Nestle House, Gurgaon 22nd March, 2013: Nestle India’s Board of Directors today, with only Independent Directors voting and the Executive Directors recusing, approved a staggered increase in the royalty rate @ 0.20% per annum over the next 5 years effective January 1st, 2014. This royalty is paid on third party sales and is net of tax.
The Independent Directors appreciated the high emphasis on corporate governance keeping in view the elaborate review process.
The Company has a General License Agreement (GLA) that allows it access to Nestle Group’s intellectual property rights including global portfolio of brands, proprietary science and technology including over 1300 patents, extensive research and development capabilities and expertise on best practices.
The GLA includes access to over 6,000 brands such as NESTLE, MAGGI and NESCAFE and technologies developed by the global network of 32 research & development centres, including the one recently inaugurated at Manesar, Haryana which will further assist in localization of global concepts. Nestle India’s recent capacity investments of around INR 3000 crores have benefitted from this.
Nestle SA had requested two years ago for a review of the two decades old royalty rates and subsequently substantiated the same by a study conducted by Mckinsey & Co. This study was subjected to a fairness review by two Indian firms i.e. M/s Bansi S. Mehta & Co. and KPMG (Registered) who independently used different valuation methods and recommended ranges of royalty rates which were similar to that of Mckinsey & Co.
The existing GLA, the proposal from Nestle SA and the studies performed by the independent firms were examined by the Corporate Governance Committee, majority of its members being Independent Directors.
The Board of Directors of Nestle India negotiated and Nestle S.A. accepted the increase in royalty from 3.5% to 4.5 % of sales in a staggered manner by making an increase of 0.20% per annum over the next five years effective January 1st, 2014. This increase is based on the lower limit of the ranges established by the two Indian firms and is in line with the erstwhile guidelines of the Government of India. It is also comparable to the royalty being paid by the Nestle affiliates in similar countries. The royalty rate on exports will now be aligned to 4.5% of sales.
M/s Amarchand and Mangaldas and Suresh A. Shroff & Co., a law firm advised on the governance process on the review.
Commenting on the decision of the Board, the Chairman and Managing Director of Nestle India, Mr. A. Helio Waszyk mentioned “This will ensure ongoing access to the entire capabilities of Nestle, the world’s leading Nutrition, Health and Wellness company having the largest Food and Nutrition R&D network globally and will enable Nestle India to continue to deliver long term sustainable profitable growth and Create Shared Value for society and its shareholders.”
Nestlé India Limited
Head Office: Nestlé House, Jacaranda Marg,
M Block, DLF City Phase – II, Gurgaon 122 002 (Haryana)
Registered Office: M-5A, Connaught Circus, New Delhi – 110 001
Email ID: [email protected], Website: www.nestle.in