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Boards Report - 2017
Your Directors are pleased to present their report and financial statements for the year ended 31st December, 2017.
(Rs. in Million)
|Sale of products||101,351.1||94,096.0|
|Other operating revenues||570.7||649.7|
|Profit before exceptional items and tax||18,393.0||15,561.6|
|Less: Exceptional items||-||107.8|
|Profit before tax||18,393.0||15,453.8|
|Less: Tax expense||6,141.1||5,440.2|
|Profit after tax||12,251.9||10,013.6|
|Other Comprehensive Income||(889.8)||(760.4)|
|Total Comprehensive Income||11,362.1||9,253.2|
|Opening balance in Retained Earnings||23,689.3||21,016.0|
|Amount available for appropriation||35,034.0||30,477.8|
|2017: 63.00 per share||6,074.2|
|2016: 40.00 per share||3,856.6|
|2016: 23.00 per share||2,217.6|
|2015: 18.50 per share||1,783.7|
|Less: Dividend distribution tax||1,687.7||1,148.2|
|Closing balance in Retained Earnings||25,054.5||23,689.3|
|Earnings per shared||127.07||103.86|
|Dividend per share()|
|Proposed - Final||23.00||23.00|
|Additional Information: Profit from operations||18,304.8||16,542.0|
The Company has adopted Ind AS w.e.f.
1st January, 2017 with a transition date of 1st January, 2016. Accordingly, results for the year ended 31st December, 2017 have been prepared in accordance with Ind AS prescribed under Section 133 of the Companies Act,
2013 and other accounting principles generally accepted in India. Previous periods figures have been restated as per Ind AS to make them comparable.
Total Sales and Domestic Sales for the year increased by 7.7% and 8.2%, respectively. These growth rates are adversely impacted due to lower reported sales by the change in structure of indirect taxes and reduction in realizations to pass on the GST benefits. On a comparable basis the domestic sales growth is estimatedRs. at 11.8% due to increase in volumes including rebuild of MAGGI Noodles, supplemented by better underlying realizations. Export Sales increased by 0.9%.
Other Income has increased due to higher average liquidities partially offset by lower yields. The Impairment Loss on Fixed Assets of 371.8 million relates to various items of plant and machinery and building that have been brought down to their recoverable value upon evaluation of future economic benefits from their use.
The Company has created a contingency provision of 1,136.5 million for various contingencies resulting mainly from matters, which are under litigation/related disputes and other uncertainties requiring management judgement. The Company has also reversed, utilized/ settled contingency provision of 260 million due to the satisfactory settlement of certain litigations and settlement of obligations under free replacement warranty for which provision is no longer required.
The Board of Directors have recommended a final dividend of 23.00 per equity share (Face value 10 per equity share) amounting to 2,217.6 million for the year 2017. The total dividend for 2017 aggregates to 86.00 per equity share which includes three interim dividends of 15.00 per equity share paid on 2nd June, 2017, 15.00 per equity share paid on 16th August, 2017 and 33.00 per equity share paid on 22nd December, 2017.
The exports for your Company remained flat for the year at 6,626.6 million. All key markets with sizeable Indian diaspora responded positively to the culinary business plans and demand is now emanating from these geographies. The year 2017 witnessed your Company making inroads into newer geographies for instance Caribbean Islands, European Union and Sri Lanka.
Coffee exports for your Company continued to witness growth in 2017. Important export markets for instant coffee were Turkey, Bangladesh, Taiwan, Singapore and Middle East. Coffee exports of your Company received recognition from trading partners and by the Karnataka State Export Promotion Council.
The Confectionery exports to Middle East and Ghana which started in 2016, remained subdued because of slow demand. Infant nutrition exports to Bangladesh grew in volume during 2017.
Contribution to the Exchequer
Your Company over the years has been enabling significant contribution to various taxes. During the year 2017, the Company through its business, enabled tax collections at Central and State level close to 27.3 billion, in aggregate.
Nutrition, Health and Wellness continued to be the cornerstone of your Companys business in 2017. The brands were once again re-energized through innovation and renovation, in the form of new product launches or introduction of product variants, to meet the changing needs of consumers. Your Company was focused and driven, it increased its product penetration into newer regional markets and expanded its consumer base.
Since food and its safety has a significant influence on peoples health, at our request, Nestle S.A. set up the Nestle Food Safety Institute (NFSI) in India in September 2017 as a part of Nestle R&D Centre India Pvt. Ltd., with the objective of building and sharing knowledge that would strengthen the food safety environment in our country. NFSI aspires to be a collaborative partner between regulatory bodies, academia and industry to cater to the health and safety of our consumers. The NFSI laboratory is equipped with high-end analytical technology and is an integral part of the global network of food safety experts at Nestle.
Our commitment to Nutrition, Health and Wellness was further reinforced through our work, aimed at creating healthier products, healthier environment, healthier community and healthier society.
Innovating and Renovating Prepared Dishes and Cooking AidsRs. Portfolio
The Prepared Dishes and Cooking AidsRs. business 2017 was a year of comprehensive performance by brand MAGGI. MAGGIs core category Noodles had a double-digit volume growth and an increase in households purchasing the brand as compared to 2016.
A robust regional initiative consisting of local language media, sampling, activation, drove awareness and trials at the grassroot level. MAGGI continued its focus on innovating and renovating its portfolio with new engagement every quarter.
A special limited
Masalas of India" was introduced in markets across India. It was launched innovatively through Google Search and PayTM. It was the first time that any brand introduced Google SearchRs. in the pre-launch phase. The campaign resulted in creating engagement with over 130,000 entries, 7,500 pre bookings and a sale of over 150,000 packs on the day of the launch.
A new range of noodles were launched under MAGGI brand called "Nutri-licious" with variants like Atta MexicanaRs. and Oats MasalaRs. supplemented with the benefits of protein and fibre.
In addition to this, your Company continued to develop the second pillar - the seasoning and cooking aid side of the business, led by our Masala-ae-Magic all-purpose seasoning.
Strengthening of Milk Products and NutritionRs. Portfolio
The Milk Products and NutritionRs. business registered a satisfactory growth, which was driven by volume of existing products and encouraging consumer response to new products.
Your Company extended chilled dairy portfolio range of Greek yogurts under NESTLE a+ GREKYO with exotic fruit flavors like blueberry, litchi and plain greek style curd. As a healthier snack with extra milk protein and real fruit pieces, the brand continued to accelerate its growth.
Recipe kits with partly sweetened condensed Mag milk like MILKMAID ice ^ cream kit and MILKMAID m jjr celebrations kit were designed as complete recipe solutions to prepare new, experimental, homemade ice creams and chocolate twists.
Nestle believes breast milk provides the best nutrition for babies and every child should be exclusively breastfed until six months, followed by introduction of age appropriate complementary feeding and breast milk until two years and beyond. For babies who cannot be breastfed, NAN EXCELLA PRO, a formula with DHA (Docosahexaenoic [ IAcid) and ARA (Arachidonic Acid) : l combined with whey proteins was : launched. DHA supports babys normal brain development and whey protein is required for easy digestion.
CEREGROW, an iron fortified nutritious cereal for children over 2 years launched in 2016 in select geographies got an encouraging response and was rolled out across India helping your Company to partner with consumers to nurture a healthier generation. Micronutrient deficiency is amongst the biggest public health challenge in the country with 80% of children less than 3 years, suffering from iron deficiency anemia, which could impact the overall cognition of a child. Since, the stomach size of a child is only 1/5th of an adult, the child cannot be fed with huge amounts of food to bridge the energy and micronutrient needs. CEREGROW provides the option of "Big Nutrition for Small Tummies" supported by an engaging program for the Healthcare professionals on the importance of iron fortification.
Your Company re-launched three health supplements in the adult nutrition segment manufactured by the Company under the brand RESOURCERs. designed to meet the specific health and nutrition needs. RESOURCE High Protein helps meet 37% of daily adult protein requirement, while RESOURCE Opti helps address malnutrition due to ageing or disease.
Growing Powdered and Liquid BeveragesRs. Portfolio
2017 was an exciting year for the Powdered and Liquid BeveragesRs. business as your Company continued to focus on growing the coffee and beverages market. NESCAFE Classic further leveraged its connect with the youth and launched a number of initiatives and
at ABBYs 2017 and the prestigious Grand Prix at the ADFEST 2017. The excitement in the category was fueled by the Cold Coffee initiative in summer season and the thematic brand campaign that was extended during the year with a new creative "Badal Life ki Raftaar, It all starts with a NESCAFE". Digital media was extensively used when engaging with the target audience.
NESCAFE Sunrise continued its journey to drive differentiation through various brand initiatives.
In 2017, your Company introduced MILO ready-to-drink beverage low on sugar and received encouraging response.
More offerings in the ConfectioneryRs. Portfolio
The ConfectioneryRs. business continued its focus on growing the core and foraying into the value-up/premium segment. The business wielded its strength towards continuous renovation and innovation of its portfolio, to befit the evolving consumer trends. Your Company also introduced Category-Firsts with some of the brands. Your Company continued to strengthen its core brands KITKAT, MUNCH, MILKYBAR, BARONE, NESTLE CLASSIC and ALPINO through improved offerings and unique marketing campaigns.
KITKAT Dessert Delight was launched in a distinct finger-tabletRs. format exclusively for the Indian market, with two rich and indulgent flavours, inspired by international desserts. Unique consumer promos were created like My Travel BreakRs. - a campaign that promised to bring immersive travel break experiences to life and Celebreak.Rs. In a first of its kind initiative, select KITKAT packs were designed as picture postcards from interesting Indian locations.
MILKYBARs core portfolio became robust with MILKYBAR relaunch that took forward Nestles commitment to Health and Wellness. MILKYBAR extended its brand franchise to MILKYBAR MOOSHA, with a new milk coated bar with caramel and nougat.
MUNCH, the largest brand for Confectionery business tied up with Bahubali 2 - The biggest blockbuster; in a category-first mega thematic campaign. The brand leveraged the popularity of Bahubali 2, to create a high brand recall amongst its consumers and gain market share.
In one of its kind socially relevant partnerships, your Company collaborated with Indian Mouth and Foot Painting Artists (IMFPA) association in the festive season to create unique gift packs with Company products that make for a thoughtful gift. The range of these gift packs had visually appealing designs created by artists from IMFPA using their mouth or feet. With this unique gifting concept, your Company raised awareness about these artists and their organization across India, while also creating a deeper emotional connect with the consumers to celebrate this special cause.
Nestle Professional, the out-of-home business registered volume and value growth in 2017.
This growth was driven by increasing reach and distribution of products across key out-of-home channels like education institutes, airlines, railways, offices as well as the food service channels like hotels and restaurants.
Your Companys brands NESCAFE Classic, NESCAFE Sunrise, MAGGI Coconut Milk Powder performed well with new customer acquisition and increased penetration through stronger customer engagement.
Your Company also engaged with young chefs in various hotel management institutions and celebrated International Chefs Day by organizing cooking workshops for adolescents teaching them the basics of nutrition.
Awards and Recognitions
Your Company received awards in various industry platforms in the area of corporate management, marketing, advertising, creativity, digital engagement, packaging, human resource development and social cause. Some awards are listed below:
Forbes India Leadership award for the best CEO from an MNC was given to Mr. Suresh Narayanan. The Forbes India Leadership Awards recognizes outstanding leaders who have achieved success through their vision, foresight, and business ethics.
MAGGIs strong resurgence was also reflected in Brand Equitys Most Trusted Brand Survey 2017, where MAGGI gained 9 spots and was ranked 16 amongst all consumer brands, across all categories. MAGGI was ranked 3rd under foods category.
SABRE Asia Pacific is considered one of the most credible platforms that awards companies for their work in the area of communications.
Your Company won Gold, under the foods and beverages category.
ADFEST showcases Asias best creative work by experts in various disciplines. This is a creative festival of repute. Your Company won 2 Gold and 1 Silver for the best use of radio channel, promotion and activation and best user generated content for the #StayStarted campaign by NESCAFE.
ABBYs is one of the most distinguished Indian creative advertising platforms that awarded your Company 2 Gold, 6 Silver and 1 Bronze for the campaign #EducateTheGirlChild. NESCAFE won 2 Silver for the MTV labs and #StayStarted RJ Rishi campaign. MAGGI HOT HEADS received 1 Silver in the radio category for the Missing MirchiRs. Campaign.
Your Company was recognized as the "Radio Advertiser Of The Year" at the Golden Mikes
2017, where MAGGI HOT HEADS bagged 6 awards for "Finding Mirchi" campaign.
Golden Mikes celebrates the best work in radio advertising in India and recognizes the contribution of the brands in the growth of radio in the country.
At the Indian Digital Media Awards that celebrates excellent work by brands in the digital and social media space, KITKAT won a gold in the best use of a social network category for the "Twitter takes a break with KITKAT" Campaign. #EducateTheGirlChild also bagged a silver for the best-integrated media campaign for a social cause.
Your Company through #EducateTheGirlChild Campaign partnered with The Times of India to launch a highly innovative communication campaign called Power Of Print, where leading agencies messages on sending more girls to school.
Continuing on its path to innovation, MAGGI HOT HEADS launched first of its kind Twitter campaign #UntrendLikeHotHeads. The campaign resulted in massive online engagement with over 13 million impressions, 28,000 hashtag mentions and over 800 entries in just three days. It broke multiple benchmarks of campaign engagement and awareness both globally and in Asia Pacific.
Your Company was awarded the India Star 2017, for excellence in packaging for ALPINO Gift Pack and NESCAFE Latte 3 in 1 cup, INSTA Filter Can and NAN EXCELLA PRO carton.
The Tata Strategic Management Group presented your Company with the Global Logistics Excellence award.
Your Company bagged CIIs SCALE national award for supply chain and logistics excellence for being the most innovative and digital supply chain.
Your Company was recognized by Nielsen as one of the leading three FMCG companies on campus. This year your Company made successful lateral hires and strengthened its position as an Equal Opportunity Employer, which resulted in an increase of women representation in white collar jobs by 140 bps in the past 2 years.
To further increase diversity, your Company organized unconscious bias programs for members of the employee union, gender sensitization sessions for the sales team, sanitation facilities for women in distribution centres and dual career network sessions, among others, all of which helped make the environment more inclusive. The year ended with a 460 bps reduction in high performance attrition over the past 2 years and 640 bps dip in the women managers attrition level.
Review of Economic Scenario and Outlook
Beginning of 2017 had a slow start because of the effects of demonetization that made consumers restrict their consumption. There was a slow revival of consumption with the urban market being more resilient compared to rural India. Towards the middle of the year, the economic growth improved. Inflation in the country continued to be moderate during 2017-2018, Consumer Price Index was the lowest in the last six financial years.
On 1st July 2017, a unified indirect tax structure was introduced in India through the Goods and Services Tax (GST) that should positively impact the economic environment in the long term, but created short term challenges in the trade.
Considerable steps were taken by the government to bolster the food-processing sector. The Ministry of Food Processing Industries organized World Food India 2017 (WFI 2017), Indias first ever platform that positions India as a preferred investment destination and manufacturing hub for the global food industry. As per the government of India data, WFI 2017 attracted an investment intent of USD 13.56 billion from domestic and foreign investors for the food processing sector. Government initiatives were rolled-out to increase the capacities in the entire supply chain of food processing.
Multilateral agencies have been positive about Indias growth story. This was evident, as India jumped 30 spots on the World Banks Ease of Doing Business rankings. Indias ranking in the world has improved by a position to 126, as its per capita GDP in PPP terms increased from USD 6,690 in 2016 to USD 7,170 in 2017, as per data from International Monetary Fund (IMF).
Opportunities and Risks
Private consumption combined with ongoing structural reforms are expected to continue to boost economic activity in India. More transparent regulatory environment and evolving food laws are making India emerge as an attractive business destination, creating opportunities for investment and growth especially in the processed foods sector.
Consumers in India are fast evolving; they are young, aspirational and have higher disposable income. The young India is more health and fitness conscious. Rise in lifestyle diseases has also prompted the Indian consumers to evaluate their food habits more closely and make lifestyle changes, where required.
Your Company brings a strong heritage and years of trust and credibility. It has strong R&D capabilities and the benefits of this and the expertise in science based nutrition and technology flow to your Company. Your Company is an integral part of Indian society and has state-of-the-art manufacturing facilities, efficient supply chain, sales automation with extensive reach and coverage in its target markets, strong brands and capable employees and partners who are committed to provide value with high quality and safe food products.
The product portfolio of your Company continues to be strengthened by accelerated innovation and renovation to stay relevant to the emerging and differentiated needs of the consumers. Consumer lifestyles are changing and there is an increasing demand for value- up and premium products and your Company can leverage Nestle know-how and technology to develop more science-based products that provide superior benefits of Nutrition, Health and Wellness at appropriate price points.
India is also becoming a technology driven country, empowering the people to look for new opportunities and it is transitioning towards a digital, cashless economy. This change is seen not only in urban areas but is also reflected in rural India. High mobile and internet penetration has enabled a rapid growth in e-commerce in India. Your Company is actively participating on social media platforms through specialized and enabled digital acceleration teams and pursuing business opportunities in the space of e-commerce.
Your Company is operating in an industry sector that faces price volatility in raw materials and is dependent on agricultural commodities that need to meet its stringent quality standards and on natural resources where alternatives are not viable. Supplier development is an ongoing exercise undertaken to ensure continuity in supplies. There is also increasing competition in the processed foods sector and the regulatory framework is still evolving, which requires undivided focus of technical and marketing experts. Your Company has initiatives in place to minimize the environment footprint in the areas of water conservation and proper disposal of packaging materials mentioned elsewhere in this report.
Operations, Quality and Safety
Your Companys improved operational efficiencies have delivered products of higher quality and at competitive cost. Through the Total Performance Management (TPM), the workspace has been transformed, by engaging with approximately 65% of resources. The leadership at shop floor has enabled the factories to achieve manufacturing excellence at all levels of the organization, and deliver the business results.
For your Company, quality and food safety is a priority. In line with Nestle Groups direction to move to internationally recognized certifications, all factories of your Company have received ISO 9001:2015 certifications.
Laboratory accreditation is considered an important indicator of technical competence, that strengthens the consumers trust in the products of your Company. Your Company embarked on this journey in 2017 and by the end of 2017, two factory laboratories received certification, plans for other factories are underway. These achievements once again reiterate the emphasis on quality at the factories that are aligned with internationally accepted ISO standards.
Your Companys Samalkha factory Unit II was recognized by the CII for Significant Achievement in Food Safety. The criteria for food safety systems were drawn from the Food Safety and Standards Act, Rules & Regulations 2011, ISO 22000/FSSC 22000 Standards, Codex and Industry best practices.
Your Company launched pilot projects "WE CARE" and "EPR connect" on Waste Management Collection and Recycling in preparation for compliance with Plastic Waste Management Rules, 2016. This was the first joint Extended Producer Responsibility (EPR) initiative in India where a consortium was formed with five corporate houses, an NGO and the Indian Pollution Control Association (IPCA). This initiative was supported by the Central Pollution Control Board and East Delhi Municipal Corporation for disposal of waste to the energy plant at Ghazipur, Delhi. The project was executed in eight different cities covering Delhi, Noida, Faridabad, Gurugram, Ghaziabad, Chandigarh, Dehradun and Mumbai.
In continuation to its commitment to a healthier environment, your Company continued to focus on measures for the conservation and optimal utilisation of energy in all the areas of operations, including those for energy generation and effective usage of sources. Factories are consistently improving operational efficiencies, minimizing consumption of natural resources and reducing water, energy and CO2 emissions while maximizing production volumes.
As a result, during the period from 2002 - 2017, for every ton of production, your Company has reduced the usage of energy by around 43%, water usage by around 51%, generation of waste water by around 57% and reduction in specific direct greenhouse gas emissions by around 51%.
Waste for Disposal
Your Company is continuously working towards reduction in waste for disposal. In 2017, the factories reduced waste for disposal to landfill by 63%. Robust plans are in place to reduce this to zero by 2020.
Safety and Health
Occupational Health and Safety of people is of the highest priority and of utmost importance to your Company. All the sites (Offices and Factories) of your Company are certified under Safety and Health Management System that complies with OHSAS 18001:2007 and Environment Management System that complies with ISO 14001:2015.
Your Company provided regular safety and skill up-gradation trainings to the employees where required. Your Company has been consistently focusing on the machinery safety, Lockout & Tagout, behavioural feedback system, Tool Box Talks, Management GEMBA and other aspects of industrial safety.
In 2017, emphasis remained on building of a proactive safety culture. Safe behavior was widely promoted and more than 40,000 behavioral feedback sessions were carried out to promote strengthening of the right safe mindset. Safe driving under Project SurakshaRs. was promoted amongst the field sales as well as with the third party transport service providers for liquid milk transportation. Road safety awareness camps have been organized at many sites to ensure that employees practice safe driving behaviors, both on site and off site. Compliance is an important pillar of the S&H (Safety & Health) Management System. Dedicated team is established for every site to ensure flawless implementation of your Companys own standards as well as legal requirements. Further, to improve the health of the employees, ergonomic aspect of routine production tasks have been assessed and plans are being put in place to reduce the identified ergonomic hazards. Sessions on health topics such as Yoga, Stress management, Bone health and Ergonomics were conducted for building awareness of the employees at various sites of your Company.
In 2017, your Companys Supply Chain actively worked towards enabling consumer led growth and creating a winning edge. Your Company was amongst the first one to switch over to the new GST system and adopt subsequent changes in the GST price structure. Simplification of the value chain began by moving from 38 to 33 Distribution Centres (DCs) and plan is to further reduce the DCs. This led to cost savings, improved freshness, better availability and sustainability in the operations.
Your Company was the first in India to collaborate with a key customer for synchronization of online information on product attributes. Through an app, your Company provided real time information about on-shelf product freshness levels. Using advanced analytics for accurate forecasting of regional demand, your Company improved supply planning that resulted in optimum product inventory and availability of your Companys product at each stage of the value chain.
Your Company also introduced a 24x7 online-automated system that captures orders, even for small and medium customers that increased ease and speed of servicing and helped the customers. Digitalization benefitted our consumers with fresher products and your Company was able to reduce inventory and lower distribution costs.
Your Company also made significant progress on the Nestle Business Excellence program for two key processes of sourcing and the servicing of customers across supply chain. This delivers value for your Companys suppliers, customers and improves availability of products on the shelf, besides setting benchmarks in the FMCG space.
DirectorsRs. Responsibility Statement
The Directors state that:
a) in the preparation of the annual accounts, the applicable accounting standards had been followed and no material departures were made from the same;
b) they had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profits of the Company for that period;
c) they had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
d) they had prepared the annual accounts on a going concern basis;
e) they had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and
f) they had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
In terms of Regulation 34 of the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter "Listing Regulations"), a Report on Corporate Governance along with Compliance Certificate issued by the Statutory Auditors of your Company is attached as Annexure - 1 and forms an integral part of the Boards Report (hereinafter "Corporate Governance Report").
Directors and Key Managerial Personnel Pursuant to the Retirement Policy of the Non-Executive Directors of the Company, Mr. Ravinder Narain, Independent Non-Executive Director of the Company had retired with effect from 11th May, 2017.
The Directors wish to place on record their appreciation for the contribution made by Mr. Narain during his long association with the Company.
In terms of the Articles of Association of the Company, on the recommendation of the Nomination and Remuneration Committee, the Board of Directors, in its meeting held on 27th March, 2017, appointed Mr. Martin Roemkens as an Additional Director of the Company with effect from 1st April, 2017, subject to approvals. Mr. Aristides Protonotarios, ceased as a Wholetime Director of the Company with effect from 31st March, 2017 to take another assignment within Nestle Group. Directors wish to place on record their appreciation for the contribution made by him during his tenure.
The Members, in its 58th Annual General Meeting held on 11th May, 2017, subject to approval of the Central Government, approved the appointment of Mr. Martin Roemkens as a Whole-time Director, designated as Director-TechnicalRs. for a period of five years with effect from 1st April, 2017. The Company received the approval of the Central Government for the appointment of Mr. Roemkens as a Whole-time Director, designated as Director-Technical, as he was a non-resident in India before the appointment.
During the year under review, on the recommendation of the Nomination and Remuneration Committee, the Board of Directors appointed Ms. Rama Bijapurkar, as an Independent Non-Executive Director of the Company with effect from 1st May, 2017.
The Members, in its 58th Annual General Meeting held on 11th May, 2017, approved the appointment of Ms. Rama Bijapurkar as an Independent Non-Executive Director of the Company to hold office for a term up to 30th April, 2022.
Pursuant to the provisions of the Companies Act, 2013 ("Act"), Dr. (Mrs.) Swati Ajay Piramal was appointed as an Independent Non-Executive Director to hold office for five consecutive years for a term up to 31st March, 2019 by the Members of the Company in the 55th Annual General Meeting held on 12th May, 2014. Dr. Piramal is eligible for re-appointment as an Independent Non-Executive Director for another term of five consecutive years. Pursuant to the provisions of the Act, based on the recommendation of the Nomination and Remuneration Committee, the Board recommends for the approval of the Members through a Special Resolution in the 59th Annual General Meeting re-appointment of Dr. Piramal as an Independent Non-Executive Director for another five consecutive years from 1st April, 2019 upto 31st March, 2024.
Mr. Shobinder Duggal, Whole-time Director, shall retire at the forthcoming Annual General Meeting by rotation and being eligible offers himself for re-appointment. The brief resume and other details as required under the Act and Listing Regulations for the aforesaid proposed appointment of Directors are provided in the Notice of the 59th Annual General Meeting of the Company.
The Independent Directors of your Company have given a declaration confirming that they meet the criteria of independence as prescribed both under the Act and the Listing Regulations. The Nomination and Remuneration Committee had adopted principles for identification of Key Managerial Personnel, Senior Management including the executive directors which are based on "The Nestle Management and Leadership Principles" and "Nestle Leadership Framework" which is available on the Companys Website www.nestle.in . The Appointment and Remuneration Policy of the Company includes criteria for determining qualifications, positive attributes and independence of a director and policy relating to the remuneration of Directors, Key Managerial Personnel and other employees. The same is attached as Annexure - 2 and forms an integral part of this Boards Report.
The details of familiarisation programmes to Independent Directors with the Company, their roles, rights, responsibilities in the Company, nature of the industry in which the Company operates, business model of the Company and related matters are available on the website of the Company at: https:// www.nestle.in/investors/directorsandofficers/ familiarisationprogramme.
The Company has devised a formal process for annual evaluation of performance of the Board, its Committees and Individual Directors ("Performance Evaluation"). It covers the areas relevant to the functioning as an Independent Director or other director, member of Board or Committee of the Board. Your Company engaged a leading HR Consulting Firm for compilation of the feedback received from the Board members, Committee members and Directors and for identifying key inferences and observations with respect to Performance Evaluation.
Corporate Social Responsibility
During the year under review, Ms. Rama Bijapurkar, Independent Non-Executive Director, was appointed as a Member of the Committee in place of Mr. Ravinder Narain. Accordingly, the Corporate Social Responsibility Committee was re-constituted and comprises of Dr. (Mrs.) Swati A. Piramal (Chairperson), Ms. Rama Bijapurkar, Independent Non-executive Director and Mr. Suresh Narayanan, Chairman and Managing Director of the Company. The terms of reference of the Corporate Social Responsibility Committee is provided in the Corporate Governance Report. Your Company has also formulated a Corporate Social Responsibility 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 (Corporate Social Responsibility Policy) Rules, 2014 has been appended as Annexure - 3 and forms an integral part of this Boards Report.
In terms of Section 135 of the Act read with Companies (Corporate Social Responsibility) Rules, 2014 as amended ("CSR Rules") and in accordance with the CSR Policy, during the year 2017, your Company had spent above two percent of the average net profits of the Company during the three immediately preceding financial years. The details are provided in the Annual Report on CSR activities. In addition to the above, your Company has been implementing societal activities since many decades under umbrella of Creating Shared ValueRs. activities which have not been reckoned for arriving at the spends as per CSR Rules. Some key initiatives that your Company has been engaged in are as follows:
Nestle Healthy Kids Programme Your Company, through partnerships with expert Universities and NGOs conducted the Nestle Healthy Kids Programme to improve nutrition and health awareness of school age children. Implemented across 21 states, the programme reached out to over 200,000 adolescents from marginalized communities.
Initiated in 2009, the programme in partnership with Universities around factory locations, has grown across metros in partnership with Magic Bus India Foundation. The programme is customized for each region and is conducted through the classroom-based model and the Sports for DevelopmentRs. model, in schools and communities. Through specially designed interactive sessions, children are encouraged to practice nutritious and healthy living and are also made aware of health initiatives offered by the government.
As part of the commitment to inspiring people to lead healthier lives and providing educational programmes, your Company, in partnership with Mamta Health Institute for Mother and Child implemented Project Jagriti. The programme focuses on developing community support for improved health and nutrition outcomes among adolescents, young couples and caregivers while improving the uptake of public health services.
In 2017, the programme ran across 15 districts of Rajasthan, Karnataka, Maharashtra, Chandigarh, Odisha, Uttar Pradesh, Bihar and Delhi and aims to reach three million beneficiaries by 2018.
Project Serve Safe Food Your Company collaborated with NIDAN, National Association of Street Vendors of India (NASVI), national and local food authorities to develop programmes to train street food vendors on subjects such as health, hygiene, food handling, food safety, personal hygiene, cart hygiene, cleaning and chemicals, pest control, garbage disposal and entrepreneurship
In 2017, this programme was implemented across Goa, Rajasthan, Uttar Pradesh, Kerala and Delhi, reaching out to about 4,800 street food vendors.
Business Responsibility Report
Nestles approach to business is Creating Shared Value or SaanjhapanRs. as used by your Company and it is about the impact of the business and engagement through it. Your Company has been conducting business in a way that both deliver long-term shareholder value and benefit society under approach of Creating Shared ValueRs. (hereinafter CSV).
The Business Responsibility Report as per Regulation 34 of the Listing Regulations is annexed as Annexure - 4 and forms an integra part of the Annual Report.
As per Section 139 of the Act read with the Companies (Audit and Auditors) Rules, 2014, the Members of the Company in its 58th Annua General Meeting held on 11th May, 2017 approved the appointment of M/s. B S R & Co. LLP, Chartered Accountants (ICAI Registration No - 101248W/W-100022), as the Statutory Auditors of the Company for an initial term of 5 years i.e. from the conclusion of 58th Annual General Meeting till the conclusion of 63rd Annual General Meeting of the Company.
The Report given by M/s. B S R & Co. LLP, Chartered Accountants on the financial statements of the Company for the year 2017 is part of the Annual Report. There has been no qualification, reservation or adverse remark or disclaimer in their Report. During the year under review, the Auditors had not reported any matter under Section 143 (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 the Companies (Cost Records and Audit) Rules, 2014, the Audit Committee recommended and the Board of Directors appointed M/s. Ramanath Iyer and Co., Cost Accountants, New Delhi (Registration No. 00019) being eligible, as Cost Auditors of the Company, to carry out the cost audit of milk powder, etc. manufactured by the Company falling under the specified Customs Tariff Act Heading 0402 in relation to the financial year ending 31st December, 2018. The Company has received their written consent that the appointment is in accordance with the applicable provisions of the Act and rules framed thereunder. The remuneration of Cost Auditors has been approved by the Board of Directors on the recommendation of Audit Committee and in terms of the Act and Rules thereunder requisite resolution for ratification of remuneration of the Cost Auditors by the members has been set out in the Notice of the 59th Annual 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 2017. The Report given by the Secretarial Auditors is annexed as Annexure - 5 and forms an integral part of this Boards Report. There has been no qualification, reservation or adverse remark or disclaimer in their Report. During the year under review, the Secretarial Auditors had not reported any matter under Section 143 (12) of the Act, therefore no detail is required to be disclosed under Section 134 (3) (ca) of the Act.
In terms of Section 204 of the Act, read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Audit Committee recommended and the Board of Directors appointed M/s. S.N. Ananthasubramanian & Co., Company Secretaries (PCS Registration No.1774) as the Secretarial Auditors of the Company in relation to the financial year ending 31st December, 2018. The Company has received their written consent that the appointment is in accordance with the applicable provisions of the Act and rules framed thereunder.
Meetings of the Board
During the year, the Board of Directors had seven Board meetings. For details of the meetings 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 and forms an integral part of this Boards Report.
Details of Loans and Investments
Details of the loans given by your Company under Section 186 of the Act during the financial year ended 31st December, 2017 are as follows: Nestle R&D Centre India Private Limited (Fellow Subsidiary): 500 Million at the interest rate of 7.67% for general business purpose (Loan outstanding at the end of the year was Nil); and SMA Nutrition India Private Limited (Fellow Subsidiary): 50 Million at the interest rate of 7.67% for general business purpose (Loan outstanding at the end of the year was Nil). For details of investments, please refer note 6 and 10 of the financial statements.
Related Party Transactions
Your Company has formulated a policy on related party transactions which is also available on Companys website at https:// www.nestle.in/investors/policies . This policy deals with the review and approval of related party transactions. The Board of Directors of the Company had approved the criteria for making the omnibus approval by the Audit Committee within the overall framework of the policy on related party transactions. Prior omnibus approval is obtained for related party transactions which are of repetitive nature and entered in the ordinary course of business and on an arms length basis. All related party transactions are placed before the Audit Committee for review and approval.
All related party transactions entered during the Financial Year were in ordinary course of the business and on an arms length basis. No material related party transactions were entered during the Financial Year by your Company. Accordingly, the disclosure of related party transactions, as required under Section 134(3)(h) of the Act, in Form AOC 2 is not applicable to your Company. Members may refer to note 49 of the financial statements which sets out related party disclosures pursuant to IND AS-24.
The Board of Directors had constituted Risk Management Committee to identify elements of risk in different areas of operations and to develop policy for actions associated to mitigate the risks.
The Committee on timely basis informed members of Board of Directors about risk assessment and minimization procedures which in the opinion of the Committee may threaten the existence of the Company. The details of Risk Management Committee including composition thereof 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 Tribunals which impacts the going concern status and Companys operations in future.
Complaint filed in National Commission
The Union of India, Department of Consumer Affairs in 2015 had filed a complaint before the National Consumer Dispute Redressal Commission on the allegation that by selling MAGGI Noodles in the past, the Company has indulged in unfair trade practice, sold defective goods to the public and sold goods which will be hazardous. Complaint seeks compensation of 2,845.5 million and punitive damages of 3,554.1 million. Your Company has challenged 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 your Company and such policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business, including adherence to Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. The Audit Committee evaluates the internal financial control system periodically.
During the year under review, Dr. Rakesh Mohan, Independent Non-Executive Director, was appointed as a Member of the Committee in place of Mr. Ravinder Narain. The Audit Committee comprises Independent NonExecutive Directors, namely, M/s. AK Mahindra (Chairperson), Rakesh Mohan and Rajya Vardhan Kanoria. Powers and role of the Audit Committee are included in Corporate Governance Report. All the recommendations made by the Audit Committee were accepted by the Board of Directors.
The Vigil Mechanism of the Company is governed by significant documents "The Nestle Corporate Business Principles", "The Nestle Management and Leadership Principles" and "Nestle Code of Business Conduct". The said mechanism is available to the directors/employees, who can report to the Company Secretary, on a confidential basis, any practices or actions believed to be inappropriate or illegal under the Nestle India Code of Business Conduct ("the Code").
The Code provides for adequate safeguards against victimization of directors/employees who avail of the mechanism and also provides for direct access to the Chairman of the Audit Committee in exceptional cases. It is affirmed that no person has been denied access to the Audit Committee. As an additional facility your Company under the Code provides Integrity Reporting System ("IRS"), an independent third party operated free phone and web based facility for the directors and employees of your Company across all locations. The details of IRS along with FAQs are available to the directors and employees on the Companys intranet portal. Further, the Company has appointed Ombudsman for Infant Code, under which employees can report Infant Code violations directly to the Ombudsman, with adequate safeguard to protect the employees reporting. The Company also provides an independent third party operated free phone and web based facility, named, "Tell us", to all internal and external stakeholders with a dedicated communication channel for reporting potential instances of non-compliances with the Nestle Corporate Business Principles. Details of "Tell Us" are available on the Companys website www.nestle.in .
Information regarding Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo
Information required under Section 134(3)(m) of the Act read with Rule 8 of the Companies (Accounts) Rules, 2014 for the financial year ended 31st December, 2017 in relation to the Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo is given in the Annexure - 7 and forms an integral part of this Boards Report.
Information regarding Employees and related disclosures
Your Company considers people as its biggest assets and Believing in PeopleRs. is at the heart of its human resource strategy. Your Company has put concerted efforts in talent management and succession planning practices, strong performance management and learning and training initiatives to ensure that your Company consistently develops inspiring, strong and credible leadership. During the year, the focus of your Company was to ensure that young talent is nurtured and mentored consistently, that rewards and recognition are commensurate with performance and that employees have the opportunity to develop and grow.
Your Company has established an organization structure that is agile and focused on delivering business results. With regular communication and sustained efforts it is ensuring that employees are aligned on common objectives and have the right information on business evolution. Your Company strongly believes in fostering a culture of trust and mutual respect in all its employees and seeks to ensure that Nestle values and principles are understood 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 the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 ("Rules"), is given as Annexure - 8 forming part of this Boards Report. However, as per first proviso to Section 136(1) of the Act and second proviso of Rule 5 of the Rules, the Report and Financial Statements are being sent to the Members of the Company excluding the statement of particulars of employees under Rule 5(2) of the Rules. Any Member interested in obtaining a copy of the said statement may write to the Company Secretary at the Registered Office of the Company.
As per the requirement of The Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013 (SHWW Act), your Company has a robust mechanism in place to redress complaints reported under it. There is an Internal Committee (IC) composed of internal members and an external member who has extensive experience in the field. In 2017,
5 cases of sexual harassment were reported in the Company and all 5 have been investigated and were resolved as per the provisions of the SHWW Act. During the course of the year, several initiatives were undertaken to demonstrate the Companys zero tolerance philosophy against discrimination and sexual harassment, which included creation of comprehensive and easy to understand training and communication material which are also made easily accessible. In addition, workshops were also run for the employees to enhance awareness and knowledge of other biases that may influence thinking and actions.
Your Company maintained healthy, cordial and harmonious industrial relations at all levels. Despite severe competition, the enthusiasm and unstinting efforts of the employees have enabled your Company to remain at the forefront of the Industry.
Your Company continued to receive co-operation and unstinted support from the distributors, retailers, stockists, suppliers and others associated with the Company as its trading partners. The Directors wish to place on record their appreciation for the same and your Company will continue in its endeavor to build and nurture strong links with trade, based on mutuality, respect and co-operation with each other and consistent with consumer interest.
Your Company has been able to operate efficiently because of the culture of professionalism, creativity, integrity and continuous improvement in all functions and areas as well as the efficient utilization of the Companys resources for sustainable and profitable growth.
The Directors hereby wish to place on record their appreciation of the efficient and loyal services rendered by each and every employee, without whose whole-hearted efforts, the overall satisfactory performance would not have been possible and look forward to the long term future with confidence.
On behalf of the Board of Directors
Suresh Narayanan Chairman and Managing Director
Date : 14th February, 2018
Place : Gurugram