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::. Business Description……

Nestle Pakistan Limited Formerly known as Nestle Milkpak Limited. The Group's
principal activities are to manufacture, process and sell food products and ancillary
equipment. The food products include diary, confectionery and culinary products,
coffee and beverage and drinking water. The major brands include MILKPAK UHT,
NESTLE EVERYDAY, LACTOGEN and NESCAFE.

::. Company Profile……

Name: Nestle Pakistan Limited

Ticker: NESTLE
Exchanges: KAR
2005 Sales: 17,142,000,000
Major Industry: FOOD & BEVERAGES
Sub Industry: DIVERSIFIED FOOD
Country: PAKISTAN
Employees: 1958

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 ::. Business Principles……
Since Henri Nestlé developed the first milk food for infants in 1867, and saved the
life of a neighbor’s child, the Nestlé Company has aimed to build a business based
on sound human values and principles.

While our Nestlé Corporate Business Principles will continue to evolve and adapt to
a changing world, our basic foundation is unchanged from the time of the origins of
our Company, and reflects the basic ideas of fairness, honesty, and a general
concern for people.

Nestlé is committed to the following Business Principles in all countries, taking into
account local legislation, cultural and religious practices:

• Nestlé's business objective is to manufacture and

market the Company's products in such a way as to
create value that can be sustained over the long term
for shareholders, employees, consumers, and business
partners.
• Nestlé does not favor short-term profit at the expense
of successful long-term business development.
• Nestlé recognizes that its consumers have a sincere
and legitimate interest in the behavior, beliefs and
actions of the Company behind brands in which they
place their trust and that without its consumers the
Company would not exist.
• Nestlé believes that, as a general rule, legislation is the
most effective safeguard of responsible conduct,
although in certain areas, additional guidance to staff
in the form of voluntary business principles is
beneficial in order to ensure that the highest standards
are met throughout the organization.
• Nestlé is conscious of the fact that the success of a
corporation is a reflection of the professionalism,
conduct and the responsible attitude of its
management and employees. Therefore recruitment of
the right people and ongoing training and
development are crucial.
• Nestlé continues to maintain its commitment to follow
and respect all applicable local laws in each of its
markets.

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 ::. Board of Directors……

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 ::. History……
1866 -1905

In the 1860s Henri Nestlé, a pharmacist, developed a food

for babies who were unable to breastfeed. His first success
was a premature infant who could not tolerate his mother's
milk or any of the usual substitutes. People quickly
recognized the value of the new product, after Nestlé's new
formula saved the child's life, and soon, Farine Lactée Henri
Nestlé was being sold in much of Europe.

1905-1918

In 1905 Nestlé merged with the Anglo-Swiss Condensed

Milk Company. By the early 1900s, the company was
operating factories in the United States, Britain, Germany
and Spain. World War I created new demand for dairy
products in the form of government contracts. By the end of
the war, Nestlé's production had more than doubled.

1918 -1938

After the war Government contracts dried up and

consumers switched back to fresh milk. However, Nestlé's
management responded quickly, streamlining operations
and reducing debt. The 1920s saw Nestlé's first expansion
into new products, with chocolate the Company's second
most important activity

1938 -1944

Nestlé felt the effects of World War II immediately. Profits dropped from $20 million
in 1938 to $6 million in 1939. Factories were established in developing countries,
particularly Latin America. Ironically, the war helped with the introduction of the
Company's newest product, Nescafé, which was a staple drink of the US military.
Nestlé's production and sales rose in the wartime economy.

1944 -1975

The end of World War II was the beginning of a dynamic phase for Nestlé. Growth
accelerated and companies were acquired. In 1947 came the merger with Maggi

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 seasonings and soups. Crosse & Blackwell followed in 1960, as did Findus (1963),
Libby's (1971) and Stouffer's (1973). Diversification came with a shareholding in
L'Oréal in 1974.

1975 -1981

Nestlé's growth in the developing world partially offset a slowdown in the Company's
traditional markets. Nestlé made its second venture outside the food industry by
acquiring Alcon Laboratories Inc..

1981 -1996

Nestlé divested a number of businesses1980 / 1984. In 1984, Nestlé's improved

bottom line allowed the Company to launch a new round of acquisitions, the most
important being American food giant Carnation.

1996+

The first half of the 1990s proved to be favorable for Nestlé: trade barriers crumbled
and world markets developed into more or less integrated trading areas. Since 1996
there have been acquisitions including San Pellegrino (1997), Spillers Petfoods
(1998) and Ralston Purina (2002). There were two major acquisitions in North
America, both in 2002: in July, Nestlé merged its U.S. ice cream business into
Dreyer's, and in August, a USD 2.6bn acquisition was announced of Chef America,
Inc..

::. Business Success Stories in Pakistan

The joint venture between Milkpak Ltd. And Nestle S.A. came about in 1988 and the
company was renamed as Nestle Milkpak Ltd. Prior to that, Milkpak Ltd., produced
UHT milk, butter, cream, desi ghee and fruit drinks at Sheikhupura factory. 21
branded product lines were added during 1990 to 1998.

Nestle Milkpak operates the largest and an extremely efficient milk collection system
in the country, which enables it to collect the highest quality milk for production of
UHT and powder milks as well as other milk based products. The company
voluntarily provides extension services of farmers in the area of animal husbandry
and livestock breed improvement.

Nestle Milkpak entered the export market in 1993 with exports of Rs.3.2 million to
Afghanistan. Growing steadily over the years, its exports stood at Rs.321 million by
June, 1998. Currently, it's overseas markets include the UAE, UK, USA, Sri Lanka,
Malaysia, Bangladesh, Afghanistan and Central Asian States.

In the social sector, the company provides over 1,100 job opportunities for skilled,
unskilled and professional manpower. It plays a remarkable role in vitalizing the rural

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 economy by disbursing over Rs.1.37 billion annually against milk purchases,
benefiting over five million household members of the dairy farmers.

In line with its universal commitment, Nestle Milkpak fully complies with its
responsibilities forwards the protection of the environment. By making available the
processed and packaged dairy products to urban consumers, it helps in arresting
urban environmental degradation caused by the influx of cattle into towns. Within it's
own production facilities, the company takes pains to operate an elaborate water
treatment system to cleanse its industrial wastewater before releasing it for irrigation.

::. At a Glance……
Nestlé with headquarters in Vevey, Switzerland was founded
in 1866 by Henri Nestlé and is today the world's biggest food
and beverage company. Sales at the end of 2005 were
CHF 91 bn, with a net profit of CHF 8 bn. We employ around
250,000 people and have factories or operations in almost
every country in the world.

The Company's strategy is guided by several fundamental

principles. Nestlé's existing products grow through innovation
and renovation while maintaining a balance in geographic
activities and product lines. Long-term potential is never
sacrificed for short-term performance. The Company's priority
is to bring the best and most relevant products to people,
wherever they are, whatever their needs, throughout their
lives.

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 ::. Key Brands……
Today Nestlé is present in different markets with the following main Brands:

Coffee Nescafé, Taster’s Choice, Ricoré, Ricoffy, Nespresso, Bonka,

Zoégas, Loumidis
Water Nestlé Pure Life, Nestlé Aquarel, Perrier, Vittel, Contrex,
S.Pellegrino, Acqua Panna, Levissima, Arrowhead, Poland
Spring, Deer Park, Ozarka, Hépar, Ice Mountain, Zephyrhills
Other beverages Nestea, Nesquik, Nescau, Milo, Carnation, Libby’s, Caro,
Nestomalt, Nestlé
Shelf stable Nestlé, Nido, Nespray, Ninho, Carnation, Milkmaid, La Lechera,
Moça, Klim, Gloria, Svelty, Molico, Nestlé Omega Plus, Bear
Brand, Coffee-Mate
Chilled Nestlé, Sveltesse, La Laitière, La Lechera, Ski, Yoco, Svelty,
Molico, LC1, Chiquitin
Ice cream Nestlé, Antica Gelateria del Corso, Dreyer's/Edy's,
Drumstick/Extrême, Maxibon/Tandem, Mega, Mövenpick, Sin
Parar/Sem Parar/Non Stop
Infant nutrition Nestlé, Nan, Lactogen, Beba, Nestogen, Cerelac, Neslac,
Nestum, Guigoz, Good Start
Performance nutrition PowerBar, Pria, Musashi
HealthCare nutrition Nutren, Clinutren, Peptamen, Modulen
Bouillons, soups, Maggi, Buitoni, Thomy, Winiary,Torchin
seasonings, pasta, sauces
Frozen foods (prepared Stouffer’s, Lean Cuisine, Hot Pockets, Buitoni, Maggi
dishes, pizzas)
Refrigerated products Nestlé, Buitoni, Herta, Toll House
(cold meat products,
dough, pasta, pizzas,
sauces, snacks)
Chocolate, confectionery Nestlé, Crunch, Cailler, Galak/Milkybar, Kit Kat, Smarties,
and biscuits Butterfinger, Aero, Polo
FoodServices and Chef, Davigel, Minor’s
professional products
Petcare Purina, Friskies, Fancy Feast, Alpo, Gourmet, Mon Petit, Felix,
Dog Chow, Cat Chow, Pro Plan, Purina ONE, Beneful, Tidy
Cats
Pharmaceutical company Alcon
Pharmaceutical and Galderma, Laboratoires innéov
cosmetic joint ventures
Associated company L’Oréal (equity interest)

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Yunas & Faisal MBA 4th Morning
 ::. Consumer Services…
At Nestlé, we are committed to offering consumers
high-quality food products that are safe, tasty and
affordable. The Nestlé Seal of Guarantee is a symbol of
this commitment.

We also believe in maintaining regular contact with our

consumers. This applies both to how we present our
products and to how we address our consumers'
questions and concerns. When Henri Nestlé prepared
his first boxes of infant formula for sale, he put his
address on the packages so people would know where
to go if they had questions. Today, our Consumer
Relationship Panel with the words "Talk to Nestlé"
expresses the same commitment.

This is why we have a worldwide Nestlé Consumer

Services network devoted to caring for our consumers.
Our people have expertise in a wide range of areas
such as nutrition, food science, food safety and culinary
expertise. They provide the prompt, efficient and high
quality service that consumers expect from Nestlé.

In addition, we teach them talk with consumers and

above all, to listen. Listening helps us to understand
what people want. Nestlé uses the insights gained from
relationships with consumers to drive product
development.

At Nestlé, we care for our consumers because our

success depends on meeting their needs and
expectations. Through listening and understanding, we
can make products that they will want to use all through
their lives.

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 ::. Quality at Nestle’……
Everyday, millions of people all over the world show their confidence in us by
choosing Nestlé products. This confidence is based on our quality image and a
reputation for high standards that has been built up over many years.

Quality is the cornerstone of our success

Every product on the shelf, every service and every customer contact helps to shape
this image. A Nestlé brand name on a product is a promise to the customer that it is
safe to consume, that it complies with all regulations and that it meets high
standards of quality. Customers expect us to keep this promise every time.
Under no circumstances will we compromise on the safety of a product and every
effort must be made to avoid hazards to health. Likewise, compliance with all
relevant laws and regulations is a must and is not negotiable. People, equipment
and instruments are made available to ensure safety and conformity of Nestlé
products at all times.

The effort is worth it. Companies with huge quality standards make fewer mistakes,
waste less time and money and are more productive. They also make higher profits.
Quality is our most successful product. It is the key to our success, today and
tomorrow.

The customer comes first

We want to win and keep customers: distributors, supermarkets, hotels,
shopkeepers and the final consumers. They have very different requirements. Trade
customers expect excellent service, correct information and timely delivery.
Consumers consider taste, appearance and price when they make their choice. Our
task is to understand what customers want and respond to their expectations rapidly
and effectively.

We serve various groups of consumers and there is demand for products at different
levels of perceived quality and price. All customers, however, expect value for their
money – good quality at a reasonable price.

When offering quality to customers we also mean environmental quality. Nestlé

shares society’s concern for the environment and is committed to environmentally
sound business practices throughout the world. Customers are central to our
business and we must always respect their needs and preferences.

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 Quality is a competitive advantage
We live in a competitive world and must never forget that our customers have a
choice. If they are not satisfied with a Nestlé product, they will switch to another
brand. Our goal, therefore, is to provide superior value in every product category and
market sector in which we compete.

The pursuit of highest quality at any price is no guarantee for success, nor is a
single-minded cost-cutting approach. Lasting competitive advantage is gained from
a balanced search for optimal value to customers, by simultaneous improvement of
quality and reduction cost.

Success can never be taken for granted. We must watch and learn from our
competitors. If they do something better, we must improve our own performance. We
can achieve competitive advantage through Quality.

Quality is a joint effort

Operating companies are fully responsible for maintaining agreed quality standards.
Not only Production units, but also Marketing, Purchasing, Distribution and Sales
have a vital role to play in providing quality to customers. This implies a thorough
knowledge of the products and services we offer.

Quality units at different levels of the organization provide specific support, promote
quality awareness, assume guardianship and audit the system. Quality departments
monitor operations against agreed standards and must intervene in case of non-
conformity.
Quality policy and principles, the mandatory standards and the recommended tools
for implementation are laid down in the Nestlé Quality System which is applicable
throughout the group. Further directions are given through instructions, norms and
guidelines, often specific to a product.

Our business products, such as raw material producers, packaging suppliers,

contract manufacturers and distributors are expected to share our concern for
Quality. They too must set up an adequate quality system, so as to meet our
requirements consistently.

The quality efforts must be shared by every function and department in the company
as well as our business partners.

Quality is made by people

Adequate equipment, procedures and systems are needed to make Quality; so are
involved and dedicated people. Each and every Nestlé employee must do his best to
provide quality products and services.

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 Training and teamwork are crucial to the successful implementation of high quality
standards. Continuous training ensures that everyone understands his tasks and
has the necessary skills to carry them out. Teamwork allows us to achieve results
that are greater than the sum of individual efforts.

We motivate employees by demonstrating management commitment to Quality, by

setting challenging goals and by giving them responsibility and recognition. It is
through employee involvement that goals and targets can be achieved in the
shortest time.

Quality must be a way of life for everyone in the company.

Quality is action
Quality is the result of deliberate action. It is the responsibility of senior managers to
communicate the quality objectives and to provide the resources necessary for their
implementation. It is then up to all employees to make Quality happen throughout
the company.

Progress is followed by listening to our customers and by measuring our

performance. Shortcomings and mistakes must be analyzed and corrected.
Problems must be anticipated and prevented before they occur. We also must
identify and take advantage of opportunities.

To stand still is to fall behind. So we must strive for continuous improvement in every
area. It is through many small improvements as well as through major breakthroughs
that we will achieve excellence.

At Nestlé, Quality is our first priority. Let us practice it every day.

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 Classification of Ratio Analysis

Primary/Secondary

• Primary
• Secondary

Interested Group

• Owner’s Point of View

• Lender’s Point of view
• Management’s Point of View

Fundamental

• Liquidity
• Activity
• Solvency
• Profitability

Here ratios will be calculated according to the Fundamental Classification.

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 ::. Liquidity Ratios ……
Ratios 2005 2004 Change
Current Ratio 0.81 1.00 0.19
Quick Ratio 0.467 0.28 0.187
Cash Ratio 0.244 0.0404 0.2036
Net Working Capital -814510 3860 818370

Liquidity Ratios

1.2
1
0.8 Year 2004
0.6
0.4 Year 2005
0.2
0
Current Quick ratio Cash Ratio
Ratio

::. Comments …

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 ::. Profitability Ratios ……

Ratios 2005 2004 Change

Net Profit Ratio 6.701 7.65 0.949
Operating Profit Ratio 12.33 11.98 0.35
GP Ratio 27.91 27.96 0.05
Operating Ratio 15.58 15.98 0.4
Return on Assets 12.99 17.57 4.58
Return on Equity 58.696 66.139 7.443
Return on Investment 31.13 40.07 8.94
Return on Fixed Assets 22.57 30.58 8.01

Profitability Ratios

70
60
50
40 Year 2004
30 Year 2005
20
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 ::. Market Ratios ……

Ratios 2005 2004 Change

Degree of Financial Leverage 129.65 109.29
Earning Per Share
Price Earning Ratio
Book Value of Share
Dividend Yield Ratio
Dividend Payout Ratio
Percentage of Earning Retained

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 Activity Ratios
Ratios 2005 2004 Change
Inventory Turn Over

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