Nestle India to pay royalty to Swiss parent at current rate of 4.5%

Mumbai: Nestle India will continue paying general licence fee, or royalty, at the existing rate of 4.5%, net of taxes, to Swiss parent Société des Produits Nestlé S.A., the company said in a filing to the exchanges Wednesday.

On Wednesday, the company’s board approved continuation of payment of royalty at the existing rate of 4.5% to its parent company. In May, the company’s proposal to increase royalty payout was rejected by shareholders.

“Respecting the decision of the members and feedback from other stakeholders, the board of directors on the recommendation of the audit committee, with only the independent directors voting and the executive directors recusing, approved continuation of payment of general licence fees (royalty) by the company to Société des Produits Nestlé S.A. being a related party as per the Regulation 2(1)(zb) of the Listing Regulations, at the current rate of 4.5%, net of taxes, of the net sales of the products sold by the company as per the terms and conditions of the existing General Licence Agreements with the Licensor…” the company said.

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The company will seek approval of board members on reviewing the royalty payment every five years in compliance with the applicable laws and regulations, it said in the filing.

Royalty payout

The move comes after Nestle India’s board approved a staggered increase in royalty payout to the company’s parent Société des Produits Nestlé S.A in April this year to 5.25% of net sales over the next five years, up from the 4.5% per annum, effective 1 July. However, in May the company’s proposal met with opposition, with over half of the shareholders voting against the move.

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Mint had earlier reported that two of the largest money managers in Europe opposed the decision of the board of Nestle India. “The performance of the company does not sufficiently demonstrate the benefits of the royalty payments over the years, which have grown at a rate higher than the company's revenues and net profit,” said Legal & General Investment Management (LGIM), UK’s largest fund manager, managing $1.5 trillion of assets, Mint reported last month after reviewing filings. Additionally, Nordea Asset Management, the investment arm of the Nordic region’s largest banks, also opposed the resolution.

On Wednesday the company also revised the date of the 65th annual general meeting to Monday, 8 July. Additionally, the company also revised the record date for payment of the final dividend to 16 July 2024, from 15 July earlier.

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