DAVID SHAMILZADEH - ALLOU HEALTH & BEAUTY CARE INC (ALU)
CEO Interview - published 03/18/2002

DOCUMENT # PAE629

DAVID SHAMILZADEH, President and CFO of Allou Health & Beauty
Care, Inc., joined the company in 1988. Prior to joining Allou,
he was President and Chief Financial Officer of Daal Knitwear
Company, Ridgewood, New Jersey, a manufacturer of knit sweaters
to the trade. Mr. Shamilzadeh received a BA degree in Economics
from the University of North Carolina, Wilmington, North
Carolina.

SECTOR - PHARMACEUTICALS

TWST: Would you begin with a brief historical sketch of Allou
Health & Beauty Care, Inc., and an overview of Allou's present
operations?

Mr. Shamilzadeh: Our company was founded in 1962 as a regional
distributor of health and beauty aids in the metropolitan New
York area. In 1985 the Jacobs family bought a virtually bankrupt
Allou from the Founders. At the time, it had $27 million in
annual revenues and was losing money. Since then, we have grown
Allou from $27 million to over $550 million in revenues and we've
been profitable back-to-back for 16 years. Our equity went from a
deficit in 1985 to what is now $78 million in net liquid equity.
Today we're a distributor of nationally branded health and beauty
aids, prestige designer fragrances and cosmetics, prescription
pharmaceuticals, both branded and generic, and non-perishable
foods. We also manufacture salon quality hair and skin care
products from our own factory, which is based in Saugus,
California. These products are sold to the leading national mass
merchandisers and retail stores.

TWST: What were the elements that led to your success?

Mr. Shamilzadeh: We assembled an excellent management team of
guys and gals that are experts in the business of distributing
commodity consumables. The Jacobs family introduced a managerial
discipline that was lacking at this company when they purchased
it. We've also invested substantially in upgrading our technology
so that we can expand our business. We've become a national
distributor as opposed to a metropolitan distributor and we have
made some acquisitions along the way that have been beneficial to
the company. The acquisitions that we do commit to are those that
we find to be cash flow positive, anti-dilutive, and immediately
accretive.

TWST: You mentioned upgrading the technology. Could you tell us
what you've done there and what you intend to do?

Mr. Shamilzadeh: Presently, we're in the process of putting in a
system for distribution that will provide for radio frequency
inventory control, among other features, which will enable us to
bring merchandise in and out within two days as opposed to what
is now about five days. This will save about three days from the
time that the merchandise hits the dock until it's shipped.
That's a substantial savings of time, which results in improved
inventory turns.

TWST: Would you tell us about any competitive advantages that you
may have versus your competitors?

Mr. Shamilzadeh: There are many companies in the distribution
business. Since it is a narrow margin business, you have to be
extraordinarily efficient to be profitable. And efficiency is our
expertise. We're very proud that our sales to employee ratio is
$1.5 million.

TWST: Could you tell us something about the company culture?

Mr. Shamilzadeh: We have very little employee turnover. All of
our employees are in our stock option program. On an annual
basis, all employees receive options. Everybody from the entry-
level position on up to senior executives participate in the
stock option programs. We also provide our employees many
attractive fringe benefits. Our employees like their jobs, enjoy
the environment and contribute mightily to our success.

TWST: Is the Jacobs family still running the company?

Mr. Shamilzadeh: Yes.

TWST: Had they had a previous background in this business before
they came on board?

Mr. Shamilzadeh: Yes, actually, the Jacobs family owns a company
called Eveready First Aid. This company assembles and sells first
aid kits to government agencies as well as the general public.
The Jacobs were vendors to the previous owners of this company.

TWST: What are the best opportunities for Allou? What parts of
the business will grow the most, do you think, in the near
future?

Mr. Shamilzadeh: I believe that the pharmaceutical business will
continue to grow rapidly. The manufacturing side of our business,
which has the largest growth profit margins, of 55%-60%,will
start contributing to the bottom line in the near future.
Currently, we are looking at acquisition opportunities. Hopefully
in the not-too-distant future we'll be able to make a positive
announcement about that.

TWST: Is there anything else you'd like to say about your
strategic direction for the next few years?

Mr. Shamilzadeh: I think that Allou will continue to grow at a
double-digit rate, both top and bottom over the foreseeable
future. I have every confidence that from an investor
perspective, as Forbes magazine pointed out recently, Allou is a
jewel of a buy.

TWST: What problems could arise for the company? What might you
be worrying about, if anything, over the next few years?

Mr. Shamilzadeh: Actually, the type of business that we're in has
a very, very strong safety net, in that the merchandise we sell
are branded consumable products, which are supported with $1.1
Billion in advertising. In our business, if a product doesn't
sell, it's returnable to the manufacturer for full credit;
therefore, we are not faced with obsolescence issues. We monitor
our accounts receivables very carefully. Our average annual
write-off is approximately $250,000, which is de-minimus when
compared to annual revenues of $550 million.

TWST: What are the key financial indicators for the business?

Mr. Shamilzadeh: When compared to others in the industry, we have
the highest margins.

TWST: Do you do business overseas?

Mr. Shamilzadeh: No, it's all domestic.

TWST: Would you ever want to do business overseas?

Mr. Shamilzadeh: As a distributor, that would be a complication
for us. The manufacturing side of the business provides good
opportunities.

TWST: Do you believe that the investment community understands
the company as well as you would like it to at the present time?

Mr. Shamilzadeh: No. I hope this interview will help bring about
a greater understanding.

TWST: Could you sketch out a few of the milestones that you might
be passing over the next few years that investors should be
taking notice of?

Mr. Shamilzadeh: The first thing that investors should know is
that our liquid book value (our tangible book value free of all
intangible assets) approximates $11.00. Our stock is currently
trading around $6.70. I believe that to be an important
consideration for investors. Additionally, earnings per share for
this year is expected to be approximately $0.88; for next year,
we're looking at about $1.00. We are projecting revenues of about
$580 million for this fiscal year versus $540 last year. If
investors do their due-diligence, they'll find that Allou is a
sound value company that has predictable profits and revenue
streams.

TWST: Are there any things in the culture out there, any social,
economic or cultural factors that could affect people's buying
habits, people's aging, etc?

Mr. Shamilzadeh: The aging issue, obviously, does help us because
we will sell more pharmaceutical products.

TWST: Anything beyond that?

Mr. Shamilzadeh: The products we distribute are in demand
regardless of economic conditions. They are basic day-in, day-out
necessities.

TWST: Are there any areas within the company that you feel you
want to be working on?

Mr. Shamilzadeh: We have four distribution businesses and we have
four Presidents that manage each of those divisions. They are on
top of their game and doing an extraordinary job. We have a very
tight knit management team and we're very pleased with our
employees, both senior executives and middle management.

TWST: How long have you been CFO?

Mr. Shamilzadeh: I've been CFO of the company since 1990. I was
appointed President about two years ago.

TWST: What are you focusing on most in your daily work? What
concerns you most?

Mr. Shamilzadeh: What I look at is in trying to expand our
business through acquisitions and to obtain financing in order to
expand our organic growth. This is my daily focus. I work very
closely with marketing and sales in order in order to create an
atmosphere that spurs growth and I devote substantial time for
investor issues.

TWST: Could you give us the three or four best reasons why the
long-term investor in particular, should be looking at Allou?

Mr. Shamilzadeh: Number one, it's a highly undervalued stock. I
know that every CFO says that, but I'm supported in this
statement by Forbes, which in their March 4th issue indicated
that of all the undervalued stocks we're the best of the breed. I
believe that long-term investors can take comfort in the
knowledge that our product distribution revolves around branded
commodity consumables that have a strong track record for quality
value and profitability. Investors can also take comfort in the
knowledge that this is a predictable business, with little
downside.

TWST: Could you name a few of your suppliers?

Mr. Shamilzadeh: We buy from leading companies such as Procter &
Gamble, Colgate Palmolive, Unilever, Cheeseboro, Johnson &
Johnson, Merck, Pfizer, just to name a few.

TWST: Is there anything that you would like to add to what you've
already said?

Mr. Shamilzadeh: Just that if anybody needs information on the
company, they can feel free to contact me.

TWST: Thank you. (MC)

DAVID SHAMILZADEH
 President & CFO
 Allou Health & Beauty Care, Inc.
 50 Emjay Boulevard
 Brentwood, NY 11717
 (631) 273-4000
 (631) 273-5318 - FAX

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