NESTLE PAKISTAN LTD.

COMPANY

VALUES ROOTED INRESPECT

Each of our initiatives has been made successful through strong values, rooted in respect that drives it along, and is the driving force
behind our operations. Nestlé Pakistan has always placed its values at the forefront of all our activities, making sure that whatever
we do enhances the quality of life for individuals, families, communities and the planet.

This year’s report affirms our commitment to paying respect to those values, and motivates us to continue placing our stalwart ideals
as the central focus of all our management activities. We envision to continue providing the outstanding quality that Nestlé Pakistan
is renowned for,to those that we respect immensely.

NESTLE PAKISTAN SLOGAN:

“GOOD FOOD, GOOD LIFE”

 Executive Summary
Nestle is undoubtedly one of the most proficient food leading companies in not only
Pakistan but all over the world. The employees at Nestle have finagled to retain their
standards to the most high-pitched level possible in the market. They make sure of the fact
that the product of Nestle is definitely the BEST TO USE. Nestle has an assortment of
products to offers and they have best to offer their product.

I have assign the project by me Sir to identify the company position. For this project our
main concern was to study the financial position or performance of the Nestle .I get the
information about the Nestle Company from the internet. We study the company financial
position and performance through FINANCIAL ANALYSIS & CORPORATION
STRUCTURE of the company. The financial analysis is also help to the investor whether it
is good to invest in the Nestle company or not and also to the financial institution that they
finance to the Nestle company or not. Like Debt Management Ratio help to financial
institutions, Market value ratio is provide the information to investors or Shareholders.

In the end I made some Recommendations based on me my analyses is to make them

improve their overall revenue rate or performance.

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

Nestlé's first customer was a premature infant who could not tolerate any of the
conventional substitutes, and had been given up for lost by local physicians. People quickly
recognized the value of the new product, after Nestlé's new formula saved the child's life and
within a few years, Farine Lactée Nestlé was being marketed in much of Europe. Henri
Nestlé also showed early understanding of the power of branding. Nestlé means 'little nest'.
Nestle was created in 1867.

Nestlé is today the world’s leading food company, with a 140-year history and operations in
virtually every country in the world. Their principal assets are not office buildings, factories,
or even brands. Rather, it is the fact that they are a global organization comprised of many
nationalities, religions, and ethnic backgrounds all working together in one single unifying
corporate culture. Their culture unifies people on all continents, with roughly half their
factories and people located in the developing world.

Nestle started it operations in Pakistan in 1988. A qualified workforce, trained by nestles or

emerging from a strong educational and industrial context, strongly influences the
company’s ability to be globally competitive. The fair treatment and development of
company staff and the strengthening of the local workforce are essential long-term
investments. They reinforce the conditions for growth and sustained economic development
in the locations where Nestlé operates. Nestlé’s ability to employ thousands of people each
year is an important contribution the company makes towards future generations, providing
income.

NESTLE PAKISTAN
We at Nestlé touch billions of lives worldwide; from the farmers we work with to the
individuals and families who enjoy our products, the communities where we live and work,
and the natural environment upon which we all depend.

At Nestlé Pakistan, the global ideology of Nutrition, Health and Wellness is inspired by the
scientific breakthrough of our founder, Henri Nestlé and ever since it runs in our DNA.
Guided by our values and with nutrition at our core, we enhance quality of life and
contribute to a healthier future. We are the leading Food & Beverages Company in Pakistan,
reaching out to the remotest areas, offering products and services for all stages of life, every
moment of the day. Today more and more consumers mirror our emphasis on nutrition, as
they realize that food choices affect their health and quality of life.
Nestlé Pakistan is headquartered in Lahore, with four production facilities across the
country. Factories in Sheikhupura and Kabirwala are multi-product, whereas the ones in
Islamabad and Karachi are water factories.
Nestlé Pakistan Ltd. is a subsidiary of Nestlé S.A., a company based in Vevey, Switzerland.
Today, millions of consumers across Pakistan mirror our emphasis on nutrition, realizing
that food choices impact their health and quality of life. About Nestlé Exchange (PSE), our
food processing company has been operating in Pakistan since 1988 under a joint venture
with Milk Pak Ltd, whose management we took over in 1992. For the last several years,
Nestlé Pakistan has been consistently placed among the top companies of the PSE.
Nestlé is committed to Pakistan and will continue to invest and work in the future as well.

Mission Statement:
"Nestlé is the largest food company in the world. But, more important to them is to be the
world's leading food company”.
At Nestlé, we believe that research can help us make better food so that people live a better
life.

Good Food is the primary source of Good Health throughout life. We strive to bring
consumers foods that are safe, of high quality and provide optimal nutrition to meet
physiological needs. In addition to Nutrition, Health and Wellness, Nestlé products bring
consumers the vital ingredients of taste and pleasure.

Vision statement:
“Nestlé aim is to meet the various needs of the consumer every day by marketing and
selling food of a consistently high quality. The confidences that consumers have in our
brands is a result of our company’s many years of knowledge in marketing, research and
development, as well as continuity – consumers relate to this and feel they can trust our
products”.

In particular, we envision to;

 Lead a dynamic, motivated and professional workforce – proud of our heritage and
positive about the future.
 Meet the nutrition needs of consumers of all ages – from infancy to old age, from
nutrition to pleasure, through an innovative portfolio of branded food and beverage
products of the highest quality.
 Deliver shareholder value through profitable long term growth, while continuing to
play a significant and responsible role in the social, economic, and environmental
sectors of Pakistan.
 OUR PURPOSE
Nestlé’s purpose is enhancing quality of life and contributing to a healthier future. We want to help
shape a better and healthier world.

We also want to inspire people to live healthier lives. This is how we contribute to society while ensuring the
long-term success of our company.

OUR AMBITION
Through enhancing quality of life and contributing to a healthier future, we aim to deliver sustainable, industry-
leading financial performance and earn trust.

Globally, we have defined three overarching ambitions for 2030 which guide our work and support the
achievement of the United Nations Sustainable Development Goals:

 Help 50 million children live healthier lives

 Help to improve 30 million livelihoods in communities directly connected to our business
activities
 Strive for zero environmental impact in our operation

DIRECTORS’ REPORT
(TO THE SHAREHOLDERS)
The Directors of the Company are pleased to present the Annual Report along with the audited
financial statements for the year ended December 31, 2016.
FINANCIAL PERFORMANCE:
The Pakistan economy is showing signs of improvement in the year 2016 on the back of a stable
currency, better law & order situations, easing energy crisis and improved political situation coupled
with continued low inflation. However, we are still operating in an uncertain environment which can
result in disruptions of business.

In view of above, the Company achieved the top line growth of 9.1% through effective
product mix, numeric distribution expansion and investment behind brands. The Company also
improved its gross margins by 226 bps on the back of favorable input costs and optimization of
value chain through Nestlé Continuous Excellence (NCE) initiatives.
Nestlé Pakistan is committed to enhance its product base through innovation & renovation which
remains an integral part of the Company’s vision to positively enhance the quality of life of our
consumers. The major new product launches during 2016 included: MAGGI CHOTOO, NESTLÉ
YOGURT (Mango), NESCAFÉ 3 in 1, NESTLÉ ACTICOL, NESTLÉ NESVITA YOGURT,
FITNESSE CEREALS, NESTLÉ DOCELLO DESSERT MAGi.
NESTLÉ FRUITA VITALS (White Grape Lychee), and NESTLÉ EVERYDAY Double
Creamy.

SUMMARY OF FINANCIAL PERFORMANCE:

PKR Million 2016 2015 Change

Sales 112,393 102,986 +9.1%
Gross Profit margin 35.4% 33.1% +2.3%
Operating Profit margin 17.0% 15.8% +1.2%
Net Profit after tax (%) 10.5% 8.5% +2.0%
Net Profit after tax 11,847 8,761 +35.2%
Earnings per share 261.23 193.18 +35.2%

KEY FINANCIAL INDICATORS:

 Sales grew by PKR 9.4 billion, a growth of 9.1%.
 Gross Profit (GP) margin improved by 2.3% resultant of favorable input prices and effective
control on total delivered cost through the NCE mindset.
 Net Profit margin increased by 2% through continuous focus on operational costs.

DIVIDENDS:
Keeping in view the good financial performance of the Company, the Board of Directors has
recommended to pay final cash dividend of Rs. 170 per share, in addition to the interim cash
dividend of Rs. 255 per share, which brings the total dividend for the year to Rs. 425 per share
for 2016 compared to Rs.190 per share in 2015.

INVESTMENT PROJECTS:
With a market driven approach and commitment to satisfy the needs of our consumers, in 2016
Nestlé Pakistan has made investments of PKR
4.1 billion including expansion & development projects, with the most significant projects listed
below:
Project Description PKR Million
Sheikhupura Extension and

Operational reliability 1511

Kabirwala Extension and

Operational reliability 1554

Water Factory Extension and

Operational reliability 284

Milk collection infrastructure development 241

Extension of Distribution

And sales facilities 272

Investments, of approximately PKR 6.6 billion, are planned in 2017, primarily in respect of automation,
operational reliability and capacity increase in order to meet consumer demands.

CORPORATE GOVERNANCE:
Nestlé Pakistan is committed to maintain high standards of good corporate governance without
any exception. The Directors are pleased to state that the Company is compliant with the
provisions of the Code of Corporate Governance as required by SECP and formed as part of
stock exchange listing regulations. Statement of compliance with Code of Corporate
Governance is as under:

STATEMENT OF COMPLIANCE WITH CODE OF CORPORATE

GOVERNANCE
The Directors confirm that:

 The financial statements prepared by the management of the Company present fairly its
state of affairs, the results of its operations, cash flows and changes in equity.
 Proper books of accounts of the Company have been maintained.
 Appropriate accounting policies have been consistently applied in preparation of financial
statements and accounting estimates are based on reasonable and prudent judgment.
 International Financial Reporting Standards, as applicable in Pakistan, have been followed
in preparation of financial statements and any departure there
from has been adequately disclosed and explained.
  The system of internal control is sound in design and has been effectively implemented and
monitored.
 There are no significant doubts upon the Company’s ability to continue as a going concern.
 There has been no material departure from the best practices of corporate governance, as
detailed in the listing regulations.
 The value of investments of employees funds are as follows (PKR millions):

AUDITED AUDITED
2016 2015

Provident Fund 3267 2851

Gratuity Fund 1606 1344
Pension Fund 2524 2023

A) Statements regarding the following are annexed or disclosed in the notes to the
accounts

b) Key financial data for the last six years

c) Pattern of shareholdings
r(iaiid)ingTin shares of the Company by its Directors, CEO, CFO and Company Secretary.

 Number of Board meetings held during the year and attendance by each director

EXTERNAL AUDITORS:
Messrs KPMG Taseer Hadi & Company, Chartered Accountants have completed their assignment
for the year 2016 and retire at the conclusion of the 39th Annual General Meeting. Being eligible, they
have offered themselves for re-appointment.

HOLDING COMPANY:
Nestlé S.A., a Company incorporated in Switzerland (the holding company), holds 26,778,229
ordinary shares representing 59% equity interest in the Company.

HUMAN RESOURCES MANAGEMENT & EMPLOYEES RELATIONS:

In 2016, we continued to strengthen our people processes to sustain an edge over competition. Key
focus areas included leadership development, capability enhancement and employee relations
management for building high performance teams to achieve organisational goals while
diversity and commitment to compliance continued to remain at the heart of our agenda.

At factories, Employee Relations and Community Engagement remained top priority in addition to
Non-Management Staff (NMS) development leading to an overall NMS Training hours of
19,834. To enhance leadership skills, People Manager Toolkit & Nestlé Leadership Development
Experience were continued during 2016 as major learning initiatives leading up to total Management
Training hours of 28,700. Special focus was given to career coaching and in this context, 60 line
managers were trained as career coaches across the Company. Moreover, 186 Three-Party PDG
sessions were conducted for fruitful development discussions.

Gauging the pulse of the organisation, Employee Engagement Survey – Nestlé & I was conducted
with an unprecedented 99% participation rate.

For the first time this year:

 NiM (Nestlé in Market) Connect and Coffee Corner sessions were conducted across the
organisation to engage and energise our employees
 LEAN IN Lahore Chapter (Sheryl Sandberg’s concept) was introduced by Nestlé
Pakistan whereby females from across the industry gathered to discuss common challenges
and ways to manage them
 Employee Relations Lahore Chapter conducted two sessions with cross- industry experts to
exchange views on common issues and share best practices
 15 Nestlé Managers were trained for certification as master coaches through
International Coaching Federation who will now help to strengthen the coaching
culture
 e-learning, 100 Skill Soft Licenses were distributed in addition to the launch of
diversified development through functional competencies training pyramids as part of
our OD training booklet
 imprTove operational efficiency in employee services, Request Management System
(RMS) and KRONOS time management system were introduced across the
market along with a complete revamp of HR’s internal website

Few other highlights 2016 include:

 15 universities were targeted for Campus Drives and Job Fairs

 565 internships were offered
 31 apprentices were taken onboard
  26 apprentices were inducted under our program Kero Aitemaad - Women
Empowerment Platform
 21 Management Trainees were inducted
 CV clinics were conducted nationwide for one-on-one career counselling
sessions

CREATING SHARED VALUE (CSV) AND COMMUNITY WORK

For a company to be successful over time and create value for its shareholders, it must
also create value for society. At Nestlé, this is called “Creating Shared

Value” (CSV). Given the nature of our activities and our ambition to be the world’s
leading Nutrition, Health and Wellness Company, Nestlé has identified the following
focus areas where it can optimise the creation of shared value:

 Nutrition
 Water
 Environmental Sustainability
 Rural Development
 Our People

In line with this global vision and for “Enhancing the Quality of Life of the People of
Pakistan”

Nestlé Pakistan continues to positively engage with farmers as well as rural and
underprivileged communities in its area of operations.

Our inspiration is governed by the Nestlé Corporate Business Principals and also as a
signatory to the UN Global Compact for Ethical Business, the Company is committed to the
stakeholders and the communities for mutual growth and sustainability.

This year, Nestlé Pakistan was awarded with the first prize for “Living the Global”

Compact Business Excellence 2014-15”, in the Multinational category, Engaging Private Sector in
implementing the Decent Work Agenda & United Nation Sustainable Development Goals. Nestlé
Pakistan has won this award due to its key positioning in its Creating Shared Value focus areas
of Nutrition, Water, Environmental Sustainability, Rural Development, and Our People.

From offering quality products to the consumers, to providing a fair and diverse work environment for
our employees; from capacity building and knowledge transfer to our partners and raw material
providers, to implementing responsible sourcing models into our relationships; from supporting
under privileged communities to working with small farmers; from enhancing sustainability and
environmental friendliness

of our operations to embedding ethical and transparent business practices, CSV is entrenched
into the entire value chain.

In 2016, the company started the “Seeing is Believing” initiative to showcase our Dairy
Value chain from Grass to Glass thus to create advocates among our stakeholders and to make them
aware of the quality and safety standards that we adhere to.

The Key CSV initiatives completed during 2016 are:

 Nutrition awareness extended another to 30,000 school children in the rural, suburban and
urban areas under Nestlé Healthy Kids Program extending the overall outreach to more than
100,000 kids across the country
 Nestlé Healthy Women, a nutrition awareness programme to motivate young women of age
19-24 years to adopt a healthy lifestyle by educating them about their nutritional needs and
its future impact
 Continued product support through Nutrition Support Program for the underprivileged
institutions and to the areas affected by natural calamities
 Clean Drinking Water facilities in our operational areas providing clean drinking water to
more than 60,000 people on a daily basis
 Implementation of Alliance for Water Stewardship standard, in collaboration with WWF, at
our Sheikhupura Factory
 Endeavoring to achieve the least possible environmental impact throughout its operational
stages by complying with environmental laws and regulations
 Continued support, training and advisory services to dairy farmers under our Farmer Support
Program
 Continued support for the Dairy and Rural Development Foundation training program involving
45,000 dairy farmers, 6,000 rural women livestock workers & trained 2,500 artificial
inseminates related to dairy
& livestock sector. Farmer training was done on 118 upgraded dairy farms in the villages.

 Continuation of the Chaunsa Project for implementation of Best Farm Practices in the
Chaunsa Mango Sector
Entrepreneurship Development Program at Lahore University of Management sciences
(LUMS) and Institute of Business Administration, Karachi (IBA), with a focus on Agri
Business Management.
 Support for Driver Training Facility at the National Highways & Motorway Police Training
Institute Karachi
FUTURE OUTLOOK:
We are hopeful to see Pakistan entering into the “hot zone” of high economic activity and we
believe it will continue to offer huge investment potential driven by its growing population,
increasing per capita income, massive

infrastructure development under China-Pakistan Economic Corridor (CPEC) and other

favorable indicators. Nestlé Pakistan is optimistic about power shortages coming to an
end as well as reduction in the cost of energy, which will

eventually cut business cost pledging long term commitment of the Company. Furthermore,
Nestlé is committed to positively enhance the quality of life of Pakistani people by
bringing Nutrition, Health & Wellness products and will continue to drive sustainable
profitable growth on the back of strong brands, I&R capabilities and operational excellence
with NCE mindset.

ACKNOWLEDGMENTS:
We take this opportunity to thank our valued customers and consumers who have trust in our
products and continued to provide sustained support in ensuring the progress of the
Company. The Company is also immensely proud of and thankful to employees for their
committed and passionate efforts, loyalty and dedication. We greatly value the support and
cooperation received from our esteemed suppliers, trading partners, bankers and all
stakeholders who are helping and contributing towards the continued growth of our
Company and contributing to positively enhancing the quality of life of the people of
Pakistan.

Nestlé Pakistan, whilst bringing international expertise and standards into its products,
processes and manufacturing sites, remains a “Har Dam Pakistani” company, very proud of
its achievements in Pakistan.
FOR AND ON BEHALF OF THE BOARD OF DIRECTORS

BARUN OLIERHOER

Chief Executive

Lahore: February 22, 2017

 ANNEXURE TO DIRECTORS’ REPORT
ON CORPORATE GOVERNANCE

BOARD OF DIRECTORS’ MEETINGS

During the year under review, the Board of Directors had the following meetings: Number of Board Meetings held for
the financial year = 5
Date of Meeting Time Place
February 16, 2016 10:30 am 308-Upper Mall, Lahore
April 25, 2016 10:30 am 308-Upper Mall, Lahore
May 28, 2016 09:00 am 308-Upper Mall, Lahore
August 19, 2016 10:00 am 308-Upper Mall, Lahore
October 20, 2016 10:00 am 308-Upper Mall, Lahore

Detail of attendance of Directors at Board meetings is summarised below:

Name of Directors Date of NO. of

Appointment Meeting
Attended
Syed Yawar Ali 15.07.2016 5
Bruno Boris Olierhoek 15.07.2016 5
Syed Babar Ali 15.07.2016 5
Syed Hyder Ali 15.07.2016 5
John Martin Miller 15.07.2016 5
Naveed A. Khan 15.07.2016 4
Osman Khalid Waheed 15.07.2016 3
Juan Aranols 15.07.2016 3
John Davis 15.07.2016 5
Pierre Schaufelberger (resigned w.e.f. April 01.07.2013 2
25, 2016)
ROLE AND RESPONSIBILITIES OF THE CHAIRMAN AND THE CHIEF EXECUTIVE
The role of the Chairman and the Chief Executive are segregated and they have distinct
responsibilities. The Chairman of the Board has responsibilities and powers vested in him by law
and the Articles of Association of the Company, as well as duties assigned to him by the Board.
In particular, the Chairman coordinates the activities of the Board and presides over the
meetings of the Board of Directors and shareholders.
The Managing Director is the Chief Executive Officer of the Company and is responsible
for the day-to-day operations and conduct of its business in accordance with the powers vested
in him by law, the Articles of Association of the Company and authority delegated to him
through the Board of Directors’ resolutions from time to time. The Managing Director
recommends policy and
strategic direction and annual business plans for the Board of Directors’ approval and is
responsible for exercising the overall control, discretion, administration and supervision for sound
 and efficient management and conduct of the business of the Company.

AUDIT COMMITTEE

The Audit Committee comprises three members including the Chairman of the Committee,
who is an Independent Director. Two members are Non-Executive Directors. The terms of
reference of the Committee, which is in line with the Code of Corporate Governance, has
been presented and approved by the Board of Directors.
The Audit Committee held four meetings in 2015. The Chief Financial Officer, Internal
Auditors as well as External Auditors were invited to the meetings

HUMAN RESOURCE AND REMUNERATION COMMITTEE

The Company has established this Committee in accordance with requirements of the
Code of Corporate Governance. All issues of remuneration are fully disclosed, deliberated and
decided at the meetings of the Directors.

STRATEGIC PLANNING

The Company’s strategic direction was reviewed at the meeting of the Directors. A process has been
put in place whereby long term Market Business Strategies and Annual Operational Plans established
by the Management are regularly reviewed by the Directors in line with the Company’s overall
business objectives. Part of the process involves the setting of measurable Key Performance
Indicators (KPls).

Auditors’ Report to the Members

We have audited the annexed balance sheet of Nestlé Pakistan Limited (“the Company”)
as at 31 December 2016 and the related profit and loss account, statement of
comprehensive income, cash flow statement and statement of changes in equity together
with the notes forming part thereof, for the year then ended and we state that we have
obtained all the information and explanations which, to the best of our knowledge and
belief, were necessary for the purposes of our audit.

It is the responsibility of the Company’s management to establish and maintain a system

of internal control, and prepare and present the above said statements in conformity with
the approved accounting standards and the requirements of the Companies Ordinance,
1984. Our responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with the auditing standards as applicable in Pakistan.
These standards require that we plan and perform the audit to obtain reasonable assurance
about whether the above said statements are free of any material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the above said statements. An audit also includes assessing the accounting policies and
significant estimates made by management, as well as, evaluating the overall presentation
of the above said statements. We believe that our audit provides a reasonable basis for our
opinion and, after due verification, we report that:

a) in our opinion, proper books of account have been kept by the Company as required by
the Companies Ordinance, 1984;

b) in our opinion,

 the balance sheet and profit and loss account together with the notes thereon have
been drawn up in conformity with the Companies Ordinance, 1984, and are in
agreement with the books of account and are further in accordance with accounting
policies consistently applied;

 the expenditure incurred during the period was for the purpose of the Company’s
business; and

 the business conducted, investments made and the expenditure incurred during the
period were in accordance with the objects of the Company;

a) in our opinion and to the best of our information and according to the explanations
given to us, the balance sheet, profit and loss account, statement of comprehensive
income, cash flow statement and statement of changes in equity together with the
notes forming part thereof conform with approved accounting standards as applicable
in Pakistan, and, give the information required by the Companies Ordinance, 1984,
in the manner so required and respectively give a true and fair view of the state of
 the Company’s affairs as at 31 December 2016 and of the profit and of its
comprehensive income, its cash flows and changes in equity for the year then
ended;

b) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980,
was deducted by the Company and deposited in the Central Zakat Fund established
under section 7 of that Ordinance.

KPMG Taseer Hadi & Co.

Chartered Accountants
(Bilal Ali)
Lahore: February 22, 2017
 FINANCIAL REVIEW OF 2016

Balance Sheet
As at 31 December 2016

Rupees in ‘000)
( Note 2016 2015

EQUITY AND LIABILITIES

Share capital and reserves
Authorized capital
75,000,000 (2015: 75,000,000) ordinary shares of Rs. 10 each 750,000 750,00
0

Issued, subscribed and paid up capital 3 453,496 453,49

6
Share premium 4 249,527 249,52
7
General reserve 280,000 280,00
0
Hedging reserve 5 (10,092) 2,728
Accumulated profit 7,839,121 11,652,011
8,812,052 12,637,762
Non-current liabilities
Long term finances 6 5,637,473 8,000,000
Deferred taxation 7 1,943,343 2,271,523
Retirement benefits 8 1,361,555 1,215,067
8,942,371 11,486,590

Current liabilities
Current portion of long term finances 6 – 1,047,750
Short term borrowings - secured 9 4,345,157 3,000,000
Short term running finance under mark-up arrangements - secured 10 2,013,120 2,461,648
Customer security deposits - interest free 240,843 221,305
Income tax - net 1,458,740 1,576,345
Trade and other payables 11 24,920,599 16,752,543
Interest and mark-up accrued 12 48,888 83,521
33,027,347 25,143,112
Contingencies and commitments 13
50,781,770 49,267,464
Balance Sheet
As at 31 December 2016

(Rupees in ‘000) Note 2016 2015

ASSETS
Non-current assets
Property, plant and equipment 14 28,046,12 29,996,09
4 5
Capital work-in-progress 15 2,765,730 882,230
Intangible assets 16 31,600 39,668
Long term loans and advances 17 338,449 276,199
Long term deposits and prepayments 18 32,046 43,674
31,213,94 31,237,8
9 66

Current assets
Stores and spares 19 1,308,329 1,262,789
Stock in trade 20 11,207,23 9,474,681
0
Trade debts 21 564,460 314,836
Current portion of long term loans and advances 17 98,565 98,775
Sales tax refundable - net 5,374,745 5,796,612
Advances, deposits, prepayments and other receivables 22 661,325 828,638
Cash and bank balances 23 353,167 253,267
19,567,82 18,029,5
1 98
Profit and Loss Account
For the year ended 31 December 2016

Rupees in ‘000)
( Note 2016 2015

Sales - net 24 112,392,6 102,985,91

54 6
Cost of goods sold 25 (72,609,392 (68,859,34
) 4)
Gross profit 39,783,262 34,126,572

Distribution and selling expenses 26 (17,875,408 (15,411,23

) 6)
Administration expenses 27 (2,760,186) (2,397,99
6)
Operating profit 19,147,668 16,317,340

Finance cost 28 (959,005) (1,477,480)

Other operating expenses 29 (1,563,496) (2,457,480)
(2,522,501) (3,934,96
0)

Other income 30 394,753 137,74

2
Profit before taxation 17,019,920 12,520,122

Taxation 31 (5,172,947) (3,759,19

2)

Profit after taxation 11,846,973 8,760,930

Earnings per share - basic and diluted (Rupees) 32 261.23 193.1

8
 Statement of Comprehensive Income
For the year ended 31 December 2016

(Rupees in ‘000) 2016 2015

Profit after taxation 11,846,97 8,760,930

3

Items that are or may be classified subsequently to profit and loss:

Cash flow hedges - effective portion of changes in fair value (17,967) 25,490
Related tax 5,147 (8,763)
(12,820) 16,727
Items that will never be reclassified to profit and loss:

Remeasurement of net retirement

benefit liability recognised directly in the equity (20,660) (222,204)
Related tax 6,405 71,105
(14,255) (151,099)

Total comprehensive income for the year 11,819,89

8 8,626,558

The annexed notes 1 to 45 form an integral part of these financial statements.

Cash Flow Statement
For the year ended 31 December 2016

(Rupees in ‘000) Note 2016 2015

Cash flow from operating activities

Cash generated from operations 34 29,534,835 22,122,921
Decrease in long term deposits and prepayments 11,628 11,925
(Increase) / decrease in long term loans and advances (62,040) 18,708
Increase in customer security deposits - interest free 19,538 348
Sales tax refundable - net 421,867 72,104
Retirement benefits paid (387,921) (316,866
)
Finance cost paid (993,638) (1,541,611
)
Workers’ profit participation fund paid (895,145) (662,690
)
Workers’ welfare fund paid (264,986) (214,300
)
Income taxes paid (5,622,752) (2,880,807
)
Net cash generated from operating activities 21,761,386 16,609,732

Cash flow from investing activities

Fixed capital expenditure (4,080,255) (2,701,201)
Sale proceeds of property, plant and equipment 560,991 348,904
Net cash used in investing activities (3,519,264) (2,352,297
)

Cash flow from financing activities

Long term finances - net (3,410,127) (1,108,715)
Short term borrowings - net 1,345,157 (4,029,193)
Dividend paid (15,628,724) (8,619,505)
Net cash used in financing activities (17,693,694) (13,757,413
)

Net increase in cash and cash equivalents 548,428 500,02

2
Cash and cash equivalents at beginning of the year (2,208,381) (2,708,403
)
Cash and cash equivalents at end of the year 35 (1,659,953) (2,208,381
)

.
 Audit Statement of Changes in Equity
For the year ended 31 December 2016

Capital reserves Revenue reserves

Share Share Hedging General Accumulated
(Rupees in ‘000) capital premiu reserve reserve profit Total
m

Balance as at 01 January 2015 453,496 249,527 (13,999) 280,000 11,658,6 12,627,625

01
Total comprehensive income for the year:
Profit after taxation – – – – 8,760,930 8,760,930
Cash flow hedges - effective portion of changes
in fair value (net of tax) – – 16,727 – – 16,727
Remeasurement of net retirement benefits
liability (net of tax) – – – – (151,099) (151,099)
– – 16,727 – 8,609,83 8,626,558
1
Transaction with owners, directly recognized in equity

Final dividend for the year ended 31 December

2014 (Rs. 90 per share) – – – – (4,081,463) (4,081,463)
Interim dividend for the six months period ended
30 June 2015 (Rs. 50 per share) – – – – (2,267,479) (2,267,479)
Interim dividend for the nine months period ended
30 September 2015 (Rs. 50 per share) – – – – (2,267,479) (2,267,479)

Balance as at 31 December 2015 453,496 249,527 2,728 280,000 11,652,011 12,637,762

Total comprehensive income for the year:
Profit after taxation – – – – 11,846,973 11,846,973
Cash flow hedges - effective portion of changes
in fair value (net of tax) – – (12,820) – – (12,820)
Remeasurement of net retirement benefits
liability (net of tax) – – – – (14,255) (14,255)
– – (12,820) – 11,832,718 11,819,898
Transaction with owners, directly recognized in equity:

Final dividend for the year ended 31

December 2015 (Rs. 90 per share) – – – – (4,081,463) (4,081,463)
Interim dividend for the six months period ended
30 June 2016 (Rs. 70 per share) – – – – (3,174,472) (3,174,472)
Interim dividend for the nine months period ended
30 September 2016 (Rs. 185 per share) – – – – (8,389,673) (8,389,673)
Balance as at 31 December 2016 453,496 249,527 (10,092) 280,000 7,839,121 8,812,052
COMMON SHARES
Securities representing equity ownership in a corporation, providing voting rights,
and entitling the holder to a share of the company's success throughdividends
and/or capital appreciation. In the event of liquidation, common
shareholders have rights to a company's assets only after bondholders,
other debt holders, and preferred shareholders have been satisfied. Typically,
common shareholders receive one vote per share to elect the company's board of
directors (although the number of votes is not always directly proportional to the
number of shares owned).

Rights of Common Stockholders

The board of directors is the group of individuals that represents the owners of the
corporation and oversees major decisions for the company. Common shareholders
also receive voting rights regarding other company matters such as stock splits and
company objectives. In addition to voting rights, common shareholders sometimes
enjoy what are called "preemptive rights". Preemptive rights allow common
shareholders>to maintain their proportional ownership in the company in the event
that the company issues another offering of stock. This means that common
shareholders with preemptive rights have the right but not
the obligation to purchase as many new shares of the stock as it would take to
maintain their proportional ownership in the company. also called junior
equity or common stock.

Outstanding Shares

Outstanding shares refer to a company's stock currently held by all its shareholders,
including share blocks held by institutional investors and restricted shares owned by
the company’s officers and insiders. Outstanding shares are shown on a company’s
balance sheet under the heading “Capital Stock.” The number of outstanding shares
is used in calculating key metrics such as a company’s market capitalization, as
well as its earnings per share (EPS) and cash flow per share (CFPS).

A company's number of outstanding shares is not static, but may fluctuate widely
over time. Also known as “shares outstanding.”
Common Shares of Nestle Pakistan Outstanding

In last Three Years

2016 2015 2014

29787058 shares 29787058 shares 29787058 shares

Financial Statement
At year end 31 Dec 2016

1 Issued, subscribed and paid up capital

2016 2015 2016 2015

(Number of shares) (Rupees in ‘000)

Ordinary shares of Rs. 10 each
29,787,058 29,787,058 as fully paid in cash 297,870 297,870
Ordinary shares of Rs. 10 each
15,476,867 15,476,867 as fully paid bonus shares 154,769 154,769
Ordinary shares of Rs. 10 each issued for
85,659 85,659 consideration other than cash 857 857
45,349,584 45,349,584 453,496 453,496

As at 31 December 2016, Nestlé S.A. Switzerland, the holding company, holds 26,778,229 (2015:
26,778,229) ordinary shares representing 59.05% (2015: 59.05%) equity interest in the Company.
In addition, 9,229,786 (2015: 9,229,786) ordinary shares are held by the following related parties
as at 31 December:

(Number of shares) 2016 2015

Name of related party:

IGI Insurance Limited 4,364,666 4,364,666
Percentage of equity held 9.62% (2015: 9.62%)
Packages Limited 3,649,248 3,649,248
Percentage of equity held 8.05% (2015: 8.05%)
Gurmani Foundation 538,235 538,235
Percentage of equity held 1.19% (2015: 1.19%)
Industrial Technical and Educational Institution 21,666 21,666
Percentage of equity held 0.05% (2015: 0.05%)
 Zarai Taraqiati Bank Limited 430,551 430,551
Percentage of equity held 0.95% (2015: 0.95%)
National Management Foundation 224,720 224,720
Percentage of equity held 0.50% (2015: 0.50%)
Nestle’ Pakistan Limited Employees Provident Fund 700 700
Percentage of equity held 0.0015% (2015: 0.0015%)
9,229,786 9,229,786

Book VALUE of Common shares:

Represents a company's assets minus its liabilities and sometimes is referred to as

stockholders' equity, owners' equity, shareholders' equity, or
simply equity. The book value per share formula is used to calculate the per share
value of a company based on its equity available to common shareholders.

Formula of Book value per share:

Book value per share is a market value financial ratio, and the purpose
of calculating it is to relate shareholders' equity to the number of shares of common
stock outstanding. The number of shares of preferred stock is not considered,
making book value more directly relevant to common shares outstanding.

Book value per share = Shareholders' equity ÷ Average number of common

shares

2016 2015 2014

194.31 278.67 278,45

It's important to use the average number of outstanding shares in this calculation. A
short-term event, such as a stock buy-back, can skew period-ending values, and this
would influence results and diminish their reliability.

Interpretation:

This measurement is used by investors to evaluate the price of a company's

common stock. For instance, if the market value per share is lower than the book
value per share, then the stock price may be undervalued. However, book value is
not market value. The book value of owners’ equity is not directly tied to the
market value of a business and is essentially an accounting value, subject to
management discretion in accounting policies. Book value may be considered in
varying degrees in putting a market value on a business and its ownership shares.

There are interesting ways to look at book value. If market value is much higher
than book value, the financial markets are likely experiencing a bull market. If the
values are closer together, the financial markets may be in a bear market.

Dividend to Common Shareholders

Keeping in view the good financial performance of the Company, the Board of Directors
has recommended to pay final cash dividend of Rs. 170 per share, in addition to the
interim cash dividend of Rs. 255 per share, which brings the total dividend for the year to
Rs. 425 per share for 2016 compared to Rs.190 per share in 2015.

EX Dividend Date Pay Dividend Date Amount Status

15 Apr 2014 23 Apr 2014 7029 million Paid

20 Apr 2015 22 Apr 2016 1562 million Paid

11 Apr 2016 13 Apr 2016 8619 million Paid

Earning Per Share(EPS)

Earnings per share (EPS) is the portion of a company's profit allocated to each
outstanding share of common stock. Earnings per share serves as an indicator of a
company's profitability.

Basic EPS
The Basic EPS does not factor in the dilutive effect of additional securities. When
the capital structure of a company includes stock options, warrants, restricted stock
units (RSU), etc. these investments, if exercised, could increase the total number of
shares outstanding in the market.

Formula of Earning Per Share:

EPS = (Net Income - Dividends on Preferred Stock) / Average Outstanding Shares

For The Year 2016 2015 2014

Market Price per share 9000 Rupees 7800 Rupees 9100 Rupees

Earning per share 261.23 Rupees 193.18 Rupees 174.85 Rupees

Price to Earning Ratio:

The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures
its current share price relative to its per-share earnings. The price-earnings ratio is
also sometimes known as the price multiple or the earnings multiple.

The P/E ratio can be calculated as:

Market Value per Share / Earnings per Share

=9000/261.23

P/E of NESTLE PAKISTAN 2016 = 34.5

2016 2015 2014

34.5 40.4 52.1

Treasury Stock:
Treasury stock is a corporation's previously issued shares of stock which have been
repurchased from the stockholders and the corporation has not retired the
repurchased shares. The number of shares of treasury stock (or treasury shares) is
the difference between the number of shares issued and the number of
shares outstanding. Since the treasury shares result in fewer shares outstanding,
there may be a slight increase in the corporation's earnings per share.

Treasury Stock is also the title of a general ledger account that will typically have
a debit balance equal to the cost of the repurchased shares being held by the
corporation. (Some corporations use the par value method instead.) The cost of the
treasury stock purchased with cash will reduce the corporation's cash and the
amount of its total stockholders' equity.

The shares of treasury stock will not receive dividends, will not have voting rights,
and cannot result in an income statement gain or loss. The shares of treasury stock
can be sold, retired, or could continue to be held as treasury stock.

TREASURY STOCK Of Nestle Pakistan 2016

= 1009.2 shares
Impact on Stockholder’s Equity
Since this treasury stock account is classified within the equity section of the
balance sheet (where all other accounts have a natural credit balance), this
means that the account is considered a contra equity account. Thus, the effect of
recording a treasury stock transaction is to reduce the total amount of equity
recorded in a company's balance sheet.

RETURN ON ASSETS
Return on assets (ROA) is a financial ratio that shows the percentage of profit a
company earns in relation to its overall resources. It is commonly defined as net
income divided by total assets. Net income is derived from the income statement of
the company and is the profit after taxes. The assets are read from the balance sheet
and include cash and cash-equivalent items such as receivables, inventories, land,
capital equipment as depreciated, and the value of intellectual property such as
patents. Companies that have been acquired may also have a category called "good
will" representing the extra money paid for the company over and above its actual
book value at the time of acquisition. Because assets will tend to have swings over
time, an average of assets over the period to be measured should be used. Thus the
ROA for a quarter should be based on net income for the quarter divided by average
assets in that quarter. ROA is a ratio but usually presented as a percentage.

Calculating Return on Assets (ROA)

The formula for ROA is:
 = 11819898/50781770 = 0.232

2016 2015
0.232 0.175

Interpretation:

The return on assets ratio measures how effectively a company can earn a return on
its investment in assets. In other words, ROA shows how efficiently a company can
convert the money used to purchase assets into net income or profits.

Since all assets are either funded by equity or debt, some investors try to disregard
the costs of acquiring the assets in the return calculation by adding back interest
expense in the formula.

It only makes sense that a higher ratio is more favorable to investors because it
shows that the company is more effectively managing its assets to produce greater
amounts of net income. A positive ROA ratio usually indicates an upward profit
trend as well. ROA is most useful for comparing companies in the same industry as
different industries use assets differently. For instance, construction companies use
large, expensive equipment while software companies use computers and servers.

RETURN ON EQUITY

Return on equity (ROE) is a measure of profitability that calculates how many

dollars of profit a company generates with each dollar of shareholders' equity. The
formula for ROE is:

ROE = Net Income/Shareholders' Equity

= 11819898/8812052 *100 =134.5%

2016 2015 2014
134.5% 69.3% 62.8%

ROE is sometimes called "Return on Net Worth."

Interpretation:

ROE is more than a measure of profit; it's a measure of efficiency. A rising ROE
suggests that a company is increasing its ability to generate profit without needing
as much capital. It also indicates how well a company's management is deploying
the shareholders' capital. In other words, the higher the ROE the better. Falling
ROE is usually a problem.

However, it is important to note that if the value of the shareholders' equity goes
down, ROE goes up. Thus, write-downs and share buybacks can artificially boost
ROE. Likewise, a high level of debt can artificially boost ROE; after all, the more
debt a company has, the less shareholders' equity it has (as a percentage of total
assets), and the higher its ROE is.

Some industries tend to have higher returns on equity than others. As a result,
comparisons of returns on equity are generally most meaningful among companies
within the same industry, and the definition of a "high" or "low" ratio should be
made within this context.