A building constructed on lease hold land is also included.

Machinery and Equipment

This type of investment covers machinery and equipment for production and general services as well as production equipment including data processing equipment related to process control systems and process management.

Tools, Furniture & Others

It comprises in particular all the furniture of the administrative buildings. Also tools, point of sale frozen food and ice cream cabinets, cabinets for chilled products, forklifts and indoor vehicles etc. the furniture is capitalized in individual units.

Vehicles

Covers cars including those used for advertising, trucks, trailers, railway wagons, boats, airplanes etc.

Information Technology

This concerns hardware i.e. data processing, information storage, office information and professional workstations as well as telecommunications located at Head Office, factories, warehouses, sales offices and other sites. Software concerns purchases of computer programs or packages in connection with a hardware investment.

SUB TYPE OF INVESTMENT/ ASSETS

1 = Land

1.1 Free Hold Land

1.2 Lease Hold Land

2 = Building

2.1 Industrial Building on F.H.L

2.2 Industrial Building on L.H.L

2.3 Office Building

3 = Plant & Machinery

3.1 Machinery and Machinery Equipment

3.2 Milk Tankers

4 = Tools/ Furniture

4.1 Office Equipment

4.2 Air Conditioners and Refrigerators

4.3 Miscellaneous and Workshop Equipment

4.4 Electric Equipment

4.5 Laboratory Equipment

4.6 Furniture and Fixtures

5 = Vehicles

5.1 Motor Cars

5.2 Lorries, Jeeps, Pick-ups

5.3 Motor Cycles

6 = Information Technology Equipment

6.1 Computer and Software

6.2 Telephone and Communication

TEN DIGITS INVENTORY NUMBER

A ten digit inventory number is used for marking all the assets e.g.

First two digits used for year of purchase of particular assets.

Third digit used for type of investment

Fourth digit used for sub type of investment.

Fifth digit is spare for future allocation.

Six to nine digits used for fixed assets inventory serial.

Tenth digit used for child assets.

PROCEDURE FOR ADDITIONS OF ASSETS

Capital Investment Budget

The ensuing departments or divisions will send their asset requirements (including specifications, drawings and all technical details) to their respective divisional heads. The divisional heads will approve the asset requirements if they are essential to the proper operation and growth of the business. The assets are presented to the Managing Director for approval in a joint meeting of the MD, FCM, CE, and MM. After being approved by the MD each individual asset requirement will be termed as Investment Proposal. These approved investment proposals will be consolidated in the Investment Budget by the CE for the presentation of the Capital Investment Budget. Two copies of this CIB will be sent to the Executive Vice President --Zone Asia Oceania Africa (AOA), Nestec.

Capital Expenditure Proposal

Once the Zone Manager at the Center has approved the Investment Proposal, it becomes a credit. The Zone Management will allocate a number to each credit. This credit number will be called the Capital Expenditure Proposal (CEP) number, which is to be used from then on in the concerned reporting and requests for issuance, allocation and consumption of funds. MD will communicate the approved budget to the CE. The CE sends the approved CEP's to the concerned Divisional Heads, who transfer the relevant CEP numbers to the concerned line managers.

Budget Release by Managing Director

The MD will officially release the approved budget against each CEP number on a need basis. Purchase Orders will be considered valid only when they are raised against a budget release, for which the MD has issued a written authorization to this effect.

Purchase Proposal Request

For all fixed assets purchase an authorized Purchase Proposal Request has to be issued by the person in need or responsible for the availability of materials as the case may be.

Cash Requirements Summary

For cash flow purposes, CE will prepare a summary of cash requirements on a monthly basis and send it to the treasury manager for arranging funds.

Completion Certificate

For a production related asset addition a Completion Certificate (CC) will be used to signify the closure of the physical and financial requirement of a project on a given date. For a non-production related asset addition a completion certificate will be used to signify the physical delivery and transfer of ownership of an asset to the company. For all types of assets, the CC will provide the allocation of the expenditure incurred, starting and completion date and comments of the originating and executing department.

Asset Number Allocation

The asset numbers will be in accordance with the NEFAM software requirement. The GLD will be responsible for allocation of the asset numbers to the additions in fixed assets. The material of different types of Asset Number Tags (ANT's) and responsibility for their purchase and physical tagging is also the responsibility of GLD.

The ANT's for machinery will be made of aluminum and riveted to the machinery at a spot, which is safe from the environment and maintenance point of view. The ANT's for furniture will be made of adhesive laminated paper and pasted onto the furniture at a spot, which is safe from the environment and maintenance point of view.

Transfer Certificate

The transfer certificate will be used to signify the shifting of an asset from one cost center to another or from one location to another. It will provide the asset number, categorization of the investment, physical location and reason for transfer of the asset. All the transfer certificates will be prepared by the sending department or cost center.

Deletion Certificate

It will be used to signify the retirement of an asset from active utilization and official book of accounts of the company. It will provide the asset number, categorization of the investment, physical location and reason for deletion of the asset. The Minimum Residual Value is suggested and verified by concerned authorities on the Deletion Certificate. It is based on the expected market value of the deleted asset.

Sale of Production Asset in Cut Parts or Single Unit

At time of deletion, it is also decided whether the asset will be sold by weight as scrap after having it cut in small parts or as single unit. If the nature of the asset is such that it can be used by the buyer to make a product which can potentially compete with existing Nestlé products available in the market then it will be sold as scrap in the form of cut parts. On the other hand, if the threat of production of a potentially competitive product is non-existent then the asset will be sold as a single unit.

Utilization of Part of Deleted Asset

At the time of deletion, it is also decided whether any part of the asset (e.g. pipe, pump) which does not have any identifiable cost or book value, can be utilized for any operational activity in the Company.

Sum Insured

Sum Insured represents the value calculated by the company for each asset as to be provided to the Insurance Companies to get the asset insured. This value should be appropriate enough to cover the market price of an asset over its useful life.

Fixed Assets Register Structure

The fixed assets register in the NEFAM, has the following particulars, regarding each asset:

Establishment Code

Cost Center and Line Number

Assets Number

Type of Assets

Date of Purchase

Date of Completion

Purchase Price (Gross Book Value)

Description

VISIT TO THE SHEIKHUPURA FACTORY

One of the interesting part of our training program was our (internees from Punjab University) to the Sheikhupura Factory. This visit was arranged by Mr. Hassan Taufique, the Budget and Control Manager of the Finance and Control Division. This was the venture in which we all five Athar, Usman, Bisma, Arooj and me went on together.

Although, the visit was for only one day, but with the considerate attitude of the Manger Finance and control Mr. Zeeshan Haider, we were shown the plants for all the brands produced at the Sheikhupura Factory. Before, visiting the production plants, Mr. Zeeshan Haider working in the Accounts Section of the factory, gave a detailed briefing about the brands being produced at the setup. He also briefed about the measures taken at the factory level to ensure the quality of products. Due to shortage of time, we were not able to visit the Quality Assurance Department at the factory.

He also explained how the accounts section at the factory is working close in co-ordination with the Finance and Control Division of the Head Office. The reports generated at the factory level are used by the Budget and Control Department at the Head Office. The product costing is done at the factory level by performing trial runs before the sale price is made final. The Annual Operational Plan based on the Standard Cost Budget is made at the factory level primarily and then by the Budget and Control Department at the Head Office. Selling price calculations are made by accounting for the variable manufacturing cost and the fixed factory overhead. On a quarterly basis, the Actual Cost of Production is measured. Sales Forecast is made based on the Production Plan. The Budget is then revised once every quarter, by comparing the Actual versus the Planned. The Sales Forecast is then based on the revised Cost of production and Production Level.

Similarly, all the expenses performed by the Head Office on behalf of the factory are conveyed to the Accounts Section at the factory by the use of debit notes (as mentioned in the ACP section). The factory also issues the debit notes to the head office for spending on their behalf. The balances are then adjusted and the remaining amount is paid by the establishment which owes the amount to the other.

The visit of the production setup was a very exciting experience. The first indication of the level of hygiene and quality maintained at the factory was when we were handed white overalls and white caps to cover ourselves.

The first plant was the Dairy plant, where MILKPAK UHT, NIDO, CREAMS, DESI GHEE, EVERYDAY etc are rooted. All the products except for powdered milk i.e., EVERYDAY and NIDO are started and completed here. We were provided with caps and overcoats here. The most interesting part was that of UHT milk where there were 16 machines each of which was capable of producing 4000 to 12000 units per hour of various packaging ranging from 250 ml to 1000 ml. there were silos capable of storing milk from 54000 to 124000 liters of milk.

The second part was also in the same building which was of cold beverages i.e., FROST, NESTLÉ ORANGE JUICES etc. there were 6 machines which can produce 4000 to 7500 liters of juice per hour. We were told about most of the technicalities of the processes which I m not discussing in this particular report, because of confidentiality. However the people there were so nice to let us know about each and every thing.

Our next stop was at the Nestlé Pure Life Plant. This was the most interesting plant and we were anxious to see it. The well from which the water is extracted was shown to us. This well is 500 ft. deep and a pipe from it is connected to the filling section inside the plant. The bottles for water are manufactured from material in the form of small granules known as Poly Ethylene Threptalate (PET). To finish the moisture in the granules they are melted at 280oC. The granules are then heated up further for stretching and rounding. The pre-form of the bottle approximately 3 inches in size is heated at 480oC. This pre-form is blown up at a temperature of 440oC to give the final shape of the bottles of the two formats i.e. 0.5 liter and 1.5 liter. The bottles are produced at a speed of 8000 bottles per hour for the 0.5 liter and 6000 bottles per hour for 1.5 liter. After this, the bottles travel to the filling section. They are again blown up with hot air to remove any particles and are finally capped with seals after filling the bottles with the processed water. The bottles are labeled and the expiry date is engraved on them.

Due to annual cleanup of the plant, we were not able to go inside the EGRON Plant used for the manufacture of powder milk. This plant is six storey high as the liquid milk is thrown from the top most storey to dry it up. For detailed observation of this plant ample amount of time is required.

The last plant that we visited was the confectionery setup. We saw the manufacturing plant for the press sweets i.e. POLO. The plant was closed at that time and no production was taking place. The flexible line for the production of low boil and high boil sweets was in operation. The first step is of pulling the batter on a pulling machine containing the ingredients i.e. glucose, sugar, fats and flavor. This batter is then cooked at very high temperature. After that this hot form is converted into cold form by chilling it. This cold form moves onto the batch roller which rolls it in the form of a rope; the shape of the sweet. With the help of a dye cutter it is cut into small pieces. If the toffee is still soft it is passed through the cooling tunnel for five minutes to harden it further. After that the sweets are wrapped up and sorted manually and packed in shipping cartons and sent to the National Distribution Center located in the factory.

Another very interesting highlight of our visit was the National Distribution Center. Our in simple words the ware house. But nobody can imagine without seeing it that what it was. It was the most amazing building one can ever imagine. It was a ware house from which goods are delivered to all over Pakistan. It has a capacity of over 8400 tons. Daily about 85 trucks are given load which they delivered in every corner of Pakistan be it Karachi or Kalam, Gadoon or Gilgit. Well simply you can stand tall and just can not recognize the person standing on the other corner. It creates an atmosphere of English horror movies. We saw the famous vehicle 'striker' a lifter capable of going upto 50 feet and can bring down a 2 ton pallet from the roof top.

Our visit lasted for one day, but it was very interesting and informative. I am thankful to all the people who made it so interesting for us. Every one there was very cooperative; we were provided Lunch and juices from the Finance Manager in the Factory canteen, which was itself a great experience.

SWOT ANALYSIS

Where there is a company in operation it has to work in two kinds of environment i.e.

• The external environment and

• The internal environment of the company.

For a company to avail maximum and avoid maximum, it has to know what it has to avail and what it has to avoid. The external environment has to be scanned by the management for any arising opportunities or any critical threats. The resources of a company constitute its strengths and weaknesses.

External factors are broadly categorized into;

• Economic forces

• Social, cultural, demographic, and environmental forces

• Political, governmental and legal forces

• Technological forces

• Competitive forces etc

Internal factors are;

• Marketing strength of firm

• Financial/Accounting resources

• Management

• Computer information system

• Production/operations etc

BENEFITS OF SWOT ANALYSIS

A SWOT Analysis is conducted by the company so that it is able to position itself to take advantage of particular opportunities in the environment and to avoid or minimize environmental threats. In doing so, the organization attempts to emphasize its strengths and moderate the impact of weaknesses. The analysis is also useful for uncovering strengths that have not been fully utilized and in identifying weaknesses that can be corrected. Matching information about the environment with the organization's capabilities enables management to formulate realistic strategies for attaining its goals.

A SWOT Analysis of Nestlé Milkpak is as follows:

INTERNAL ANALYSIS

STRENGTHS

• Socially Responsible company.

• NML's products enjoy strong brand image and market pull.

• Innovative and constantly growing product line. NML launched 17 new products, including variants of existing products in recent past.

• Sales force is the major resource strength in terms of physical resources of the company.

• Marketing strategies established by the company are innovative and lure customers.

• Financial, marketing and sales strategies are formulated by gauging the customer demands.

• Periodic research carried out to judge market trends.

• It is a large scale organization, with abundant funds and has the capability of acquiring weaker firms by throwing them out of competition. The recent acquisition of the water brands Aqua and Fontalia provide an example for this strength of the company.

• Multinational.

• Growing Sales and profits.

• Major shareholder in the food industry of Pakistan.

• Aggressive Marketing.

• Efficient Distribution networks through out the country.

• Quality Products.

• Environment Friendly.

WEAKNESSES

• Selective investment due to uncertain economic and political conditions.

• Feasibility of new products needs to be analyzed, e.g. Nestea was launched some years back but it failed because no customer demand for it existed.

• The plant installed for Maggi Noodles has a higher capacity than the actual demand of the product, resulting in higher overhead costs for the product.

• Relatively a new company in comparison to its rivals e.g. Lever Brothers.

• Low levels of inventory maintained can be dangerous.

• No credit sales.

• Low sales margins due to highly value added products.

• They cannot launch many of its expensive international brands due to the lower income groups.

EXTERNAL ANALYSIS

OPPORTUNITIES

• Pakistan is the seventh largest producer of milk in the world with annual output of over 22 billion liters.

• There are substantial growth opportunities considering the average yield of Pakistani animals at only 1,100 liters/annum as compared to 6,000 liters/annum for animals in Europe and USA. There are nearly 20 million milk producing animals in the country, mostly in Punjab (80%).

• The overall milk market in Pakistan is 20 billion liters, out of which processed milk contributes only 3 million liters. Nestlé Milkpak along with other processed milk businesses contribute only 2% to this large market.

• Nestlé Milkpak has expanded its product range by entering the cold dairy market recently by launching Nestlé plain yogurt and now fruit yogurt is also added to it.

• To expand the cold dairy products range, Nestlé fruit yogurt is the latest addition to this group.

• The cold dairy market offers many opportunities for the company which can capitalize these products by banking on its superior quality milk.

• The coffee brand also offers many opportunities for the company to expand by tuning the taste of the masses towards coffee.

• Credit policy can be adopted to increase sales.

THREATS

• Price fluctuations due to rupee devaluation as raw material is imported.

• The uncertainty of economic conditions poses a great threat as the major funds invested in the country come from outside Pakistan.

• The present economic crisis in the world, led to the withdrawal of foreign management from the company and the investment has come to a halt.

• Competition with Nestlé's owns smuggled brands.

• Effect of Seasonality's upon sales.

• Imported raw material, in some of the company's products.

CONCLUSION

Nestlé Milkpak Limited is a gigantic organization. Basically it is a food concern emphasizing on producing good food for good health. The seed Henri Nestlé had planted in 1866 is now a tree which provides extremely qualitative food to billions of people all around the world. It is also providing jobs to millions of people in more than 479 factories in 81 countries. The fact can be judged by this that it is the number one food manufacturing and processing company of the world. It is bigger than Kraft foods and Cadburys international.

Management of Nestlé Pakistan is mostly foreign. As already told that the top management involves MD and three senior mangers (Production, marketing, Finance). They all are expatriate with only one exception which is that for the first time in the history of Nestlé Pakistan one Pakistani has gained position among these four management seats. It is the Marketing Manager Mr. Rashid Aleem Qureshi. The most important fact about this is that Mr. Rashid Aleem Qureshi is a graduate of IBA University of the Punjab.

It is a relatively new Multinational on the Pakistani front as compared to its competitor Unilever which has a lot bigger area of operation and also manufactures food items. But it has established a strong footing for itself in the food industry. Apparently, there are no loop holes in the working of the organization, but still some areas require more attention.

Management has designed rules and regulations which are supposed to be followed by everyone. Policies have been formulated for major and minor issues both. Relationship with the employees is maintained at a cordial level. Employees work with commitment and dedication to achieve the best for the organization. Job satisfaction soars at a high level.

RECCOMENDATIONS

Following recommendations are based on my observation during my tenure of internship at the organization and others have been given after talking to people over there and after several discussions to my mates from IBA.

§ Basically we were Finance Trainees and spent our most of time in finance section, but we are thankful to Mr. Hussan Taufiq for because of him we made several visits to Marketing division. I found that people working in the finance divisions are bit depressed about there career ladder and their promotional incentives. Although generally the employee satisfaction was observed to be at a higher level in both the Finance and Marketing and Sales Division. Still people at marketing are more well off than people working in finance department.

§ Finance department is ok as far as employee turnover is concerned, marketing is good as well, just as I have mentioned that employee satisfaction is higher at marketing side, the problem I found was in IS department which is working under FCM. The turnover is very high over there. People get into Nestlé take a few month or maximum a year experience and leave the organization for better financial package. The company got to take care of it soon; otherwise it will loose all of its experienced system specialists.

§ Well to my surprise the Human Resource Department was in another building and is separate from everything. Strange isn't it? Means the human resource coordinator don't want to talk to anyone whom he has hired or recommended to be hired. To me the HR should is responsible for not just hiring them but keep a close eye on the working of employees, their satisfaction, their problems and about their every requirement. There should be a close feedback mechanism for seeking what the employee is thinking.

§ I have talked to almost all of the brand managers, to my surprise they are just targeting the A class consumer. And they are no where near thinking of lower classes. I wonder why? My suggestion is to target B, C and D classes. By this I mean that they should inject this thinking in product design phase not just in marketing planning phase. You can earn more by increasing volumes and turnover.

§ I heard the name of the Consumer Services Department but couldn't get what and where it is. Well the name suggests that it should be most visible and active department, I wonder if it is there? If it is there it should be organized at a larger scale and efforts should be made to interact more frequently and at a personal level with the consumers.

§ Nestlé's products are accepted all over the world, but it doesn't mean that there is no threat of extinction; well most of the products which are launched in Pakistan are in the same form as in any European country. I mean to say that there is lack of research on part of people who make feasibility study for launching a product. One example of such products is Maggi Noodles, the product is doing very badly in market, and it is anticipated that the plant might will be complete in year or two. Another example is of Fruit yogurt, although the Nestlé brand has attracted initial boost for the product, still the response from the repeat buyers is very bad, that is there are mostly one time buyers for this particular product. Well the Nestlé says that it has targeted children with this product, one should come up with that why would a child should opt for Yogurt if he can get Walls Ice cream from Unilever?

§ Nestlé has launched products which are under the same product category and thus creating competition among themselves. Like Frost, values added fruit juices and Pure life.

§ Although the employees in Finance and Marketing department are quite satisfied with the work environment, the problem is in there financial incentives. Along with there monetary compensation for good performance there should be a continuous raise in basic pay so that they feel more attracted towards their job. I suggest the incentive wage system for the marketing people so that they hit targets more regularly then they are doing now.

§ More effort needs to be put in to capture a greater share of the milk market in Pakistan. The ratio of processed milk to the whole milk market is extremely low. The existing system of milk collection and the services being provided to farmers should be expanded to build the market share in the milk market.

§ Prices of dairy products, I admit that there is very little room for improvement but still it can be lowered down. Pakistan is a market of 20 billion liters in which only 3 billion liters is covered by all companies providing tetra pack milk (Nestlé covers 60-70 %). So we should improve our markets, in such a way that we can cover our reduced profits by increasing our volume.

§ The last thing which I felt so strongly about is the QUALITY, I have added a separate chapter in my report on quality, but here in the conclusion part I just like to mention is that the quality is simply FABULOUS in production process and equally in every department be it finance or marketing.

Last of all I must THANK IBA once again for providing me the golden opportunity of spending 6 weeks(less one day, I took a leave) in such a wonderful place where most people can only dream of. I have talked to almost all of my class fellows about their internship experiences and I have concluded that I am most fortunate to be at Nestlé.

It was an experience of life time. For the first time I got the chance for applying what I have learned over the years. I got the chance of sitting among the ideal sort of people, professionals whose names are engraved as pioneers and geniuses of the field. This training program is the SPIRIT of all the courses at IBA. I learned about meeting and dealing with people. Working in a group is itself a very thrilling experience because it makes you feel more important. I must say that the integration of this training program and the courses I learned here will definitely will be of significant improvement in my future professional life.

I end my report here by again thanking Allah Almighty who gave the ability to complete this tedious task and all other people who have helped me in this venture.

Time and Date