Fellow Shareholders:

I am pleased to present to you the Chairman’s report on National Flour Mills Limited (NFM) for the 2009 financial year.

In 2009, the local economy was not immune to the global financial crisis that started in 2008 and continued into 2009. As a result, most manufacturing, distribution and construction related businesses saw a slowdown in activity, and the local economy is estimated to have contracted by 3% in 2009. There was however an ease in inflation as the Central bank reported that for December 2008 to December 2009 the inflation rate was 1.3% - the lowest rate in forty years.The economic environment as well as the Company’s poor financial performance in the past few years forced us to implement cost reduction and containment measures. We also strengthened both the general and financial management of our operations and successfully re-implemented a new management information system. As a result, in spite of challenging economic conditions, National Flour Mills Limited showed resilience in 2009 and closed the year with a profit of $25.7 million before taxes of which $13.2 million was attributable to operations and $14.5 million to an actuarial Pension Surplus.The profit from operations represented an improvement over the performance in 2007 and 2008 and was achieved despite the slowdown in the local economy.

Profitability was also achieved even though sales revenue declined by 22%.This reduction in revenue is primarily attributable to reductions in the price of most of our products. In 2009, the gross profit margin increased by 10.4% from 7.5% in 2008 to 17.9%. At the same time there was also a reduction in selling, general and administration expenses of 8.3% over 2008.The turnaround in the Company is also evidenced by the improvement in our working capital and cash flow position. In 2009, your Board of Directors, mindful of the need to ensure the continued growth and prosperity of the Company for all stakeholders and in light of the reduced expected return on the Pension Plan’s assets took a decision to cap annual pension increases at a rate more in line with common practice.This, among other things, has resulted in an actuarial pension surplus of $14.5M which is recognized in the income statement in accordance with International Accounting Standards (IAS) 19.

The financial statements presented also reflect the restatement of our results for 2007 and 2008. The restatement was necessary to correct the following errors made in these years as a result of inadequate Management oversight : -An overstatement of inventory over the two year period by a total of $21.9M due to failure by the then Management to write off the difference between the physical inventory total and the amount recorded on the books.
-Failure to record credits and rebates due to customers amounting to $7.3M
-Failure to record bank overdraft interest for 2007 amounting to $4.011M

The above errors in our financial statements in 2007 and 2008 occurred primarily as a result of the loss of significant institutional memory and financial skills following the 2006 VSEP as well as the failed initial attempt at the implementation of a new management information system. Whilst management provided all the relevant documents and other evidence to substantiate these adjustments, our auditors nevertheless remained adamant in their opinion that the evidence advanced with respect to the inventory and the credits and rebates was inadequate. As a consequence, we had no alternative but to accept a qualified audit opinion. The Board and Management remain convinced however that to treat these adjustments in any other manner would not have been in accordance with International Accounting Standards.The recent successful reimplementation of our new information system provides management with the tools needed to effect tighter controls over all aspects of our accounting particularly receivables and inventory. These measures as well as measures taken to replace and strengthen the skills in the financial area will ensure that the errors highlighted above do not reoccur. In the coming months we intend to extend this integrated system throughout the organization which will result in greater efficiency, tighter control and further costs savings. We expect these efficiencies to translate positively to the bottom line.

National Flour Mills Limited is poised for growth and profitability well into the future. On behalf of the Board I extend our appreciation to Management and Staff for the tremendous effort made toward this long awaited and refreshing turnaround in the Company. I also wish to thank my fellow Board members for their continued support, and our shareholders and other stakeholders for their patience, sacrifice and unwavering support and loyalty of NFM over the past years.

GANESH SAHADEO
CHAIRMAN

Fellow Shareholders:

I am pleased to present to you the Chairman’s report on National Flour Mills Limited (NFM) for the 2009 financial year.

In 2009, the local economy was not immune to the global financial crisis that started in 2008 and continued into 2009. As a result, most manufacturing, distribution and construction related businesses saw a slowdown in activity, and the local economy is estimated to have contracted by 3% in 2009. There was however an ease in inflation as the Central bank reported that for December 2008 to December 2009 the inflation rate was 1.3% - the lowest rate in forty years.The economic environment as well as the Company’s poor financial performance in the past few years forced us to implement cost reduction and containment measures. We also strengthened both the general and financial management of our operations and successfully re-implemented a new management information system. As a result, in spite of challenging economic conditions, National Flour Mills Limited showed resilience in 2009 and closed the year with a profit of $25.7 million before taxes of which $13.2 million was attributable to operations and $14.5 million to an actuarial Pension Surplus.The profit from operations represented an improvement over the performance in 2007 and 2008 and was achieved despite the slowdown in the local economy.

Profitability was also achieved even though sales revenue declined by 22%.This reduction in revenue is primarily attributable to reductions in the price of most of our products. In 2009, the gross profit margin increased by 10.4% from 7.5% in 2008 to 17.9%. At the same time there was also a reduction in selling, general and administration expenses of 8.3% over 2008.The turnaround in the Company is also evidenced by the improvement in our working capital and cash flow position. In 2009, your Board of Directors, mindful of the need to ensure the continued growth and prosperity of the Company for all stakeholders and in light of the reduced expected return on the Pension Plan’s assets took a decision to cap annual pension increases at a rate more in line with common practice.This, among other things, has resulted in an actuarial pension surplus of $14.5M which is recognized in the income statement in accordance with International Accounting Standards (IAS) 19.

The financial statements presented also reflect the restatement of our results for 2007 and 2008. The restatement was necessary to correct the following errors made in these years as a result of inadequate Management oversight : -An overstatement of inventory over the two year period by a total of $21.9M due to failure by the then Management to write off the difference between the physical inventory total and the amount recorded on the books.
-Failure to record credits and rebates due to customers amounting to $7.3M
-Failure to record bank overdraft interest for 2007 amounting to $4.011M

The above errors in our financial statements in 2007 and 2008 occurred primarily as a result of the loss of significant institutional memory and financial skills following the 2006 VSEP as well as the failed initial attempt at the implementation of a new management information system. Whilst management provided all the relevant documents and other evidence to substantiate these adjustments, our auditors nevertheless remained adamant in their opinion that the evidence advanced with respect to the inventory and the credits and rebates was inadequate. As a consequence, we had no alternative but to accept a qualified audit opinion. The Board and Management remain convinced however that to treat these adjustments in any other manner would not have been in accordance with International Accounting Standards.The recent successful reimplementation of our new information system provides management with the tools needed to effect tighter controls over all aspects of our accounting particularly receivables and inventory. These measures as well as measures taken to replace and strengthen the skills in the financial area will ensure that the errors highlighted above do not reoccur. In the coming months we intend to extend this integrated system throughout the organization which will result in greater efficiency, tighter control and further costs savings. We expect these efficiencies to translate positively to the bottom line.

National Flour Mills Limited is poised for growth and profitability well into the future. On behalf of the Board I extend our appreciation to Management and Staff for the tremendous effort made toward this long awaited and refreshing turnaround in the Company. I also wish to thank my fellow Board members for their continued support, and our shareholders and other stakeholders for their patience, sacrifice and unwavering support and loyalty of NFM over the past years.

GANESH SAHADEO
CHAIRMAN