Nestle restricts royalty payment to Swiss parent at 4.5%

Nestle India Ltd will continue to pay Swiss-based parent Société des Produits Nestlé S.A. a royalty license fee at the current 4.5% of turnover, the company said in an exchange filing.

Following a board meeting in April, the maker of Maggi range of noodles, KitKat, Milkmaid and Nescafe, had announced plans to raise the general license fees, or royalty, from 4.5% to 5.25% of turnover over a period of five years.

The new fee, which was to take effect from 1 July, was decided to be paid in a staggered manner by making an increase of 0.15% per annum.

In May, however, about 57.12% of Nestle India’s shareholders comprising both institutional and retail shareholders voted against the resolution to increase royalty.

Nestle India had in 2019 said that it would seek shareholder nod every five years on royalty payments to its parent.

The resolution had said that the royalty payment rate will start at 4.5% of net sales, and will increase by 0.15% each year.

The company had in May sought investor nod to raise royalty fees for the next five-year period beginning 1 July 2024.

“Respecting the decision of the members and feedback from other stakeholders, the board 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. (“licensor”)…at the current rate of 4.5%, net of taxes, of the net sales of the products sold by the company,” the company said in a statement to the exchanges.

“Following high standards of corporate governance including shareholder rights, the aforesaid approval of members shall be sought by the company every 5 (five) years in compliance with the applicable laws and regulations,” it added.