| NESTLE MILKPAK LIMITED |
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| Annual Report |
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| for
the year ended June 30, 1997 |
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| CONTENTS |
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| Directors'
Report To The Shareholders |
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| Company
Information |
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| Company
Activities |
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| (i)
Milk Collection |
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| (ii)
Production |
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| (iii)
Marketing |
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| (iv) Exports |
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| Notice of Annual General Meeting |
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| Performance
At A Glance |
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| Auditor's
Report |
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| Balance Sheet |
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| Profit
& Loss Account |
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| Cash
Flow Statement |
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| Notes
To The Accounts |
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| Pattern
Of Share-holding |
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| DIRECTORS'
REPORT |
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| TO
THE SHAREHOLDERS |
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| The
Directors are pleased to submit their annual report along |
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| with
the audited financial statements of the company for the |
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| year
ended June 30, 1997. |
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| OPERATING
RESULTS |
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| Despite
difficult business environment and political turmoil influ- |
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| encing
the trading activities of the company, the overall perfor- |
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| mance
was in line with our expectations. Two large plants i.e. |
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| second
milk powder plant at Kabirwala and confectionery plant |
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| at
Sheikhupura were commissioned during the year involving |
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| investment
of Rs.560 mio. which was financed by a medium |
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| term
loan of Rs.500 mio. raised locally. |
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| The
financial charges of new investments and low capacity utili- |
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| sation
of the new plants impacted the operating results of the |
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| company.
In addition, the company purposely curtailed the |
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| invoicing
during second half of the year in order to reduce the trade debtors balances |
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| by
bringing the distributors on cash contracts. This helped the company to lower
the |
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| credit
days from 39 to 23. |
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| The
company's total sales crossed the three billion mark and stood at Rs.3.22
bio. as |
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| compared
to Rs.2.86 bio. for the year ended June 30, 1996 showing a growth of 13%. |
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| The
company earned after tax profit of Rs. 166.34 mio. as against after tax
profit of |
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| Rs.
187.36 mio. made in the corresponding period of the preceding year. |
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| MARKETING |
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| The
Company launched three new products i.e. confectionery under the brand name
of |
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| "POLO"
with mint flavour, full cream milk powder under the brand name of
"GLORIA" |
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| and
Skimmed milk powder under the brand name of "GOLD STAR". All the
products |
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| were
well received by the consumers. The other product groups also showed improved |
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| sales
except FROST whose sale was badly affected by uncertain weather conditions |
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| and
cola war in the beverage market. |
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| EXPORT |
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| As
mentioned in the last year's report, the export of company's products to |
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| Afghanistan
and Central Asian Republics by land route achieved momentum during the |
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| year
and total export increased from USS 2.50 mio. to USS 3.64 mio. during the
year |
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| under report. |
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| MILK
COLLECTION AND PROCESSING |
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| Our
most critical progress in 1997 has been in the area of milk collection and
pro- |
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| cessing.
All efforts were made to improve the fresh milk quality and reduce trans- |
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| portation
time from chilling centres to the factories. The commissioning of second |
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| Egron
(Milk Powder Plant) at Kabirwala has provided us with vital additional
capacity |
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| to
absorb the fresh milk flow. As a result during March ? April, 1997 flush
season we |
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| have
been able to process more milk of a higher quality and with more efficiency
than |
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| ever before. |
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| APPROPRIATIONS |
|
Rupees ('000) |
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| Net
profit for the year |
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166.34 |
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| Un-appropriated
profit brought forward |
212.31 |
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---------- |
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|
378.65 |
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---------- |
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| Appropriations |
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| Dividend
of Rs.4/- per share |
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120.70 |
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| Transfer
to general reserves |
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- |
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---------- |
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| Un-appropriated
profit carried forward |
257.95 |
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========== |
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| Dividend
at the rate of Rs.4 per share (40%) was paid out of the profit for |
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| the
year under review. |
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| APPOINTMENT
OF AUDITORS |
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| The
present auditors M/S A.F. Ferguson & Co. Chartered Accountants retired
and being |
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| eligible,
offer themselves for re-election. |
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| PERSONNEL |
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| Relationship
with staff specially the workers remained very cordial and the management |
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| successfully
negotiated two years' agreement with CBA during the year. The Directors are |
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| pleased
to record their appreciation for the hard work and contribution made by every
staff |
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| member
during the year. |
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| MERGER
OF KABIRWALA DAIRY INTO NESTLE MILKPAK LTD. |
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| Kabirwala
Dairy Limited (wholly owned subsidiary company) was wound-up by Court order
on |
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| June
30, 1996 and assets & liabilities were transferred to Nestle Milkpak Ltd. |
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| FUTURE
OUTLOOK |
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| Government
economic package involving reduction in import tariffs and sales tax rate is |
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| expected
to improve the business environment which will enhance the sale of all
product cat- |
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| egories
specially the new products launched by the company during 1996/97. Overall,
despite |
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| the
difficult economic conditions prevailing in the country, we are confident to
achieve strong |
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| growth
of our business in future. |
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| COMPANY
INFORMATION |
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| BOARD OF |
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Syed Yawar Ali (Chairman) |
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| DIRECTORS |
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Mr. Graham Campbell
(Managing Director) |
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Syed Babar Ali |
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Mr. M.W.O. Garrett |
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Mr. J.D. Luthi (Alternate
Mr. M. Hanif Rajput) |
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Mr. Lim Khing Fong
(Alternate Mr. Nimal Koswanage) |
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Mr. Tariq Hamid |
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| COMPANY |
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| SECRETARY |
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Mr. M. Hanif Rajput |
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| AUDITORS |
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A.F. Ferguson & Co.
(Chartered Accountants) |
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| LEGAL |
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| ADVISORS |
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Cheema & Ibrahim (Advocates) |
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| BANKERS |
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ABN Amro Bank |
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American Express Bank
Ltd. |
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ANZ Grindlays Bank PIc. |
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Bank of America |
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Banque Indosuez |
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Deutsche Bank A.G. |
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Muslim Commercial Bank
Ltd. |
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| REGISTERED |
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40-A, Gulberg - V, Lahore
- II |
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| OFFICE |
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Phone :5752582,
5754335-39 |
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Cable : "NESTLE
MP" Lahore- Pakistan |
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| CORPORATE |
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308 - Upper Mall, Lahore |
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| OFFICE |
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PABX |
: 5757082-95 |
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Telex |
: 44616 MPL PK |
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Fax |
: 5711820 |
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| FACTORIES |
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29th Kilometer, Lahore -
Sheikhupura Road |
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Sheikhupura, Punjab,
Pakistan |
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Phone : (042) 6369321 -
26 & 7228300 |
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Telex |
: 47237 MPL PK. |
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Fax |
:(042) 6368710 |
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Khanewal- Kabirwala Road,
Kabirwala |
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District Khanewal,
Punjab, Pakistan |
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Phone :(0692) 53168 |
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Fax :(0692) 53169 |
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| REGIONAL |
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KARACHI |
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| SALES |
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Lackson Square Building
No.1, 5th Floor |
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| OFFICES |
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Block C, R.A Lines,
Sarwar Shaheed Road, |
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Karachi Cantt., Sind,
Pakistan |
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Phone :(021) 5689815,
5689217, 5689712 |
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(021) 5689721, 5689722 |
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Fax :(021) 5682775, 5689815 |
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HYDERABAD |
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155-D, Block-C,
Latifabad-6, |
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Hyderabad, Sind, Pakistan |
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Phone :(0221) 860618 |
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Fax :(0221) 860618 |
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LAHORE |
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40-A/B, Zafar Ali Road,
Gulberg V, |
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Lahore, Punjab, Pakistan |
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Phone :(042) 5752583,
5754335-39 |
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Fax :(042) 5711820 |
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MULTAN |
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Surij Mani Road, Chungi
No.1, |
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Multan, Punjab, Pakistan |
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Phone :(061) 515061 |
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Fax :(061) 515061 |
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FAISALABAD |
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House No.24-Y-103 Madina
Town, |
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Faisalabad, Punjab,
Pakistan. |
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Phone :(041) 726993 |
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Fax :(041) 726993 |
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GUJRANWALA |
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23 D.C. Road, Gujranwala,
Punjab, Pakistan |
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Phone :(0431) 256320 |
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Fax :(0431) 256320 |
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PESHAWAR |
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2nd Floor, City Tower,
Jamrud Road, B Block, |
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201, Peshawar, N.W.F.P.,
Pakistan |
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Phone :(091) 840859,
43901 |
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Fax : (091) 45516 |
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QUETTA |
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2-39/39 Hari Krishan
Street, Masjid Road, |
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Quetta, Baluchistan,
Pakistan |
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Phone :(081) 825265 |
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Fax
:(081) 825265 |
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ISLAMABAD |
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74-W, Yaseen Plaza, 1st
Floor, Blue Area, |
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Islamabad. Pakistan |
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Phone :(051) 271874-75,
824328, 824384, 274376 |
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Fax
:(051) 821899 |
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| COMPANY
ACTIVITIES |
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| MILK
COLLECTION |
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| The
core raw material of Nestle Milkpak is fresh milk. The prime |
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| concern
of Nestle Milkpak over the last nine years has been |
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| improvement
in the quality and volume of milk for UHT processing |
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| and
other milk based products. Convinced of self collection |
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| as
the only viable option, the company has actively sought to |
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| establish
its own collection mechanism to eliminate its |
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| dependence
on the poor quality milk available from outside |
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| sources.
Over the years, Nestle Milkpak has established |
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| and
expanded its operations to explore more and more promising |
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| milk
belts and these efforts have led to a manifold growth in the |
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| volume
of self collected milk, as well as its quality. |
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| Today,
Nestle Milkpak can boast of having the largest milk |
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| collection
network in the country, unmatched in size, productivity |
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| and
efficiency. Milk is being collected through a vast network |
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| of
village milk centers (VMCs), sub-centers and centers. The |
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| company
has installed chillers and plate heat exchangers (PHEs) to |
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| chill
and preserve milk during long hauls to the factories, and |
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| employs
a large fleet of tankers to undertake its transportation. This |
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| operation
is supported by an extension service programme |
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| which
renders assistance to farmers in the areas of vaccination |
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| and
treatment of livestock, improved breeding, good animal |
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| husbandry
practices, provision of high yield fodder seed etc. By |
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| taking
professional help and guidance to the farmers' doorstep, |
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| which
they otherwise find difficult to access, coupled with incentives |
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| and
a good and regular return for the milk, Nestle Milkpak enjoys |
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| an
excellent relationship with them, which translates into a loyal |
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| supply base. |
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| Driven
by its commitment to quality, Nestle Milkpak had set its sights |
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| on
revolutionizing the quality of milk it collected. This meant |
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| reducing
sodium levels, improving fat and solid-non-fat (SNF) contents |
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| and
reducing Total Plate Count (TPC), which stated simply means |
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| the
bacteria count. The key to success lay in a comprehensive |
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| and
well thought out strategy to overhaul the manner in which |
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| milk
was collected and transported. Critical areas of operation |
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| were
identified and made the focus of improvement. Among |
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| these
were intensive education programs for the farmers and the |
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| milk
collection staff, upgradation of milk loading system, installa- |
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| tion
of additional chillers and, above all, adherence to the high- |
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| est
acceptance standards at all milk collection points, including |
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| the
factories. |
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| These
efforts involved a serious commitment on the part of the |
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| company's
Milk Collection Department and a large capital |
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| outlay.
The results far exceeded the expectations. A major qualita- |
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| tive
breakthrough was achieved. |
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| The
TPC was reduced by twenty times of the earlier levels, average |
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| fat
and SNF contents stood at above 5% and 8% respectively, the |
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| taste
of UHT milk improved remarkably and consequently the |
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| market
returns fell sharply. All this has resulted in remarkable overall |
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| increase
in sale volume. |
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| These
achievements have led Nestle Milkpak to clearly emerge |
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| as
the market leader in quality of UHT milk as well as other milk |
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| based
products - something it can rightly be proud of. |
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| PRODUCTION |
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| Sheikhupura
Factory |
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| The
joint venture between Nestle SA of Switzerland and Milkpak Ltd. |
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| came
about in 1988, as a consequence of which the existing |
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| production
facility of Milkpak in Sheikhupura became a part of the |
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| joint
venture. |
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| Milkpak
plant had originally begun operations in 1981 as a producer |
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| of
UHT milk. By 1988, it had expanded its operation and was also |
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| producing
butter, cream and desi ghee- all under the brand name of |
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| MILKPAK
and juice drinks under the brand name FROST. |
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|
YEARS' OF PRODUCT LAUNCH |
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| ------------------------------------------------------------------------------------------------------------------------------------- |
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| 1981 |
1983 |
1986 |
1990 |
1991 |
1992 |
1994 |
1995 |
1996 |
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| ------------------------------------------------------------------------------------------------------------------------------------- |
|
| UHT Milk |
Butter |
Cream |
Nido |
Nestum |
Everyday |
Milo |
Milo RTD |
Everyday UHT Milk |
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|
Desi Ghee |
Cerelac |
Lactogen |
(Tea whitener) |
Neslac |
Nescafe 3 in 1 |
Nestle Orange Juice |
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|
Frost |
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Gloria |
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Nestea |
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|
UHT Milk |
|
Maggi Noodles |
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Polo |
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|
Nescafe Classic |
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|
Maggi Yakhni |
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| ------------------------------------------------------------------------------------------------------------------------------------- |
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| For
the large food market that Pakistan offered, the joint venture |
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| had
an ambitious portfolio of expansion plans. While re-organiz- |
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| ing
and re-inforcing the production of existing brands, it lost no |
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| time
in giving shape to new production lines. The first to come |
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| was
a milk powder plant, which not only began producing NIDO in |
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| 1990,
but was also critical to the introduction of several milk based |
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| products
in the future. The first such product line to be installed |
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| was
that of CERELAC - an internationally recognised brand of infant |
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| cereals,
in the same year. The production lines of NESTUM and |
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| LACTOGEN
followed next, in 1991. |
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| The
year 1992 saw the introduction of a tea whitener EVERY DAY |
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| and
milk powder in bulk packing named GLORIA. MILO and NESLAC |
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| came
under production in 1994 and MILO RTD in 1995. Local |
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| packing
of imported coffee under the name of NESCAFE 3-in-1 |
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| commenced
the same year. In 1996, Nestle Milkpak's |
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| first
confectionery plant of POLO was commissioned |
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| and
other products i.e. EVERY DAY UHT MILK, |
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| NESTLE ORANGE JUICE and
NESTEA were added. |
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| Packing
of coffee under the brand name of NESCAFE CLASSIC was |
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| also
undertaken. |
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| Kabirwala
Factory |
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| The
second powder plant (E2) was completed at |
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| Kabirwala
factory in a record time of fifteen months and |
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| went
into production in October 1996. The plant pro- |
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| duces
GLORIA and GOLD STAR, both in bulk packaging. |
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| At
Kabirwala factory 2-MINUTE MAGGI NOODLES |
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| plant
was installed in 1991. This unit went into produc- |
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| tion
in 1992 with 4 flavours: |
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| Chicken,
Masala. Mutton Pulao and Sweet & Sour. |
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| The
taste maker was imported from Malaysia, In 1994, |
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| the
noodle flavors were reduced to Chicken and |
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| Masala
only. 98% of the ingredients were locally |
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| produced
this time, including the taste maker. |
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| This
year also witnessed the launching of the MAGGI |
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| YAKHNI
line with 3 flavours: |
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| Chicken,
Masala and Chatpata. |
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| MARKETING |
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| MILK |
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| MILKPAK
UHT MILK |
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| MILKPAK
UHT MILK is the flagship product of the Milkpak range. |
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| Launched
in 1981, it was the second UHT milk brand in |
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| Pakistan.
Today it is the leading UHT |
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| brand
with a very high name recogni- |
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| tion
among consumers and has undoubtedly become |
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| the symbol of quality. Its
re-launch in |
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| 1997
with a beautiful new pack design and |
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| its
positioning as perfectly pure, natural and very high quality |
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| milk,
have all contributed to the tremendous success and strength |
|
| of
the brand, improving its lead over other brands in the market. |
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| MILKPAK
UHT MILK is available in three pack sizes of 1000, 500 |
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| and 250 ml. |
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| MILKPAK
BUTTER |
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| MILKPAK
BUTTER, the second product introduced under the |
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| Milkpak
brand, was launched in 1985. It is available in |
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| two
pack sizes of 200 and 100 gms. |
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|
| MILKPAK
UHT CREAM |
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| MILKPAK
UHT CREAM was also introduced under the Milkpak |
|
| brand
and was launched in 1986. It is available in 200 mi. pack |
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| size.
Consumer trust in the brand name and preference for the |
|
| product
have ensured its dominant share in the cream category. |
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|
| MILKPAK
DESl GHEE |
|
| MILKPAK
DESI GHEE, another of the Milkpak brand products, was |
|
| launched
in 1986. It is available in 1000 ml pack size and is the |
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| leading
branded desi ghee in the country. |
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|
| EVERYDAY |
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| EVERYDAY
tea whitener was launched in 1992 to exploit the |
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| potential
offered by the huge tea |
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| whitening
seg m ent and to expand |
|
| the
overall powder milk market. |
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| Owing
to its focused positioning |
|
| and
the convenience it offers, the |
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| product
was a big success. Being |
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| the
only product in its category |
|
| today
and on account of excellent |
|
| consumer
acceptance, it enjoys |
|
| 100%
market share. Due to an |
|
| aggressive
marketing support, the |
|
| brand
has shown strong growth |
|
| pattern
with a great promise in |
|
| the future. |
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|
| NIDO |
|
| Soon
after it was introduced in |
|
| the
early 1970's as an imported |
|
| product,
NIDO became the market |
|
| leader,
a position it maintains |
|
| even today, with a steady |
|
| growth
in volume. |
|
|
| Nestle
began manufacturing NIDO locally in |
|
| 1990.
It is the dominant player in |
|
| the
full cream powder category |
|
| with
little competition. Efforts |
|
| are
now being directed at expand- |
|
| ing
the powder milk market, with |
|
| encouraging
results. In view of |
|
| the
enormous size of the milk |
|
| market
NIDO has the potential of |
|
| becoming
a mega brand in the |
|
| near future. |
|
|
| CHOCOLATE
DRINKS |
|
|
|
| MILO POWDER |
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| The
leading 'Chocolate Energy |
|
| Food
Drink' in Pakistan, MILO |
|
| was
launched in 1994. MILO is |
|
| available
in three pack sizes of 14 |
|
| gms.,
100 gms. and 200 gins. It |
|
| is
strongly associated with a |
|
| healthy
life style and sports men |
|
| and
women, and is an ideal drink |
|
| for
growing children, who need |
|
| strength
and energy. |
|
|
| MILO RTD |
|
| To
cater for consumer conve- |
|
| nience,
MILO RTD (ready to |
|
| drink)
was introduced in 1995 in |
|
| 250
mi. pack. It is an excellent |
|
| substitute
for cold drinks with no |
|
| nutritional
value and is popular |
|
| with
all age groups, specially the |
|
| growing
segment of nutrition con- |
|
| scious
consumers. |
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|
| COFFEE |
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|
|
| NESCAFE CLASSIC |
|
| Coffee
is imported in Pakistan as |
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| it
is not locally grown. Nestle is |
|
| the
market leader in coffee in sev- |
|
| eral countries, NESCAFE being its |
|
| most
popular brand the world |
|
| over.
Nestle Milkpak locally |
|
| packs
imported coffee in |
|
| sachets
of 2 gms., 25 gms. and 75 gms. as |
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| NESCAFE CLASSIC. This has helped |
|
| reduce
its retail price and has |
|
| brought
about a steady increase |
|
| in
its sale volume. To cater for the |
|
| taste
of more demanding cus- |
|
| tomers,
Nestle also markets a 50 |
|
| gm.
jar of its premium brand cof |
|
| fee.
To make a headway in the tea |
|
| dominated
market of Pakistan, 3 |
|
| in
1 Coffee was introduced from |
|
| the
consumer convenience point |
|
| of
view. With mixed portions of |
|
| coffee,
sugar and coffee whitener, |
|
| this
product is available in conve- |
|
| nient
12 gm. sachets. |
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|
| FRUIT DRINKS |
|
|
|
| FROST |
|
| FROST
is a well known brand, |
|
| introduced
in 1986, which shares |
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| a
bulk of the market |
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| all
over the country. |
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| Positioned
as a cold |
|
| drink
and an alter- |
|
| nate
to cola drinks, |
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| its
strength lies in |
|
| the
convenience |
|
| attached
to its |
|
| usage.
It is available |
|
| in
250 mi. pack and |
|
| comes
in three fla- |
|
| vors
namely: Mango, |
|
| Apple
and Mix. |
|
|
| NESTLE
100% ORANGE JUICE |
|
| The
product was launched in July |
|
| 1996.
In a market which is |
|
| becoming
increasingly con- |
|
| scious
about nutrition |
|
| and
is displaying |
|
| preference
for healthy drinks, |
|
| NESTLE
ORANGE JUICE is gaining its |
|
| share
and has a strong |
|
| potential
for future growth. |
|
| It
is available in 250 ml. and |
|
| 1
liter packs. |
|
|
| DIETETIC
& INFANT |
|
| PRODUCTS |
|
|
|
| CERELAC |
|
|
| Launched
in 1989, CERELAC is |
|
| the
dominant player in the grow- |
|
| ing
infant cereal market. Available |
|
| in
4 flavors, the brand has been |
|
| successful
in adding value to weaning |
|
| foods
for infants as well as convenience |
|
| to mothers. |
|
|
| LACTOGEN |
|
| LACTOGEN 1 & 2 are infant
milk |
|
| formulae
providing balanced milk |
|
| nutrition
to infan |
