Nestlé India to seek shareholders' nod on royalty schedule

Nestlé India, the local unit of the Swiss food giant, said it will seek shareholder approval for royalty payments every five years after investors and proxy advisory firms raised concerns over an earlier resolution that sought a one-time sanction from them.

The resolution pertaining to royalty payment was revised after receiving feedback from shareholders and other stakeholders, a Nestlé spokesperson said.

“Though the general licensing agreements are reviewed periodically by the audit committee, the resolution has been modified to provide for shareholder approval every five years, in accordance with laws and regulations,” the spokesperson added.

On Sunday, the company sent a notice to the stock exchanges on the addition to the resolution.

The maker of Maggi noodles and Kit Kat chocolates will hold its annual general meeting on April 25 to seek approval for items including financial statements, dividend and payment of royalty at 4.5%. The company increased its royalty outgo from 3.5% of net sales in 2014 to 4.3%, or Rs 492 crore, in 2018.

Compliance in law does not necessarily mean good governance, experts said. Proxy advisory firm Stakeholders Empowerment Services said in a report that Nestlé’s earlier proposal was perpetual in nature and even though compliant with the law, once the resolution was passed, the company would not be legally required to seek the approval of shareholders as long as the current or lower rate of royalty is maintained.

“Shareholders, as far as this item is concerned, would virtually be giving up their right unless they form a group and move a parallel shareholders resolution,” the report added. In 2017, a committee led by Uday Kotak suggested that approval must be sought from 75% of the minority shareholders when royalty to an MNC parent exceeded 5% of revenue. However, the Securities and Exchange Board of India lowered the threshold to 2%.

Colgate, Nestlé and GSK Consumer pay royalty of over 2% and need to secure approval from the minority shareholders. Hindustan Unilever pays less than 2% as brand or ‘knowhow’ royalty and about 1% as fees on ‘central service’ and such approval may not be needed since the regulation covers only brand and knowhow, CLSA said in a recent report.

Nestlé’s agreement with its parent company allows it access to Nestlé Group’s intellectual property rights such as the global portfolio of brands, proprietary technology including numerous patents, extensive research & development capabilities and expertise in best practices.

Source:-https://retail.economictimes.indiatimes.com/news/food-entertainment/personal-care-pet-supplies-liquor/nestl-india-to-seek-shareholders-nod-on-royalty-schedule/68898398