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Rafhan Best Foods Limited

Annual Report 1999

COMPANY PROFILE

Rafhan Bestfoods Limited is an affiliate of Bestfoods, USA- one of the largest US

food companies, with worldwide sales of US$ 8.64 billion in 1999 and an operating

income of US$ 1.33 billion. Bestfoods has operations in more than 60 countries and

products marketed in more than 110 countries around the world.

Amongst the best known Bestfoods products are: Hellmann's and Bestfoods

mayonnaise and dressings; Mazola corn oil and margarine; Skippy peanut butter;

Knorr soups, sauces and bouillons; and many other brands. Bestfoods global Knorr

brand comprises one of the world's most extensive lines of products.

Rafhan Bestfoods Ltd. has brought high quality, great tasting and convenient foods

to Pakistan that are enjoyed around the world. The seven trusted brands in the

diverse product portfolio are:

Rafhan:

Custard, Jelly, Pudding, Ice-cream powder, Kheer Mix, Corn

Flour, Glucose-D, Jams, Corn, Canola and Sunflower oils.

Knorr:

Cubes, Yakhni, Soups, Noodles and Ketchup.

Energile:

Flavored drinks and Fiesta for children.

Bestfoods:

Mayonnaise and Sandwich spreads.

Skippy:

Ready-to-eat Jelly.

Glaxose-D:

Fortified glucose drink.

Caterplan:

Special range of products for hotels, restaurants and caterers.

Recently, Rafhan Bestfoods Ltd. has acquired Glaxose-D business from Glaxo

Wellcome Pakistan Ltd. With this acquisition Rafhan Bestfoods now has a major

share of Dextrose market.

For more information about Bestfoods, visit the company's web site on the Internet

at: http://www.bestfoods.com

CONTENTS

COMPANY INFORMATION

Board of Directors

Mr. Diego Bevilacqua

Mr. Suleman Daud

(Chairman)

Mr. R. Kenneth Henry

(Chief Executive & Managing Director)

Mr. John Gorman

Mr. M. Yousaf Malik

Mr. Ahsan Rashid

Mian Nisar Ahmad Mannoo

Mian Zulfikar Mannoo

Mian Mohammad Adil Mannoo

Mr. E. A. Nomani

Company Secretary

Mr. Waheed Aslam

Bankers

Citibank N.A.

ABN-AMRO Bank N.V.

Standard Chartered Bank

ANZ Grindlays Bank

Askari Commercial Bank Limited

National Bank of Pakistan

Muslim Commercial Bank Limited

Auditors

Ford, Rhodes, Robson, Morrow,

Chartered Accountants,

Legal Advisors

Surridge & Beecheno

Registered Office

52 KM, Lahore-Multan Road

Pernawan, Bhai Pheru

Pakistan

Head Office and

Shahpur Interchange,

Shares Department

14 KM, Multan Road,

Lahore-Pakistan

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the 2nd Annual General Meeting of the Shareholders of Rafhan

Best Foods Limited will be held on Monday, March 27, 2000 at its Head Office, Shahpur

Interchange, 14 KM, Multan Road, Lahore to transact the following business:

1) To receive, consider and adopt the Audited Accounts of the Company for the year

ended September 30, 1999 together with the Reports of the Auditors and Directors

thereon.

2) To approve final dividend on the ordinary shares of the company.

The directors have recommended a final cash dividend of 54% which together with

the interim dividend of 30% already paid, makes total dividend for the year as 84%.

3) To appoint Auditors for the ensuing year and fix their remuneration.

The present auditors Messers Ford, Rhodes, Robson, Morrow, Chartered

Accountants, retire and being eligible, offer themselves for reappointment.

By order of the Board

Waheed Aslam

Lahore: March 05, 2000

Company Secretary

NOTES:

1. The share transfer books of the Company will remain closed from March 21, 2000

to March 27, 2000 (both days inclusive) for the purpose of Annual General Meeting

and to determine entitlement for cash dividend. No transfer will be accepted for

registration during this period.

2. A member entitled to attend, speak and vote at the meeting shall be entitled to

appoint another person as his/her proxy to attend, speak and vote instead of

him/her, and a proxy so appointed shall have such rights with respect to attending,

speaking and voting at the meeting as are available to a member. Proxies in order

to be effective must be received by the Company not less than 48 hours before

the meeting. A proxy need not be a member of the Company. Form of proxy is

enclosed.

3. Shareholders are requested to notify changes of address, if any, immediately.

4. For identification, CDC account holders should present in case of individuals the

original National Identity Cards, or passport and CDC Account and participants'

ID numbers' and in case of corporate entity, Board of Directors resolution/power

of attorney with specimen signatures of the Nominee. In case of proxy enclose

an attested copy of his/her National Identity Card or passport, in case of individual

and the Board of Directors resolution/power of attorney in case of Corporate

entity.

DIRECTORS' REPORT

The Directors have pleasure in presenting the Annual Report, Auditors' Report and

Audited Accounts for the year ended September 30, 1999.

OPERATING RESULTS

1999

1998

A brief summary of the results is as follows:

(Rupees in thousands)

Profit before taxation for the year

192,419

153,724

Taxation

64,000

55,000

------------------

Profit after taxation

128,419

98,724

Unappropriated profit transferred from CPC Rafhan Ltd.

261,858

Unappropriated profit brought forward

329,794

Appropriations

Interim dividend @ 30% (1998 @ 25%)

18,473

15,394

Interim dividend @ 15%*

9,236

Proposed final dividend @ 54% (1998 @ 25%)

33,251

15,394

------------------

60,960

30,788

------------------

Unappropriated profit carried forward

397,253

329,794

------------------

Earning per share (Rupees)

==========

*Relates to the profits for the year 1998

DIVIDEND

The directors propose a final dividend of 54% which, together with interim dividend of 30%

already paid, makes total dividend for the year as 84%. The directors also declared an interim

dividend of 15% for the year of 1998 to increase the distribution rate to 40.54% of profit after

tax to save the Company from the payment of 10% tax on reserves.

CHIEF EXECUTIVE'S REVIEW

The accompany Chief Executive's review deals with the performance of the company during

the year and the future outlook. The directors of the Company endorse the contents of the

review

PATTERN OF SHAREHOLDINGS

The pattern of shareholding as at September 30, 1999 is annexed.

HOLDING COMPANY

Bestfoods USA, a company incorporated in USA, is the holding company owning 73.26% of

ordinary share capital of Rafhan Best Foods Limited.

DIRECTORS

Since the last Report, the following changes have taken place in the Board of Directors.

Messrs. Zahid Ali H. Jamall and Tariq Kirmani, nominee directors of The National Investment

Trust Limited resigned during the year and two casual vacancies arose.

Messrs. M. Yousaf Malik and Mian M. Adil Mannoo were appointed directors of the Company

during the year to fill the casual vacancies caused by the resignations of Messrs. Zahid Ali

H. Jamall and Tariq Kirmani.

COMPLIANCE WITH YEAR 2000

Company's AS/400 and all other PC based applications have successfully gone through the

year 2000 issue and are running properly.

AUDITORS

The present auditors M/S Ford, Rhodes, Robson, Morrow, Chartered Accountants, retire

and being eligible offer themselves for re-appointment.

For and on behalf of the Board,

Suleman Daud

January 18, 2000

Chief Executive & Managing Director

CHIEF EXECUTIVE'S REVIEW

It is a pleasure to share with you excellent business

results for the year ending September 30, 1999. This

was our second year of operations as an independent

company after the demerger from CPC Rafhan Ltd. in

1998. During the year, we witnessed economic slow

down, limited trade liquidity and declining consumer

purchasing power due to ongoing changes in the

regulations pertaining to imports, sales tax, and bank

credits. However, our team effectively managed several

new initiatives inspite of difficult business environment

and' initial phase of our organization's development.

We completed the acquisition of Glaxose-D business

in February 1999, and quickly integrated it to take

maximum advantage of peak selling summer season.

In addition, we streamlined our operations by

consolidating our offices, warehouses and production

facilities during the year. At the same time, we

maintained the growth momentum in our business and

exceeded last year's excellent results.

Operating Results

We achieved an unprecedented sales growth of 36%

during 1999. We had volume growth in all product

categories through distribution expansion, introduction

of new products, and effective marketing programs.

Our profit margins were under severe pressure due to

significant increase in local and imported raw materials

prices, and manufacturing expenses due to high

currency devaluation and substantial increase in

utility/fuel prices. We took several initiatives to offset

the impact of high input cost including optimization of

product formulation rationalization of packaging

specifications, and automation/consolidation of

production facilities. Major efforts were also made to

enhance our production efficiencies. Consequently, we

were able to improve our Gross Profit margins by 1.6%

of Sales over last year.

We enhanced our marketing investment to further

strengthen our brands and increase consumer pull for

our products. However, we reduced our operating

expenses including selling indirect marketing, and

G&A, from 9.8% of Sales in 1998 to 8.7% in 1999

through effective cost cutting measures.

The combined impact of the highest ever sales growth,

improvement in Gross Profit and reduction in operating

expenses resulted in a healthy Operating Profit growth

of 48% over last year.

We financed the Glaxose-D acquisition through long

term bank loan. Therefore, our interest expenses

increased in 1999, which impacted the profit after tax.

However, we still managed 30% growth in profit after

tax over 1998.

Glaxose-D Acquisition

We further strengthened our brand portfolio through

acquisition of Glaxose-D business from Glaxo Wellcome

Pakistan Ltd. in January 1999. This acquisition provides

us an excellent opportunity to leverage this strong 50

year old brand. In addition, it allows us to take advantage

of significant synergies in sales, distribution, marketing

and production, to expand our dextrose business. The

major challenge after the acquisition was to integrate

this new segment to our existing business quickly and

effectively. In few weeks time, we were able to appoint

approximately 200 distributors nationwide, arranged the

required raw material, made necessary production

arrangement, and streamlined our sales organization

to fully capitalize on the opportunities provided by this

new business. Consequently, we were able to ensure

product availability well before the start of the peak

selling period and by the Grace of Almighty, we exceeded

our first year targets of sales and profitability.

Oil Business

The oil business in general was under severe pressure

during the year due to worldwide price reduction and

glut in the local market. However, we achieved

unprecedented volume growth in this segment by

expanding our product portfolio and improving the supply

of raw materials. We launched "100% pure and natural"

Sunflower Oil, and imported Canola seed to meet the

demand in the premium healthy oil segment. We also

made focused efforts to expand distribution coverage

of our Corn Oil by streamlining distribution network in

major cities and appointing new distributors in small

towns.

Knorr

We continued our growth momentum in the Knorr range.

We introduced three new variants in Yakhni and

launched two spicy variants in Noodles to expand

consumer base. We continued to focus on recipe

oriented educational cooking program "Knorr Kay

Zaiqay" which helped us to educate consumers on the

multiple product usage. We expanded distribution of

"Pulao Cubes", which was launched last year. Our

effective consumer and trade promotions in Soups and

Noodles helped us to achieve high volume growth in

the retail segment. In addition, we expanded our sauce

range by introducing "Chilli Garlic Sauce", in line with

local eating habits, which has been well received by

the consumers. We also expanded availability of

Ketchup to all major cities and introduced the economy

pack to offer higher value for money to the consumers.

Desserts

We lost a major portion of our dessert business due to

government restrictions on marriage parties. However,

we reversed the declining trend by introduction of new

products, popular flavours and smaller pack sizes. We

relaunched "Kheer Mix" after making improvements in

product formulation and packaging. In addition, we

introduced sachet pack in Custard to increase product

penetration. We also introduced variants in Pudding

and Custard to cater growing popularity of chocolate

and strawberry flavours. These initiatives coupled with

effective consumer promotions helped us to achieve

double digit volume growth during 1999.

Dextrose

Our initiatives for timely preseason trade investment

as well as effective trade and consumer promotions

resulted in a very healthy sales growth in Energile. An

effective "Village Marketing" program was initiated

during the year. We worked closely with our Distributors

to ensure adequate and timely product availability in

major cities as well as remote areas of the country. We

also initiated export of dextrose range to the

neighbouring countries.

Dressings

We made focused efforts on "Below the Line" marketing

activities to generate consumer trials. We started an

extensive wet sampling campaign, and made recipe

demonstration in all major cities. We also held cooking

competitions in major girls colleges, and prominent

social clubs. New variants of Chicken, Vegetable, and

Chilli Garlic sandwich spreads were introduced. These

initiatives along with distribution expansion led to double

digit volume growth.

Caterplan

Our food service division "Caterplan" continued to grow at a very healthy rate. We

doubled the size of this important and growing segment of our business during 1999.

We expanded our coverage from 7 to 9 cities, and introduced new products in line with

local eating habits including "Curry Paste", "Blended Oil" and "Seasoning Powder". We

expanded our business with International Chain Accounts. We now supply several

important cooking ingredients, dressing and sauces to these fast food chains. We are

actively participating in a regional sales training program, which has helped our sales

staff to substantially increase their productivity.

Economic Value Added

In line with our Corporate initiative, we started implementation of Economic Value Added

(EVA) in our company to achieve superior business results. EVA is a management

approach which helps to increase shareholder value. Our company has developed a

comprehensive EVA training program to educate our employees in EVA concepts and

applications. We provided training to all managers during 1999 and will expand the

program to include other relevant employees next year.

Future Prospects

The economy of the country continues to be under pressure with ongoing increase in

utility and fuel prices as well as slowdown in manufacturing and service sectors. The

implementation of General Sales Tax at the retail level, lower trade liquidity, and declining

consumer disposable income will result in an even more challenging business environment.

Although the Government is taking various steps to stimulate the economy, the impact

of these initiatives will be evident in the longer term.

However, we believe there is a significant potential for packaged food in Pakistan and

opportunities for export to the Central Asian States. Our company is fully geared to take

maximum advantage of all local and export opportunities to further grow our business

and increase shareholder value. We will continue to focus on distribution expansion

innovative marketing campaigns, introduction of new products in line with local eating

habits, and effective cost reduction programs. In view of our ongoing initiatives, strong

brand equity, range of well-accepted products, and efficient production facilities, we are

confident that, Inshallah, we will maintain a healthy business growth in the future years.

Globally, Knorr is a well-known brand name with presence in more than 100

countries around the world. The brand is recognised for its high quality

food products such as Bouillon, Seasonings, Sauces, Dry Salad Dressings,

Soups, Pastes and Snacks. It's the world leader in Soups and Cubes.

Knorr was introduced in Pakistan in September 1992 with its first

product Knorr Chicken Cubes, Knorr Chicken Cubes are made from

real chicken, gained wide acceptance among housewives for the

preparation of savoury dishes. Normal, routine dishes made by housewives

were no longer boring, Knorr Chicken Cubes when added in

Daal/vegetables/rice gave these dishes a distinct chicken flavour, aroma

and substance which is well liked by the whole family.

Since then there is no looking back. Knorr has successfully expanded its

product line catering to the needs of Pakistani consumers, In 1993, Knorr

Soups and Instant Noodles were launched which became an instant hit among

housewives and children. Instant Yakhni was the next product from Knorr that

captured the imagination of Pakistani consumers in 1995. Knorr Instant Yakhni is

a broth made from real chicken that gives instant energy along

with great taste.

In 1998, Knorr Pulao Cubes were introduced providing the traditional tasting

pulao. It offers a convenient alternative to pulao yakhni because it is made of real

chicken and the right blend of spices and herbs. With Knorr Pulao Cubes,

housewives prepare a rich, authentic and traditional tasting pulao.

In the same year, Knorr entered the sauces category with Real Tomato

Ketchup. In 1999 Chilli-Garlic Sauce was added to Knorr Sauce product

line making it a hot favourite among young and old alike. The latest addition

to the Knorr family is the convenient 2-serving soup which helped

the product line to reach down.

With its innovative flair, understanding of consumer needs and high quality

standards, Knorr makes life so delicious for everyone.

DRESSING

Amongst the best known Best Foods products are mayonnaise and

sandwich spreads. Best Foods is an internationally acclaimed brand,

with products being sold under the Best Foods umbrella and is the best

selling mayonnaise in the world. Bestfoods introduced 'Best Foods Real

Mayonnaise' to Pakistan in 1996.

Best Foods Sandwich spreads are a delicious blend of selective top

grade eggs/chicken/vegetables and good quality vegetable oil that

enhances the taste of plain bread and sandwiches. These were

introduced in 1998. There are three variants in these ready to use sandwich

spreads - Chilli garlic, vegetable and chicken that are enjoying an impressive

market response. Chilli Garlic spread was first introduced by Rafhan Bestfoods

to cater to local tastes and complement eating habits.

DEXTROSE

Dextrose is an important contributor to the Company's business.

Energile and Glaxose-D are two major brands which over the years

have successfully gained wide consumer acceptance because of their

unique benefits. Energile is a unique energy drink which refreshes

brain and body available in five fruity flavours, enjoyed by all family

members. The Energile franchise extends beyond urban cities to include

rural areas also.

We have launched a new Energile Rushhara powder drink in 1999 which is more

refreshing than any other one step preparation drink. It is available in three

fruity flavours, Orange, Pineapple and Fruit Punch, all packed in multi-

coloured aluminium foil pouches giving an attractive and fresh image.

Recently, Rafhan Bestfoods Ltd. has acquired Glaxose-D brand. With this

acquisition Rafhan Bestfoods bas now become a strong leader in the Dextrose

market. Glaxose-D is a well established brand in Pakistan which offers

instant energy during and after illness. To expand the consumer base, we

have recently launched Glaxose-D Multivitamin. This is a dextrose powder

fortified with multivitamins and minerals packed in a single serving sachet.

It is also the first ever line extension in the 50 year history of Glaxose-D.

DESSERTS

Our desserts comprise of an exciting blend of products, which include

Custard, Quickset Jelly, Pudding, Kheer Mix and ice Cream Powder. All

these products are available in a variety of flavours and sizes to cater to the

need of all family members. Strawberry is a highly preferred flavour of Quickset

Jelly. Similarly, popular flavours in Custard Powder are Vanilla and Strawberry.

A new exciting addition to the Pudding family has been made with the introduction

of Chocolate flavoured pudding.

Rafhan desserts rank as one of the few truly well known food products in Pakistan.

The company has a wide distribution network and its established brands enjoy

a dominant market share in their respective categories. Over the years, these products

have created special consumer appeal and interest.

With continuous innovations and strict quality measures, these products

have managed to fight-off competition in desserts category very

effectively and have gained the reputation of being the best in the market.

Rafhan recently re-launched Rafhan Kheer Mix, a convenient, rich textured

dessert containing premium quality rice and nuts available in new attractive

packing. The latest addition to the dessert family is Ready-to-Eat Jelly

for kids, which also offers exciting flavours. Most of the Rafhan Desserts

enjoy Market Leader status and continue to maintain leadership through high

quality products blended with innovative marketing and sales strategies.