Your Directors are pleased to present their report and financial statements for theyear ended 31st December 2015.
Financial Results & State of Companys Affairs
| ||( Rs in Million) |
|Particulars ||2015 ||2014 |
|Net Sales ||81232.7 ||98062.7 |
|Add: Other operating revenues ||520.4 ||485.7 |
|Less: Operating expenses ||67800.3 ||80177.5 |
|Less: Impairment loss on fixed assets ||282.2 ||81.1 |
|Less: Net provision for contingencies (from operations) ||333.1 ||364.3 |
| || || |
|Profit from Operations ||13337.5 ||17925.5 |
|Add: Other income ||1100.9 ||873.2 |
|Less: Finance costs ||32.9 ||142.3 |
|Less: Employee benefit expense due to passage of time ||753.2 ||648.3 |
| || || |
|Less: Net provision for contingencies - others ||301.5 ||249.5 |
| || || |
|Profit before corporate social responsibility exceptional items and taxation ||13350.8 ||17758.6 |
| || || |
|Less: Exceptional items Charge/(Credit) ||5008.4 ||(70.0) |
|Less: Corporate social responsibility expense ||206.1 ||85.1 |
| || || |
|Profit before taxation ||8136.3 ||17743.5 |
|Less: Tax expense ||2503.6 ||5896.6 |
|Profit after taxation ||5632.7 ||11846.9 |
|Add: Profit brought forward ||18825.2 ||15328.8 |
|Amount available for appropriation ||24457.9 ||27175.7 |
|Less: Interim dividends ||2892.5 ||4869.0* |
|Less: Proposed final dividend ||1783.7 ||1205.2 |
|Less: Dividend distribution tax ||956.3 ||1091.6 |
|Less: Transfer to general reserve ||- ||1184.7 |
|Surplus in statement of profit and loss ||18825.4 ||18825.2 |
|Key ratios || || |
|Earnings per share ( Rs ) ||58.42 ||122.87 |
|Dividend per share ( Rs ) ||48.50 ||63.00 |
"Net Sales" for the year has decreased by 17.2% largely due to the impact ofMAGGI Noodles issue. "Net Domestic Sales" decreased by 18.3%. Net Sales worth Rs3034.0 million have been reversed during the year in relation to MAGGI Noodles stockwithdrawn from trade partners and market. "Export Sales" decreased by 1.3%impacted by MAGGI Noodles issue and lower coffee exports partially offset by export ofmilk and nutrition products.
The Impairment Loss on Fixed Assets of Rs 282.2 million relates to various items ofplant & machinery that have been brought down to their recoverable value uponevaluation of future economic benefits from their use.
The Company supplemented the Provision for Contingencies with further amount of Rs634.6 million (net) for contingencies resulting mainly from issues which are underlitigation/dispute and other uncertainties requiring management judgement. This was afterthe reversal utilisation/settlement of contingency provision of Rs 160.0 million due tothe satisfactory settlement of certain litigations and settlement of obligations underfree replacement warranty for which provision is no longer required.
The Exceptional items - Charge for 2015 of Rs 5008.4 million relates to loss on MAGGINoodles stocks withdrawn including incidental costs thereto and estimates of other relatedcosts incurred exclusively in the ordinary course of Company business.
Amount Transferred to Reserves
In view of the exceptional circumstances during the year 2015 and the good reservesposition no amount has been transferred to reserves.
The Board of Directors has recommended a final dividend of Rs 18.50 per equity share(Face value Rs 10 per equity share) for 2015 amounting to Rs 1783.7 million. This is inaddition to the interim dividends of Rs 14.00 per equity share and Rs 16.00 per equityshare paid on 2nd June 2015 and 23rd December 2015 respectively. The total dividend for2015 aggregates to Rs 48.50 per equity share amounting to Rs 4676.2 million.
Despite exceptional toll that MAGGI Noodles crisis took on the Companysfinancials your Companys optimism about the future helps it with a healthy dividendpayout.
Exports during the early part of the year showed some revival. However the Europeanmarkets continued to see tough conditions. Overall exports picked up during the firsthalf but were impacted by the repercussions of the MAGGI Noodles issue in India. Exportsof other products remained largely unaffected and total exports remained flat at Rs6355.3 million as compared to Rs 6441.8 million. This was on account of good sales ofInstant Coffee and Infant Nutrition products to affiliate companies. Exports of culinaryproducts did see some early uplift in the major markets but fell eventually due to theMAGGI Noodles issue. Exports of Instant Tea picked up significantly during the year withsubstantial quantities going to Philippines Thailand and Ireland. We are now working withsome new customers and developing newer grades which should help to further build theInstant Tea sales. Exports of Coffee to Turkey and Romania remained significant. Ourefforts in developing exports of quality coffees meanwhile continued to earn usrecognition in the form of Awards from the Coffee Board.
Contribution to the Exchequer
Your Company has been a leading tax payer of the country and over the years has beenenabling significant contribution to various taxes. During the year 2015 the Companythrough its business enabled tax collections at Central and State level close to Rs 20billion in aggregate.
Your Companys objective is to provide consumers with the best tasting mostnutritious choices in a wide range of food and beverage categories and eating occasionsand help consumers maintain optimum Nutrition Health and Wellness. Your Company hasaccess to the extensive global network of Nestl R&D. This is a competitive advantagein the rapidly emerging areas of technology and scientific research and enables yourCompany to provide safe and nutritious products of very high quality.
The year started well and then faced an unusual crisis. Your Company handled thesituation with integrity determination and transparency and by the end of the year itclosed the year on a positive note.
The year commenced with work on reshaping and evolving the product portfolio whilecontinuing to stay focused on improving efficiencies.
However business was severely disrupted by the MAGGI Noodles issue and continued tosignificantly impact business for a major part of the year.
The impact of the MAGGI Noodles issue was felt in several dimensions and across ourvarious businesses.
Despite the tough situation your Company closed the year reporting an improvement inthe sequential performance both in terms of Sales and Margins.
The business of Prepared Dishes and Cooking Aids has been continuouslyimproving volumes and strengthening connect with consumers in the previous years. Over thepast 32 years MAGGI has understood the changing lifestyles of generations and providedproducts that the family enjoys. It has become the most relevant trusted and valuablefood brand in India. During the year it faced an unprecedented crisis and business wasdisrupted. This situation had a rub-off effect on other products under the MAGGI brand andvolumes were negatively impacted.
Reports that tests initiated by a State Food Authority on one sample pack of MAGGINoodles found elevated level of lead and that the NO ADDED MSG declaration onthe pack was considered misleading created confusion for consumers.
Your Company does not add Monosodium Glutamate - MSG (flavor enhancer E621) in MAGGINoodles and clarified that NO ADDED MSG was factually correct and not inviolation of regulatory norms.
Your Company provided details and reports from NABL accredited laboratories toestablish that it has very strict quality monitoring norms and that presence of lead ismonitored and always within permissible limits.
Developments and growing concerns about the product led to an environment of confusionfor consumers to such an extent that on 5th June your Company announced voluntarywithdrawal of MAGGI Noodles from the market shelves despite the product being safe. Over35000 Tonnes of the product was withdrawn and destroyed. This was done to reassureconsumers that their trust has always been of utmost importance for the Company.
Later the same day FSSAI placed a ban on the manufacture and sale of MAGGI Noodles.
Results of the internal and external tests for over 3500 samples that your Companytested at external and its own accredited laboratories showed that lead levels were wellwithin the limits specified by food regulations and that MAGGI Noodles are safe to eat.
As part of an effort to resolve the MAGGI Noodles issue your Company approached theHonble Bombay High Court raising issues of interpretation of the Food Safety andStandards Act and also seeking review of the ban order.
After facing a very challenging period your Company re-launched MAGGI Noodles on theauspicious eve of Deepawali and on the day of Dhanteras on 9th November. This was doneafter the ban was set aside by the Honble Bombay High Court and after the reports ofthe three accredited laboratories mandated by the Honble Bombay High Court found100% of samples tested clear with lead much below permissible limits.
Your Company created a cross functional team to plan and execute the fastest andstrongest re-launch and crashed timelines by more than half.
During the time MAGGI Noodles was not in the market your Company continued to talk tothe consumers #WeMissYouToo. Closer to the re-launch MAGGI IsSafe Has Always Been campaign was rolled out to addresses consumer concerns. Afterthe re-launch Welcome Back MAGGI communication echoed the consumer sentimentacross the country.
In an innovative move your Company partnered with Snapdeal to sell 60000MAGGI Welcome Kits through e-commerce. These were all sold out within 5minutes after the sale opened. Close to 10 lakh consumers had pre-booked to participate inthe sale.
The consumers overwhelmed your Company with their love and support and within 53 daysby the end of December according to Nielsen figures MAGGI Noodles had already recoveredits market share from 0% on 9th November to 33.3% on 31st December 2015.
Your Company is confident that with immense support that it has received from everyoneacross the board and from all its consumers MAGGI Noodles will bounce back and the comingyear should see it climbing back to consolidate its leadership in the category.
The Chocolate and Confectionery business worked on improving consumerinsights and has been working with Nestl R&D to innovate and renovate products thatwill strengthen its portfolio. The focus was also on portfolio optimization for long termbenefit though it impacted short term growth.
Towards the end of the year it launched MUNCH NUTS a new extension of the ever popularMUNCH.
New MUNCH NUTS is the first of its kinds in the category today: with the combination ofcrunchy wafer roasted peanuts and indulgent peanut crme. It comes in an easy packagingthat allows consumers to un-wrap the pack for a quick bite and then twist wrap theremaining for a second serve later.
While MUNCH is Indias biggest wafer brand today and loved by consumers MUNCHNUTS adds an innovative dimension to the consumption experience and is an industry-firstproduct.
2015 was another good year of growth for the Coffee and Beverages businesslargely coming from increased consumption of NESCAF Classic outperforming the industryaverage. It also retained its top 6 Hot Beverage brand positon in Brand Equitys MostTrusted Brands Report for 2015.
NESCAF instant coffee continued to build on the communication idea "It allstarts with a NESCAF". The successful Comedian campaign was followed upwith the Cartoonist campaign in 2015 and continued to create the buzzand the connect amongst youth.
The first of its kind digital property "MTV Presents NESCAF Labs" waslaunched as a strategic platform for youth to collaborate and showcase their talents whilebeing mentored by the very best in the industry along their journey www.mtvindia.com/labs.
Product sampling was scaled up during the year and reached over 11 millions cups acrossmajor universities and towns for NESCAF. Product sampling was also a key driver forNESTEA Iced Tea showcasing its great taste.
NESCAF Sunrise revamped its packaging to be more contemporary and strengthened itscore coffee credentials with the Slow Roasted for a richer aroma communication.It was rolled out across stores with an impactful visibility campaign and extensiveproduct sampling.
Nutritional needs not only evolve with age they also depend on the nutrition foundationlaid in the early years of our lives. Nutrition requires strong insights and science basedexpertise. The Milk Products and Nutrition business sustained its performanceand focused on consumer insights and leveraging expertise in science based nutrition.
During the year your Company launched CERELAC stage 5 to address picky eating amongstinfants of 18-24 months of age. This product provides the benefit of 5 grains and fruitsand further strengthens the CERELAC portfolio.
In India the practice of exclusive and continued breastfeeding is still low despitehigh initiation rates. 96% of Indian mothers initiate breastfeeding but at 6 months thenumber of exclusively breastfed babies falls to <30%. In urban areas that number iseven lower at 17%. Nestl Start Healthy Stay Healthy reached out to thesupporting eco system of mothers to emphasize the importance of their role in continuedbreastfeeding with the objective to build greater awareness and advocacy. The key messagewas
Breastfeeding is not just a mothers responsibility. The campaignreceived
9.1 million views out performing industry benchmarks.
Your Company believes that the increasing demand for packaged milk in recent yearsreflects the consumers aspiration for better value in dairy products as well as theneed for greater convenience to suit their changing lifestyles.
Your Company has a clear strategy for growth. Nestl R&D and expertise in dairytechnology will be a strong competitive advantage.
The focus is on providing consumers with high quality safe and nutritious productsthat add value to them and your Company is investing in high quality UHT Milk as well ashigh quality Dairy Whiteners.
Sales for Nestl a+ UHT Milk are steady and sales for EVERYDAY Dairy Whitenerthat was repositioned last year into the much larger segment are in line with plans. Thereis sustained preference for Nestl a+ SLIM and Nestl a+ Nourish.
During the year
Nestl Professional regained traction on Beverage Solutions. Itsinnovation "New NESCAF" solution is doing well in offices."Chef2Chef" program was active for Savory Flavors and Dessert solutions panIndia and growth was satisfactory. Nestl Professional increased its penetration in KeyAccounts by entering in Airline companies Cinema chains and QSRs (Quick ServiceRestaurants).
Commitment to Nutrition Health and Wellness
In line with its objective to provide consumers with the best tasting most nutritiouschoices in a wide range of food and beverage categories and help them maintain optimumNutrition Health and Wellness your Company has been rolling out initiatives that helpthem make more informed choices.
Your Company places high priority on providing consumers with nutrition information onfood labels to make informed choices.
It has already covered the confectionery portfolio Beverages portfolio UHT MilksSweetened Condensed Milk and Dairy Whitener with GDA labelling.
During the year your Company enhanced labelling of products with QR codes. This enablesconsumers to use their mobile phones to scan the QR code on the label for information onNutrition Environment and Community as relevant to the product.
During the year your Company also created The Design Lab to inspire astrategic shift in packaging design keeping the consumer experience in mind and to achieveoperational excellence.
Review of economic scenario & outlook
The economic environment in the year gone by remained largely neutral. Growth momentumof the Indian economy remained subdued though the sentiments for potential and revivalremained positive.
In the backdrop of the troubled world economies impacted by global slowdown Chinafears and collapsing commodity prices India remained a positive story.
India too had its share of troubles including poor monsoons but benefited from thesoftening commodity and crude prices and inflation was controlled.
Nevertheless business sentiment as well as consumer sentiments remained mellow andthere was lack of consensus on whether recovery in the Indian economy was round the corneror will remain elusive for some more time.
The FMCG industry remained under pressure as subdued consumer sentiments affectedpurchase decisions and concerns increased on the slowing down of the rural economy.Earnings for most companies were soft through the year and struggled for volume growth.
The current emphasis on Make in India investments in acceleratingdevelopment of transport infrastructure pro-reform approach and efforts at fiscalrationalization are all positive indicators and your Company is optimistic that theeconomy will pick up with a lag.
The focus on financial empowerment of people at the bottom of the pyramid by ensuringbank accounts for them the direct benefit transfer scheme and similar initiativesindicate the Governments efforts to improve the quality of life of its people.
Improving the quality of life is a complex issue and India will have to face variousand significant challenges. Key amongst them is the challenge of health and nutrition forits people which is impacting people across the income pyramid and adversely impactingtheir productivity and output.
Improving balanced nutrition is only one of the challenges. There is also increasedconcern that while the availability of land water and other renewable resources israpidly getting depleted the population pressure is intensifying and that this willimpact nutrition security.
There is an urgent need to improve the supply chain for transportation of perishablecommodities reduce wastage and create incentives that accelerate the transfer oftechnology and knowledge to improve productivity and sustainability.
The fundamentals of the Indian economy continue to be good and there is sufficientreason to believe in the growth potential. However execution of the reforms agenda andbeing able to restart the investment cycle will have a major bearing on Indiaseconomic performance.
Outlook Risks and Opportunities
The economic and business environment is fast evolving and with the rapidtransformation of technology and the impact of cultural changes society and consumers arealso transforming on multiple dimensions.
Increased exposure improved education and awareness as well as changing aspirationsat various levels of the income pyramid and the urban rural divide are creatingopportunities that organisations need to understand and prepare for the emerging future.
Your Company has significant strengths and being Nestl is in itself a very hugestrength because the brand brings with it 150 years of trust and credibility. It hasexcellent capabilities in ongoing R&D and the benefits of this and the expertise inscience based nutrition and technology flow to Nestl India. The General LicenceAgreement gives it access to Nestl Groups proprietary technology / brandsexpertise and extensive centralized Research and Development facilities.
The Company is an integral part of Indian society and has state-of-the-artmanufacturing facilities efficient supply chain sales automation with extensive reachand coverage in its target markets strong brands and capable employees and partners whoare committed to provide value with high quality and safe food products.
However the Indian market is complex and demands a very efficient and complex supplychain configuration as well. This is further complicated by cascading indirect taxes.
The product portfolio of your Company needs to be strengthened by acceleratedinnovation and renovation to stay relevant to the emerging and differentiated needs of theconsumers.
Your Company is operating in an industry that faces price volatility in raw materialsand is dependent on agricultural commodities that need to meet stringent quality standardsand on natural resources where alternatives are not viable. There is also increasingcompetition in processed foods and regulatory framework is still evolving.
Clearly even though there is slower than anticipated momentum in the economy thereare opportunities. Consumer lifestyles are changing and there is increasing demand forvalue-up and premium products and your Company can leverage Nestl technology to developmore science based products that provide superior benefits of Nutrition Health andWellness at appropriate price points. Technology is throwing up immense opportunities tounderstand consumers and engage better with them and digital and e-commerce can holdimmense potential and strategic significance for your Company.
Your Company is ranked amongst the best for the strengths of its sales and distributionnetwork. During the year it was very evident that it also has amongst the most committedand loyal trade partners including the retailers. Your Company can be proud of the immensecommitment and support that it received from its sales partners during the MAGGI Noodlescrisis.
Despite the impact on their business they were extremely supportive and enabled us tospeedily complete the withdrawal without hampering the sale of your Companys otherproducts.
You can be proud that your Company had almost zero attrition amongst the businesspartners during this time.
Your Company is also proud of the speed with which your trade partners and retailershave enabled the very successful re-launch of MAGGI Noodles into the market.
The withdrawal of MAGGI Noodles from the markets also impacted customers in theorganised trade. Despite this your Company has received complete support during the periodwhere we continued engaging with them to improve sales in other categories.
Your Company realises the growing importance of e-retailing and continues tosuccessfully engage with the leading e-retailers and are making good progress inincreasing our share in the categories we operate in.
Technology Quality and Safety
Your Company is committed to providing consumers with high quality products. It followsstringent quality assurance norms has state-of-the-art technology and high degree ofautomation and is continuously improving them to ensure a 60:40 taste preference with anutritional advantage over competition. Sustained delivery on this commitment has ensuredthat your Companys products are trusted by consumers. During the year your Companycontinued its focus on driving the quality culture and total productivity managementacross our factories.
Your Company benefits from access to the Nestl Group R&D and technical expertiseas well as the best practices available from the global network.
All the factories of your Company are FSSC 22000 certified by reputed third partyagency for food safety and quality management as well as for safety and environment. Thefocus is to stay aligned with the best and continuously increase efficiency.
All the factories embrace Nestl Continuous Excellence and LEAN mindset and arecontinuously implementing initiatives for War on Waste and Total Performance Management.
This ongoing engagement benefits your Company by streamlining the planning activitiessavings through optimization of processes reducing waste especially in non-quality areaswhile maintaining focus on further improving quality and competitiveness.
Your Company believes that safety practices are important in every activity functionand location wherever the employees are engaged and is committed to maintaining thesafety culture. The Safe by Choice and B-SAFE programmes continueto be high priority and efforts are constantly being made to engage the employees.
Your Company has consistently emphasized sustainable use of natural and non-renewableresources. Within the factories your Company constantly evaluates new initiatives thatcould reduce waste and emissions. It actively engages the employees to increase awarenessabout the need to sustain the environment. The focus is on improving operationalefficiencies minimizing consumption of non-renewable and natural resources reducingconsumption emissions per of water energy and CO2 tonne of production while maximizingproduction volumes. All processes use state-of-the-art technology follow the NestlEnvironmental Management System and comply with government policies laws and regulationsrelating to the environment.
Your Company continued to stress upon measures for the conservation and optimalutilisation of energy in all the areas of operations including those for energygeneration and effective usage of sources / equipment used for generation.
During the past 15 years for every tonne of production the Company has:
Your Company is conscious that water is important for the community as well as for thelong term sustainable operations of the Company itself. It is conscious that multiplefactors in the environment are impacting the water tables across the country and everyeffort needs to be made to reduce wastage and improve efficiencies in the usage of water.Not only is it working on reducing its own dependence on water withdrawal it is alsotraining farmers in a manner that will reduce the withdrawal from the catchment areawhile improving productivity.
In the factory at Moga where milk is collected from over 100000 farmers your Companyhas commissioned a project that will enable recovery of over 50% of water from the cowmilk collected every day.
This water recovered from the milk is then recycled and has already reduced groundwater withdrawal by almost 25%.
Near the Nanjangud Factory in Karnataka your Company is working with farmers on aproject on Rice Intensification and on the Sustainable Sugarcane Initiative.
During the year 54 Energy reduction projects and 40 water reduction projects werecompleted in your factories.
During 2015 your Company consolidated and further accelerated the current improvementprograms. It continued to upgrade its warehousing infrastructure with key distributioncenters ready to operate in the future with proper infrastructures systems processes anda sound safety culture.
Nevertheless the overall supply chain remains complex and constrained in speed andefficiency.
During the year the entire value chain was extensively engaged in the withdrawal ofMAGGI Noodles. The withdrawal process was fast efficient and transparent. Theunprecedented reverse logistics was activated within days and stocks withdrawn fromconsumers retailers and distributors using more than 10000 trucks. The Noodles withdrawnwere sent to incineration centers for high temperature thermal destruction in cementkilns where using noodles as fuel has also helped to reduce the environmental impact.
The entire warehousing and transport operations were also re-engineered during theabsence of MAGGI Noodles to optimize routes space and vehicle utilization reducing thecost impact for the rest of the business.
During the temporary stoppage of MAGGI production the procurement team of your Companycontinuously engaged with the suppliers who showed unconditional support to your Company.
With commodity prices softening in 2015 the overall commodity environment has beenfavorable for your Company. Nevertheless the procurement team of your Company continuedto deliver cost savings leveraging scale and introducing alternate local vendors.
The Responsible Sourcing program is now the "way we do business" as it hasreached over 125 unique suppliers with regular audits and constant feed-back on basiccompliances.
The NESCAF plan launched in 2012 has now reached over 550 farmers withapproximately 10% of total coffee bean purchase in India of "4C" certifiedcoffee from selected farmers that get regular technical support from your Company.
The use of technology across the value chain was further consolidated during the year.In the Moga milk collection area the automation and direct payment facilities havereached over 5000 farmers which provides them access to bank facilities (financialinclusion).
During the year your Company has successfully piloted a new demand forecasting systembased on analytics and also automated the replenishment to the distribution centres in allfactories improving accuracy and people productivity.
The roll out of the ware house management systems (WMS) with Radio Frequency (RF)technology has been extended to additional factories.
During the year your Company focused on further improving freshness of productson shelf for consumers and reduce waste.
Statements in this Report particularly those which relate to Management Discussion andAnalysis as explained in the Corporate Governance Report describing the Companysobjectives projections estimates and expectations may constitute forward lookingstatements within the meaning of applicable laws and regulations. Actual resultsmight differ materially from those either expressed or implied in the statement dependingon the circumstances.
Directors Responsibility Statement
The Directors state that: a) in the preparation of the annual accounts the applicableaccounting standards have been followed and no material departures have been made from thesame;
b) they have selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent so as to give a true and fair viewof the state of affairs of the Company at the end of the financial year and of the profitsof the Company for that period;
c) they have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;
d) they have prepared the annual accounts on a going concern basis;
e) they have laid down internal financial controls to be followed by the Company andthat such internal financial controls are adequate and were operating effectively; and
f) they have devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems are adequate and operating effectively.
In terms of Regulation 34 of the Securities Exchange Board of India (ListingObligations and Disclosure Requirements) Regulations 2015 (hereinafter "ListingRegulations") a Report on Corporate Governance along with Compliance Certificateissued by Statutory Auditors of the Company is attached as Annexure- 1 andforms integral part of this Report (hereinafter "Corporate Governance Report").
Directors and Key Managerial Personnel
During the year Mr. Michael W.O. Garrett relinquished his office as an IndependentNon-Executive Director of the Company with effect from 15th May 2015. Consequent tochange of nomination notified by Nestl S.A. Switzerland ("NSA") under theArticles of Association of the Company Mr. Etienne Andr Marie Benet also relinquishedoffice of the Managing Director of the Company with effect from 25th July 2015 and interms of Article 132 of the Articles of Association of the Company on the recommendationof the Nomination and Remuneration Committee Mr. Suresh Narayanan was appointed as theManaging Director of the Company by the Board of Directors with effect from 1st August2015 for a period of five years. In terms of the Companies Act 2013 (hereinafter"the Act") the Shareholders of the Company through postal ballot approved theterms and conditions of appointment and remuneration of Mr. Suresh Narayanan.Subsequently the appointment of Mr. Suresh Narayanan was also approved by the CentralGovernment since he was not staying in India for not less than twelve months immediatelypreceding the date of his appointment as the Managing Director.
Consequent to change of nomination notified by NSA under the Articles of Association ofthe Company Mr. Antonio Helio Waszyk relinquished his office as the Chairman of theCompany with effect from 1st October 2015 upon his retirement from Nestl Group and Mr.Suresh Narayanan was appointed as the Chairman of the Company with effect from 29thOctober 2015 in addition to his responsibility as the Managing Director of the Company bythe Board of Directors at its meeting held on 29th October 2015.
The Board of Directors placed on record their sincere appreciation for the valuablecontribution made by Mr. Michael W.O. Garrett Mr. Etienne Andr Marie Benet and Mr.Antonio Helio Waszyk.
Mr. Shobinder Duggal shall retire at the forthcoming Annual General Meeting and beingeligible offers himself for re-appointment. The brief resume and other details as requiredunder the Listing Regulations are provided in the Notice of the 57th Annual GeneralMeeting of the Company.
The Independent Directors of your Company have given a declaration confirming that theymeet the criteria of independence as prescribed both under the Act and the ListingRegulations.
The Nomination and Remuneration Committee had adopted principles for identification ofKey Managerial Personnel Senior Management including the executive directors which arebased on "The Nestl Management and Leadership Principles" and "NestlLeadership Framework" which is available on Companys Website www.nestle.in. TheAppointment and Remuneration Policy of the Company includes criteria for determiningqualifications positive attributes and independence of a director and policy relating tothe remuneration of Directors Key Management Personnel and other employees. The same isattached as Annexure - 2 and forms integral part of this Report.
The details of familiarization programmes to Independent Directors with the Companytheir roles rights responsibilities in the Company nature of the industry in which theCompany operates business model of the Company and related matters are put up on thewebsite of the Company at the link: https://www.nestle.in/investors/directorsandofficers/familiarisation-programme.
The Company has devised a formal process for annual evaluation of performance of theBoard its Committees and Individual Directors ("Performance Evaluation"). Itcovers the areas relevant to the functioning as Independent Directors or other directorsmember of Board or Committee of the Board. The Company engaged a leading HR ConsultingFirm for compilation of the feedback received from the Board members Committee membersand directors and for identifying key inferences and observations with respect toPerformance Evaluation.
Corporate Social Responsibility
In accordance with the requirements of Section 135 of Companies Act 2013 your Companyhas a Corporate Governance and Social Responsibility Committee which comprises Mr. SureshNarayanan Chairman and Managing Director (Chairman) Mr. Ravinder Narain and Dr. (Mrs.)Swati A. Piramal Independent Non-executive Directors of the Company. The terms ofreference of the Corporate Governance and Social Responsibility Committee is provided inthe Corporate Governance Report. Your Company has also formulated a Corporate SocialResponsibility Policy (CSR Policy) which is available on the website of the Company at https://www.nestle.in/investors/policies. Annual report on CSR activities as required under the Companies (CorporateSocial Responsibility Policy) Rules 2014 has been appended as Annexure - 3 andforms integral part of this Report.
As a responsible corporate citizen the Company has been implementing societalactivities since many decades under umbrella of Creating Shared Value activities andCorporate Social Responsibility activities etc. As per the strict interpretation ofSection 135 of the Act read with Companies (Corporate Social Responsibility) Rules 2014as amended ("CSR Rules") some of these initiatives taken during the year may notbe eligible under the 2% CSR spend. As these activities are integral to the business theCompany has decided to continue with them. Additionally as per the CSR Policy during theyear 2015 the Company has spent about one percent of the average net profits of theCompany during the three immediately preceding financial years.
The cumulative spend of the Company under the umbrella of Creating Shared Valueactivities and Corporate Social Responsibility activities was above the level prescribedunder the CSR Rules. The Company plans to step up CSR spend as required under CSR Rulesto 2% during 2016.
Business Responsibility Report
Nestls approach to business is Creating Shared Value or Saanjhapanas used by your Company and it is about the impact of the business and engagement throughit. Your Company has been conducting business in a way that both deliver long-termshareholder value and benefit society under approach of "Creating Shared Value"(hereinafter CSV).
The Business Responsibility Report as per Regulation 34 of the Listing Regulations isannexed as Annexure - 4 and forms integral part of the Annual Report.
The Statutory Auditors of the Company M/s. A. F. Ferguson & Co. (Firm RegistrationNo. 112066W) Chartered Accountants New Delhi hold office till the conclusion of theensuing Annual General Meeting of the Company and being eligible offer themselves forre-appointment. The Company has received their written consent and a certificate that theysatisfy the criteria provided under Section 141 of the Act and that the appointment ifmade shall be in accordance with the applicable provisions of the Act and rules framedthereunder. The Audit Committee and the Board of Directors recommends the re-appointmentof M/s. A. F. Ferguson & Co. Chartered Accountants as the Statutory Auditors of theCompany in relation to the financial year 2016 till the conclusion of the next AnnualGeneral Meeting. The re-appointment proposed is within the time frame for transition underthe third proviso to sub-section (2) of Section 139 of the Companies Act 2013.
The Report given by the Auditors on the financial statement of the Company is part ofthe Annual Report. There has been no qualification reservation or adverse remark ordisclaimer in their Report.
During the year under review the Auditors had not reported any matter under Section143 (12) of the Act therefore no detail is required to be disclosed under Section 134(3)(ca) of the Act.
As per Section 148 of the Act read with Companies (Cost Records and Audits) Rules2014 as amended on the recommendation of the Audit Committee the Board of Directors hadappointed M/s. Ramanath Iyer and Co. Cost Accountants New Delhi (Registration No. 00019)being eligible and having sought appointment as Cost Auditors of the Company to carryout the cost audit of milk powder products manufactured by the Company falling under thespecified Central Excise Tariff Act heading in relation to the financial year endingDecember 2016. The Company has received their written consent that the appointment is inaccordance with the applicable provisions of the Act and rules framed thereunder. Theremuneration of Cost Auditors has been approved by the Board of Directors on therecommendation of Audit Committee and the requisite resolution for ratification ofremuneration of Cost Auditors by the members has been set out in the Notice of the 57thAnnual General Meeting of your Company.
The Secretarial Audit was carried out by M/s. S.N. Ananthasubramanian & Co.Company Secretaries (PCS Registration No. 1774) for the financial year 2015. The Reportgiven by the Secretarial Auditors is annexed as Annexure 5 and formsintegral part of this Report. There has been no qualification reservation or adverseremark or disclaimer in their Report. During the year under review the SecretarialAuditors had not reported any matter under Section 143 (12) of the Act therefore nodetail is required to be disclosed under Section 134 (3)(ca) of the Act.
In terms of Section 204 of the Companies Act 2013 on the recommendation of the AuditCommittee the Board of Directors had appointed M/s. S.N. Ananthasubramanian & Co.Company Secretaries (PCS Registration No. 1774) as the Secretarial Auditors of the Companyin relation to the financial year 2016. The Company has received their consent forappointment.
Meetings of the Board
Six meetings of the Board of Directors were held during the year. For details of themeetings of the Board please refer to the Corporate Governance Report.
Extract of Annual Return
The extract of the Annual Return of the Company is annexed as Annexure - 6 andforms integral part of this Report.
Details of Loans and Investments
Details of the loans given by your Company under Section 186 of the Act during thefinancial year ended 31st December 2015 are as follows:
Nestl R&D Centre India Private Limited (Fellow Subsidiary): Rs. 400 million atthe interest rate of 9.63% for general business purpose (Loan outstanding at the end ofthe year was Nil); and SMA Nutrition India Private Limited (Fellow Subsidiary): Rs. 20million at the interest rate of 9.50% for general business purpose (Loan outstanding atthe end of the year was Nil).
For details of investments in Bonds and Mutual Funds please refer Note 12 and Note 14forming part of financial statements.
Related Party Transactions
Your Company has formulated a policy on related party transactions which is alsoavailable on Companys website at https:// www.nestle.in/investors/policies. Thispolicy deals with the review and approval of related party transactions. The Board ofDirectors of the Company has approved the criteria for making the omnibus approval by theAudit Committee within the overall framework of the policy on related party transactions.Prior omnibus approval is obtained for related party transactions which are of repetitivenature and entered in the ordinary course of business and at arms length. Allrelated party transactions are placed before the Audit Committee for review and approval.
All related party transactions entered during the Financial Year were in ordinarycourse of the business and on arms length basis. No material related partytransactions were entered during the Financial Year by your Company. Accordingly thedisclosure of related party transactions as required under Section 134(3)(h) of theCompanies Act 2013 in Form AOC 2 is not applicable to your Company.
The Board of Directors had constituted Risk Management Committee to identify elementsof risk in different areas of operations and to develop policy for actions associated tomitigate the risks. The Committee on timely basis informed members of Board of Directorsabout risk assessment and minimization procedures and in the opinion of the Committeethere was no risk that may threaten the existence of the Company. The details of RiskManagement Committee are included in the Corporate Governance Report.
Your Company had not accepted any Public Deposits under Chapter V of the Act.
Significant and Material orders passed by the Regulators/ Courts/ Tribunals
No significant or material orders were passed by the Regulators or Courts or Tribunalswhich impacts the going concern status and Companys operations in future.
Complaint filed in National Commission Disputes Redressal Commission
The Union of India Department of Consumer Affairs has filed a complaint before theNational Consumer Disputes Redressal Commission on the allegation that by selling MAGGINoodles in the past the Company has indulged in unfair trade practice sold defectivegoods to the public and sold goods which will be hazardous. Complaint seeks compensationof Rs 2845.5 million and punitive damages of Rs 3554.1 million. Your Company haschallenged the complaint. The court proceedings are currently ongoing.
Internal Financial Controls and their adequacy
The Directors had laid down internal financial controls to be followed by the Companyand such policies and procedures adopted by the Company for ensuring the orderly andefficient conduct of its business including adherence to Companys policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information. The Audit Committee evaluates the internal financialcontrol system periodically.
The Audit Committee comprises Independent Directors namely M/s. AK Mahindra(Chairman) Ravinder Narain and Rajya Vardhan Kanoria. Powers and role of the AuditCommittee are included in Corporate Governance Report. All the recommendation made by theAudit Committee were accepted by the Board of Directors.
The Vigil Mechanism of the Company is governed by significant documents "NestlCorporate Business Principles" "The Nestl Management and LeadershipPrinciples" and "Nestl Code of Business Conduct". Under the saidmechanism available to the Director(s)/Employee(s) who can report to the CompanySecretary on a confidential basis any practices or actions believed to be inappropriateor illegal under the Nestl India Code of Business Conduct ("the Code"). TheCode provides for adequate safeguards against victimisation of director(s)/employee(s) whoavail of the mechanism and also provides for direct access to the Chairman of the AuditCommittee in exceptional cases. It is affirmed that no person has been denied access tothe Audit Committee. As an additional facility to all the Directors and Employees of theCompany the Company under the Code provides Integrity Reporting System ("IRS")an independent third party operated free phone and web based facility for the directorsand employees of the Company across all locations. The details of IRS along with FAQs areavailable to the Directors and Employees on the Companys intranet portal. Furtherthe Company has appointed Ombudsman for Infant Code under which employees can reportInfant Code violations directly to the Ombudsman with adequate safeguard to protect theemployee reporting.
Information regarding Conservation of Energy Technology Absorption and ForeignExchange Earnings and Outgo
Information required under Section 134(3) (m) of the Act read with Rule 8 of theCompanies (Accounts) Rules 2014 for the financial year ended 31st December 2015 inrelation to the Conservation of Energy Technology Absorption and Foreign ExchangeEarnings and Outgo is given in the Annexure - 7 forming integral part of thisReport.
Information regarding Employees and related disclosures
Your Company considers people as its biggest assets and Believing in Peopleis at the heart of its human resource strategy. It has put concerted efforts in talentmanagement and succession planning practices strong performance management and learningand training initiatives to ensure that your Company consistently develops inspiringstrong and credible leadership. During the year the focus of your Company was to ensurethat young talent is nurtured and mentored consistently that rewards and recognition arecommensurate with performance and that employees have the opportunity to develop and grow.
Your Company has established an organization structure that is agile and focused ondelivering business results. With regular communication and sustained efforts it isensuring that employees are aligned on common objectives and have the right information onbusiness evolution. Your Company strongly believes in fostering a culture of trust andmutual respect in all its employee seeks to ensure that Nestl values and principles areunderstood by all and are the reference point in all people matters.
The statement of Disclosure of Remuneration under Section 197 of the Act and Rule 5(1)of Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 isappended as Annexure - 8 to the Report. The information as per Rule 5(2) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 forms partof this Report. However as per first proviso to Section 136(1) of the Act and secondproviso of Rule 5(2) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 the Report and Financial Statements are being sent to the Membersof the Company excluding the statement of particulars of employees under Rule 5(2) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014. Any Memberinterested in obtaining a copy of the said statement may write to the Company Secretary atthe Registered Office of the Company.
The Company has a Policy on "Prevention of Sexual Harassment of Women atWorkplace" and matters connected therewith or incidental thereto covering all theaspects as contained under the "The Sexual Harassment of Women at Workplace(Prohibition Prevention and Redressal) Act 2013". The Company received twocomplaints under the Policy all of which were disposed of.
The Company maintained healthy cordial and harmonious industrial relations at alllevels. Despite severe competition the enthusiasm and unstinting efforts of the employeeshave enabled the Company to remain at the forefront of the Industry.
Your Company continued to receive co-operation and unstinted support from thedistributors retailers stockists suppliers and others associated with the Company asits trading partners. The Directors wish to place on record their appreciation for thesame and your Company will continue in its endeavor to build and nurture strong links withtrade based on mutuality respect and co-operation with each other and consistent withconsumer interest.
Your Company has been able to operate efficiently because of the culture ofprofessionalism creativity integrity and continuous improvement in all functions andareas as well as the efficient utilisation of the Companys resources for sustainableand profitable growth.
The Directors wish hereby to place on record their appreciation of the efficient andloyal services rendered by each and every employee without whose whole-hearted effortsthe overall satisfactory performance would not have been possible.
Your Directors look forward to the long term future with confidence.
| ||On behalf of the Board of Directors |
|Date : 12th February 2016 ||Suresh Narayanan |
|Place : Gurgaon ||Chairman and Managing Director |