BOARD'S REPORT - 2015 DEAR MEMBERS, Your Directors are pleased to present their report and financial statements for the year ended 31st December, 2015. “Net Sales” for the year has decreased by 17.2% largely due to the impact of MAGGI Noodles issue. “Net Domestic Sales” decreased by 18.3%. Net Sales worth Rs. 3,034.0 million have been reversed during the year in relation to MAGGI Noodles stock withdrawn from trade partners and market. “Export Sales” decreased by 1.3% impacted by MAGGI Noodles issue and lower coffee exports partially offset by export of milk and nutrition products. “Other Income“ has increased due to higher average liquidities in current year, as during 2014, substantial part of the liquidities were used for repayment of External Commercial Borrowings (ECB). The Company supplemented the Provision for Contingencies with further amount of Rs. 634.6 million (net) for contingencies resulting mainly from issues, which are under litigation/dispute and other uncertainties requiring management judgement. This was after the reversal, utilisation/settlement of contingency provision of Rs.160.0 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 The Exceptional items - Charge for 2015 of Rs. 5,008.4 million relates to loss on MAGGI Noodles stocks withdrawn including incidental costs thereto and estimates of other related costs incurred exclusively in the ordinary course of Company business.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 reserves position, no amount has been transferred to reserves. Dividends 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. 1,783.7 million. This is in addition to the interim dividends of Rs. 14.00 per equity share and Rs. 16.00 per equity share paid on 2nd June, 2015 and 23rd December, 2015 respectively. The total dividend for 2015 aggregates to Rs. 48.50 per equity share, amounting to Rs. 4,676.2 million. Despite exceptional toll that MAGGI Noodles crisis took on the Company's financials, your Company's optimism about the future helps it with a healthy dividend payout. Exports Exports during the early part of the year showed some revival. However, the European markets continued to see tough conditions. Overall exports picked up during the first half, but were impacted by the repercussions of the MAGGI Noodles issue in India. Exports of other products remained largely unaffected, and total exports remained flat at Rs. 6,355.3 million as compared to Rs. 6,441.8 million. This was on account of good sales of Instant Coffee and Infant Nutrition products to affiliate companies. Exports of culinary products did see some early uplift in the major markets, but fell eventually due to the MAGGI Noodles issue. Exports of Instant Tea picked up significantly during the year with substantial quantities going to Philippines, Thailand and Ireland. We are now working with some new customers and developing newer grades, which should help to further build the Instant Tea sales. Exports of Coffee to Turkey and Romania remained significant. Our efforts in developing exports of quality coffees, meanwhile, continued to earn us recognition in the form of Awards from the Coffee Board. Contribution to the Exchequer Your Company of the country and over the years has been enabling significant contribution to various taxes. During the year 2015, the Company through its business, enabled tax collections at Central and State level close to Rs. 20 billion, in aggregate Business Development Your Company's objective is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions and help consumers maintain optimum Nutrition, Health and Wellness. Your Company has access to the extensive global network of Nestle R&D. This is a competitive advantage in the rapidly emerging areas of technology and scientific research and enables your Company to provide safe and nutritious products of very high quality. The year started well and then faced an unusual crisis. Your Company handled the situation with integrity, determination and transparency and by the end of the year, it closed the year on a positive note. • The year commenced with work on reshaping and evolving the product portfolio while continuing to stay focused on improving efficiencies • However, business was severely disrupted by the MAGGI Noodles issue and continued to significantly impact business for a major part of the year. • The impact of the MAGGI Noodles issue was felt in several dimensions and across our various businesses. • Despite the tough situation your Company closed the year reporting an improvement in the sequential performance both in terms of Sales and Margins. The business of 'Prepared Dishes and Cooking Aids' has been continuously improving volumes and strengthening connect with consumers in the previous years. Over the past 32 years, MAGGI has understood the changing lifestyles of generations and provided products that the family enjoys. It has become the most relevant, trusted and valuable food brand in India. During the year it faced an unprecedented crisis and business was disrupted. This situation had a rub-off effect on other products under the MAGGI brand and volumes were negatively impacted. • Reports that tests initiated by a State Food Authority on one sample pack of MAGGI Noodles found elevated level of lead and that the 'NO ADDED MSG' declaration on the pack was considered misleading, created confusion for consumers. • Your Company does not add Monosodium Glutamate - MSG (flavor enhancer E621) in MAGGI Noodles and clarified that 'NO ADDED MSG' was factually correct and not in violation of regulatory norms. • Your Company provided details and reports from NABL accredited laboratories to establish that it has very strict quality monitoring norms and that presence of lead is monitored and always within permissible limits. • Developments and growing concerns about the product led to an environment of confusion for consumers to such an extent that on 5th June your Company announced voluntary withdrawal of MAGGI Noodles from the market shelves, despite the product being safe. Over 35000 Tonnes of the product was withdrawn and destroyed. This was done to reassure consumers 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 Company tested at external and its own accredited laboratories showed that lead levels were well within 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 the Hon'ble Bombay High Court raising issues of interpretation of the Food Safety and Standards Act and also seeking review of the ban order. After facing a very challenging period, your Company re-launched MAGGI Noodles on the auspicious eve of Deepawali and on the day of Dhanteras on 9th November. This was done after the ban was set aside by the Hon'ble Bombay High Court and after the reports of the three accredited laboratories mandated by the Hon'ble Bombay High Court found 100% of samples tested clear with lead much below permissible limits. • Your Company created a cross functional team to plan and execute the fastest and strongest re-launch, and crashed timelines by more than half. • During the time MAGGI Noodles was not in the market, your Company continued to talk to the consumers - '#WeMissYouToo'. Closer to the re-launch, 'MAGGI Is Safe, Has Always Been' campaign was rolled out to addresses consumer concerns. After the re-launch, 'Welcome Back MAGGI' communication echoed the consumer sentiment across the country. • In an innovative move, your Company partnered with 'Snapdeal' to sell 60,000 'MAGGI Welcome Kits' through e-commerce. These were all sold out within 5 minutes after the sale opened. Close to 10 lakh consumers had pre-booked to participate in the sale. • The consumers overwhelmed your Company with their love and support, and within 53 days by the end of December, according to Nielsen figures MAGGI Noodles had already recovered its 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 everyone across the board and from all its consumers, MAGGI Noodles will bounce back and the coming year should see it climbing back to consolidate its leadership in the category. The 'Chocolate and Confectionery' business worked on improving consumer insights and has been working with Nestle R&D to innovate and renovate products that will strengthen its portfolio. The focus was also on portfolio optimization for long term benefit, though it impacted short term growth. • Towards the end of the year it launched MUNCH NUTS, a new extension of the ever popular MUNCH. • New MUNCH NUTS is the first of its kinds in the category today: with the combination of crunchy wafer, roasted peanuts and indulgent peanut creme. It comes in an easy packaging that allows consumers to un-wrap the pack for a quick bite and then twist wrap the remaining for a second serve later. • While MUNCH is India's biggest wafer brand today and loved by consumers, MUNCH NUTS adds an innovative dimension to the consumption experience and is an industry-first product. 2015 was another good year of growth for the 'Coffee and Beverages' business, largely coming from increased consumption of NESCAFE Classic, outperforming the industry average. It also retained its top 6 Hot Beverage brand positon in Brand Equity's Most Trusted Brands Report for 2015. • NESCAFE instant coffee continued to build on the communication idea "It all starts with a NESCAFE". The successful 'Comedian' campaign was followed up with the 'Cartoonist' campaign in 2015, and continued to create the buzz and the connect amongst youth. • The first of its kind digital property "MTV Presents NESCAFE Labs" was launched as a strategic platform for youth to collaborate and showcase their talents while being 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 across major universities and towns for NESCAFE. Product sampling was also a key driver for NESTEA Iced Tea, showcasing its great taste. • NESCAFE Sunrise revamped its packaging to be more contemporary, and strengthened its core coffee credentials with the 'Slow Roasted for a richer aroma' communication. It was rolled out across stores with an impactful visibility campaign and extensive product sampling. Nutritional needs not only evolve with age they also depend on the nutrition foundation laid in the early years of our lives. Nutrition requires strong insights and science based expertise. The 'Milk Products and Nutrition' business sustained its performance and focused on consumer insights and leveraging expertise in science based nutrition • During the year, your Company launched CERELAC stage 5 to address picky eating amongst infants of 18-24 months of age. This product provides the benefit of 5 grains and fruits and further strengthens the CERELAC portfolio • In India, the practice of exclusive and continued breastfeeding is still low, despite high initiation rates. 96% of Indian mothers initiate breastfeeding but at 6 months, the number of exclusively breastfed babies falls to <30%. In urban areas, that number is even lower at 17%. Nestle 'Start Healthy Stay Healthy' reached out to the supporting eco system of mothers to emphasize the importance of their role in continued breastfeeding with the objective to build greater awareness and advocacy. The key message was 'Breastfeeding is not just a mother's responsibility'. The campaign received 9.1 million views out performing industry benchmarks • Your Company believes that the increasing demand for packaged milk in recent years reflects the consumers' aspiration for better value in dairy products as well as the need for greater convenience to suit their changing lifestyles • Your Company has a clear strategy for growth. Nestle R&D and expertise in dairy technology will be a strong competitive advantage. • The focus is on providing consumers with high quality, safe and nutritious products that add value to them, and your Company is investing in high quality UHT Milk as well as high quality Dairy Whiteners. • Sales for Nestle a+ UHT Milk are steady and sales for EVERYDAY Dairy Whitener that was repositioned last year into the much larger segment are in line with plans. There is sustained preference for Nestle a+ SLIM and Nestle a+ Nourish During the year 'Nestle Professional' regained traction on Beverage Solutions. Its innovation "New NESCAFE" solution is doing well in offices. "Chef2Chef" program was active for Savory Flavors and Dessert solutions pan India and growth was satisfactory. Nestle Professional increased its penetration in Key Accounts by entering in Airline companies, Cinema chains and QSRs (Quick Service Restaurants). Commitment to Nutrition, Health and Wellness In line with its objective to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and help them maintain optimum Nutrition, Health and Wellness, your Company has been rolling out initiatives that help them make more informed choices. • Your Company places high priority on providing consumers with nutrition information on food labels to make informed choices. • It has already covered the confectionery portfolio, Beverages portfolio, UHT Milks, Sweetened Condensed Milk and Dairy Whitener with GDA labelling. • During the year your Company enhanced labelling of products with QR codes. This enables consumers to use their mobile phones to scan the QR code on the label for information on Nutrition, Environment and Community as relevant to the product. • During the year your Company also created 'The Design Lab' to inspire a strategic shift in packaging design keeping the consumer experience in mind and to achieve operational excellence Management Analysis Review of economic scenario & outlook • The economic environment in the year gone by remained largely neutral. Growth momentum of the Indian economy remained subdued though the sentiments for potential and revival remained positive. • In the backdrop of the troubled world economies impacted by global slowdown, China fears, and collapsing commodity prices India remained a positive story. • India too had its share of troubles including poor monsoons but benefited from the softening commodity and crude prices and inflation was controlled. • Nevertheless, business sentiment as well as consumer sentiments remained mellow and there was lack of consensus on whether recovery in the Indian economy was round the corner or will remain elusive for some more time. • The FMCG industry remained under pressure as subdued consumer sentiments affected purchase 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 accelerating development of transport infrastructure, pro-reform approach and efforts at fiscal rationalization are all positive indicators and your Company is optimistic that the economy will pick up with a lag. • The focus on financial empowerment of people at the bottom of the pyramid by ensuring bank accounts for them, the direct benefit transfer scheme and similar initiatives indicate the Government's 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 various and significant challenges. Key amongst them is the challenge of health and nutrition for its people which is impacting people across the income pyramid and adversely impacting their productivity and output. • Improving balanced nutrition is only one of the challenges. There is also increased concern that while the availability of land, water and other renewable resources is rapidly getting depleted, the population pressure is intensifying and that this will impact nutrition security. • There is an urgent need to improve the supply chain for transportation of perishable commodities, reduce wastage, and create incentives that accelerate the transfer of technology and knowledge to improve productivity and sustainability. • The fundamentals of the Indian economy continue to be good and there is sufficient reason to believe in the growth potential. However, execution of the reforms agenda and being able to restart the investment cycle will have a major bearing on India's economic performance. Outlook, Risks and Opportunities • The economic and business environment is fast evolving, and with the rapid transformation of technology and the impact of cultural changes, society and consumers are also transforming on multiple dimensions. • Increased exposure, improved education and awareness, as well as changing aspirations at various levels of the income pyramid and the urban rural divide are creating opportunities that organisations need to understand and prepare for the emerging future. • Your Company has significant strengths and being Nestle is in itself a very huge strength, because the brand brings with it 150 years of trust and credibility. It has excellent capabilities in ongoing R&D and the benefits of this and the expertise in science based nutrition and technology flow to Nestle India. The General Licence Agreement gives it access to Nestle Group's proprietary technology / brands, expertise and extensive centralized Research and Development facilities. • The 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. • However, the Indian market is complex and demands a very efficient and complex supply chain configuration as well. This is further complicated by cascading indirect taxes. • The product portfolio of your Company needs to be strengthened by accelerated innovation and renovation to stay relevant to the emerging and differentiated needs of the consumers. • Your Company is operating in an industry that faces price volatility in raw materials and is dependent on agricultural commodities that need to meet stringent quality standards and on natural resources where alternatives are not viable. There is also increasing competition in processed foods, and regulatory framework is still evolving. Clearly, even though there is slower than anticipated momentum in the economy, there are opportunities. Consumer lifestyles are changing and there is increasing demand for value-up and premium products and your Company can leverage Nestle technology to develop more science based products that provide superior benefits of Nutrition, Health and Wellness at appropriate price points. Technology is throwing up immense opportunities to understand consumers and engage better with them and digital and e-commerce can hold immense potential and strategic significance for your Company. Sales Your Company is ranked amongst the best for the strengths of its sales and distribution network. During the year, it was very evident that it also has amongst the most committed and loyal trade partners including the retailers. Your Company can be proud of the immense commitment and support that it received from its sales partners during the MAGGI Noodles crisis. • Despite the impact on their business they were extremely supportive and enabled us to speedily complete the withdrawal without hampering the sale of your Company's other products. • You can be proud that your Company had almost zero attrition amongst the business partners during this time. • Your Company is also proud of the speed with which your trade partners and retailers have enabled the very successful re-launch of MAGGI Noodles into the market. • The withdrawal of MAGGI Noodles from the markets also impacted customers in the organised trade. Despite this your Company has received complete support during the period where we continued engaging with them to improve sales in other categories. • Your Company realises the growing importance of e-retailing and continues to successfully engage with the leading e-retailers and are making good progress in increasing our share in the categories we operate in. Technology, Quality and Safety Your Company is committed to providing consumers with high quality products. It follows stringent quality assurance norms, has state-of-the-art technology and high degree of automation and is continuously improving them to ensure a 60:40 taste preference with a nutritional advantage over competition. Sustained delivery on this commitment has ensured that your Company's products are trusted by consumers. During the year your Company continued its focus on driving the quality culture and total productivity management across our factories. Your Company benefits from access to the Nestle Group R&D and technical expertise, as well as the best practices available from the global network. • All the factories of your Company are FSSC 22000 certified by reputed third party agency for food safety and quality management as well as for safety and environment. The focus is to stay aligned with the best and continuously increase efficiency. • All the factories embrace Nestle Continuous Excellence and LEAN mindset and are continuously implem initiatives for War on Waste and Tota Performance Management. • This ongoing engagement benefits your Company by streamlining the planning activities, savings through optimization of processes, reducing waste especially in non-quality areas, while maintaining focus on further improving quality and competitiveness. Your Company believes that safety practices are important in every activity, function and location wherever the employees are engaged, and is committed to maintaining the safety culture. The 'Safe by Choice' and 'B-SAFE' programmes continue to be high priority and efforts are constantly being made to engage the employees. Environment Your Company has consistently emphasized sustainable use of natural and non-renewable resources. Within the factories your Company constantly evaluates new initiatives that could reduce waste and emissions. It actively engages the employees to increase awareness about the need to sustain the environment. The focus is on improving operational efficiencies, minimizing consumption of non-renewable and natural resources, reducing consumption of water, energy and CO2 emissions per tonne of production while maximizing production volumes. All processes use state-of-the-art technology, follow the Nestle Environmental Management System, and comply with government policies, laws and regulations relating to the environment. Your Company continued to stress upon 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 / 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 the long term sustainable operations of the Company itself. It is conscious that multiple factors in the environment are impacting the water tables across the country and every effort 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 also training farmers in a manner that will reduce the withdrawal from the catchment area, while improving productivity. • In the factory at Moga where milk is collected from over 100,000 farmers your Company has commissioned a project that will enable recovery of over 50% of water from the cow milk collected every day. • This water recovered from the milk is then recycled and has already reduced ground water withdrawal by almost 25%. • Near the Nanjangud Factory in Karnataka your Company is working with farmers on a project on Rice Intensification and on the Sustainable Sugarcane Initiative. • During the year, 54 Energy reduction projects and 40 water reduction projects were completed in your factories. Supply Chain During 2015 your Company consolidated and further accelerated the current improvement programs. It continued to upgrade its warehousing infrastructure with key distribution centers ready to operate in the future with proper infrastructures, systems, processes and a sound safety culture. Nevertheless, the overall supply chain remains complex and constrained in speed and efficiency • During the year the entire value chain was extensively engaged in the withdrawal of MAGGI Noodles. The withdrawal process was fast, efficient and transparent. The unprecedented reverse logistics was activated within days and stocks withdrawn from consumers, retailers and distributors using more than 10,000 trucks. The Noodles withdrawn were sent to incineration centers for high temperature thermal destruction in cement kilns, where using noodles as fuel has also helped to reduce the environmental impact. • The entire warehousing and transport operations were also re-engineered during the absence of MAGGI Noodles to optimize routes, space and vehicle utilization reducing the cost impact for the rest of the business. • During the temporary stoppage of MAGGI production, the procurement team of your Company continuously engaged with the suppliers, who showed unconditional support to your Company. • With commodity prices softening in 2015 the overall commodity environment has been favorable for your Company. Nevertheless, the procurement team of your Company continued to deliver cost savings, leveraging scale and introducing alternate local vendors. • The Responsible Sourcing program is now the "way we do business" as it has reached over 125 unique suppliers with regular audits and constant feed-back on basic compliances • The NESCAFE plan, launched in 2012, has now reached over 550 farmers with approximately 10% of total coffee bean purchase in India of "4C" certified coffee 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 have reached over 5,000 farmers which provides them access to bank facilities (financial inclusion). • During the year your Company has successfully piloted a new demand forecasting system based on analytics and also automated the replenishment to the distribution centres in all factories, 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 products 'on shelf' for consumers and reduce waste. Cautionary Statement Statements in this Report, particularly those which relate to Management Discussion and Analysis as explained in the Corporate Governance Report, describing the Company's 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. Directors' Responsibility Statement The Directors state that: a) in the preparation of the annual accounts, the applicable accounting standards have been followed and no material departures have been made from the same; b) they have 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 have 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 have prepared the annual accounts on a going concern basis; e) they have 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 have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. Corporate Governance 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 Statutory Auditor's of the Company is attached as Annexure- 1 and forms integral part of this Report (heDirectors and Key Managerial Personnel Directors and Key Managerial Personnel During the year, Mr. Michael W.O. Garrett relinquished his office as an Independent Non-Executive Director of the Company with effect from 15th May, 2015. Consequent to change of nomination notified by Nestle S.A., Switzerland ("NSA") under the Articles of Association of the Company, Mr. Etienne Andre Marie Benet also relinquished office of the Managing Director of the Company with effect from 25th July, 2015 and in terms of Article 132 of the Articles of Association of the Company on the recommendation of the Nomination and Remuneration Committee, Mr. Suresh Narayanan was appointed as the Managing Director of the Company by the Board of Directors with effect from 1st August, 2015 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 the terms and conditions of appointment and remuneration of Mr. Suresh Narayanan. Subsequently, the appointment of Mr. Suresh Narayanan was also approved by the Central Government, since he was not staying in India for not less than twelve months immediately preceding the date of his appointment as the Managing Director. Consequent to change of nomination notified by NSA under the Articles of Association of the Company, Mr. Antonio Helio Waszyk relinquished his office as the Chairman of the Company with effect from 1st October, 2015 upon his retirement from Nestle Group and Mr. Suresh Narayanan was appointed as the Chairman of the Company with effect from 29th October, 2015 in addition to his responsibility as the Managing Director of the Company by the Board of Directors, at its meeting held on 29th October, 2015. The Board of Directors placed on record their sincere appreciation for the valuable contribution made by Mr. Michael W.O. Garrett, Mr. Etienne Andre Marie Benet and Mr. Antonio Helio Waszyk Mr. Shobinder Duggal shall retire at the forthcoming Annual General Meeting and being eligible offers himself for re-appointment. The brief resume and other details as required under the Listing Regulations are provided in the Notice of the 57th 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 Company's 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 Management Personnel and other employees. The same is attached as Annexure - 2 and forms integral part of this Report. The details of familiarization 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 put up on the website 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 the Board, its Committees and Individual Directors ("Performance Evaluation"). It covers the areas relevant to the functioning as Independent Directors or other directors,member of Board or Committee of the Board. The 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 In accordance with the requirements of Section 135 of Companies Act, 2013, your Company has a Corporate Governance and Social Responsibility Committee, which comprises Mr. Suresh Narayanan, Chairman and Managing Director (Chairman), Mr. Ravinder Narain and Dr. (Mrs.) Swati A. Piramal, Independent Non-executive Directors of the Company. The terms of reference of the Corporate Governance and 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 integral part of this Report. As a responsible corporate citizen, the Company has been implementing societal activities since many decades under umbrella of Creating Shared Value activities and Corporate Social Responsibility activities etc. As per the strict interpretation of Section 135 of the Act read with Companies (Corporate Social Responsibility) Rules, 2014 as amended ("CSR Rules") some of these initiatives taken during the year may not be eligible under the 2% CSR spend. As these activities are integral to the business, the Company has decided to continue with them. Additionally, as per the CSR Policy, during the year 2015, the Company has spent about one percent of the average net profits of the Company during the three immediately preceding financial years. The cumulative spend of the Company under the umbrella of Creating Shared Value activities and Corporate Social Responsibility activities was above the level prescribed under the CSR Rules. The Company plans to step up CSR spend, as required under CSR Rules, to 2% during 2016. Business Responsibility Report Nestle's approach to business is Creating Shared Value or 'Saanjhapan' 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 Value" (hereinafter 'CSV). The Business Responsibility Report as per Regulation 34 of the Listing Regulations is annexed as Annexure - 4 and forms integral part of the Annual Report. Statutory Auditors The Statutory Auditors of the Company, M/s. A. F. Ferguson & Co. (Firm Registration No. 112066W), Chartered Accountants, New Delhi, hold office till the conclusion of the ensuing Annual General Meeting of the Company and being eligible, offer themselves for re-appointment. The Company has received their written consent and a certificate that they satisfy the criteria provided under Section 141 of the Act and that the appointment, if made, shall be in accordance with the applicable provisions of the Act and rules framed thereunder. The Audit Committee and the Board of Directors recommends the re-appointment of M/s. A. F. Ferguson & Co., Chartered Accountants, as the Statutory Auditors of the Company in relation to the financial year 2016 till the conclusion of the next Annual General Meeting. The re-appointment proposed is within the time frame for transition under the 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 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. Cost Auditors As per Section 148 of the Act read with Companies (Cost Records and Audits) Rules, 2014, as amended, on the recommendation of the Audit Committee, the Board of Directors had appointed 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 carry out the cost audit of milk powder products manufactured by the Company falling under the specified Central Excise Tariff Act heading in relation to the financial year ending December 2016. 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 the requisite resolution for ratification of remuneration of Cost Auditors by the members has been set out in the Notice of the 57th Annual General Meeting of your Company. Secretarial Auditors 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 Report given by the Secretarial Auditors is annexed as Annexure - 5 and forms integral part of this 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 Companies Act, 2013, on the recommendation of the Audit Committee, the Board of Directors had 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 2016. The Company has received their consent for appointment. Meetings of the Board Six meetings of the Board of Directors were held during the year. 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 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 the financial year ended 31st December, 2015 are as follows: Nestle R&D Centre India Private Limited (Fellow Subsidiary): Rs. 400 million at the interest rate of 9.63% for general business purpose (Loan outstanding at the end of the year was Nil); and SMA Nutrition India Private Limited (Fellow Subsidiary): Rs. 20 million at the interest rate of 9.50% for general business purpose (Loan outstanding at the end of the year was Nil). For details of investments in Bonds and Mutual Funds, please refer Note 12 and Note 14 forming part of financial statements Related Party Transactions Your Company has formulated a policy on related party transactions which is also available on Company's 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 has 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 at arm's length. 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 arm's 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 Companies Act, 2013 in Form AOC 2 is not applicable to your Company. Risk Management 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 and in the opinion of the Committee there was no risk that may threaten the existence of the Company. The details of Risk Management Committee are included in the Corporate Governance Report. Public Deposits 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 Company's operations in future. Complaint filed in National Commission Disputes Redressal Commission The Union of India, Department of Consumer Affairs has filed a complaint before the National Consumer Disputes 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 Rs. 2,845.5 million and punitive damages of Rs. 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 the Company and such policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business, including adherence to Company's 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. Audit Committee The Audit Committee comprises Independent Directors, namely, M/s. AK Mahindra (Chairman), Ravinder Narain and Rajya Vardhan Kanoria. Powers and role of the Audit Committee are included in Corporate Governance Report. All the recommendation made by the Audit Committee were accepted by the Board of Directors. Vigil Mechanism The Vigil Mechanism of the Company is governed by significant documents "Nestle Corporate Business Principles", "The Nestle Management and Leadership Principles" and "Nestle Code of Business Conduct". Under the said mechanism available to the Director(s)/Employee(s), 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 victimisation of director(s)/employee(s) 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 to all the Directors and Employees of the Company, the 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 the Company across all locations. The details of IRS along with FAQs are available to the Directors and Employees on the Company's 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 employee reporting. 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, 2015 in relation to the Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo is given in the Annexure - 7 forming integral part of this Report. Information regarding Employees and related disclosures Your Company considers people as its biggest assets and 'Believing in People' is at the heart of its human resource strategy. It 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 employee 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 Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is appended as Annexure - 8 to the Report. The information as per Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, forms part of this Report. However, as per first proviso to Section 136(1) of the Act and second proviso of Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, 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 Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Any Member interested in obtaining a copy of the said statement may write to the Company Secretary at the Registered Office of the Company. The Company has a Policy on "Prevention of Sexual Harassment of Women at Workplace" and matters connected therewith or incidental thereto covering all the aspects as contained under the "The Sexual Harassment of Women at Workplace (Prohibition, Prevention and Redressal) Act, 2013". The Company received two complaints under the Policy, all of which were disposed of. Trade Relations The Company maintained healthy, cordial and harmonious industrial relations at all levels. Despite severe competition, the enthusiasm and unstinting efforts of the employees have enabled the 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. Appreciation 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 utilisation of the Company's resources for sustainable and profitable growth. The Directors wish hereby 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. Your Directors look forward to the long term future with confidence. On behalf of the Board of Directors Suresh Narayanan Chairman and Managing Director Date : 12th February, 2016 Place : Gurgaon |