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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 500790ISIN: INE239A01016INDUSTRY: Food Processing - Dairy/Fruits/Others

BSE   ` 9624.00   Open: 9764.80   Today's Range 9580.00
9783.05
-112.45 ( -1.17 %) Prev Close: 9736.45 52 Week Range 6501.00
10050.00
Year End :2016-12 

1. NET PROVISION FOR CONTINGENCIES

The Company has created a contingency provision of ' 1,813.6 million (Previous year ' 794.6 million) for various contingencies resulting mainly from matters, which are under litigation / related disputes and other uncertainties requiring management judgement. The current year’s provision has been impacted due to completion of certain procedures relating to litigation / disputed matter for more number of years in the current year as compared to only one year in the previous year. The Company has also reversed, utilised/settled contingency provision of ' 128.9 million (Previous year ' 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.

*out of this, ' 418.0 million (Previous year ' 333.1 million) has been recognised as contingencies from operations and balance amount of ' 1,266.7 million (Previous year ' 301.5 million) as others.

Notes:

(a) Litigations and related disputes - represents estimates made mainly for probable claims arising out of litigations / disputes pending with authorities under various statutes (i.e. Income Tax, Excise Duty, Service Tax, Entry tax, Value Added Tax, Sales and Purchase Tax, etc.). The probability and the timing of the outflow with regard to these matters depend on the ultimate settlement /conclusion with the relevant authorities.

(b) Others - include estimates made for products sold by the Company which are covered under free replacement warranty on crossing the best before date for consumption and other uncertainties requiring management judgement. The timing and probability of outflow with regard to these matters will depend on the external environment and the consequent decision/ conclusion by the Management.

2. EMPLOYEE BENEFIT PLANS

(a) Defined contribution plans

The Company makes contributions to the Provident Fund, Employee State Insurance, National Pension System etc. for eligible employees. Under these plans, the Company is required to contribute a specified percentage of payroll costs. The Company during the year has recognised ' 324.1 million (Previous year ' 292.8 million) as expense in the statement of profit and loss during the year.

Out of the total contribution made for Provident Fund, Rs, 128.9 million (Previous year Rs, 118.6 million) is made to the Nestle India Limited Employees Provident Fund Trust. The members of the Provident Fund Trust are entitled to the rate of interest declared by the Central Government under the Employees Provident Funds and Miscellaneous Provisions Act, 1952. The shortfall, if any, is made good by the Company in the year in which it arises.

The total plan liabilities under the Nestle India Limited Employees Provident Fund Trust as at December 31, 2016 as per the unaudited financial statements for the year then ended is Rs, 2,969.7 million (Previous year Rs, 2,668.7 million) as against total plan assets of Rs, 2,982.8 million (Previous year Rs, 2,689.8 million). The funds of the Trust have been invested under various securities as prescribed under the rules of the Trust.

(b) Defined benefit plans

The company provides gratuity and defined benefit pension to eligible employees. The gratuity plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment. Gratuity vesting occurs upon completion of five years of service. The Company makes contributions to the Nestle India Limited Employees’ Gratuity Trust Fund. Defined benefit pension is a discretionary, unfunded plan.

Total employee benefits expense due to passage of time charged in statement of profit and loss is Rs, 874.0 million (Previous year Rs, 753.2 million). This includes Rs, 814.1 million (Previous year Rs, 699.5 million) towards pension and gratuity and Rs, 59.9 million (Previous year Rs, 53.7 million) towards compensated absences and long service awards.

The estimates of future salary increases considered in actuarial valuation, take account of inflation, performance, promotion and other relevant factors such as demand and supply in the employment market.

The expected return on plan assets is determined considering several applicable factors mainly the composition of the plan assets held, assessed risks of assets management, historical results of return on plan assets and the policy for plan assets management.

(1) Financial results for the previous year ended 31st December, 2015 had been impacted by the MAGGI Noodles issue. The trust of its consumers and the safety and quality of its products is Nestle’s foremost priority. Unfortunately, developments and growing concerns about the product had led to an environment of confusion for the consumers to such an extent that the Company, on 5th June, 2015, decided to take the products temporarily off the shelves, despite the product being safe. This was done to reassure the consumers that their trust has always been of utmost importance for the Company and to maintain their continued patronage for Company’s products. The Food Safety and Standards Authority of India (FSSAI) issued a ban order later on the same day i.e. 5th June, 2015 mainly alleging higher than permissible limits of lead and asking the Company to recall MAGGI Noodles, stop further manufacture and comply with other directions. In line with the instructions from the authorities and in keeping with environmental considerations, the withdrawn products including stocks with the Company were sent for high temperature thermal destruction and the Company suspended further manufacturing of MAGGI Noodles. The Company had conducted extensive additional tests, of over 3500 samples representing over 200 million packs of MAGGI Noodles, in both national and international accredited laboratories. All results confirmed levels of lead were well below the permissible limits. Furthermore, several other countries had found MAGGI Noodles safe after testing samples of the product exported from India. With a view to resolving the issue, the Company approached the Hon’ble Bombay High Court raising issues of interpretation of the Food Safety and Standards Act 2011, whilst seeking judicial review of the order dated 5th June, 2015 passed by FSSAI and order dated 6th June, 2015 passed by the Commissioner of Food Safety, Maharashtra (FDA). The Hon’ble Bombay High Court vide its Judgment dated 13th August, 2015 read along with Order dated 4th September, 2015 revoked the ban order passed by FSSAI and FDA and directed fresh testing of MAGGI Noodles for lead at three NABL (National Accreditation Board for Testing and Calibration Laboratories) accredited laboratories notified by FSSAI for testing of food products under Food Safety and Standards Act. Results from these laboratories were received by 16th October, 2015. 100% of the samples tested were clear with lead much below the permissible limits. In compliance with the directions of the Hon’ble Bombay High Court, the Company thereafter started manufacture of MAGGI Masala Noodles. Samples from the fresh manufacture of MAGGI Masala Noodles were sent to the same three laboratories to test for lead. Results from these laboratories were received by 4th November, 2015. 100% of the samples tested were clear with lead much below the permissible limits. The Company, after successfully passing the two levels of testing directed by the Hon’ble Bombay High Court, re-launched MAGGI Masala Noodles on 9th November, 2015. In December, 2015 the FSSAI filed a Special Leave Petition in the Hon’ble Supreme Court, challenging the Judgment of the Hon’ble Bombay High Court, which is currently pending before the Hon’ble Supreme Court.

Net Sales worth ' 3,034.0 million (about 23,650 tons) had been reversed during the previous year ended 31st December, 2015 in relation to MAGGI Noodles stock withdrawn from trade partners and market. The exceptional item relates to loss on account of stocks withdrawn including incidental costs thereto and estimates of other related costs incurred exclusively in the ordinary course of Company’s business, dealt in line with the Accounting Standard AS 2 on “Valuation of Inventories” and Accounting Standard AS 5 on “Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies”.

The exceptional item comprises of cost of finished goods, obsolete raw and packaging material, contractual commitments, destruction expenses and other related costs, including administrative costs, which had been incurred /reclassified from the expenses reported under the regular heads in the Statement of Profit and Loss (Refer note - 21).

Previous year’s figures are indicated in brackets.

1. Includes product manufactured by contract manufacturers on conversion basis.

2. Sales quantity include company products withdrawn for sales promotion but exclude company products which have crossed the best before date for consumption and/or damaged in transit/ market which are destroyed.

3. Excludes stock of MAGGI Noodles destroyed (about 34,650 tons) - [Refer Note - 30].

3. RESTRICTED STOCK UNIT (RSU)/ PERFORMANCE SHARE UNIT (PSU) PLAN

The Company participates in the Nestle Restricted Stock Unit (RSU)/ Performance Share Unit (PSU) Plan of Nestle S.A., whereby select employees are granted non-tradable units with the right to obtain Nestle S.A. shares or cash equivalent. Restricted Stock Units (RSU)/ Performance Share Units (PSU) granted to employees vest, subject to certain conditions, after completion of three years. Upon vesting Nestle S.A. determines, whether shares, free of charge or cash equivalent to the value of shares, is to be transferred to the employee. The Company has to pay Nestle S.A an amount equivalent to the value of Nestle S.A. shares on the date of vesting, delivered to the employee.

4. The Company had reviewed the General License Agreement in 2013, the Board of Directors of the Company negotiated and Nestle S.A. accepted an increase in royalty from 3.5% to 4.5% of domestic sales in a staggered manner by making an increase of 0.20% per annum over five years effective January 1, 2014. The royalty rate on exports is aligned to 4.5% of sales.

5. OPERATING LEASES

The Company’s significant leasing arrangements are primarily in respect of operating leases for premises (office, residential, warehouses etc.) and vehicles. The aggregate lease rentals charged to the statement of profit and loss account under different revenue accounts are Rs, 709.7 million (Previous year Rs, 720.9 million).

Future minimum lease rentals payable as at 31st December, 2016 as per the lease agreements:

The Company also has other commitments for purchase /sales of goods and services for which orders are issued after considering requirements as per the operating cycle of the business.

6. RELATED PARTY DISCLOSURES UNDER ACCOUNTING STANDARD 18

(a) Related party and their relationship

(i) Holding Companies

Nestle S.A

Maggi Enterprises Limited

(ii) Fellow subsidiaries with whom the company had transactions

Nestec S.A. Nestle Purina Petcare Company

Nestec York Ltd Nestle R&D Center (Pte) Ltd

Nestle (China) Ltd. Nestle R&D Center, Inc.

Nestle (PNG) Ltd Nestle R&D Centre India Private Ltd

Nestle (South Africa) (Pty) Ltd Nestle ROH (Thailand) Ltd.

Nestle (Thai) Ltd. Nestle Romania SRL

Nestle Adriatic S DOO Nestle Servicios Corporativos, S.A. de C.V

Nestle Asean (Malaysia) Sdn Bhd Nestle Shanghai Ltd.

Nestle Australia Ltd Nestle Shuangcheng Ltd

Nestle Bangladesh Ltd Nestle Singapore (Pte) Ltd

Nestle Brasil Ltda Nestle Suisse S.A.

Nestle Bulgaria A.D Nestle Taiwan Ltd

Nestle Canada Inc Nestle Tianjin Ltd.

Nestle Central And West Africa Nestle Turkiye Gida Sanayi A.S.

Nestle Chile S.A. Nestle UK Ltd

Nestle Cote D’Ivoire Nestle USA Inc

Nestle Deutschland AG Nestle Vietnam Ltd

Nestle Dubai Manufacturing LLC Nestle Waters (Suisse) SA

Nestle Egypt S.A.E. Nestle Waters Management & Technology S.A.S

Nestle Equatorial African Region Nestle Waters Marketing & distribution S.A.S

Nestle Espana, S.A. Nestle Waters North America Inc

Nestle Food Kazakhstan LLP Nestle Zimbabwe (Private) Ltd

Nestle France S.A.S Nestrade S.A.

Nestle Ghana Ltd Osem Investments Ltd.

Nestle Hong Kong Ltd PJSC “Lviv Confectionery Factory svitoch”

Nestle Hungaria Kft. PT Nestle Indonesia

Nestle International Travel Retail Quality Coffee Products Ltd.

Nestle Iran Sanpellegrino S.p.A.

Nestle Japan Ltd. Servcom S.A.

Nestle Korea Ltd SMA Nutrition India Private Ltd

Nestle Lanka PLC Societe des Produits Nestle S.A

Nestle Manufacturing (Malaysia) Sdn Bhd Wyeth Nutritionals Ireland Ltd

Nestle Mexico S.A. de C.V.

Nestle Middle East FZE Nestle Middle East Manufacturing Nestle Nederland B.V.

Nestle Nigeria Plc

Nestle Operational Services Worldwide S.A Nestle Pakistan Ltd.

Nestle Panama S.A.

Nestle Philippines, Inc.

Nestle Products (Mauritius) Ltd Nestle Polska S.A.

Nestle Product Technology Centre Nestle Products Sdn Bhd

(iii) Key Management Personnel

Suresh Narayanan, Chairman and Managing Director Aristides Protonotarios, Director - Technical

(Managing Director w.e.f. 01st August, 2015) Shobinder Duggal, Director - Finance & Control and CFO

(Chairman and Managing Director w.e.f. 29th October, 2015)

Etienne Benet - Managing Director (Managing Director up to 25th July, 2015)

(iv) Employees benefit trusts where control exists

Nestle India Limited Employees Provident Fund Trust Nestle India Limited Employees’ Gratuity Trust Fund

7. SEGMENT REPORTING

Based on the guiding principles given in Accounting Standard on ‘Segment Reporting’ (AS-17), the Company’s primary business segment is Food. The food business incorporates product groups viz. Milk Products and Nutrition, Beverages, Prepared dishes and cooking aids, Chocolates and Confectionery, which mainly have similar risks and returns. As the Company’s business activity falls within a single primary business segment the disclosure requirements of AS -17 in this regard are not applicable.

8. DISCLOSURE UNDER THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

On the basis of confirmation obtained from suppliers who have registered themselves under the Micro Small Medium Enterprise Development Act, 2006 (MSMED Act, 2006) and based on the information available with the Company, the following are the details: