Nestle Pakistan Limited

PREAMBLE....................................................................................................
1
MISSION STATEMENT..........................................................................3
VISION STATEMENT.............................................................................4
NESTLE S.A HISTORY
COMPANY FROM FOUNDATION TILL NOW...................................6
NESTLE MILKPAK LIMITED PAKISTAN
THE ORGANIZATION TODAY............................................................12
PRODUCTION............................................................................................................ 13
Sheikhupura factory............................................................................................. 13
Kabirwala Factory.................................................................................................. 14
MILK COLLECTION................................................................................................. 15
EXPORTS.................................................................................................................... 17
CORPORATE INTERNAL AUDIT..........................................................................17
HUMAN RESOURCE ACTIVITIES......................................................................18
CONTRIBUTION TO OTHER SECTOR...............................................................19
THE FUTURE.............................................................................................................. 21
COMPANY DIRECTORY.......................................................................................... 22
COMPANY MANAGEMENT SYSTEM AND STYLES

MANAGERIAL HIERARCHY.................................................................24
THE MANAGEMENT TEAM..................................................................................25
THE MANAGEMENT............................................................................................... 27
MANAGERIAL STYLE............................................................................30
MANAGERIAL POLICY...........................................................................31
RECRUITMENT PROCESS AT NESTL.............................................32
MANAGEMENT TRAINEES..................................................................................32
SUCCESSION PLAN................................................................................................ 33
JOB ASSESSMENT................................................................................................ 33
Institute of Business Administration
PRODUCTS AND PRODUCTION FACILITIES

PRODUCTION FACILITIES.................................................................35
Sheikhupura factory................................................................................................ 35
Kabirwala Factory..................................................................................................... 36
PRODUCTS AND BRANDS....................................................................37

DAIRY......................................................................................................................... 37
CULINARY.................................................................................................................. 39
INFANT DIETIC...................................................................................................... 40
BEVERAGES................................................................................................................ 41
WATER........................................................................................................................ 43
CONFECTIONERY................................................................................................... 44
QUALITY CONTROL..............................................................................45
RECENT PRODUCTION HIGHLIGHTS..............................................47
MARKETING MIX
MARKETING MIX...................................................................................49
MARKETING MIX OF NESTL MILKPAK LIMITED......................51
NESTL PURE LIFE & BULK WATER..................................................................58
CONFECTIONERY................................................................................................... 62
CULINARY PRODUCTS........................................................................................... 63
PEDIATRIC INFANT DIETIC GROUP...............................................................65
ULTRA HEATED TEMPERATURE (UHT) MILK................................................69
MILK POWDER.......................................................................................................... 74
NESTL YOGURT..................................................................................................... 78
MILKPAK UHT CREAM, DESI GHEE & NESTL BUTTER..............................81
NESCAFE'.................................................................................................................. 82
BEVERAGES............................................................................................................... 85
REGIONAL SALES OFFICES...............................................................87
FINANCIAL ANALYSIS
FINANCIAL ANALYSIS OF NESTL MILKPAK LIMITED.........89
HORIZANTAL ANALYSIS.....................................................................................91
VERTICAL ANALYSIS............................................................................................ 96
ACCOUNTING RATIOS....................................................................................... 100
RATIO ANALYSIS OF NESTL MILKPAK LIMITED PAKISTAN

.................................................................................................................... 105
WRAPPING UP......................................................................................................... 133
PERFORMANCE OVERVIEW...............................................................134
NESTLE AND ME
NESTL AND ME...................................................................................140
HIGHLIGHTS OF MY STAY AT NESTL........................................141
FINANCE AND CONTROL...................................................................................143
PROJECTS............................................................................................... 194
CALCULATION OF THE TAX WRITTEN DOWN VALUE OF THE FIXED
ASSETS (TAX W.D.V)........................................................................................... 194
BREAKING OF COST CENTER............................................................................196
NESTL FIXED ASSETS MANAGEMENT (NEFAM)...................................197
VISIT TO THE SHEIKHUPURA FACTORY....................................206

CONCLUSION AND RECOMMENDATIONS
SWOT ANALYSIS.................................................................................213
CONCLUSION........................................................................................217
RECCOMENDATIONS..........................................................................218
PREAMBLE
Praise be to Allah Almighty, the One testing us all at all times and making
decisions about what we dont know and cant know.
Today it is impossible for a common man to run the business especially in this
period of competition. This situation demands energetic, duly qualified
experienced business administrators who could meet the challenges of this
age of modernization. Department of Business Administration undertakes to
produce management specialists fully aware of the ins and outs of the
business management, and capable of meeting the challenges of modern
business environment.
Gratitude
Its been so long since I learned my first word, but I promise that I still
remember the first day at school, when I was just four and very reluctantly
entered my Nursery class, my teacher gave me a pat on my back and a
packet of Chips. I wonder how time passes without letting anyone know how
much it has actually passed.
When I was starting this preface portion of my report, my heart almost
stopped beating and my eyes filled, with gratitude for every single person
whom I owe my bits of knowledge, and now when I am verge of leaving my
academic career, I feel that those sixteen years are never existed in my
life. This report, one of the last monuments of study career, makes me sad.
I dont want to take any of the credit for this report; instead I want to
dedicate to all those people who have contributed to my learning at any
stage.
I would not be going justice in presenting this internship report without
mentioning the people around me who have been inextricably related with
the completion of this report.
People at IBA are very special to me,

Especially
Dr. Ehsan Malik, Director IBA and Controller Exams University of the
Punjab.
Mrs. Sajida Nisar whose continuous backups and advices kept me on
my way to Nestl, without whose confidence in me , I might have done
my internship in some other place. I think I have been in the best
place among all my class fellows.
Ms. Saadia Irfan and Ms. Koqub Bilquis HR Managers at Nestl.
Mr. Azhar Usman Janjua, Chief Accountant, Nestl.
Mr. Nadeem Ahmad, Manager GLD, Nestl.
Mr. Shabbier Ahmad, Assistant Manager ACP, Nestl.
Mr. Naeem Sheikh, Assistant Manager ACR, Nestl.
Mr. Hassan Taufiq, Manager Budget & Control, Nestl.
Mr. Khalid Hassan, Manager Income Tax, Nestl.
Mr. Sarmad Saleem, Manager Income Tax, Nestl.
Mr. Rana Mushtaq, Manager Income Tax, Nestl.
Well this list can go onto to three four pages, but these are the people who
have made themselves very valuable to me. Two persons stand a step
forward who are Mr. Kashif Ayub and Mr. Sarmad Saleem, who has not just
acted as colleagues at Nestl but as friends, elder brothers and best
advisors.
Rizvi
Syed Zamin Raza

2000-74
MISSION STATEMENT
Nestl 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, Nestl contributes to your
well-being and enhances your quality of life.
VISION STATEMENT
We envision Nestl 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 Nestl 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
Nestl acquires Victor Schmidt & Shne, Austria's oldest producer of

confectionery, including the famous 'Mozartkugeln'.
1997
Nestl, through the Perrier Vittel Group, expands its mineral water activities with
the outright acquisition of San Pellegrino.
1998
Nestl 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 Nestl'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
Nestl acquires Ralston Purina - Nestl Purina PetCare Company established.
2002
Perrier Vittel Group re-named as Nestl Waters.
The key factor which drove the early history of the enterprise
that would become The Nestl Company was Henri Nestl's search for a
healthy, economical alternative to breastfeeding for mothers who could
not feed their infants at the breast.
In the mid-1860s Nestl, 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
Lacte Henri Nestl.
Nestl'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 Nestl's new formula saved the child's life and
within a few years, Farine Lacte Nestl was being marketed in much of
Europe.
Henri Nestl also showed early understanding of the power of
branding. He had adopted his own coat of arms as a trademark; in Swiss
German, Nestl 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 Nestl Company, which
had been purchased from Henri Nestl 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
Nestl, started a company that quickly became the world's leading maker of
chocolate and later merged with Nestl. 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
characteristics from the start.
spirit
have
been
Nestl
In 1886, while the Page brothers in Cham were building Europes first
condensed milk factory, for the Anglo-Swiss Condensed Milk Co., Henri
Nestl, in Vevey, was developing his infant cereal Lactous Farina Nestl
launched in 1867.
The two companies merged in 1905 to become the Nestl & AngloSwiss Condensed Milk Co.. The former had developed a successful long-life
product from fresh milk, a highly perishable raw material, whilst Henri
Nestl 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 Nestl symbol (Nestl 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 Nestl became the heir to inventions such as Daniel Peters milk
chocolate (1875) and Julius Maggis vegetable-based soups (1884) and
stock cubes (1908).
Nestl 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 companys 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 Nestl resulted in the development of
new products such as
Milo (1934),
Nestea (1944),
Nesquick (1948),
NAN (1962),
Yes (1979),
Nespresso (1986),
LC (1994) and
Nestl 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, Nestl is the worlds 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, Nestl remains
sensitive to culinary and eating habits, and responds to specific nutritional
problems, whilst also setting and matching new trends such as growing outof-home consumption.

10

11
THE ORGANIZATION TODAY
Nestl 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.

12
Nestl took a major participation in Milkpak Ltd in 1988. After it

assumed the management of the company in 1992, Milkpak ltd. was renamed
Nestl 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
Nestl acquired interests in the company. Nestl 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, NESTL RICE AND WHEAT.
In 1998 three new major technologies, added, which produce NESTL
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 Nestl Mango juice, Nestl mango-Orange juice and Nestl Plain
Yogurt. Certain products namely: Desi Ghee, ButterScotch and cream were
re-launched in improved packing.

13
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. Nestl Milkpak Ltd acquired it in 1990 as a
subsidiary and installed the MAGGI NOODLES plant in 1992.
Nestl 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 Nestl Milkpak Ltd since
April 1997 and is called Kabirwala Factory.

14
MILK COLLECTION
Since 1988 Nestl 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 Nestl
Milkpak Ltd to collect and process the best quality milk, enabling it to
produce international quality UHT milk and other milk products.
Since Nestl 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, Nestl Milkpak Ltd can now
rightly proud of having pioneered an extensive and modern milk collection
system that works most efficiently.
The corner stone of Nestl Milkpak LTDs 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, Nestl 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.

15
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, Nestl 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.
Nestl 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.

16
EXPORTS
Nestl 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 Nestl 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, Nestl 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.

17
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 individuals 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 companys 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.

18
CONTRIBUTION TO OTHER SECTOR

Economic
Nestl 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.
Nestl 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 countrys 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.
Nestl 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.

19
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.
Nestl Milkpak also monitors waste from its process continually to
reduce the amount of process waste.

20
THE FUTURE
Nestl 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, Nestl 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, NESTL 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, Nestl 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 countrys 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, Nestl 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.

21
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

22
Credit Agricole Indousuez

Deutsche Bank A.G.
Habib Bank Ltd.
Muslim Commercial Bank Ltd.
Standard Chartered Bank
Standard Chartered Grindlays Bank Ltd.

23
MANAGERIAL HIERARCHY
The following chart shows the managerial hierarchy of Nestl Milkpak
limited
Managerial Hierarchy
Chairman
Syed Yawar Ali
Managing Director
Friedrich G. Mahler
Company
Secretary
Regino
Manglicmot
M.W.O. Garret
D. Dupont
Marcel Fischli

24
Syed Hyder Ali
THE MANAGEMENT TEAM

In order to establish the Nestl culture in the original setup of Milkpak
limited, the Nestl head quarters at Vevey, introduced foreign management
in this new venture. Even now, the top management at Nestl comprises of
foreigners. Management of Nestl Milkpak limited (NML) comprises of
experienced and qualified professionals. Nestls 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 Nestl
MANAGING DIRECTOR
FRIEDRICH G. MAHLER
REGINO MANGLIMOT
RASHID ALEEM
FINANCE AND
CONTROLMANAGER
MARKETING& SALES MANAGER
QURESHI
JAN H. SASSEN
TECHNICAL MANAGER

25

26
O R G A N I Z A T IO N A L C H A R T
C h ie f E x e c u t iv e
N e s tle ' B u s in e s s E x c e lle n c e
S u p p ly C h a in
M a r k e tin g & S a le s D iv is io n
N a tio n a l S a le s
M anagem ent
N a tio n a l B r a n d
M anagem ent
M ilk C o lle c tio n a n d A g r ic u ltu r a l

S e r v ic e s
H u m a n R e so u rc e s
C o r p o r a te A f f a ir s
T e c h n ic a l O p e r a tio n s
T e c h n ic a l
P u r c h a s in g
F in a n c e & C o n to l D iv is io n
F in a n c ia l
A c c o u n tin g
B udget and
C o n tr o l
T re a su ry
T a x a tio n
W a te r G r o u p
27
C o r p o r a te
P u rc h a se
I n f o r m a tio n
S y s te m s
L e g a l A f f a ir s
THE MANAGEMENT
Nestl 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. Nestl 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.

28
STRATEGIC MANGEMENT AT NESTL 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 Nestl Milkpak Ltd. from all over Pakistan hold a
meeting or a bi-monthly sales review. The major force behind a giant food
company like Nestl 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
29
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.

30
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.). Nestl 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 Nestl team wants to incorporate in the company. No formal
data could be obtained on the managerial style for managers at Nestl
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 Nestl Milkpak Limited and the appropriate
management style is mandatory in the achievement of targets for the
company.

31
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.

32
RECRUITMENT PROCESS AT NESTL

According to latest count, Nestl Milkpak Limited employs more than
1300 people. This is an approximate figure as more hiring has been done in
the recent past. Nestl 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 Nestl 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
33
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 Nestl 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 Nestl.
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.

34

35
PRODUCTION FACILITIES
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
Nestl acquired interests in the company. Nestl 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, and NESTL RICE AND WHEAT.
In 1998 three new major technologies, added, which produce NESTL
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 Nestl Mango juice, Nestl mango-Orange juice and Nestl 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.
36
Kabirwala Factory
Kabirwala Dairy Ltd., as it was then called, was established in 1983 as
a UHT milk processing plant. Nestl Milkpak Ltd acquired it in 1990 as a
subsidiary and installed the MAGGI NOODLES plant in 1992.
Nestl 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 Nestl Milkpak Ltd since
April 1997 and is called Kabirwala Factory.

37
PRODUCTS AND BRANDS
DAIRY
Nestl 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 Nestl brand, which further strengthened its position.
It is available in three pack sizes of 1000, 500 and 250ml.
Nestl 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 Nestl
branding that endorses its superior quality. It has an excellent taste and
aroma and is easy to spread.
The new NESTL 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.

38
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.
NESTL NIDO
NESTL NIDO has been present in the Pakistan market since the
early 70s and on account of consumer confidence in its quality it has become
a pillar of Nestls 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, NESTL 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, NESTL NIDO
is on its way to becoming a mega brand.
NESTL EVERYDAY
To target the massive potential offered by the tea whitening
segment, NESTL 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.
NESTL Plain Yogurt

39
Launched in November 2000, NESTL 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, NESTL
Plain Yogurt has become the first national yogurt brand in Pakistan.
NESTL Fruit Yogurt
The year 2001 saw the launch of the first NESTL 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. NESTL 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 Nestl 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.

40
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.
NESTL Rice
And affordably starter weaning cereal, NESTL 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.
NESTL Wheat
NESTL 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.

41
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 Nestl
Milkpak in this region. This also offers the great advantage of affordable
pricing.
BEVERAGES
NESCAFE CLASSIC
NESCAFE, Nestl 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 countrys 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
42
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.

43
NESTL Juices
Encouraged by the consumer response to NESTL Orange Juice that
was launched in 1996, the category of NESTL juices was expanded with the
introduction of Mango Orange and Mango flavors in the year 2000.
This further strengthens the position of Nestl 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
NESTL Pure Life PET Bottles
The year 2001 saw the successful completion of three years of
outstanding business for NESTL 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
NESTL Pure Life Home & Office Service
In 2000, NESTL 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, Nestl
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
44
Karachi.
These acquisitions have placed Nestl in a strong position in the
branded bottled water business. Not only has this enabled Nestl 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
Nestl Milkpak successfully entered the confectionery business in
1996 with the launch of POLO under the Allens 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 Nestl Milkpaks sugar business.

45
QUALITY CONTROL
A company like Nestl 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, Nestl has
to be highly quality conscious. They are playing a vital role for the health of
people using Nestls products. For this reason an independent department
for Quality Control and Management is an integral part at each of the three
production setups of Nestl.
Nestl Milkpak Ltd. does not follow any international standard for
maintaining quality. Rather, Nestl Vevey has established its own quality
norms. Nestl setups the world over are compelled to follow these
standards. Nestl 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 Nestl 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 Nestl 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
46
any of the product is followed by destroying the product, before sending it

to the market. Again emphasis, should be laid that Nestl 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 Nestl. 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
Nestl is conscious about the safety level also. So safety audits are
conducted for every product at Nestl.

47
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 Nestl Pure Life was a first for
Nestl 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.

48

49
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
consumers 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).

50
PLACE
PRICE
MARKETIN
G MIX
PROMOTIO
N
PRODUCT
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.

51
MARKETING MIX OF
NESTL MILKPAK LIMITED
Nestl 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 Nestl 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 Nestl 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 Nestl
producing so many diverse products it is difficult to consolidate all the
information regarding the marketing mix of all products under separate
52
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.

53
Hie r a r c hia l St r u ct u r e of t h e Mar k et in g Depar t m ent

H ie r a r c hia l S t r u ct u r e of t h e M ar k et in g D epar t m entat Nest l e ' Mi l k pak Li m i t e d
at N est l e ' M i lk pak Li m it e d
M A RKETI N G M A N A G ER
M ARKETI N G M ANAGER
G r o up B r a nd M anager
UH T M i l k s & D ai r y Pr o duct s
Cof f e e & B ever a ges
B r a nd M anager Br a nd M anager B r a nd M anager B r a nd M anager Br a nd M anager

UH T M i l k
Y oghur t D esi ghee & B ut t e r Pow der M i l k N escaf e
Gr o u p Br a n d M a n a g e r
UHT M i l k s & Da i r y Pr o du c ts
B r a nd M anger
B ever a ges
G r o up Br a nd M anager
D i e t i c & I n f a nt Pr o duct s
Cul i n ar y Pr o duct s
B r a nd M anager Br a nd M anager B r a nd M anager B r a nd M anager

I n f a nt For m ul a Cer e al s
N oodl e s
Sauces
Cof f e & Be v e r a g e s
B r a nd M anager
C onf e ct i o ner y
W at e r
M gt . Tr a i n ee B r a nd M anager B r a nd M anager
C onf e ct i o ner y N est l e ' Pur e Li f e B ul k W at e r
Di e ti c & I n f a n t Pr o du c ts
Cu l i n a r y Pr o du c t s
Br a n d M a n a g e r
Con f e c t i o n e r y
W a te r
Br a n d M a n a g e r Br a n d M a n a g e r Br a n d M a n a g e r Br a n d M a n a g e r Br a n d M a n a g e r Br a n d M a n g e r Br a n d M a n a g e r Br a n d M a n a g e r Br a n d M a n a g e r Br a n d M a n a g e r M g t. Tr a i n e Br a n d M a n a g e r Br a n d M a n a g e r
UHT M i l k Yog h u r t De s i g h e & Bu t e r Powde r M i l k Ne s c a f e Be v e r a g e s I n f a n t For m u l a Ce r e a l s Noodl e s Sa u c e s Con f e c t i o n e r y Ne s tl e ' Pu r e Li f e Bu l k W a t e r
54
This chart reflects the hierarchical structure of the marketing department

at Nestl. 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 Nestl 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. Nestl 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
55
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 Nestl
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 Nestl Milkpak
Limited Pakistan. Also he has to keep in close touch with the Nestl
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 Nestl in various countries must
56
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 Nestl which demands a lot of creativity and
professional skill.
ATMOSPHERE OF THE MARKETING DIVISION AT NESTL
I made a number of visits to the Marketing Division at Nestl to gather the
necessary information and to know how products are marketed in a
Multinational like Nestl. 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
57
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

58
NESTL PURE LIFE & BULK WATER

The launch of Nestl Pure life in December 1998 was a truly historic event.
This marks Nestl Milkpak's entry into the country's fastest growing water
market. At the same time Pakistan became the first country where Nestl
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 Nestl Pure life is not directly under the Nestl
headquarters at Vevey, Switzerland. Rather all the water brands at Nestl
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
Nestl 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 Nestl 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.
Nestl Pure Life is a prestigious project both for Pakistan and for Nestl
internationally. It was the first water brand to be named with Nestl. 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 Nestl 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
59
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.
Nestl Pure Life is available in two convenient sizes of 1.5 liters and 0.5
liters. Encouraged by the overwhelming consumer response to Nestl Pure
Life, 5-gallon home and office Jumbo Service was launched in Lahore in June
2000.
MARKETING
The marketing for Nestl Pure Life was done at a large scale. It was the due
to the dedicated efforts of the marketing team that Nestl 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 Nestl Pure Life is virtually everybody. Nestl 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 Nestl 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. Nestl Pure Life was the exclusive official water for the
home cricket series between England and Pakistan. Providing 10,000 bottles
60
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.
Nestl 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 Nestl Pure life, it was realized by
the Nestl team that Nestl 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 Nestl Pure life 19liter 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 Nestl 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
61
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 Nestl. Pure Life's market to
flourish.
As a step, to launch Bulk Water, at other major towns, Nestl 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 Nestl.
Efforts are being made, to upgrade the water quality of these brands. The
logo of Nestl cannot be displayed on the product till the quality comes upto
the Nestl standards. Also, a large amount of royalty has to be paid to
Vevey, for the use of the brand name of Nestl.

62
CONFECTIONERY
With the launch of POLO in 1996, Nestl 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.

63
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 Nestl 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 Nestl is building
its market share by introducing new flavors regularly.
MAGGI COLD SAUCES

Nestl 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.

64
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.

65
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. Nestl
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 Nestl, 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:

66
Cerelac is the most widely recognized product under this head. Following it
are Nestl Wheat and Nestl Rice, which are prepared by just adding
water.. Cerelac further provides a variety of flavors. Cerelac has to be
prepared in milk for which Nestl provides the Nestl Infant Formula.
Growing Up Milk
Neslac is Nestls growing up milk, suitable for children aged 1-3 years.
After that Nido is recommended. So Nestls 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
Nestl 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. Nestl
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 Nestls 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 Nestl 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 Nestl.
67
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 Nestl Pakistan Ltd. has
developed a stricter structure based on the WHO CODE known as the
"Nestl Charter"; an instant document.
According to this the Nestl 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 Nestl 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
68
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 Nestls
products and table sets for the doctors are done. Therefore, in contrast to
competitors the PID Group at Nestl 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 Nestl in Pakistan is Morinaga
(an imported product). Others like Meiji etc are also prevalent. However, in
the case of cereals Nestl 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 Organizations developed for consumer protection are very
vocal in their campaign against infant food producing companies. Nestl
occupying a giant share of the infant food market in Pakistan and it is
produced locally mostly under fire of their comments.

69
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
Nestl launched Milkpak in 1981. Although like other products its packing
had no label of Nestl 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, Nestl 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, Nestl started building up its brand image. Ultra Heated
Temperature brands are not worldwide Nestl 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 Nestl worldwide. Eventually, as a comeback step in 1999,
Milkpak was launched in the market under the label of Nestl. 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 Nestl Milkpak
with a completely new packaging and Nestls label right on the top. By 2001,
Nestl Milkpak has taken its leadership back and holds the major share of
UHT Milk in the market.
70
In the "A" class market Nestl 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
Nestl Milkpak offers milk in three formats:
1000ml
500ml
250ml
Nestl 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 Nestl is
necessary:
Milk Collection
The core raw material of Nestl 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,
Nestl Milkpak now produces a superior quality and better tasting UHT milk,
with longer shelf life.
Today Nestl 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 Nestl 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.
71
The marketing and sales representatives of Nestl 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, Nestl 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, Nestl has created a mutually beneficial relationship with the
farmers, which translates into opportunities of economic uplift for the rural
population.
To promote milk production, Nestl 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 Nestl 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

72
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 Nestl 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 Nestl 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 Nestl 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.
Nestl 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.

73
DISTRIBUTION
Nestl 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
Nestl 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 Nestl 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.

74
MILK POWDER
Nestl Milkpak Limited is engaged in the production of two different types
of milk powders. These are:
Nestl Nido
Nestl 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.
NESTL 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 Nestl 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 Nestl
Milkpak Limited.
75
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
Nestl 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
76
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.
NESTL 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.
Nestl has launched a 40 gm sachet for a mere Rs. 8, a low unit priced SKU
especially suited for lower middle class.

77
MARKETING HIGHLIGHTS
Wet and Dry Sampling for Everyday
Nationwide wet and dry sampling by Nestl 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.

78
NESTL YOGURT
A new product from Nestl Milkpak, Nestl 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 NESTL 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 Nestl Yogurt gave the following detail.
PRODUCT
Nestl Yogurt comes in a packing of 450 gm. The product is of a very high
quality. It extensively benefits from Nestls 125 years of expertise in dairy
products and the superior quality milk that Nestl Milkpak collects in
Pakistan.
The major strength of Nestl 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 Nestl 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
79
3.5% and for SNF's is 8.2%. This level has been decided through
research and Nestl 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 4 0C 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 0100 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
Nestl 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.
Nestl gains this advantage as it is backed by formidable brand strength.
Prime followed a strategy of major trade discounting because of the launch
of Nestl 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 Nestl 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.
80
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 Nestls name with other small
firms. Like Nestl Yogurt has coupled with Chen One products and prizes are
offered on lucky draws at Chen One sales point. Nestl is chipping in a small
amount but is gaining a lot of mileage for its brand.
DISTRIBUTION
As already mentioned Nestl 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. Nestl Yogurt plans to capture the market in
South soon, after launching its product in Karachi.

81
MILKPAK UHT CREAM, DESI GHEE & NESTL 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.
NESTL BUTTER
Nestl 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 Nestl 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, Nestl Butter has been well received
by the consumers, for whom the Nestl branding is an endorsement of its
high quality.

82
NESCAFE'
Coffee and beverages at Nestl 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 Nestl. It is the strategic brand at Nestl. It is the biggest profit maker
for Nestl 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 18 th
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 Nestl 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 Nestl 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 Nestl 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.
83
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,
Nestl 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
84
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 Nestl 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.

85
BEVERAGES
Mr. Arsalan Khan; the Assistant Brand Manager briefed us about the Nestl
Beverages and said that cold beverage market at Nestl 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 Nestl 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 Nestl 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 Nestl
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 Nestl
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
86
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 Nestl is very lucrative. And keeping in mind the seasonality
effect, which induces the need for thirst quenching beverages, Nestl can
cash from this market segment greatly. Therefore minds at Nestl are
constantly searching for new ideas to gain from this segment.

87
REGIONAL SALES OFFICES
Karachi
Hyderabad
Lahore
Multan
Faisalabad
Gujranwala
Peshawar
Quetta
Islamabad
F-77/1, Block 7,
Clifton, KDA Scheme 5,
Karachi, Sind, Pakistan.
Phone : (021) 5833935-6
Fax
: (021) 5833937
178, Block C, Unit 2 Latifabad,
Hyderabad, Sind, Pakistan.
Phone : (0221) 860403
Fax
: (0221) 863202
29-b, Main Gulberg,
Lahore, Punjab, Pakistan
Phone : (042) 5754335-6, 5752582
Fax
: (042) 5761491
Surij Miani Road, Chungi No. 1,
Multan, Punjab, Pakistan.
Phone : (061) 515061
Fax
: (061) 515057
Al Haq Plaza, 271-A,
Small D Ground, Peoples Colony
Faisalabad, Punjab, Pakistan
Phone : (041) 546993, 734538
Fax
: (041) 543538
23, D.C. Road.
Gujranwala, Punjab, Pakistan.
Phone : (0431) 256320
Fax
: (0431) 256320
201, Block B, 2nd Floor
City Tower, Jamrud Road,
Peshawar, N.W.F.P, Pakistan
Phone : (091) 840859, 842415, 43901
Fax
: (091) 45516
63 B D, Chaman Housing Scheme,
Opposite Askari Park
Quetta, Baluchistan, Pakistan.
Phone : (081) 834887
Fax
: (081) 822297
74-W, Yaseen Plaza, 1st Floor, Blue Area,
Islamabad, Pakistan
Phone : (051) 2271874-5, 2824328
Fax
: (051) 2821899

88

89
FINANCIAL ANALYSIS OF NESTL MILKPAK

LIMITED
BALANCE SHEET AS AT JUNE 30, 1998 AND
DECEMBER 31, (1998-2001)
All figures in 000s
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
863,009
300,000
400,000
137,666
156,855
178,690
178,301
24,306
27,832
34,889
38,956
161,972
184,687
213,579
217,257
Non Participatory Redeemable Capital

343,895
333,459
Secured
Long Term and Deferred Liabilities
Deferred Taxation
82,892
Employee Benefits
Total
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
Cash and
Bank Balances
76,708
109,140
68,553
81,034
89,473
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

90
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED, JUNE 30, 1998
AND DECEMBER 31, (1998-2001)
All figures in 000s
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
123,224
160,838
201,702
220,401
291,987
Profit after Taxation
204,388
386,410
280,483
272,420
463,181

91
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

92
HORIZONTAL ANAYSIS OF BALANCE SHEET

AS ON 30 JUNE, 1998 AND 31 DECEMBER (1998-2001)
1998
1998
1999
2000
2001

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
166.07
113.93
113.92
99.78

Deferred Taxation
100
Employee Benefits
100
114.50
125.35
111.65
100
114.02
115.64
101.72
Total
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
100
101.18
94.82
165.40
100
104.48
144.45
103.14
122.50803
123.65
98.78
105.50
106.67
97.53
Contingencies and Commitments
Grand Total
100
Tangible Fixed Assets

100
124.78
100
261.85
25.69
59.82
32.68
Total
100
130.22
107.05
105.77
96.83
100
64.11
32.65
235.05
54.79
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
Long term loans, deposits and Prepayments
114.04
Current Assets

93
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 Nestl Milkpak in the water market but that doesnt
stopped the working because the company has again its normal balance
available at its disposal in 2001.

94
HORIZONTAL ANALYSIS OF PROFIT AND LOSS ACCOUNT

FOR THE PRIOD ENDING 30 JUNE, 1998 AND 31 DECEMBER (19982001)
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
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
100
167.04
88.11
102.21
153.23
100
130.52
125.41
109.27
132.48
100
189.06
72.59
97.13
170.02

95
COMMENTS
The horizontal analysis of the profit and loss account does not provide a
good judgment in this case as Nestl 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.

96
VERTICAL ANALYSIS
VERTICAL ANALYSIS OF BALANCE SHEET
AS ON 30 JUNE, 1998 AND 31 DECEMBER (1998-2001)
1998
1998
1999
2000
2001

Issued, Subscribed and
Paid up Capital
15
12
15
15
14
Capital Reserves
20
16
Accumulated Profit
Non Participatory
Redeemable Capital Secured
17
13
28
10
12
Deferred Taxation

Employee Benefits
Total
Current Liabilities
Current maturity of Non
-Part. Capital
11
20
Finances under Mark up

Arrangement
13
13
11
14
Creditors, Accrued and

Other Liabilities
18
19
18
15
22
Dividend Payable
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

61
62
57
62
60
Long term loans, deposits

and Prepayments
Stores and Spares
Stock in Trade
25
22
32
27
26
Trade Debts
Advances, Deposits,
Prepayments and other
receivables
Cash and Bank Balances
100
100
100
100
100
Total
Current Assets
Total
Grand Total

97
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.

98
VERTICAL ANALYSIS OF PROFIT AND LOSS ACCOUNT

FOR THE PRIOD ENDING 30 JUNE, 1998 AND 31 DECEMBER (19982001)
1998
Sales
1998(6
months)*2
1999
2000
2001
100
100
100
100
100
71.19
69.59
70.88
72.74
71.87
Gross Profit
30.45
30.41
29.12
27.26
28.13
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
7.68
10.91
8.38
7.50
9.56
7.68
10.91
8.38
7.50
9.56
4.79
7.71
4.87
4.14
5.86
Cost of Goods Sold

99
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.

100
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.
101
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.

102
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
103
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
104
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.

105
RATIO ANALYSIS OF NESTL 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.

106
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
RETURN ON CAPITAL
EMPLOYED
PBIT / ASSETS - CURRENT
LIABILITIES *100
EPS
NPAIT / NO. OF SHARES
OUTSTANDING
RS. PER SHARE
25.45%
22%
31.00% 45.24%
6.77
6.46

107
33%
32% 54.40%
34.52% 35.81% 60.94%
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
5.16
70
5.46
66
3.63
99
4.79
75
5.58
65
88
4
86
4
258
1
183
2
179
2
WORKING CAPITAL TURNOVER

SALES/WORKING CAPITAL
IN TIMES
28.07
41.87
10.8
ACCOUNTS PAYABLE
TURNOVER
TOTAL CREDIT
PURCHASES/CREDITORS
IN TIMES
IN DAYS
6.056
59
6
60
7.08
51
7.188
50
6.096
59
INVENTORY TURNOVER
CGS/INVENTORY
TIMES
DAYS
ACCOUNTS RECEIVABLE
TURNOVER
CREDIT SALES/TRADE DEBTS
TIMES
DAYS

108
LIQUIDITY RATIOS
1998
CURRENT RATIO
CURRENT ASSETS/CURRENT
LIABILITIES
0.91
1998
1999
2000
2001
0.72 1.096 0.672 0.696
QUICK RATIO
QUICK ASSETS/CURRENT LIABILITIES
0.173 0.145 0.133 0.079
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
0.11
6.84
LEVERAGE RATIOS/LONG TERM SOLVENCY RATIOS

1998
DEBT EQUITY RATIO
LONG TERM DEBT/
(SHF+LONG TERM
LOAN)*100
DEBT TO EQUITY RATIO
TOTAL DEBT/SHF*100
FIXED ASSETS RATIO
SHF+LONG TERM
LOAN/NET FIXED
ASSETS*100
1998
1999
41.50% 38.96%
50.75%
2000
2001
52.06% 41.34%
70.94% 63.83% 103.05% 108.60% 70.49%
106.54% 85.55%

109
97.54%
92.34% 78.91%
OTHER RATIOS
RESERVES TO CAPITAL
CAPITAL
RESERVE+ACCUMULATED
PROFIT/TOTAL CAPITAL*100
Times
PROPRITERY RATIO
SHF/TOTAL ASSETS*100
1998
1998
1999
2000
2001
1.66
1.90
0.905
0.857
0.88
35.22%
39.54%
28.03%
27.66%
26.55%

110
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.

111
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--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 Nestl 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.
Nestl Milkpak Limited has acquired 80% fully paid ordinary shares of
Universal Aqua Limited in the year 2000. NML has used its own funds to
112
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
113
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 Nestl. Investor's confidence is
the major force behind the factor that they are willingly lending to Nestl.
Absolute liquid ratio
Absolute liquid ratio = Cash and cash equivalents / current liabilities

114
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 Nestl 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 Nestl. 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. Nestl 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%.

115
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 Nestl remains favorable during all
the periods under observation. The years where it is lower than 40%
116
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
117
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. Nestl 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.

118
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 companys credit
policy is very much controlled because of advance payments from most of its
distributors. Credit is exchanged under severe circumstances only.
119
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 Nestls 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

120
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.

121
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:

122
Administrative expense control is a very essential factor for any growing

enterprise. Nestl 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 Nestl
is a gigantic multinational and Pakistan is a very small market for it,
(Pakistans total turnover is 0.26% of Nestl 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
123
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.
124
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 Nestl 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.

125
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
Nestl 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.

126
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.

127
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 Nestl 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

128
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 Nestl.

129
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.
Nestl 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(Ju
n)
1998
1999
2000
2001
Gross
Margin
Profit
28.81%
30.45%
29.125%
27.26%
28.13%
Operating
Margin
Profit
10.42%
13.47%
11.07%
9.89%
11.76%
4.79%
7.78%
4.87%
4.14%
5.86%
Net Profit Margin

130
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.
131
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

132
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 = Proprietors Fund / Total Assets

133
WRAPPING UP
Seeing all the above calculated ratios in detail, we can financially analyze
Nestl 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.

134
PERFORMANCE OVERVIEW

135

136

137

138
APPLICATION OF REVENUE
MATERIALS
STAFF COST
FINANCIAL CHARGES
INCOME TAX
DIVIDENDS
RETAINED EARNINGS
DEPRECIATION
OTHERS
TOTAL
RS IN
MILLIO
N
4294
488
129
292
453
10
304
1932
7902

139
%
54.4
6.2
1.6
3.7
5.7
0.1
3.8
24.5
100

140
NESTL 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 Nestl for a 6 week
internship. My training program at Nestl 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 Nestl building.
The badge gave us a psychological satisfaction that we are now Nestl
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 subsections of the Financial Accounting Department, where he introduced me
with all the employees.

141
HIGHLIGHTS OF MY STAY AT NESTL

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
Nestls 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 Nestls Fixed Assets Management System.
Nestls 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 Nestl
142
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.

143
FINANCE AND CONTROL

The Finance and Control division at Nestl Milkpak Limited constitutes the
departments which are given in the table on the next page:
The Finance and Control Division at Nestl 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 subsection 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 Nestl has employed its own lawyer to look after its
best interests.

144
F IN A N C E & C O N T R O L D IV IS IO N
Fi n ance and C ont r ol D i v i s i o n
Fi n ance and C ont r ol M anage r
F i n anci a l A ccount i n g D epart m ent B udget & C ont r ol D epart m ent

Fi n anci a l A ccount i n g M anager
B udget M anager
T reasury D epart m ent

T reasury M anager
G eneral L edger
T reasury
A ccount s P ayabl e
Share R egi s t r ar
L egal A ffai r s D epart m ent
C orporat e P urchase D epart m ent

C orporat e P urchase M anager
L ocal P urchase
T axat i o n D epart m ent
Incom e T ax
Sal e s T ax
R aw & P acki n g D epart m ent

A ccount s R ecei v abl e
Insurance
E xci s e T ax
T echni c al P urchase D epart m ent
Im port s
145
Inform at i o n Syst e m s
M anager IS
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 Nestl. 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. Nestl Milkpak Limited has
to send monthly statements of accounts to the Nestl 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 Nestl
146
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 Nestl 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.

147
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.
B U D G E T A N D C O N TR O L D E P A R TM E N T
B u d g e t a n d C o n tro l M a n a g e r
B u d g e t A n a ly s t
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
148
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.

149
TREASURY DEPARTMENT
The Treasury Department is a new department at Nestl 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 Nestl Milkpak are:
Share holders
Suppliers or Vendors
Financial Institutions
As repeatedly mentioned that Nestl 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 Nestl Milkpak
Limited:
TREASURY DEPARTM ENT

T re a su ry M a n a ge r
T re a su ry
( P a y m e n ts & R e c e ip ts )
S h a r e R e g is tr a r
( I n v e s to r R e la tio n s )
In su ra n c e
( R is k M a n a g e m e n t)
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 Nestl 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.

150
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 Nestl 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.
Nestl 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.
Nestl makes all its payments on 30 days credit basis. Except for the Milk
collection areas where payments are made on cash basis. Nestl 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 Nestl
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

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DEG
German
IFU
Danish
DTD
-do-
IFC
USA
Tetra Pak
Sweden
In 1987, the shares of Milkpak Limited were sold to Nestl 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
Nestl 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 Nestl 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

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Nestl 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.
Nestl Milkpak took a stay on option basis otherwise it was to enter the CDC
in 1999. In November 2000, Nestl Milkpak entered the CDC.
Nestl is connected through the Internet with the CDC software. This
program has been installed by the CDC at the Nestl 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.

153
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, Nestl 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
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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. Nestl 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 NESTL
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Nestl 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.
Nestl 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 Nestl 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 Nestl 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 6.76.8 hectare scale.
Malicious Damage

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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
Nestl 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. Nestl 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.
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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 Nestl 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 Nestl 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 Nestl 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
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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 Nestl 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, Nestl 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 Nestl 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 Nestl establishments in the country.

159
LEGAL AFFAIRS DEPARTMENT

Mr. Azeem Naqvi, who handles the Legal Affairs Department at Nestl
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
Nestl 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. Nestl 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 Nestl employed foreigners who were easily exploited by the locals.
Therefore an In House Council was established in 1995, to improve coordination 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
Nestl 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 Nestl Headquarters at Vevey.

160
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 Nestl
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 Nestl 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.

161
To enforce company stance in disputes, so that the company has a

strong legal footing.
CORPORATE PURCHASE DEPARTMENT

The Corporate Purchase department at Nestl 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 Nestl Milkpak Limited.
C O R P O R A T E P U R C H A S E D E P A R T M E N T
C o rp o ra te P u rc h a se D e p a rtm e n t
C o rp o ra te P u rc h a se M a n a g e r
L o c a l P u rc h a se
R a w & P a c k in g
P u rc h a se M a n a g e r
Im p o rts
T e c h n ic a l P u r c h a s e
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.

162
R A W & P A C K IN G D E P A R T M E N T
A s s is t a n t M a n a g e r
P u r c h a s e E x e c u t iv e
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
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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 Nestl
Milkpak Limited.
T E C H N IC A L P U R C H A S E D E P A R T M E N T
A s s is ta n t M a n a g e r
S u p e r v is o r
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S u p e r v is o r
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.
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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 Nestl Milkpak Limited. Mr. A. D. Bhatti working in the
imports section gave the following briefing regarding the work of his
department.
Nestl 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 Nestl
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.
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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 Nestl 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
167
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 Nestl 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 NESTL MILKPAK
L/C's can be of many kinds but Nestl 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 Nestl. 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
dont accept CAD unless they are sending the goods to regular customers
with high levels of trust. As most imports of Nestl Milkpak Limited are
conducted with Nestl affiliated companies, so this mode of payment is
employed. And this enables the organization to save on bank charges.

168
TAXATION DEPARTMENT
The Taxation Department at Nestl 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 Nestl 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
169
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 Nestl 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.

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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 Nestl Milkpak limited that has to maintain
contact not only with its establishments in the country which it is operating
but also with Nestl Headquarters and Nestl 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 Nestl 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 Nestl
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 Nestl 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.

171
BUSINESS PLANNING AND CONTROL SYSTEM (BPCS)

The system currently in work at Nestl 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 Nestl 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.
Nestl 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 Nestl 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
Nestl 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.
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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. Nestl 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 Nestl 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:
SU P P L Y C H A IN D E P A R TM E N T
M anagi n g D i r ect o r
Fi n ance & C ont r o l M anager
E xport M anager
Suppl y C hai n M anager
D em and P l a nner
C ust o m er O der Pl a nner

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A M Tr a nsport a t i o n
M anager D i s t r i b ut i o n O perat i o ns
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.

174
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
Nestl 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
175
from China.
Rented Godowns: these are rented according to

requirements e.g. Gloria is stocked for the lean season.
the
seasonal
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
Nestl 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 Nestl 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
DEPARTMENT
ESTABLISHING
THE
SUPPLY
CHAIN
The following two steps would lead to the completion of the Supply Chain
concept at Nestl Milkpak:
Production Planning
Procurement
Both these departments would eventually form a part of the Supply Chain.

176
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 Nestl 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 Nestl. This is the pride of
Nestl Pakistan of having such a capable and ambitious person on the ship.
The financial accounting department at Nestl 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.
F IN A N C IA L A C C O U N T IN G D E P A R T M E N T
M r . A z h a r J a n ju a
F in a n c ia l A c c o u n t in g M a n a g e r
A c c o u n t s P a y a b le
A c c o u n t s R e c e iv a b le

177
G e n e ra l L e d g e r
ACCOUNTS PAYABLE SECTION

Me and Mr. Athar my mate from IBA were first injected into the Accounts
Payable Section at Nestl 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.
A C C O U N T S P A Y A B L E S E C T IO N
M r. S h a b b i r S i d d i q u i
In c h a rge (A C P )
A ssi s ta n t
P o sti n g o f B i l s
T ra v e l B i l s (D o m e sti c /In te rn a ti o n a l )
T ra n sp o rta ti o n /U ti l i t y B i l s
Im p o rt B i l s
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
178
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 Nestl 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.

179
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:
NESTLE' MILKPAK LIMITED

Received
this
invoice
from
vendor
on
---------------------------------------------------------------------------------------------------------------------------For and on behalf of Accounts Payable Section
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
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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 Nestl 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.
This
Purchase
Order
stands
cancelled
w.e.f
---------------------------------------------------------------------------------------------------------------------------Ordering Department Head
181
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.
Checked
and
Verified
for
payment---------------------------------------------------------------------------------------------------------------------------Approving Department Head
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.
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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 Nestl
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. Nestl 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).
183
All L/C's established at Nestl 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.
Nestl 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 Nestl 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. Nestl 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.
Nestl 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
184
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 Nestl Milkpak Limited. Travel is an important tool in the
company's operation and as such constitutes a major investment. It is
185
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
186
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.

187
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.
A C C O U N T S R E C E IV A B L E S E C T IO N
M r . N a e e m S h e ik h
In c h a rge A C R
A c c o u n t s O f f ic e r
A c c o u n t s S u p e r v is o r
A c c o u n t s S u p e r v is o r
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:
F U N C T IO N A L S T R U C T U R E
C h ie f A c c o u n ta n t
( F in a n c ia l A c c o u n tin g M a n a g e r )
A c c o u n ts R e c e iv a b le
Z o n a l C o n tr o lle r
S o u th
Z o n a l C o n t r o lle r
C e n te r

188
Z o n a l C o n tr o lle r
N o rth
CUSTOMERS OF NESTL MILKPAK LIMITED

The following table shows the total number of customers of Nestl Milkpak
Limited and their segregation into the local customers and the foreign
customers.
Customers
Number
Local
171
Export (Third parties)

Export (Nestl
Companies)
Group/
Affiliated
Total
13
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The following table shows the business being handled at the Accounts
Receivable Section.
Total number of brands in ACR
Total number of SKU's* dealing in ACR
43
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 Nestl
Headquarters at Vevey, Switzerland.

189
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 Nestl Headquarters
Vevey, for affixing the Nestl 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 Nestl Milkpak Limited. All the regions after
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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 Nestl 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.
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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

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GENERAL LEDGER DEPARTMENT (GLD)

I spent 4 weeks working in the General Ledger Department at the Finance
and Control Division of Nestl Milkpak Limited. This is the most important
sub-section of the Financial Accounting Department.
G E N E R A L
L E D G E R
D E P A R T M
E N T
M r . N a d e e m A h m e d
A s s is ta n t M a n a g e r ( G L D )
M r . A m in
(A c c o u n ts )
M r . O m e r S h e h z a d
A c c o u n ts O f f ic e r
(N E F A M )
M r . H a s s a n
A c c o u n ts S u p e r v is o r
( P o s t in g o f V o u c h e r s )
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.
Nestl Fixed Assets Management, is handled at this section of the
Financial Accounting Department. A module called NEFAM (Nestl 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
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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 Nestl Milkpak.

194
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
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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 whos written down value turned zero
before the year 2001.

196
PROJECT II
BREAKING OF COST CENTER

Nestl 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 Nestl. 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 Nestls financial accounting department owes me the
system.

197
One of the very interesting work at Nestl was a presentation on NEFAM

(Nestl 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 Nestl 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.
NESTL 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
ADMINISTRATI
ON
INFORMATIO
N
SYSTEM
SALES &
MARKETING
LAND
BUILDING
MACHINERY
FURNITURE
VEHICLES
I.SYSTEMS
SKP FACTORY
KBF FACTORY
MILK COLLECTION CENTER

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Production
This consists of factory related investment comprising offices,
stores/warehouses, technical raw materials, packing materials and semimanufactured 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 Nestl Milkpak Limited.
Additionally, it also includes proposals related to products already
manufactured that will undergo significant changes in:

199
the product quality
the packaging presentation/material
TYPE OF INVESTMENT
There can be six types of investments according to the Nestl Milkpak
guidelines. The NEFAM module has allotted numbers 1-6 for these
investments:
Land
Building
Machinery & Equipment
Tools & Furniture
Vehicles
Information System
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.
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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 =
2 =
Land
1.1
Free Hold Land
1.2
Lease Hold Land
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

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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

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TEN DIGITS INVENTORY NUMBER

A ten digit inventory number is used for marking all the assets e.g.
Child Assets
Year Of
Purchase
Serial Number
Type Of Investment
Spare
Sub Type Of Investment
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.
203
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.

204
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 Nestl 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
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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

206
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
207
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, NESTL 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
208
every thing.
Our next stop was at the Nestl 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 280 oC. 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 480 oC. 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
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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
210
Finance Manager in the Factory canteen, which was itself a great

experience.

211
Organizational Chart of departments at Sheikhupura Factory
Factory
manager
Engineering
Accounts &
Administration
Production
Continuous
improvements
Human
Resource
Department
212
Quality
Control

213
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
214
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 Nestl Milkpak is as follows:
INTERNAL ANALYSIS
STRENGTHS
Socially Responsible company.
NMLs 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.

215
Quality Products.
Environment Friendly.
WEAKNESSES
Selective investment due

conditions.
to uncertain
economic
and
political
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. Nestl Milkpak along

216
with other processed milk businesses contribute only 2% to this large

market.
Nestl Milkpak has expanded its product range by entering the cold
dairy market recently by launching Nestl plain yogurt and now fruit
yogurt is also added to it.
To expand the cold dairy products range, Nestl 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 Nestls owns smuggled brands.
Effect of Seasonalitys upon sales.
Imported raw material, in some of the companys products.

217
CONCLUSION
Nestl Milkpak Limited is a gigantic organization. Basically it is a food
concern emphasizing on producing good food for good health. The seed Henri
Nestl 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 Nestl 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 Nestl 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 Nestl 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 isnt it? Means
the human resource coordinator dont 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
couldnt 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.
Nestls products are accepted all over the world, but it doesnt
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 Nestl 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 Nestl 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?
Nestl 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 (Nestl 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 Nestl.
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.

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PREAMBLE....................................................................................................

COMPANY MANAGEMENT SYSTEM AND STYLES

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PRODUCTS AND PRODUCTION FACILITIES

PRODUCTS AND BRANDS....................................................................37

REGIONAL SALES OFFICES...............................................................87

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RATIO ANALYSIS OF NESTL MILKPAK LIMITED PAKISTAN

VISIT TO THE SHEIKHUPURA FACTORY....................................206

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People at IBA are very special to me,

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Syed Zamin Raza

Nestl is dedicated to providing the best foods

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We envision the company to develop an extremely

motivated and professionally trained workforce, which

We aspire, as a respected corporate citizen, to continue

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COMPANY FROM FOUNDATION TILL NOW

Merger between Nestl and Anglo-Swiss Condensed Milk Company

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

Merger with Alimentana S.A. (Maggi)

Merger with Ursina-Franck (Switzerland)

Acquisition of Carnation (USA)

Acquisition of Buitoni-Perugina (Italy)

Acquisition of Rowntree (GB)

Acquisition of Perrier (France)

Nestl acquires Victor Schmidt & Shne, Austria's oldest producer of

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Nestl acquires Ralston Purina - Nestl Purina PetCare Company established.

Perrier Vittel Group re-named as Nestl Waters.

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Meanwhile, the Anglo-Swiss Condensed Milk Company, founded in 1866

First came infant and milk nutrition

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Performance foods (PowerBar, 2000).

Today and tomorrow a company that cares about

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THE ORGANIZATION TODAY

Nestl Milkpak Limited is a food processing company

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Nestl took a major participation in Milkpak Ltd in 1988. After it

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To cater for increased production levels; a National Distribution

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The company addressed these issues by establishing an Extension

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CORPORATE INTERNAL AUDIT

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HUMAN RESOURCE ACTIVITIES

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CONTRIBUTION TO OTHER SECTOR

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All waste packaging material is weighted and this information is sent

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Registered & Corporate

308 Upper Mall, Lahore

A.F. Ferguson & Co. (Chartered