Nestle India Ltd Management Discussions.

Management Analysis

Review of economic scenario and outlook

India has gained substantially in the World Banks Ease of Doing Business rankings by moving up from the 142nd position in 2014 to the 63rd position in 2019, thereby progressing on seven out of the ten parameter. This is despite the fact that in 2019, private consumption, private investments and exports slowed down. Rural wages, tightening of lending conditions and rising unemployment contributed to low demand for goods and services. Exports also remained volatile as a result of global uncertainties around trade and investments and geopolitical issues. Credit to micro, small and medium enterprises was affected. Uncertainty on employment impacted consumer, investor and corporate confidence.

The fall in domestic demand and low international crude oil kept the current account deficit under control and FDI picked up for a few quarters as India remained an attractive investment destination.

In response to the slowdown, the Government made policy announcements to boost supply and demand and the investment climate.

Additionally, the Reserve Bank of India cut its benchmark rates by 0.85% to stimulate private investment. The government reduced corporate tax rates. Steps were taken towards bank consolidation, to add robustness to the banking system and improve flow of credit to private sector.

These included liberalization of FDI norms for select sectors, rollback of surcharge on foreign portfolio investors, incentives to support several industries, bank consolidation to increase capital inflows and reinvigorate private investments and hiring for boosting the economy.

Opportunities and Risks

With multiple product offerings and brands, your Company operates in a dynamic environment, where the food and beverages industry is transforming rapidly.

With the consumer at the core, it is your Companys effort to meet the changing preferences of the diverse consumers. There is greater demand for healthier products that are locally inspired. The emerging millennial consumer is not only technology savvy, but is more discerning, especially with respect to health and wellness. Our endeavor is to spot trends, market products suiting consumer needs and to communicate with them regularly through a media platform of their choice. Your Company has been actively introducing new products, with a focused social media and digital marketing approach. The Companys access to global research and development and expertise is invaluable in these endeavors.

With increasing internet penetration and tech savvy consumer, embedding technology in the organizational processes is important. With sales automation and specialised digital acceleration, your Company has taken significant steps to provide solutions for its diverse consumer base. "AskNestle" is one such app-based initiative for child nutrition needs.

Your Company is impacted by the constant fluctuations in commodity and fuel prices. It is your Companys endeavor to source the right material, that is of high quality and constantly keep track of emerging costs to take corrective action at the right time.

Economic slowdown impacts consumer demand. However, your Company has managed to show steady growth by deploying strategies suited for the times, thus bucking the trend.

Building brand community through innovative marketing strategies are adopted to reach consumers who also have similar social and cultural preferences. Changing consumer behavior poses a constant challenge and proactive steps are being taken to maintain brand loyalty and market share. Your Company has strong focus on consumer safety and health and has robust supply chain management to ensure proper handing, storage and transportation, ensuring traceability along the chain as well as ensuring the freshest stocks reach the consumer in the best conditions.

The technological advancement and IOT (Internet of things) has changed the supply chain process completely in todays world. This is a boon for the FMCG space since it helps to prevent situations wherein stocks at retailer are exhausting or a new product needs to be made available immediately. Your Company ensures process optimization at its core operations improving growth prospects, removing bottlenecks and ultimately enhancing bottom line of the Company.

Your Company takes climate change and environmental protection seriously. As mentioned in other sections of the Boards Report, your Company has undertaken considerable work on conserving resources like energy, water, and ensured minimized impact on the environment. With depleting natural resources due to increased consumption, safeguarding the environment is necessary. Climate change is one of the biggest threats we face as a society and is also one of the greatest risks to the future of business. To address this issue, your Company is transforming its business to reduce Green House Gases emissions, end deforestation, reduce food loss and waste and improve soil health. Your Company is continuously reducing waste and emissions while simultaneously optimizing on the production measures.

Your Company also maintains a BCP (Business Continuity Planning) process to prevent and to recover from any future potential threat or disaster to ensure smooth functioning of the business. Proper drills and advance planning is undertaken with inputs from all the key stakeholders associated with it.

Quality and Safety

Quality and Food Safety are highest priority for your Company. The health of consumers is of paramount importance. To ensure this, your Company has systems and processes in place that ensures all products undergo stringent quality checks. In line with zero defect mindset, during 2019, a special focus was given towards upstream raw material vendors for products such as wheat flour, tomato and chilly paste and sugar, as well as at your Companys factories ensuring right quality and compliant product.

Your Company developed a comprehensive and systematic programme on machinery safety for the benefit of the employees to prevent any untoward incident. All the offices and factories of your Company are certified under Safety and Health Management System that complies with ISO 45001:2018 & Environment Management System that complies with ISO 14001:2015.

Your Company has also taken considerable measures to promote road safety by conducting awareness campaigns for the employees as well as third party transport service drivers. Taking a holistic approach towards employee wellness, your Company introduced several health initiatives for its employees such as early screening and programs that support healthier lifestyle choices and also provide health risk assessment.

Environment

The aim of your Company is to develop business while improving its environmental performance in order to create a more sustainable future. In order to achieve this, your Company continues to focus on measures for the conservation and optimal utilization of energy in all the areas of its operations. Factories are encouraged to consistently improve operational efficiencies, minimize consumption of natural resources and reduce water usage, energy usage and carbon emissions while maximizing production volumes. From the period, 2004-2019, for every tonne of production, your Company has reduced the usage of energy by around 49%, reduced water usage by around 54%, reduced greenhouse gases generation by around 58% and the generation of waste water by around 59%.

Waste for Disposal: Your Company is continuously working towards reduction in waste for disposal.In 2019, two more factories converted to zero waste to landfill. Now all eight factories have proudly achieved the coveted status of "zero waste to landfill."

Reduction in Green House Gases emissions:

The Nanjangud Factory in the State of Karnataka has entered into long term power purchase agreements with two solar power developers to supply 24.7 Mio KWH (units) per annum, which is 71% of the total energy requirement. This initiative has reduced Green House Gases emissions by 22,500 tonnes per annum in 2019 and also saved costs.

Packaging and Plastic waste management:

Plastics play a key role in preventing food wastage teifci and ensuring the quality and safety of food products.

However, the leakage of plastic waste into the environment has become a significant environment !* jM challenge. Your Company is tvlmr m strongly committed to minimizing the impact that plastic has on the environment and ensuring right disposal or reuse of packaging. Your Company is determined to look at every option to solve complex packaging challenges by embracing multiple solutions. The vision of your Company is that none of its product packaging, including plastics, should end up in landfill or as litter and that 100% of packaging is reusable or recyclable by 2025.

Collaboration and collective action are key for transforming how packaging is managed today. Recognizing this, your Company is working with various stakeholders and partners to shape a waste-free future. Your Company is one of the founder members of the Industry Consortium WECARE (Waste Efficient Collection and Recycling Efforts) that is represented by environmentally conscious businesses. Your Company has also fulfilled its Extended Producers Responsibility (EPR) towards responsibly managing the post-consumer plastic waste generated by the products. In 2019, your Company extended its EPR projects to 20 states and union territories, such as Goa, Gujarat, Madhya Pradesh, Rajasthan, Tamil Nadu, Uttar Pradesh, Uttarakhand, West Bengal, Maharashtra, Andhra Pradesh, Delhi, Kerala, Orissa, Assam, Bihar, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka and Punjab. It responsibly managed 15,979 MT of post-consumer plastic waste for its end of life.

Your Company launched, Plastic Express a mobile van, that collects dry plastic waste from MAGGI Points in Mussoorie and dry waste for its end of life. The year-long project aims at engaging around 200 MAGGI Points in the hill town for collecting and disposing plastic waste responsibly.

In order to bring about a behavioural change to dispose plastic waste responsibly, your Company introduced an integrated communications campaign titled 2 Minute Safaai Ke Naam

(2 minutes for cleanliness) in 2018, that was extended in 2019 to the Kumbh Mela. This campaign brought together multiple stakeholders to address the issue of proper plastic waste disposal and also provided consumers with samplings in an used MAGGI Cup, that were given in exchange for empty MAGGI Cuppa Noodles pack.

Achieving waste segregation at source is key to establish sustainable waste management HiUdaari systems. Your Company has initiated a project titled "HILLDAARI" in Mussoorie, Dalhousie, and Nainital that aims at empowering waste workers and also focuses on working collectively with local stakeholders like urban local bodies, institutions, residents, households, waste generators, and waste workers to raise awareness about anti-littering and segregation at source.

Supply Chain

Your Company in 2019 intensified its commitment towards customer and consumer centrality, operational efficiencies, waste reduction and delivery of fresh products.

By embracing digital transformation in operations, your Company has adopted various forms of digital tools, such as consumer app to drive engagement with partners leading to speed of response to customers and transparency of information in the value chain processes and making product delivery simpler and faster.

In 2019, your Company has introduced web based mobile App that monitors and provides real time data on product availability and freshness from retail outlets that are geo-mapped to the network.

Nestle Business Excellence

Your Company continued to strengthen its business through Nestle Business Excellence to simplify and standardize processes to drive efficiency and provide high quality services in an integrated and seamless manner. In 2019, your Company, by using technology and data further eased processes and added speed to how it does business. Your Company invested in its people to enhance their capabilities. A new Centre of Competence was setup to support end-to-end activities for Order to Cash - from customer order to invoice payment, Source to Pay - from sourcing materials and services to paying vendors, Record to Report - from recording transactions to financial and performance reporting, Hire to Retire - from attracting talent to enabling employees on their Nestle journey.

The initiative of Nestle Continuous Excellence (NCE) enabled successful transitions through people: alignment, leadership development and Lean ways of working. Technology, data and systems were key enablers within each end-to-end activity to deliver speed and quality of execution. Your Company is constantly working towards transforming end-to-end processes and leveraging technology to simplify operations and enhance its capabilities to retain the competitive edge.

Cautionary Statement

Statements in this Report, particularly those which relate to Management Discussion and Analysis as explained in the Corporate Governance Report, describing the Companys objectives, projections, estimates and expectations may constitute forward looking statements within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied in the statement depending on the circumstances.