Mumbai: Nestle India announced on Wednesday that it will continue paying a general licence fee, or royalty, at the current rate of 4.5% (net of taxes) to its Swiss parent company, Société des Produits Nestlé S.A. This decision was approved by the company’s board and communicated in a filing to the stock exchanges.
The board’s decision follows a recent proposal to increase the royalty payment, which was rejected by shareholders in May. In the announcement, Nestle India said, “Respecting the decision of the members and feedback from other stakeholders, the board of directors, on the recommendation of the audit committee and with only the independent directors voting (executive directors recused), approved the continuation of payment of general licence fees (royalty) by the company to Société des Produits Nestlé S.A. at the current rate of 4.5%, net of taxes, of the net sales of the products sold by the company, according to the terms and conditions of the existing General Licence Agreements with the Licensor.”
Review of Royalty Payments
Nestle India also mentioned that the board will review the royalty payment every five years to ensure compliance with relevant laws and regulations.
Earlier this year, in April, Nestle India’s board had approved a gradual increase in royalty payments to the parent company, Société des Produits Nestlé S.A, aiming to raise it to 5.25% of net sales over five years, starting from 1 July. However, this proposal faced opposition in May, with more than half of the shareholders voting against it.
Shareholder Opposition
Reports suggest that two major European fund managers were among those opposing the increase. Legal & General Investment Management (LGIM), the UK’s largest fund manager managing $1.5 trillion in assets, stated that the company’s performance did not justify the royalty payments, which have grown faster than the company’s revenues and net profit. Similarly, Nordea Asset Management, associated with the largest banks in the Nordic region, also voted against the resolution.
Annual General Meeting Update
In other updates, Nestle India has revised the date for its 65th Annual General Meeting to Monday, 8 July. The record date for the payment of the final dividend has also been updated to 16 July 2024, from the earlier date of 15 July.
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