Acknowledgements

We have the pearl of our eyes to admire blessing of the compassionate and omnipotent

because the words are bound, knowledge is limited and time is short to express His dignity. It is

one of the infinite blessings of almighty ALLAH that He bestowed us with potential and ability to

complete the present training and make a material contribution towards the deep oceans of

knowledge.

First we avail this opportunity to bow our head before ALLAH almighty in humility who given us

the wisdom and perseverance for completing this piece of report.

We invoke peace for Holy Prophet Muhammad (P.B.U.H) who is forever torch. We feel highly

privilege to ascribe the most and ever burning flame of my gratitude and deep scene of

devotion to the Madam Naseem Bukhari who taught us “Strategic Management” with heart

and also gave a guideline to this report.

We are immensely obliged to all our fellow students who guided us in making this report,

without whose considerate attention and interest, it would be difficult for us to complete this

report on time. Whatever we have learnt from them and this project report has put indelible

impression on our mind. It is our conviction that this learning experience will always be a source

of help in our practical life and professional career.

Case Study-Nestle

(Global Expansions through National Brand Acquisitions)

The story begins in 1867, when Henri Nestlé developed a baby formula that saved a child's life and marked the beginning of Nestlé's decades-old commitment to nutrition. In the 140 years since then Nestlé is the largest nutrition and foods company in the world, founded and headquartered in Vevey, Switzerland. Nestlé originated in a 1905 merger of the Anglo-Swiss Milk Company, which was established in 1866 by brothers George Page and Charles Page, and the Farine Lactée Henri Nestlé Company, which was founded in 1866 by Henri Nestlé. The company grew significantly during the First World War and following the Second World War, eventually expanding its offerings beyond its early condensed milk and infant formula products. The 1920s saw Nestlé's first expansion into new products, with chocolate the Company's second most important activity. During world war II nestle established its fctories in developing countries, particularly Latin America. Ironically, the war helped with the introduction of the Company's newest product, Nescafé, which was a staple drink of the US military. The end of World War II was the beginning of a dynamic phase for Nestlé. Growth accelerated and companies were acquired. In 1947 came the merger with Maggi seasonings and soups. Crosse & Blackwell followed in 1960, as did Findus (1963), Libby's (1971) and Stouffer's (1973). Diversification came with a shareholding in L'Oréal in 1974. Nestlé made its second venture outside the food industry by acquiring Alcon Laboratories Inc. In 1984, Nestlé's improved bottom line allowed the Company to launch a new round of acquisitions, the most important being American food giant Carnation. The first half of the 1990s proved to be favorable for Nestlé: trade barriers crumbled and world markets developed into more or less integrated trading areas. Since 1996 there have been acquisitions including San Pellegrino (1997), Spillers Pet foods (1998) and Ralston Purina (2002). There were two major acquisitions in North America, both in 2002: in July, Nestlé merged its U.S. ice cream business into Dreyer's, and in August, a USD 2.6bn acquisition was announced of Chef America, Inc. Today, the company operates in 86 countries around the world and employs nearly 283,000 individuals.

Nestle Product Line

Nestle Pakistan is principally engaged in the manufacture, processing and sale of food and beverage products which include dairy, coffee, juices, cereals and culinary products. The company markets its products under international brand names that include Nescafe, Maggi, Cerelac, Milkybar, Kit Kat, Bar-One, Milkmaid, and Pure Life. The company with three manufacturing facilities operates all over Pakistan.

Milk, Dairy and Chilled Dairy

In 1988, nestles acquired Pakistan’s premium packaged milk brand MILKPAK. MILKPAK is a trusted brand known throughout the country for its nutritious wholesome goodness and pure natural taste. Sales in this sector represent about 34% of total Pakistan dairy sector.

Beverages

In this sector Nestle presents three premier brands i.e. Nescafe, Milo, Nestle Fruita Vitals. Sales in this sector represent about 34% of total Pakistan Beverages sector.

Bottled Water

NESTLÉ PURE LIFE is Pakistan’s favorite water because more people trust it than any other brand. That’s why it is the market leader in this sector.

Baby Food

Nestle Cerelac is a range of nutritious, easily-digested instant cereals. It is suitable as a complimentary food for infants from six months onwards, when breast milk or formula alone no longer meet the baby's growing nutritional requirements. Sales in this sector represent about 48% of total Baby Food sector.

Breakfast Cereals

NESTLÉ CORNFLAKES and NESTLÉ KOKOKRUNCH are delicious breakfast cereals made from wholesome grains and packed with Vitamins, Calcium and other minerals.

Chocolate And Confectionary

KITKAT is by far one of the most popular chocolates all around the world. KITKAT Chunky is also becoming very popular.

Financial Performance2009 was indeed another year of instability in social, economic, energy, and security terms. However, despite these issues, for Nestlé Pakistan it marked a

solid recovery from the much deeper challenges of 2008. Local inflation in key commodities still had an impact in 2009 –

particularly in fresh milk where supply constraints continued and lead to cost increases of +16%. T he Company continued to expand its dairy development initiatives aimed at accelerating production of good quality milk in the country. The key elements to Nestlé performance in 2009 were effective cost management, more investment behind Nestlé brandsand diversification of our product portfolio based on deeper consumer insights. T he major new product launches this year included: NE SQUI K milk enhancer, , NIDO, LACTOGEN GO LD, and CERE LAC fruit cereals.

Sales for the year surpassed P KR 41 billion, and the growth of 20% was split relatively even between real Internal Growth and pricing movements. Export sales rose dramatically by +48% to PKR 3.3 billion as we continue to leverage our brand strength in other markets.

Although G ross P rofit (GP ) margin shows a significant improvement vs. 2008, it is only slightly better than our 2007 results. T he recovery in GP allowed the business to focus more efforts in brand building – increasing our spending on consumer initiatives by +66%. T his added investment resulted in a slightly lower improvement in O perating P rofit margin. Net P rofit and margin for 2009 increased due to lower financing costs and foreign exchange impact compared to the turbulent market of 2008. With these healthy results, and in addition to the interim dividends for the year, the B oard of Directors has recommended to pay a final cash dividend of Rs. 20 per share.

Investment Projects

Total capital expenditure for the year reached P KR 2.3 billion, with the most significant projects listed below:

Investments in 2010 of approximately P KR 2.6 billion are planned for milk collection field development, and upgrading of existing production facilities as part of our long-term

infrastructure plan.

Competitors

The main competitors of nestle Pakistan in Pakistan are Shakerganj foods products, Shezan International (pvt) Limited, Angro Foods and Cadbury plc. A brief description of their operation is provided below;

Shakerganj foods products

SFPL is a public limited company set up by the Crescent Group with the objective to diversify its business activities. The group has been conducting business in the region for over 100 years and has a varied industry portfolio in sugar, textile, steel and farming. Its head office is located at

Lahore, Pakistan while the production plants are in central Punjab - the main fruit growing and milk supplying region of the country.

Its major products are Good Milk, good milk slim, Flavored Milk OOLALA, Good Milk Cream, Pure Desi Ghee, Kinnow Concentrate, Mango Puree etc.

Shezan International (pvt) Limited

The company was incorporated in 1964 as a Private Limited Company to set up an industrial undertaking for manufacturing of juices, squashes, sherbets, jams, pickles and preserves from fruits and vegetables. Shezan International Limited was conceived as a joint venture by the Shahnawaz Group of Pakistan and Alliance Industrial Development Corporation of U.S.A. The agricultural background of the Pakistani sponsors induced them to establish this agro-based industry. Taking advantage of abundance of fruits available in Pakistan and the advanced technology provided by the American partners, Shezan became a pioneer in the field of converting fruits into pulps, concentrates and juices. Today Shezan is the largest food processing unit having developed and installed the capacity to meet the country's local as well as export needs. In 1971, Shahnawaz group purchased all the shares of Alliance Industrial Development Corporation. The company has since shown sustained growth in both domestic and export fields. In 1980-1981 a separate unit was installed in Karachi which now caters for Karachi, Sind and export demand. A new bottle filling plant was set in 1983 in the Lahore unit, increasing the capacity five fold. An independent Tetra Brik plant was commissioned in 1987 making the unit leading manufacturers with the comprehensive range of production in the fruit processing field in Pakistan. In the year 1990 it was decided to install a juice factory at the Hattar industrial estate in North West Frontier Province of Pakistan. In order to take advantage of the government incentive new wholly owned subsidiary of Shezan International Limited was incorporated as Hattar Fruit Products Limited which was later merged into the parent company. Complete bottling plant locally manufactured along with four lines of Tetra Pak was installed, three are filling 250 ml juices and one line is for 1000 ml packs. In all respects the subsidiary is now a complete unit and is manufacturing the complete range of Shezan products except for pickles and canned products.

Engro Foods

Engro Foods Limited is subsidiary of Engro Chemical Pakistan Ltd. which is one of the most reputed enterprises in Pakistan with more than 40 years of diversified business operations in the areas of fertilizer and chemicals. Engro Foods started its business operations in March 2006 and with the successful launch of Olpers Milk, Tarang, Olwell, and Olpers cream, it has established itself as a major player in the foods business. Engro Foods has already set up two

processing plants at Sukkur and Sahiwal. With the ever expanding milk collection network and processing facilities, the Supply Chain has geared us for the growing sales of our products.

Cadbury

Cadbury is a British confectionery company, the industry's second-largest globally after the combined Mars-Wrigley.[2] Headquartered in Cadbury House in the Uxbridge Business Park in Uxbridge, London Borough of Hillingdon, England and formerly listed on the London Stock Exchange, Cadbury was acquired by Kraft Foods in February 2010. Major chocolate brands produced by Cadbury include the bars Dairy Milk, Crunchie, Caramel, Wispa, Boost, Picnic, Flake, Curly Wurly, Chomp, and Fudge; chocolate Buttons; the boxed chocolate brand Milk Tray; and the twist-wrapped chocolates Cadbury Heroes.As well as Cadbury's chocolate, the company also owns Maynards and Halls, and is associated with several types of confectionery including former Trebor and Bassett's brands or products such as Liquorice Allsorts, Jelly Babies, Flumps, Mints, Dolly Mix, Black Jack chews, Trident gum, and Softmints.

Management

Introduction

Nestlé is the world's leading Nutrition, Health and Wellness Company. It is committed to increasing the nutritional value of our products while improving the taste. The Nestlé Company has aimed to build a business as the world's leading nutrition, health and wellness company based on sound human values and principles

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

Nestle International

Our story begins in 1867, when Henri Nestlé developed a baby formula that saved a child's life and marked the beginning of Nestlé's decades-old commitment to nutrition.

In the 140 years since then, we have expanded around the world and developed a range of products designed to suit every taste, need and cultural preference. Our distinctive seal is recognised everywhere as a guarantee of quality and healthfulness

HistoryNestlé began in Switzerland in the mid 1860s when founder Henri Nestlé created one of the first baby formulas. Henri realized the need for a healthy and economical product to serve as an alternative for mothers who could not breastfeed their babies. Mothers who were unable to breastfeed often lost their infants to malnutrition. Henri’s product was a carefully formulated mixture of cow’s milk, flour and sugar. Nestlé’s first product was called Farine Lactée (“cornflour gruel” in French) Henri Nestlé. The product was first used on a premature baby who could not tolerate his mother’s milk or other alternative products of that time. Doctors gave up on treating the infant. Miraculously the baby tolerated Henri’s new formula and it provided the nourishment that saved his life. Within a few years the first Nestlé product was marketed in Europe.

In 1874 the Nestlé Company was purchased by Jules Monnerat. Nestlé developed its own condensed milk to contend with its competitor, the Anglo-Swiss Condensed Milk Company. The Anglo-Swiss Condensed Milk Company made products like cheese and instant formulas. The two companies merged in 1905, the year after Nestlé added chocolate to its line of foods. The newly formed Nestlé and Anglo-Swiss Milk Company had factories in the United States, Britain, Spain and Germany. Soon the company was full-scale manufacturing in Australia with warehouses in Singapore, Hong Kong and Bombay. Most production still took place in Europe.

The start of World War I made it difficult for Nestlé to buy raw ingredients and distribute products. Fresh milk was scarce in Europe, and factories had to sell milk for the public need instead of using it as an ingredient in foods. Nestlé purchased several factories in the U.S. to keep up with the increasing demand for condensed milk and dairy products via government contracts. The company’s production doubled by the end of the war. When fresh milk became available again after the war, Nestlé suffered and slipped into debt. The price of ingredients was increasing, the economy has slowed and exchange rates deteriorated because of the war.

An expert banker helped Nestlé find ways to reduce its debt. By the 1920s Nestlé was creating new chocolate and powdered beverage products. Adding to the product line once again, Nestlé developed Nescafé in the 1930s and Nestea followed. Nescafé, a soluble powder, revolutionized coffee drinking and became an instant hit.

With the onset of the Second World War, profits plummeted. Switzerland was neutral in the war and became increasingly isolated in Europe. Many of Nestlé’s executive officers were transferred to offices in the U.S. Because of distribution problems in Europe and Asia, Nestlé opened factories in developing countries in Latin America. Production increased dramatically after America entered the war. Nescafé became a main beverage for the American servicemen in Europe and Asia. Total sales increased by $125 million from 1938 to 1945.

Nestlé continued to prosper, merging with Alimentana S.A., a company that manufactured soups and seasonings, in 1947. In the coming years, Nestlé acquired Crosse & Blackwell, Findus frozen foods, Libby’s fruit juices, and Stouffer’s frozen foods. Nescafé instant coffee sales quadrupled from 1960 to 1974, and the new technology of freeze-drying allowed the company to create a new kind of instant coffee, which they named Taster’s Choice.

Expanding its product line outside of the food market, Nestlé became a major stockholder in L’Oréal cosmetics in 1974. Foreign exchange rates decreased, in turn reducing the value of sterling, the pound, dollar and franc. Prices of coffee beans and cocoa rose radically, presenting further problems for Nestlé. The company decided to venture into the pharmaceutical industry by acquiring Alcon Laboratories, Inc. While trying to deal with unstable economic conditions and exploring its new ventures, Nestlé faced the crisis of an international boycott.

Many organized groups began boycotting all of Nestlé’s products because they disapproved of Nestlé marketing its baby formula in developing countries. Problems like illiteracy and poverty caused some mothers to use less formula than recommended. In a watered down formula, vital nutrients are lessoned. Contaminated water presented another problem, since the formulas had to be mixed with water. The organizations argued that the misuse of formula resulted in the malnutrition or death of many infants in developing countries.

According to Nestlé the World Health Organization never made statements tying infant death or malnutrition with baby formulas. The company didn’t deny the superiority of breastfeeding and agreed that substituting breast milk for other substances could be very dangerous. Nestlé explained that breastfeeding and non-breastfeeding mothers in developing countries often gave their babies whole cow’s milk, tea, cornstarch, rice water or a mix of flour and water. These alternatives were very unhealthy and a nutritional baby formula was a better choice. Nestlé says that it has never discouraged breastfeeding when it was possible. Nestlé agreed to follow the International Code in developing countries in 1984, and the boycott was suspended. It resumed several years later when the organizations believed Nestlé was sending free or low cost baby formulas to developing countries. Nestlé said it only sent formula to countries that allow donations for orphans, multiple births, and babies with no access to breast milk. The company has stopped all public advertising for formula in developing countries for almost 20 years. The boycott continues to some extent to this day without satisfactory resolution.

By the 1980s Nestlé had a new Chief Executive Officer. The company focused on improving its financial situation and continuing to expand. In the one of the largest takeovers at that time, Nestlé bought Carnation for $3 billion and parted with any unprofitable businesses. International trade barriers diminished in the 1990s, opening trade with parts of Europe and China. In the 1990s Nestlé acquired San Pellegrino, and Spillers Petfoods of the UK. With the acquisition of Ralston Purina in 2002, the Nestlé-owned pet care businesses joined to form the industry leader Nestlé Purina PetCare. The leading in the food industry, Nestlé brings in $81 billion in overall sales and has 470 factories around the world. Nestlé will continue to grow, introduce new products and renovate existing ones. The company’s mission is to focus on long-term potential over short-term performance.

“The Nestlé global vision is to be the leading health, wellness, and Nutrition Company in the world”

vision

Mission Statement

“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”

1. Customers Yes2. Products or services Yes3. Markets No4. Technology No5. Concern for survival, growth, and profitability No6. Philosophy No7. Self-concept Yes8. Concern for public image No9. Concern for employees No

Mission Statement(Proposed)

“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 with the best technology around the globe. In addition to Nutrition, Health and

Wellness, Nestlé products bring consumers the vital ingredients of taste and pleasure that is matched by none. We want to excel as

market leader in the industry with an ethical culture and care for its employees.”

Brands

OUR BRANDS

Our Brands

We believe that food plays a key role in achieving a well-balanced person. And so our philosophy is Good Food for a Good Life!

At Nestlé, our products are developed keeping our consumers, their preferences and health in mind.

Millions of consumers the world over trust Nestlé products for good reason: when they choose a Nestlé product they have the satisfaction of choosing quality, taste, variety, convenience and the good nutrition.

Brand Names

Milk, Dairy and Chilled Dairy Beverages Bottled Water Baby Food Food Breakfast Cereals Chocolate and Confectionary

Milk,Dairy And Chilled Dairy

Welcome health, strength and happiness into your home with delicious and nutritious MILKPAK; standardized UHT milk that benefits from NESTLÉ’s expertise in bringing you the very best in health, wellness and nutrition.

MILKPAK is a trusted brand known throughout the country for its nutritious wholesome goodness and pure natural taste. To secure a happier and healthier future for your family, you need the support of a strong partner like MILKPAK, now fortified with extra strength of Iron, Vitamin C and Vitamin A that keeps you and your family strong!

Iron as an essential mineral helps in the formation of healthy blood and strengthens your immune system. Vitamin C helps the absorption of Iron in the body and Vitamin A is important for clear vision.

Beverages

Nescafe

Milo

Nestle Fruita Vitals

Stimulate your mind. Awaken your soul. Arouse your senses. Come alive with NESCAFÉ.

Every great tasting cup of NESCAFÉ is rich, aromatic and favourable. It is frothy, intense and indulging; bold and satisfying…

Serve it hot or icy cold; strong black or milky, the NESCAFÉexperiences are as diverse and unique as it’s many blends andvarieties. Ranging from the morning wake-me-up, to getting throughthe day, quiet reflective moments to unwinding, parties to simply hanging out with your pals, the NESCAFÉ magic goes beyond just a great tasting cup of coffee; it’s eye opening, thought provoking & stimulating. It stimulates one physically, mentally and emotionally touching the body, mind and soul. NESCAFÉ fits the bill A to Z.

Bottled Water

NESTLÉ PURE LIFE, is pure, safe and healthy drinking water for you and your family.

Every bottle of NESTLÉ PURE LIFE is produced with the Nestlé Safety System and is carefully sealed with a proprietary seal. Purity of the highest standards is matched by an optimal balance of essential minerals, enhancing the health and wellbeing of your family.

No wonder its Pakistan’s favourite water because more people trust it than any other brand.

For your convenience NESTLÉ PURE LIFE is available innon-returnable 0.5 litre and 1.5 litre bottles at retail outlets and Bulk bottles for Home & Office Delivery in 19 & 12 litre (12 litre is available at retail outlets).

Baby Food

Cerelac is a range of nutritious, easily-digested instant cereals. It is suitable as a complimentary food for infants from six months onwards, when breast milk or formula alone no longer meet the baby's growing nutritional requirements.

Breakfast Cereals

Breakfast has been declared the most important meal of the day – and with good reason. It’s the first meal after your body has been resting all night and this is the meal that is going to fuel the body and prepare it for the day ahead.

All of us: children, teens and even adults benefit from a good breakfast. A bowl of cereal is an ideal way to start your day!

Available in two varieties, NESTLÉ CORNFLAKES (275g and 150g boxes) and kids’ favourite chocolaty NESTLÉ KOKOKRUNCH (330g and 170g boxes) are delicious cereals made from wholesome grains and packed with Vitamins, Calcium and other minerals.

Try them with your choice of milk: MILKPAK or NESVITA to give you and your family a nutritious burst of energy and a great start to the day, every day. Breakfast has been declared the most important meal of the day – and with good reason. It’s the first meal after your body has been resting all night and this is the meal that is going to fuel the body and prepare it for ahead.

Chocolate and Confectionary

Chocolate is one of the most loved indulgences around the world. It is one of life's little pleasures, which delights the senses of all ages.

KITKAT is by far one of the most popular chocolates all around the world! It’s trademark red and white colours and the distinct KITKAT logo makes it one of the most recognised brands ever.

This light hearted treat of wafer fingers coated with delicious smooth chocolate, can be enjoyed in the signature style of snapping one finger at a time.

KITKAT Chunky is a single solid finger that is perfect for those who want a mouthful!

THE INPUT STAGE

Strategic Model Framework

Input Stage

Financial Analysis Liquidity Ratios:

1- Current Ratio = Current Assets / Current Liabilities2008-2009= 1.11: 12007-2008= 1.11: 1

Comparison over the years / Interpretation:

Current ratio is a general and quick measure of liquidity of firm. The current ratio of the firm is constant over the years.

2- Acid-test (or quick) Ratio =[Current Assets – Inventories] / Current Liabilities

2008-2009= 0.37: 12007-2008= 0.60: 1

Comparison over the years / Interpretation:

The quick test shows firm’s ability to pay its short-term obligations or current liabilities immediately. The quick ratio of the firm as is shown by the above calculations is increasing over the years, that is, the company is getting more liquid current assets to cover its current liabilities.

Financial Leverage (Debt) Ratios:1- Debt-to-Equity Ratio = Long term Debt / Shareholder’s Equity

2008-2009= 1.94 times2007-2008= 1.70 times

Comparison over the years / Interpretation:

This ratio indicates the proprietor’s claims of owners and outsiders against the firm’s assets. The purpose is to get an idea of the cushion available to outsiders and the liquidity of the firm.

The debt ratio of the company has increasing constantly over the years right from 2007 that is actually a negative sign for the company.

2- Debt-to-Total-Assets = Long term Debt / Total Assets2008-2009= 0.89 times2007-2008= 0.91 times

Comparison over the years / Interpretation:

It can be defined as how much sufficient our assets are in retrieving the total debts. The debt ratio of the company has decreased narrowly but still alarmingly high.

3- Long term Debt to Total Equity = Long term Debt / Total Equity2008-2009= 1.37 times2007-2008= 1.59 times

Comparison over the years / Interpretation:

It can be defined as how much sufficient our capital is in retrieving the long term debts. The debt ratio of the company has decreased but still very high. It is not good for the company.

Coverage Ratios:1- Interest Coverage Ratio = EBIT / Interest Charges

2008-2009= 10.47 times2007-2008 = 5 times

Comparison over the years / Interpretation:

The interest coverage ratio is a very important from the lender point of view. It indicates the number of times interest is covered by the profit available to pay interest charges. It is an index of the financial strength of the enterprise. A high ratio assures the lender a regular and periodic interest income. But weakness of the ratio may create some problems for the firm’s financial manager in raising funds from the debts sources. Gradual increase is satisfactory for the lending of the lenders.

Activity Ratios:1. Receivable Turnover Ratio(RT) = Annual Net Credit Sales / Avg.

Receivables 2008-2009= 119.5 times2007-2008= 85.37 times

Comparison over the years / Interpretation:

Receivables turnover ratio measures the number of times the amount is received from the debtors. So Receivables is good in 2009 as compare to 2008 which shows good performance of the company.

2. Receivable Turnover in days = Days in Year / Receivable Turnover2008-2009= 3 days2007-2008= 4 days

Comparison over the years / Interpretation:

Average collection period shows the average length of time it takes affirm to collect credit sales in days From above analysis it is clear that average collection period is decreasing which is a positive sign for the company.

3. Inventory Turnover (IT) Ratio = Cost of Goods Sold /Average Inventory

2008-2009= 9.2 times2007-2008= 10.3 times

Comparison over the years / Interpretation:

Inventory turnover ratio is less as compared to previous year. This ratio indicated that avg. inventory in a year is converted into sales in how many times.

4. Total Asset turnover Ratio = Net Sales / Total Assets2008-2009= 2.3 times2007-2008= 2.1 times

Comparison over the years / Interpretation:

It shows that firms must manage its total assets efficiently and should generate maximum sales through their proper utilization. As the ratio, increases there are more revenue generated per rupee of total investment in assets. So as time is going by this ratio is increasing which means company performance is up to mark in terms of profits.

5. Fixed Asset turnover Ratio = Net Sales / Fixed Assets2008-2009= 3.51 times2007-2008= 3.12 times

Comparison over the years / Interpretation:

As the ratio, increases there are more revenue generated per rupee of investment in fixed assets. So as time is going by this ratio is increasing which means company performance is up to mark in terms of profits.

Profitability Ratios:1- Gross profit margin = Gross profit / Net Sales

2008-2009=29 %2007-2008= 26 %

Comparison over the years / Interpretation:

Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage and it is increasing. The gross profit is sufficient to recover all operating expenses and to build up reserve after paying all fixed interest charges and all dividends.

2- Net Profit margin = Net profit after taxes / Net Sales2008-2009= 7 %2007-2008= 5 %

Comparison over the years / Interpretation:

This used to show the profitability without concern for taxes and interest. In 2009 net profit ratio increased by 2 % relative to 2008. Higher ratio shows firm’s high capacity to with stand adverse economic political conditions.

3- Operating profit margin = Operating profit / Net Sales2008-2009=14 %2007-2008= 12 %

Comparison over the years / Interpretation:

This used to show the profitability after paying all the operational expenses. In 2009 operating profit ratio increased by 2 % relative to 2008. Higher ratio shows firm’s high capacity to pay off its interest expenses.

4- Return on Asset = Net profit after taxes / Total Asset

2008-2009= 44 %2007-2008= 27 %

Comparison over the years / Interpretation:

The return on assets shows the net return on per rupee invested in assets. The company shows better returns as compared to previous year.

5- Return on Equity (ROE) = Net profit after Taxes / Shareholders’ Equity

2008-2009=40 %2007-2008=20 %

Comparison over the years / Interpretation:

This ratio indicates that on each rupee of shareholder how much is net earned. So, higher ratio is good sign. As the ratio shows the ROE has been doubled from previous year which is a very good sign.

Market Ratios

1. Earnings per share(EPS) = Earnings after tax/No. of shares outstanding

2008-2009=Rs.66.272007-2008=Rs.34.24

Comparison over the years / Interpretation:This ratio shows the worth of the share. As we can see that the worth of the shares has increased. EPS has increased from substantially during 2008-09.

2. Price/Earning Ratio (P/E)= Market Price Per Common Share /Earning Per Share

2008-2009=Rs. 18.82007-2008= Rs. 38.9

Comparison over the years / Interpretation:These ratios results show that in 2008 Rs. 38.9 was to be spent in order to earn Rs.1 profit. But in year 2009 the position had improved substantially showing that Rs. 18.8 have to be spent in order to earn Rs.1 of profit.

Ratios 2009 IndustryLiquidity Ratios:Current Ratio 1.11 1.19

Quick Ratio 0.37 .42

Solvency Ratios:Long Term Debt to Equity 1.94 .47

Long Term Debt to Assets 0.89 .126

Debt-to-Equity Ratio 1.37 1.1

Times-Interest-Earned Ratio 10.49 7.2

Activity Ratios:Inventory Turnover Ratio 9.2 4.56

Average Age of Inventory (Days)

40 102

Total Assets Turnover Ratio 2.3 1.23

Receivable Turnover Ratio 119.5 67.74

Average Collection Period (Days)

4 5

Fixed Assets Turnover 3.51 1.23

Profitability:Gross Profit Margin 29% 30.86

Net Profit Margin 7% 5.8

Return on Assets 44% 41.41

Return on Equity 40% 48.9

Earning per Share 66.27 91.62

Price-Earning Ratio 18.8 25.45

Growth Ratios

Sales +20%

Net Income +94%

Earning Per Share +94%

Key External Factors Weight Rating Weighted Score

Opportunities

Few and weak competitors in the market 0.12 2 0.24

Disposable income increased by 3.6% 0.07 3 0.21

Consumer expenditure on food has increased by 3.6% 0.09 4 0.36

Population density increased by 2.18% (per sq.km) 0.05 3 0.15

Credit policy can be adopted to increase sales 0.03 3 0.09

Potential in cold dairy market 0.02 3 0.06

All companies contribute only 2% to processed milk market 0.12 4 0.48

Pakistan as 7th largest milk producing country with milk output of 200 billion liters

0.12 3 0.36

Increase in consumer food industry by 14% 0.05 4 0.20

Threats

Engro and Shakarganj as major competitors 0.14 3 0.42

Market segment growth could attract new entrants 0.04 2 0.08

Taste of the consumer has already developed 0.02 2 0.04

Legal & ethical issues 0.01 2 0.02

Economic slow down can reduce demand 0.01 2 0.02

Effect of seasonality upon sales 0.05 3 0.15

Strong advertisement by major competitors 0.08 3 0.24

Total 1.00 3.02

External Factor Evaluation Matrix (EFE)

Competitive Profile Matrix

Nestle Pakistan Engro Foods Shakarkanj Foods

Critical Success factors

Weights Rating Weighted Score

Rating Weighted Score

Rating Weighted Score

  0.0 to 1.0 1 to 4 1 to 4 1 to 4

Market Share

0.12 3 0.36 2 0.24 1 0.12

Inventory System

0.05 3 0.15 2 0.10 2 0.10

Financial Position

0.20 4 0.80 2 0.40 3 0.60

Product Quality

0.15 4 0.60 3 0.45 3 0.45

Consumer Loyalty

0.07 3 0.21 2 0.14 1 0.07

Relationship with Suppliers

0.03 3 0.09 3 0.09 2 0.06

Global Expansion

0.06 3 0.18 1 0.06 1 0.06

Organization Structure

0.02 3 0.06 2 0.04 1 0.02

Production Capacity

0.05 3 0.15 2 0.10 2 0.10

Advertising 0.15 2 0.30 4 0.60 3 0.45Efficient cost Management

0.05 3 0.15 3 0.30 2 0.20

Product R&D .05 3 0.15 2 .04 2 .04

Totals 1 3.20 2.56 2.27

Internal Factor Evaluation Matrix (IFE)

Key Internal Factors Weight Rating Weighted Score

Strengths

Socially Responsible Company 0.03 3 0.09

Nestle products enjoy strong brand image 0.07 3 0.21

Sales force as a major physical resource strength 0.05 3 0.15

Quality product distribution networks in country 0.08 2 0.16

Net Profit increased by 94% in 2009. 0.20 4 0.80

Price earning ratio decreased from 38.9 to 18.8 0.05 3 0.15

Export Sales increased by 48% to PKR 3.3 billion 0.18 4 0.72

Weaknesses

Lack of awareness among target market 0.04 2 0.08

Nestle milk always stands at last because of low advertisement.

0.09 2 0.18

Revenue from confectionary decreased by 14% 0.08 2 0.16

Low credit sales and profit margin to retailers 0.05 2 0.10

Weak promotional activities through websites 0.05 3 0.15

Cant launch expensive brand due to low income groups 0.03 1 0.03

Total 1.00 2.99

THE MATCHING STAGE Matching Stage

SWOT MATRIX STRENGTHS-SSocially Responsible CompanyNestle products enjoy strong brand imageSales force as a major physical resource strengthQuality product distribution networks in countryNet Profit increased by 94% in 2009.Price earning ratio decreased from 38.9 to 18.8Export Sales increased by 48% to PKR 3.3b SWOT

WEAKNESS-W1. Lack of awareness among target market2. Nestle milk always stands at last because of low

advertisement.3. Revenue from confectionary decreased by 14%4. Low credit sales and profit margin to retailers5. Weak promotional activities through websites6. Cant launch expensive brand due to low income groups

OPPORTUNITIES-O1. Few and weak competitors in the market

2. Disposable income increased by 3.6%

3. Consumer expenditure on food has increased by 3.6%

4. Population density increased by 2.18% (per sq.km)

5. Credit policy can be adopted to increase sales

6. Potential in cold dairy market

7. All companies contribute only 2% to processed milk market

8. Pakistan as 7th largest milk producing country with milk output of 200 billion liters

9. Increase in consumer food industry by 14%

OS-STRATEGIES

I. More market penetration through effective sales force (S3+S1)

II. Develop and promote cold dairy products (S2+O6+O8+O3)

III. Create awareness and promote Green marketing concept among the people (S1+O4)

OW-STRATEGIES

I. Development of quality products to target the middle class (W6+O2+O3)

II. Increase the sales of confectionaries items through more credit sales to retailers to increase their profit margins (W3+W4+O5)

THREATS-T1. Engro and Shakarganj as major competitors

2. Market segment growth could attract new entrants

3. Taste of the consumer has already developed

4. Legal & ethical issues

5. Economic slow down can reduce demand

6. Effect of seasonality upon sales

7. Strong advertisement by major competitors

TS-STRATEGIES

I. Strong logistics to help counter the competitors through market development(S4+T2)

II. Related diversification to help in more global expansion(S7+T3)

TW-STRATEGIES

I. Strong advertisement campaigns to communicate the value of nestle products to the target customers better than competitors(W1+W2+T7

II. Increase promotional activities with more web development to lead the industry (W5+T1)

SPACE SPACE MATRIX

Financial StrengthNestle’s net sales increased by 20% in 2009 as compared to 2008 3Net profit increased by 94% in 2009 as compared to 2008 5Debt equity ratio changes from 63:37 to 66:34 3Price earnings ratio in 2009 was 18.8 as compared to 2008 38.9 5Return on capital employed increases by 40% 4Average financial strength 4

Industry StrengthIncrease in consumer food industry by 14% 5All companies contribute only 6% to processed milk market 4Market segment growth has attracted new entrants to increase profit potential 5Due to ease of entry in market, Engro foods, Shezand foods and Shakarganj are properly utilizing their resources

4

Average Industry Strength 4.5

Competitive AdvantageNestle enjoys strong customer loyalty -2Quality product distribution networks in country -1Nestle extended product life cycle is being ensured due to quality brand extension strategy -2Nestle product are market leaders in many product categories -2Average competitive advantage -1.75

Environmental StabilityEconomic slowdown can reduce the demand -2Fluctuating rate of inflation in the country -2Price range of competing products -1Average Environmental Stability -1.75

BCG

Brands Sales % Sales Profit%

Profit% Market

Share% Growth

Rate

Milk and Dairy 13993 34 1082 38 100 +15Beverages 7820 19 661 20 85 +10Bottled Water 9054 22 511 17 100 +3Confectionary and Chocolate 1646 4 150 5 31 -15

Baby Food 5350 13 331 11 60 -5Foods and Cereals 3293 8 270 9 40 8

Total 41156 100 3005 100 100

RELATIVE MARKET SHARE

ST RY

G R O W T H

GSM

RAPID MARKET GROWTH

STONG COMPETITIVE

POSITION

SLOW MARKET GROWTH

WEEK COMPETITIVE

POSITION

QUADRANT I QUADRANT II

QUADRANT III QUADRANT IV

THE DECISION STAGEDecision Stage

QSPM

AcquisitionsShangrilla & Young’s food

No Aquisitions

Key factors Weights AS TAS AS TAS

OPPERTUNITIESFew and weak competitors in the market 0.12 4 0.48 2 0.24

Disposable income increased by 3.6% 0.07 - -

Consumer expenditure on food has increased by 3.6% 0.09 3 0.27 1 0.09

Population density increased by 2.18% (per sq.km) 0.05 3 0.15 2 0.10

Credit policy can be adopted to increase sales 0.03 - -

Potential in cold dairy market 0.02 - -

All companies contribute only 2% to processed milk market 0.12 - -

Pakistan as 7th largest milk producing country with milk output of 200 billion liters 0.12 - -

Increase in consumer food industry by 14% 0.05 4 0.20 2 0.10

THREATS

Engro and Shakarganj as major competitors 0.14

Market segment growth could attract new entrants 0.04 3 0.12 4 0.48

Taste of the consumer has already developed 0.02 1 0.02 4 .08

Legal & ethical issues 0.01 - -

Economic slowdown can reduce demand 0.01 2 0.02 3 .03

Effect of seasonality upon sales 0.05 - -

Strong advertisement by major competitors 0.08

1.00

AcquisitionsShangrilla & Young’s food

No Aquisitions

Key factors Weights AS TAS AS TAS

STRENGHTS

Socially Responsible Company 0.03 - -

Nestle products enjoy strong brand image 0.07 2 0.14 1 0.07

Sales force as a major physical resource strength 0.05 - -

Quality product distribution networks in country 0.08 - -

Net Profit increased by 94% in 2009. 0.20 3 0.60 1 0.20

Price earnings ratio decreased from 38.9 to 18.8 0.05 2 0.10 1 0.05

Export Sales increased by 48% to PKR 3.3 billion 0.18 3 0.54 1 0.18

WEAKNESSES

Lack of awareness among target market 0.04 - -

Nestle milk always stands at last because of low Advertisement. 0.09 - -

Revenue from confectionary decreased by 14% 0.08 - -

Low credit sales and profit margin to retailers 0.05 1 0.05 3 0.15

Weak promotional activities through websites 0.05 - -

Cant launch expensive brand due to low income groups 0.03 2 0.06 4 0.12

Total 1.00 2.75 1.89

Matrix Analysis

Alternative Strategies Space BCG Grand Strategy Matrix

Count

Back ward integration X X 2Forward integration X X 2Horizontal integration X X X 3Product Development X X X 3Market Penetration X X 2Market Development X X 2Related Diversification

Unrelated diversification

Retrenchment

Divestiture

Liquidation

IMPLEMENTATION STAGE

Implementation Stage

Decision:

This seemed to an important step where we had to choose either to go for a horizontal integration or more product development. The interesting fact was that from 2008-2009 Nestle Pakistan introduced three new products into the market

The major new product launches the year 2009Included: NESQUIK milk enhancer, NIDO BUN YAD, LACTOGEN GOLD, and CERELAC fruit cereals.

Our Recommendation:

Considering this fact now we recommended Nestle Pakistan to Acquire Shangrila foods and young’s food to excel as a market leader for the year 2010.

Why Horizontal strategy:

Reason Behind:

Nestle SA expands globally either through its own brand or the acquisitions of National brands, considering this fact it seems a critical time for Nestle SA to expand through a National brand.

Evaluations

NESTLE annual financial reports

Sales and profits reports (on-line and off-line) based on sales of newly acquired companies.

Frequent management meetings between the Top Management at the cooperate levels through Evaluation reports

References

www.nestle.com

www.nestle .pk.com