INTERVIEW WITH MR. ABDUL MAJEED, CHAIRMAN OF NATIONAL FOODS LIMITED

KHALIL AHMED
(feedback@pgeconomist.com)

Nov 5 - 11, 2012

PAGE: PLEASE TELL US SOMETHING ABOUT NATIONAL FOODS LIMITED:

ABDUL MAJEED: National Foods Limited (NFL), founded in 1970, is Pakistan's leading multi-category Food Company today with over 250 different products in 12 categories. NFL holds ISO 9001, ISO 22000, and HACCP certifications along with SAP business technology to drive the company's strong commitment to quality and management excellence. NFL is an international brand sold in over 35 countries, and it aims to become a Rs. 50 billion company under its Vision 20/20 plan. NFL is dedicated to improving the well-being of society through continuous development of innovative food products and through a wide-ranging corporate social responsibility program. NFL believes in conducting its operations with strong ethical and moral standards. NFL's statement of code of ethics and business practices aims to provide guidance on carrying out its business-related decisions and activities. We wish to achieve excellence in all spheres of our operations for which business ethics form the basis. Any party entering any form of contract with NFL is bound to comply with the given guidelines. NFL's statement of code of ethics and business practices has the following 07 guidelines:

1. UNFAIR MEANS: Any use of bribery, kickbacks or any form of payment in cash/kind to obtain business-related or otherwise gainful benefit for the company is strictly prohibited. Excessive business gifts and entertainment also hold the same meaning and NFL does not approve of such payments.

2. RESPECT AND INTEGRITY: NFL believes in giving respect to individuals. We aim to operate in a manner that discourages discrimination, harassment and/or influence. Discrimination refers to favoritism based on a particular aspect of an individual's personality. Harassment includes gender harassment that creates an intimidating, hostile or offensive work environment causing interference with work performance. Influence could be an abuse of authority or the wish to alter personal beliefs.

3. CONFLICT OF INTEREST: NFL prohibits actions that are in conflict with the company's business interests. This may include, but is not limited to:

Providing assistance to the competition or holding ownership interests in a customer, supplier, distributor or competitor.

Making personal gains at company's expense.

4. CONFIDENTIALITY: NFL believes in confidentiality of information related to the company's business activities. The company expects employees not to disclose or divulge by any means confidential and commercially sensitive information except to the authoritative personnel requiring it. Furthermore, they should use their best endeavors to prevent the disclosure of such information by other people. The obligation of confidentiality shall survive the expiration or the cessation of contacts with National Foods Limited and is equally applicable to intellectual property.

5. STATUTORY COMPLIANCE: NFL believes in providing total support and cooperation to all governmental and regulatory bodies irrespective of the extent of prevalent enforcement.

6. FINANCIAL INTEGRITY: NFL believes in complete compliance with the accepted accounting rules and procedures. This includes, but is not limited to:

Transparency: NFL discourages any illegal activity for the purpose of any benefit to the company or others. All information supplied to the stakeholders and/or auditors must be authentic and transparent.

Disclosure: All transactions must be fully disclosed and must be for the purpose stated.

7. HEALTH, SAFETY AND COMMUNITY RESPONSIBILITY: NFL is fully committed to safety, health and responsibility towards the environment and community. All activities of NFL must portray responsibility towards the community and the nation as a whole. NFL seeks to employ procedures that are safe, healthy and environment friendly.

PAGE: COULD YOU GIVE US EXPORT, FINANCIAL AND NON-FINANCIAL PERFORMANCE OVERVIEW OF YOUR COMPANY AS COMPARED TO YOUR COMPETITORS?

ABDUL MAJEED: For National Foods, 2012 was another excellent year with a strong top line growth in sales of 29.9% and declaring the highest ever record profit before tax of Rs. 836 million. All our key categories like Recipe Mix, Sauces, Pickles, Desserts and Salt have shown stellar performances. The investments made behind our brands in Advertising & Sales Promotion activities are yielding good results and we have a decisive leadership in our key categories. Gross Margins have improved by 401 bps due to effective sales mix management, containment of fixed costs and strong Cost Control & Management. Our Export business also grew impressively with double digit sales growth and improvement in profitability by 34.86%. Our key export markets like North America, USA, and UK, sales have shown significant improvement. The year was full of exciting marketing and sales activities with the transition into bigger and better Advertising & Promotional activities; like television campaigns, attractive in-store displays and successful below-the-line activities. "Hamaray Khanay, Hamari Tehwar" has laid a strong emphasis on the importance of relationship and the role food plays in strengthening the bonds of love. "National Ka Pakistan" was also well lauded by the consumers. The Cost Control & Cost Management Program is now well embedded as a part of the business process. This year as well this program has yielded huge benefits to the company. Our managers have meticulously endeavored to remove the business wastes and focused on increasing business efficiencies and lean business processes. We reward and recognize individual employees and departments who have taken outstanding initiatives. We have successfully completed the Consolidation Phase which we embarked upon. This has helped us in modernizing our business, holding our position as market leaders in almost every category in which we operate. All this has alleviated us to enhance consumer value and superior products with attractive price offerings. Operating profits for the year grew by a handsome 86.1 % to Rs. 907 million, as compared to last year. The financial cost burden on the company has decreased significantly due to various treasury management initiatives and efficient working capital management. As a consequence financial costs have reduced by Rs. 55 million, which is almost 43.5% lower as compared to last year. Overall, we finished the year well ahead and surpassed all records set previously. Overall profit after tax was Rs 583 million with an impressive increase of 153% over the preceding year. EPS for the year is Rs 14.07 per share.

I am very pleased with the direction and momentum of our consolidation phase with a clear strategic alignment backed by operational excellence. It was an outstanding effort by our team in a difficult consumer environment.

PAGE: WHAT MAKES A FOOD COMPANY STAND OUT IN A CROWD?

ABDUL MAJEED: It is innovation and leadership. Let me tell you what we have done to stand out in a crowd.

RECIPE MIX: National Recipes an award-winning & the number one Masala Mix in Pakistan, is a consistent market leader. Ever since National Foods Ltd. Debuted the spice mix, our ingredients continue to be meticulously selected using only the very best quality whole spices, and blended to ensure the right combination for perfect results every time. The category turnover grew by 32%. The portfolio includes Bombay Biryani Masala, Achar Gosht, Karachi Gosht, Murgi Masala & Fish Masala. We remarkably boosted the brand profile and expanded our market share in the face of focused and effective marketing campaigns. Recipe Princess Cooking Contest in Karachi & Lahore has significantly enhanced the brand image in the hearts and minds of young college going girls. In addition "Lazzat ka Muqabala" was a mass level activity in Karachi. It was a mega event which created excitement in the minds of the consumers.

KETCHUP: The Sauces Category showed impressive performance. National's Tomato Ketchup turns the simplest of snacks into delicious meals. During Ramadan the company offered a Ketchup and Chat Masala Combo Pack, which was enthusiastically appreciated by consumers. The promotion has led to an incredible boost in sales outperforming competition. A new television campaign was aired highlighting the functional aspects of the brand.

FRUITILY: A fairly recent addition to our flagship "Fruitily"; a powdered drink with "Mineral Power" and available in four flavors has shown an overwhelming response from consumers. Taste trials have given remarkable feedback from customers on product taste and quality. The publicity campaign "Raho Refresh" through television commercial and street side hoardings created significant consumer awareness. Trade was equally energized with display drives. This brand does face challenges in the market place but we are confident that the brand has potential and needs to be nurtured properly as it faces stiff competition. Therefore we will continue to innovate and invest behind it in the coming years.

SALT: National Foods was the first company to manufacture iodized salt in Pakistan and we are now brand leaders, so much so that iodized salt is synonymous with National Foods. During the year, the category delivered strong volume growth. We believe that the salt business has significant potential. During the year we have enhanced our production capacity at the factory.

PICKLES: As market leaders, National Foods' pickles are legendary for its unique mouth watering flavors that make a difference to any meal. During the year the category has faced stiff competition. We have incurred capital expenditure by purchasing filling pump machine at our factory.

PAGE: WHAT DID YOU PARTICULARLY DO TO INCREASE EXPORTS?

ABDUL MAJEED: We have worked arduously to design the right business model in exports which will help National Foods to transform & evolve into a truly Multi- Local Multi-National Company. We believe that there are significant opportunities in the international market and we can create significant value for our shareholders and business partners. During the year our Board of Directors has approved the establishment of offices outside Pakistan. We are pleased to inform you that we have also obtained approval from the State Bank of Pakistan and are moving speedily in the execution phase. We plan to open offices in UAE, Canada and the United Kingdom during the next two years span of time. During last year Exports performance is healthy with a double digit growth despite the economic slow down in the international market. However we did face significant challenges due to abnormally high raw material prices of the Pakistani Rice available in the market. The decline in rice sales however was more than offset by the increase in sales of our core food categories that saw rapid growth during the year.

Product development remained an area of focus. The Chutneys range was expanded with unique products targeting ethnic and mainstream customers. The desserts category was increased with the introduction of fast moving, eye catching ethnic products. The Recipes, Pickles and Pastes categories were extended, resulting in increased sales during the year. Further, we engaged our distributors through First Distributor Conference USA-Canada. The conference highlighted major trends, opportunities and challenges impacting the business in this region.

PAGE: WHAT ARE YOU DOING IN TERMS OF CORPORATE SOCIAL RESPONSIBILITY?

ABDUL MAJEED: Corporate Social Responsibility (CSR) at National Foods is a strategic commitment and good corporate ethics are the hallmarks for our long term success. We aspire to benefit and give back to the community and people who have supported our business over the last forty two years.

I) COMMUNITY INVESTMENT

During the year multiple CSR projects were undertaken. These initiatives, along with other philanthropic activities culminated into a full CSR agenda that resonated with NFL's strategy and the aim of returning to the community.

AAGAHI ADULT LITERACY PROGRAM (ALP)

The Aagahi Adult Literacy Program is an initiative that was launched in 2005 by The Citizens Foundation (TCF) to target imparting education and literacy to mothers and older sisters of TCF students as well as other women in the community. The latest session of the program launched, witnessed 265 centers being opened for learners. Over 3,800 students enrolled into this phase alone, where the efforts made by hundreds of principals, teachers, area managers & coordinators at TCF were realized. This noble cause has seen its growth over the years in significant proportions, and the upcoming plans are even more ambitious. ALP, this year is experiencing even greater support, where the program is being rolled out by TCF, National Foods Ltd, Literate Pakistan Foundation, Shield Corporation, and most recently US Aid.

EMPLOYEE HEALTH PROGRAM

NFL launched its General Medical Examination and Hepatitis B Vaccination drive across nation-wide locations of the organization with a team of qualified health professionals. The purpose of this program was to offer employees the benefit of free medical check-ups entailing basic tests and analysis of their health as well as free-of-cost vaccinations for their protection against a highly prevalent disease, Hepatitis B.

II) PHILANTHROPIC INITIATIVES

INVESTMENT IN QUALITY EDUCATION

Education is an area that National Foods Ltd. constantly strives to invest in, understanding the importance it plays on developing a progressive community and its long-term impact on building local talent. On account of this, we have contributed Rs.7.5 Million to the Institute of Business Administration (IBA) as well as the Karachi School of Leadership with a donation of Rs. 0.7 Million.

Corporate Social Responsibility (CSR) at NFL is a strategy-oriented commitment the company has made both to its employees as well as the wider community. With values that favour sustainable initiatives and philanthropic projects, every year we give back to the community and people who have supported our business over the last 42 years. Our CSR projects are governed by the Triple Bottom Line approach whereby returns are measured in terms of People, Planet and Profits to ensure both effective social delivery and long-term sustainability.

2011-2012 saw the activation of multiple CSR projects. With the onset of devastating floods for the 2nd consecutive year, NFL partnered with the National Rural Support Programme (NRSP) to devise relief assistance plans and deploy goods as quickly and efficiently as possible for the victims. Relief goods were distributed to the flood struck people of Badin through our partner organization - the National Rural Support Programme (NRSP). Hearty contributions of around Rs. 7 Lakhs were made by employees as well as our local and international business partners for the purpose. These funds were utilised for the distribution of flood assistance items including sachets of Fruitily, bottles of drinking water and ration packs consisting of essential food items to the flood affectees. Moreover, medical supplies for the NRSP Free Medical Camp were also donated by our Board Member Mr. Ebrahim Qassim. Ready-to-Eat Chicken Biryani Meals were also distributed by NRSP, in collaboration with Mercy Relief Singapore, to the affected families.

The Aagahi Adult Literacy Program is an initiative that was launched in 2005 by The Citizens Foundation (TCF) to target imparting education and literacy to mothers and older sisters of TCF students as well as other women in the community. With a diverse audience ranging from young 10- year old children to mothers of age 39, the program has helped over 8,000 women since its inception. Literate Pakistan Foundation has been the education partner for this project, providing the curriculum along with training and monitoring services. In 2011, the Aagahi program was extended to include schools from far flung areas of Pakistan, covering at least 28 districts across the nation.

Phase 11 of the ALP, the latest session of the program, was launched at the beginning of the third quarter and witnessed 265 new centers being opened for learners. Over 3,800 students enrolled into this phase alone, where the efforts made by hundreds of principals, teachers, area managers and coordinators at TCF were utilized. To recognize this effort, NFL hosted an Annual Ceremony of Appreciation for these individuals at the Corporate Office.

This initiative has seen significant growth over the years and the targets for the upcoming phase are even more ambitious. The institutional support for ALP expanded even further this year with the inclusion of entities like US Aid to the existing list of supporters like TCF, National Foods Ltd, Literate Pakistan Foundation and Shield Corporation.

The HR Department, in collaboration with the CSR function, launched NFL's first General Medical Examination and Hepatitis B Vaccination drive across the nation. The purpose of this program is to offer employees free medical check-ups entailing basic tests and health analysis as well as free-of-cost vaccinations for protection against a highly prevalent disease, Hepatitis B. Collaborating with the Network of Organization Working for People with Disabilities (NOWPDP), we inducted a talented individual within the Department of Human Resources. This initiative stands symbolic of our dedication to equality and provided us with a platform to be true to our promise of being an Equal Opportunity Employer.

CSR is now deeply embedded in the NFL culture; we are focused on standing out as responsible corporate citizens of Pakistan by serving not only the NFL fraternity, and also the wider community. Our efforts are not only dedicated towards alleviation of issues in times of crisis, but also focus on building a bright future for the coming generations of Pakistan. This commitment to progress and society has helped us create a harmonious and positive environment in the company and kept our spirits high in even the most challenging of times.

PAGE: TELL US SOMETHING ABOUT SUPPLY CHAIN FUNCTION:

ABDUL MAJEED: The Supply Chain function has been an integral part of the success of National Foods over the years. The commitment of our Supply Chain experts to the consumer is the ultimate customer philosophy. The focus is on ensuring the delivery of the right quality and quantity of products in a cost and time effective fashion to consumers and this has greatly helped oil the wheels of our business. Our team has strived to bring in expedited improvements and innovations in the spheres of Customer and Supplier Relationship Management like improving time to market, developing customer driven feedback systems, focusing on metrics and executing demand management activities. Moreover, forming Strategic Alliances through Supplier Relationship Management is a crucial area of focus at NFL. The utility of these systems lies in their ability to harness the strength of our operations and improved organizational expertise, to set off a process of systematic value addition that enables strategic growth and expands our market access while strengthening our financial foothold. Attainment of the following hallmarks this year helps shed some light on the success of our activities so far;

Ensured 99.5% availability across Pakistan.
Achieved 100% export sales adherence despite significant order variations.
Delivered a substantial reduction in inventory turnover days.
Saved approximately Rs. 20 million through the use of an alternate raw material source.

The Supply Chain Team honed in handsome cost savings through planned reduction of inventory cycle, revisions in packaging suppliers and supplies and introduction of effective cost control in the logistics side of the business. The working capital performance was significantly improved through reformed procedures for inventory planning and the introduction of better supplier partnership mechanisms while exploration and negotiations with newer foreign suppliers greatly helped bring down the packaging costs. The team devoted great time and effort to improve documentation and goal setting systems so that greater supply chain efficiency could be ensured in future. NFL's production facilities are well equipped with state of the art machinery and processes that help fulfill our growing business needs. Cumulative efforts of man and machine come together under the banner of our thriving Operations Department catering to both local and international business orders. At Port Qasim, multi-faceted improvements were made not only to accommodate the growing needs of the organization, but also to enhance the work environment of our production facility. An additional conical mixer was added to the mixing facility, while two high speed fillers and a sachet machine were also installed in the weighing section of our plant. Moreover, an imported cargo lift with a carrying capacity of three tons and a new floor atop the spice building were also built in expectation of future business growth. The art of raw mango cutting remains a forte of NFL; this year a complete setup for mango cutting was designed and developed in-house and used for the processing of record levels of raw material. At the SITE factory, a fully automated ketchup filling line was successfully installed and commissioned and installed; this new filling line adds significant production capacity to the existing ketchup set-up. The SITE facility was also equipped with a brand new changing room for our floor staff in an attempt to ensure the existence of a hygienic and enabling work environment. Moreover, NFL inaugurated its Canteen area at the factory for the entire workforce of the SITE plant. This year the Muridke plant inaugurated its new office block constructed within the factory premises. The production line of our salt plant was also modified with the induction of imported circular vibrating sifters. Fuel saving was given significant consideration in the design of the new line and overall the plant modifications helped us optimise our fuel usage by up to 25%. The Production Teams at SITE, Port Qasim and Muridke facilities devoted great time and effort in bringing about process and systemic improvements that augmented the operational and financial well-being of NFL during 2012. The Port Qasim team tapped into the technical expertise of its workers, introducing a range of in-house inventions and modifications that successfully reduced process times and power usage, leading to reduced capital and tactical financial burden whilst bringing in exceptional productivity improvements. Through modifications in communication, feedback and accountability mechanisms, the workers were granted a more active allowance to bringing about effective process and system improvements in the factory; such attempts at worker empowerment greatly improved the productivity levels of the firm and helped control costs better.