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Directors Report of Nestle India Ltd.

Dec 31, 2014

Dear Members,

The Directors are pleased to present their report and financial statements for the year ended 31st December, 2014.

The global economic environment in recent years has been challenging and marked by increasing uncertainty. Though it is believed that the growth engine for the global economy is shifting from the West to large emerging economies such as China and India, any significant or structural change will be a long drawn out process. Nevertheless, the economic slowdown being experienced globally created stress and increased the complexity and volatility in the economic environment in India as well. The continuing high inflation, high fiscal deficit, and low consumer confidence, added to the challenges, as the growth rate of GDP continued to slide lower and the rupee depreciated further.

The year 2014 has been a sort of watershed for India, from the political perspective. Your Company commenced the year 2014 in this environment, with prudence and caution, realigning initiatives and businesses to adapt to the reduced vibrancy of the Indian economy. Apart from some optimism on sporadic signs of revival from the US economy the global environment remained sluggish and there was little cheer in the early months for the Indian economy. Your Company continued to repose faith in the fundamentals and strong potential of the economy, and in Nestle''s knowledge and capabilities to create sustainable value, improve the quality of life of people and ability to actively participate in the growth of the economy. The general elections for the Lok Sabha constituencies brought about a decisive turnaround in the political environment. Close monitoring by the Central Bank, softening of commodity prices and new initiatives by the Government seem to have helped in mitigating general inflation though food inflation remained at elevated levels. For the most part of the year the external environment continued to lack buoyancy.

Your Company is optimistic that the economy will recover and return to a higher growth trajectory that is in keeping with its true potential. All signals from the new Government indicate increased focus on reviving economic growth by redefining policies, improving administration and infusing investments to create a robust infrastructure for economic activity. The political stability, the increased engagement with other countries, FDI liberalization in Railways and Defence, and reform oriented initiatives in mining, Direct Benefit Transfer and the Make In India campaign reflect the change underway.

One of the strengths of India and the underlying basis for its potential is the demographic dividend and the opportunity to improve the quality of life of its people. In order to realize this potential India will have to overcome various challenges, key amongst them being the challenge of health and nutrition for its people, since inadequate nutrition has an adverse impact and lowers productivity and output of people. This is already a challenge across the income pyramid. Almost 55% women in urban India suffer from micronutrient deficiencies. More than 75% of pre-school children suffer from micronutrient deficiencies, and over 50% mortality amongst children is attributed to malnutrition. While much of this is possibly linked to poverty and /or lack of awareness even across families that are economically better off, economic growth is also accompanied with the lifestyle diseases including diabetes, hypertension and cardio-vascular. These lifestyle diseases result from inadequate understanding of nutrition, the inability to follow a balanced lifestyle and sometimes due to lack of options. Clearly nutrition and food will play an important role in shaping the quality of life in India but there is no easy solution. India''s social structure and demography is complex and food habits are very diverse and often based on climatic and regional differences, and food choices are also influenced by income disparities. Moreover, whether people consume food for convenience, nutrition, indulgence or for responsible pleasure is a personal choice. Nutritional solutions will require a focus on increasing awareness and nutritional knowledge, developing food products that can combine taste, convenience and nutrition in daily diets.

Your Company''s vision is aligned with societal needs for food and nutrition and its approach to business is to Create Shared Value. Your Company embarked on an ambitious journey of reshaping itself and its product portfolio towards its vision to be the recognized leader of Nutrition, Health and Wellness in India. Your Directors'' believe that your Company can make a significant difference in improving the quality of life of the population. Nestle India is well integrated into India''s culture and constantly engaging with consumers to understand changing lifestyles, aspirations and preferences to unlock consumer insights that help develop relevant products. Your Company has access to Nestle''s global network of 34 R&D facilities, knowledge of science based nutrition and technological expertise. These along with the other strengths that your Company has developed will prove to be the competitive advantages in the emerging scenario.

Improving balanced nutrition is not the only challenge. There is increasing concern that as population pressure continues to intensify, the availability of land, water and other renewable resources is rapidly getting depleted, and can impact food security. There is urgent need to reduce wastage of farm produce, improve the supply chains for transportation of perishable commodities and create incentives that accelerate the transfer of knowledge and technology to improve productivity and sustainability. The food processing sector has the potential to make substantial contributions in this area and your Company is optimistic that the food processing industry will be supported in its efforts.

Your Directors'' are satisfied that in the economic environment that prevailed during the year your Company has kept its sight on strategy to consistently move towards the vision of being recognized as the leader of Nutrition, Health and Wellness in India while maintaining healthy overall performance. Your Company has a strong leadership team and has conducted itself with fairness and integrity, continuing to focus on reinforcing the fundamentals of growth drivers, further improve operational efficiencies, and rationalization of products portfolio. The concerted and ongoing efforts have ensured that businesses including Noodles, Coffees, and Nutrition are doing well.

Financial Results And Operations

(Rs. in Millions)

Particulars 2014 2013

Net Sales 98,062.7 90,619.0

Add: Other operating revenues 485.7 391.5

Less: Operating expenses 80,177.5 73,556.2

Less: Impairment loss on fixed assets 81.1 99.4

Less: Net provision for contingencies (from operations) 364.3 413.1

Profit from operations 17,925.5 16,941.8

Add: Other income 873.2 830.9

Less: Finance costs 142.3 365.1

Less: Employee benefit expense due to passage of time 648.3 558.1

Less: Net provision for contingencies - others 249.5 207.4

profit before corporate social responsibility, exceptional 17,758.6 16,642.1

items and taxation

Less: Corporate social responsibility expense 85.1 -

Add: Exceptional items 70.0 138.1

profit before taxation 17,743.5 16,780.2

Less: Tax expense 5,896.6 5,608.9

profit after taxation 11,846.9 11,171.3

Add: Profit brought forward 15,328.8 10,745.5

Amount available for appropriation 27,175.7 21,916.8

Less: Interim dividends* 4869.0 3,471.0

Less: Proposed final dividend 1,205.2 1,205.2

Less: Dividend distribution tax 1,091.6 794.7

Less: Transfer to general reserve 1,184.7 1,117.1

Surplus in statement of profit and loss 18,825.2 15,328.8

Key ratios

Earnings per share (Rs.) 122.87 115.87

Dividend per share (Rs.) 63.00 48.50

* 2014 includes additional interim dividend of Rs. 10/- per shares.

Net Sales have increased by 8.2%. Net Domestic Sales grew by 8.6% mainly from better realizations. Export Sales grew by 2.9% impacted by lower coffee exports to Russia. Earnings Per Share at Rs. 122.87 increased by 6%.

The increase in Other Income is mainly due to higher realization of export incentives. Finance Costs have reduced mainly due to repayment of External Commercial Borrowings.

The Impairment Loss on Fixed Assets of Rs. 81.1 million relates to various items of plant & machinery and building that have been brought down to their recoverable value upon evaluation of future economic benefits from their use.

The Company supplemented the Provision for Contingencies with further amount of Rs. 613.8 million (net) for contingencies resulting mainly from issues, which are under litigation/dispute and other uncertainties requiring management judgement. This was after the reversal, utilisation/settlement of contingency provision of Rs. 121.0 million due to the satisfactory settlement of certain litigations and settlement of obligations under free replacement warranty for which provision is no longer required.

Exports

The global market continued to see tough conditions, particularly in Europe. Consequently, Exports remained virtually flat at Rs. 6441.8 million, growing by a nominal 2.9%. This was mainly sustained on account of sales of Dairy and Nutrition products to affiliate companies, where new markets were added. Exports of culinary products did see some uplift in our major markets and we anticipate this to continue growing as the popularity of specially Indian products increases. On the other hand, exports of Instant Tea saw a slowdown, both in Europe and in the Far East. Similarly, exports of Instant Coffee dropped due to lower imports by the affiliate in Russia, where the market is undergoing a change. This setback in beverages was offset to some extent by other product categories. Our efforts in developing exports of quality Instant Coffees, meanwhile, continued to earn us recognition in the form of Awards from the Coffee Board.

The strategy to develop new products and target new export regions would continue, so that we have a broad based direction of exports.

Contributions to the Exchequer

Your Company has been a leading tax payer of the country and over the years has been enabling significant contribution to various taxes. During the year 2014, the Company through its business, enabled tax collections at Central and State level close to Rs. 25 billions, in aggregate.

Dividends

The Board of Directors have recommended a final dividend of Rs. 12.50 per equity share (Face value Rs. 10/- per equity share) for 2014, amounting to Rs. 1205.2 millions. This is in addition to the three interim dividends of Rs. 12.50 per equity share paid on 29th May 2014, Rs. 30.00 per equity share (including an additional interim dividend of Rs. 10.00 per equity share as the Company has completed the major capital expenditure programme announced in 2010 and has fully repaid the borrowings made for capital expenditure) paid on 26th September 2014 and Rs. 8.00 per equity share paid on 22nd December 2014. The total dividend for 2014 aggregates to Rs. 63.00 per equity share compared to Rs. 48.50 per equity share for 2013. The same is in line with the financial strategy of the Company.

Business Development

Your Company''s objective is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions from morning to night and help them attain and maintain optimal nutrition, health and wellness. However, human nutrition is complex. The nutritional needs evolve with age and depend to a large extent on the nutritional foundation laid in the early years of our lives. It is now well accepted in the scientific circles that nutrition starts to play a role in our lives even in the mother''s womb, and the nutrition received by the baby in the first 1000 days from the moment of conception creates the basic blueprint for the baby''s future health. In later years this influences our ability to cope with changing lifestyles and is impacted by the lifestyles that we choose to lead. Your Company continues to partner with health care and nutritional experts to provide nutrition knowledge through education initiatives such as ''Start Healthy, Stay Healthy'' that propagates the importance of nutrition and other communication that motivates active lifestyles and nutritious diets amongst families.

Your Company''s mission is ''Good Food, Good Life''. Good Food supports the nutritional needs at every stage of life starting from infancy and it is central to Health and Wellness. This demands insights into consumers'' unique needs and preferences that vary enormously and are constantly evolving. The ability to provide tasty and nutritious food that is relevant to different needs requires expertise and a multidisciplinary range of knowledge and technology to stay abreast of the rapidly emerging areas of scientific research. Your Company has access to the extremely extensive and advanced global network of Nestle R&D, and not only focuses on manufacturing and promoting products that provide safe nutrition and high quality, but has also been advocating balanced and healthy diets. Your Company respects that the decision to consume food is a personal decision and determines whether it is for nutrition, indulgence, or responsible pleasure.

During the year, your Company embarked on a journey of reshaping and evolving the product portfolio that is more focused on premium and value-up ranges, and while protecting the current business base it is gearing up to become more efficient to take on the current and future trade evolution and competitive challenges. It is satisfying that the strategy of Nutrition, Health and Wellness for existing range and innovations, value-up portfolio management and redirection of marketing investments is starting to build further momentum.

''Prepared Dishes and Cooking Aids'' business maintained clear leadership, improved volumes and strengthened its connect with consumers. The emphasis on innovation and renovation of products to provide taste and health, strong consumer insights, and excellent engagement with consumers strengthened the business. During the year MAGGI improved its position in the annual Brand Equity survey where it moved up 4 positions and is in the Top 5 Most Trusted Brands of India. While the survey also ranked MAGGI as the No.1 Food Brand in India, another independent assessment ranked MAGGI as the Most Powerful Brand in India.

MAGGI has constantly championed ''Taste Bhi, Health Bhi'' with its strong product portfolio and during the year it also launched MAGGI Oats Noodles with the goodness of grains (Grain Shakti) to enter the breakfast segment with an enjoyable and healthy offering for the family. It reached out to consumers on a deeper insight, that the key to health is a combination of physical activity and balanced diet. The concept was broadcast through the campaign for MAGGI Veg Atta Noodles where MAGGI inspires kids to go out and play, leveraging the idea of a progressive mom. The importance of physical activity and balanced diet was reinforced with the MAGGI Oats Noodles campaign which generated interest in the concept and demonstrates how mothers can inspire the family to start the day with a physical workout and reward them with the mazedaar MAGGI Oats Noodles.

The business continued to focus on understanding consumer preferences and market needs. The MAGGI Masala-ae-Magic spice mix that was developed as a taste enhancer fortified with Iron, Iodine and Vitamin A for everyday cooking is growing rapidly. It expanded its footprints into new homes as well and and is helping in addressing the serious concerns about micronutrient deficiencies in India. MAGGI continued to consolidate its position during the year. It drove penetration of Noodles in small, semi urban towns with communication that was relevant for those consumers, while in the Sauces category it recruited new consumers to drive growth with MAGGI Pichkoo.

The ''Chocolate and Confectionery'' business continued to focus on innovation and renovation even as it maintained its strong leadership of the light eating chocolaty-wafer category with its brands Nestle KIT KAT and Nestle MUNCH. With deceleration of the industry growth in the category over the past year and steep increases in commodity prices and packaging material, the business continued to review its product portfolio. Leveraging Nestle technological expertise and consumer insights into human food consumption behavior, the portfolio was strengthened during the year to improve value-up management. ''Slow Churned Chocolate'' was introduced in India for the first time, through product offerings, Nestle KIT KAT SENSES Milk, Nestle KIT KAT SENSES Dark and Nestle Extra Smooth. These Premium chocolates use finest cocoa and milk ingredients and are churned for over 12 hours under controlled conditions to deliver a signature rich smooth taste. Nestle POLO the iconic ''Mint with the Hole'' was re-launched with menthol crystals and attractive new packaging. Nestle MILKYBAR which continues to be the leader in ''whites'' was renovated and re-launched with the innovative concept of ''play eat & learn'' to create more value. Your Company encourages responsible consumption and during the year it has started to print Guideline Daily Amount (GDA) on the front of pack for this category to indicate the calorie content for each portion. This will enable consumers to make a considered consumption choice.

Sustained focus on newer and relevant communication and integration in the digital and social media continued to strengthen the brands.The Nestle KIT KAT astronaut music video #MyDiwaliBreak during the year was appreciated widely as an example of how the brand has been ''listening'' to consumers on social media and responded swiftly with focused and engaging content to inspire conversations, drive engagement for increased saliency and buzz. During the year, the digital campaign for Nestle ALPINO won an Effie Award. The focus on creating relevant engagement with consumers was done across the portfolio. During the year, the business also developed a new campaign for Nestle MUNCH. The communication that has been released in January 2015 uses ''MUNCHification'' as a call for the consumers of MUNCH to announce their uniqueness to the world and create their own rules to establish their identity.

The ''Milk Products and Nutrition'' business sustained its performance and focused on renovating products that leveraged consumer insights and emerging science based knowledge. Your Company considers nutrition as a critical element for good health and has consistently worked towards providing science-based nutrition to babies in accordance with all national and international regulations and guidelines. The business continued to drive ''Start Healthy Stay Healthy'' educational and science-based initiative in partnership with health care and nutrition experts, to focus on the lifelong impact of breast feeding and the first 1,000 days of life when the blueprint for the future health is being charted. Nestle has always believed and advocated that breast feeding is the best nutrition for babies and the business sustained its efforts to educate consumers on this message and its importance in nurturing healthier and happier generations.

The ''Super Baby'' campaign initiated in 2013 generated half a million pledges. During the year 2014, the business launched a social campaign to reinforce the importance of breastfeeding with the message ''When breast fed it shows'' and focused on taking the public support beyond a pledge and to convert it into action and to encourage advocacy around the cause.

Using Nestle R&D technology and their expertise in science based nutrition, your Company launched ''NAN LO-LAC'' as the first ever low lactose formula in the country for nutritional management of diarrhea.

The portfolio of dairy products including Nestle a Milk, Nestle SLIM Milk, Nestle a Dahi, Nestle SLIM Dahi and Nestle MILKMAID Sweetened Condensed Milk increased the focus on strengthening relationships with consumers who are looking for Nutrition, Health and Wellness in their everyday lives. Nestle a Milk continues to be preferred by consumers for its high quality, and during the year initiatives were implemented to strengthen the association of Nestle a Milk as a source of nourishment for the family. Research indicated that consumers across the country preferred tea prepared with Nestle EVERYDAY and in keeping with this insight your Company launched Nestle EVERYDAY as the preferred partner for tea creaming. Nestle MILKMAID Sweetened Condensed Milk maintained its leadership and leveraged technology to further focus on building dessert consumption at home. An internet based campaign ''Create Sweet Stories'' that encourages family bonds, was rolled out. The Company also test launched Nestle Buttermilk and Nestle Lassi in Delhi to assess the market in the liquid refreshment section.

''Coffee and Beverages'' business had satisfactory growth during the year, driven by NESCAFE, which further strengthened your Company''s market leadership in Instant Coffees. Brand Equity''s Most Trusted Brands survey for 2014 ranked NESCAFE in the top 5 Hot Beverage brands and the 100 Most Trusted Brands of the country. To mark the 75th anniversary of the NESCAFE brand globally, in India the business launched a unified, global look campaign with a new slogan - ''It all starts with a NESCAFE''. NESCAFE aligned itself to the fast changing environment the evolving lifestyle and aspirations of the youth. Through technological renovation the strong and perfect cup of NESCAFE for product superiority was reconfirmed. The communication "It all starts with a NESCAFE" on digital as well as television generated unprecedented buzz, especially amongst youth, resulting in volume and value growth and market share gain. The campaign has been included in the Best campaigns of 2014 by leading Media houses like Financial Express and CNBC TV 18.

NESCAFE SUNRISE consolidated its portfolio and continued its focus on strong communication and on-ground execution to gain market share. NESTEA also performed satisfactorily during the year 2014 was a challenging year for ''Nestle Professional'' the out of home business. The beverages vending solutions category was adversely impacted by the surge in milk prices at the start of the year and focus on cost control and execution of an enhanced strategy enabled it to end the year stronger. Portfolio in coffee vending solutions continued to be strengthened during the year with enhanced focus on value-up vending solutions. Continued emphasis on the ''Innovation by Application'' concept in the food portfolio and focus on route-to-market through product demonstrations, Chef to Chef activities, tailor-made recipe application development, staff training and similar initiatives continued to strengthen your Company''s presence in Restaurant, Hotel and Catering industry. Your Company remains committed to consolidate and build further on its strengths in the out-of-home industry.

Sales

Your Company continued to make active efforts to reach its products to consumers wherever and whenever the consumer may want it. The focus during the year was to improve availability in a sustained manner in the secondary and tertiary towns. During the year, the Company continued to increase its reach amongst relevant consumers by adding more outlets. These efforts were reinforced by increased engagement with its trade partners. In recent years your Company has invested in improving sales automation systems to enhance productivity of its sales force. During the year, it continued to leverage this to improve the planning process and the productivity of the sales force. Your Company has been strengthening partnerships with customers in organised trade by ensuring higher levels of customer service and this has been appreciated and recognised by the customers.

Technology, Quality and Safety

Your Company is committed to providing consumers with high quality products. It follows stringent quality assurance norms, has state-of-the-art technology and high degree of automation and is continuously improving the products to ensure a 60:40 taste preference with a nutritional advantage. Sustained delivery on this commitment has ensured that your Company''s products are trusted by consumers. During the year your Company continued its focus on driving the quality culture and total productivity management across the factories.

Your Company has a General License Agreement (GLA) that allows it access to Nestle Group''s intellectual property rights including global portfolio of brands, proprietary science and technology including over 1300 patents, extensive research and development capabilities.

The GLA includes access to over 6,000 brands such as NESTLE, MAGGI and NESCAFE and technologies developed by the global network of 34 Research & Development facilities, including one at Manesar, Haryana which will further assist in localization of global concepts.

All the factories continue to embrace Nestle Continuous Excellence and LEAN mindset and are continuously implementing initiatives that reflect War on Waste and Total Performance Management. This ongoing engagement has continued to benefit your Company by streamlining of the planning activity, savings through optimization of processes, reducing waste especially in non-quality areas, while maintaining focus on further improving quality and competitiveness.

Your Company believes that safety practices are important in every activity, function and location wherever the employees are engaged, and is committed to maintaining the safety culture. The ''Safe by Choice'' and ''B-SAFE'' programmes continue to be high priority and are constantly being reiterated to engage the employees.

Environment

Your Company has consistently emphasized sustainable use of natural and non-renewable resources. Within the factories the efforts are ongoing to continuously assess and improve operational efficiencies, minimize consumption of natural resources, and reduce consumption of water, energy and emission of CO2 even as production volumes are maximized. Within the factories your Company constantly evaluates new initiatives that could reduce waste and emissions and actively engages the employees to increase awareness about the need to sustain the environment. All processes use state-of-the-art technology, follow the Nestle Environmental Management System, and comply with government policies, laws and regulations relating to the environment.

In order to reduce its water footprint, your Company has adopted the 3R methodology (Reduce, Reuse, Recycle). During the year, a major project was commissioned at the Moga Factory where milk is collected from over 100,000 farmers. This project has the potential to recover and recycle water collected every day, and at full capacity it has the potential to reduce ground water withdrawal significantly. Your Company is working on implementing a similar project at the Samalkha Factory.

In the area of energy consumption your Company worked with reputed external experts during the year and conducted energy target setting exercise at four factories. This facilitates the evaluation of the areas of improvement and further optimizes the energy consumption in the factories.

These efforts have shown excellent results. During the past 15 years, even as production volumes have continued to increase substantially, your Company has reduced the usage per tonne of production by as much as 57% for energy, 72% for consumption of water and 64% for emission of green-house gases. During the last one decade itself, even with addition of 3 new manufacturing units and an enlarged base during this period, your Company has reduced water usage by around 49% per ton of product.

Supply Chain

During the year, while your Company continued its preparation for the Goods and Service Tax, the supply network has not changed. Infrastructure continue to be a constraint and the overall value chain remains complex.

Your Company has accelerated the use of technology across the value chain and during 2014 made significant progress. Your Company has implemented a system to streamline the milk collection to directly pay the farmers who supply milk to the Moga Factory. Apart from other benefits, the access to bank facilities will also ensure financial inclusion of the farmers.

In the area of Supply Planning, your Company has improved the use of SAP in most of the factories with improvements in data reliability and people productivity. In the area of Customer Service, your Company has implemented a stock replenishment system (CMI) managed directly by customer''s representative, with inventory optimization and improvement in productivity. The roll out of the warehouse management systems (WMS) with RF technology has been extended to more locations. The Customer Service team also successfully initiated joint projects with some key customers to improve "on shelf availability" and your Company maintained overall high service levels.

Volatility and uncertainty in raw materials are part of the new reality. The Procurement team of your Company continued leveraging economies of scale and ensured supply of quality materials and services at competitive prices. During the year, your Company also continued to develop local raw materials, including specialized ingredients for business, and continues to work to develop alternate vendors to reduce risks and deliver savings. The Responsible Sourcing Program, initiated in 2010, has now reached over 150 suppliers with regular audits and continuous feed-back on compliance. The NESCAFE plan, launched in 2012, has been accelerated, with your Company purchasing "4C" certified coffee from over 300 selected farmers who are provided regular visits and technical assistance.

Nestle Continuous Excellence (NCE) now covers the entire value chain and is helping your Company to increase efficiencies, reduce complexities, while enabling to improve product freshness for the customer. The savings generated have helped to partially offset the commodity inflation. LEAN has also helped your Company and the suppliers to reduce inventories, lead-time and reduce waste.

While continuing to upgrade warehousing and transport facilities, your Company has successfully implemented a cost saving program to partially offset the cost inflation in physical distribution. The savings in cost of distribution have been achieved with better truck mix, better vehicle utilization, more direct deliveries, increase in rail transports and better route planning.

During the year, your Company has continued to increase the payable values leveraging dedicated finance schemes and annual negotiations. In conjunction with other continuous improvement initiatives, this has helped your Company to maintain a healthy working capital position.

Human Resources and Trade Relations

Your Company considers people as its biggest assets and ''Believing in People'' is at the heart of its human resource strategy. It has put concerted efforts in talent management and succession planning practices, strong performance management and learning and training initiatives to ensure that your Company consistently develops inspiring, strong and credible leadership. During the year, the focus of your Company was to ensure that young talent is nurtured and mentored consistently, that rewards and recognition are commensurate with performance and that employees have the opportunity to develop and grow.

Your Company has established an organization structure that is agile and focused on delivering business results. With regular communication and sustained efforts it is ensuring that employees are aligned on common objectives and have the right information on business evolution. Your Company strongly believes in fostering a culture of trust and mutual respect amongst all its employee seeks to ensure that Nestle values and principles are understood by all and are the reference point in all people matters.

The Company has a Policy on Prohibition, Prevention and Redressal of Sexual Harassment of Women at Workplace and matters connected therewith or incidental thereto covering all the aspects as contained under the "The Sexual Harassment of Women at Workplace (Prohibition, Prevention and Redressal) Act, 2013".

During 2014, the Company received four complaints under the Policy all of which were disposed-off.

SWOT Analysis for the Company

Strengths:

* Being NESTLE

* General Licence Agreement which gives access to the Nestle Group''s proprietary technology/ brands, expertise and the extensive centralized Research and Development facilities.

* High quality and safe food products at appropriate prices, and trust in NESTLE.

* Understanding of Nutrition, Health and Wellness.

* Strong and well differentiated brands with market share leadership.

* Product innovation and renovation, based on consumer insights.

* Well diversified product portfolio across categories and income strata.

* Strong financial position.

* Efficient supply chain and sales automation.

* Distribution structure that allows wide reach and coverage in the target markets.

* Capable and engaged human resources.

* Participation in Global Business Excellence (GLOBE) and Nestle Continuous Excellence

* Manufacturing capacities in place to cater to emerging demand with speed.

Weakness:

* Complex supply chain configuration.

* Cascading indirect taxes.

* Price point portfolio.

* Low market attractiveness in some pockets of the portfolio.

Threat:

* Price volatility of key raw, packaging materials and fuels. Food inflation.

* Increasing competition in processed foods.

* Availability of agro based commodities that meet Nestle specifications.

* Regulatory developments impacting processed foods.

* Increasing concern on currently prevalent packaging materials and absence of viable alternatives.

* Increasing dependence on technology for connectivity.

* Delay in introduction of GST that would have simplified distribution network.

* Uncertainty in global economic environment.

Opportunities:

* Potential for expansion of numeric and weighted distribution in smaller towns and other geographies.

* Increasing demand for value-up and premium products.

* Emergence of social media to connect with young consumers.

* Renovation of ''Out of Home'' business.

* Leverage Nestle Technology to develop more products that provide Nutrition, Health and Wellness at affordable prices.

* Emerging opportunities in Digital and e-Commerce.

* Optimism around Government preparing initiatives to facilitate doing business.

Awards and Recognitions

Your Company continues to be a highly trusted for the quality of its products, innovation and renovation of its products based on strong consumer insights and the ability to engage with consumers across the country. During the year, your Company was also recognized for the leadership in using the emerging digital platforms to develop relevant content. Some of the key awards and recognitions include:

* WPP Milward Brown survey declared MAGGI as the ''Most Powerful Brand'' in India where Brand Power was a measure of salience, relevance, connect, uniqueness and dynamism.

* In the Economic Times Brand Equity Survey 2014, MAGGI moved up 4 positions from the previous year survey to break into the Top 5 Most Trusted Brands of India. Also ranked as the No.1 Food Brand in India.

* In the Asian Customer Engagement Forum Nestle BABY & me won Gold.

* In the EFFIES Awards NESCAFE Classic awarded Silver in Beverages Category as well as for integrated advertising campaign category. Nestle ALPINO awarded Bronze in consumer products category. Nestle BABY & me awarded Bronze in Healthcare category.

* Nestle ''Share Your Goodness'' corporate video ranked amongst the best of the year in the Google list of top trending videos.

Directors'' Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors confirm that:

* in the preparation of the annual accounts, the applicable accounting standards have been followed and no material departures have been made from the same;

* they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profits for that period;

* they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

* they have prepared the annual accounts on a going concern basis.

Corporate Governance

In compliance with the requirements of Clause 49 of the Listing Agreement with the Stock Exchange, a separate report on Corporate Governance along with Auditors Certificate on its compliance is attached as Annexure-1 and forms integral part of this Report.

Business Responsibility Report

Nestle''s approach to business is Creating Shared Value or ''Saanjhapan'' as used by your Company and it is about the impact of the business and engagement through it. Your Company has been conducting business in a way that both deliver long-term shareholder value and benefit society under approach of "Creating Shared Value" (hereinafter ''CSV). The CSV activities undertaken and the spends are in the Business Responsibility Report under Clause 55 of the Listing Agreement, that describes the initiatives undertaken by the Company in line with the philosophy of Creating Shared Value. The Report is made available on your Company''s website www.nestle.in and forms part of this Annual Report. Any member interested in hard copy of the Business Responsibility Report may inspect the same at the Registered Office of the Company or write to the Company Secretary for a copy.

Cautionary Statement

Statements in this Report, particularly those which relate to Management Discussion and Analysis as explained in the Corporate Governance Report, describing the Company''s objectives, projections, estimates and expectations may constitute ''forward looking statements'' within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied in the statement depending on the circumstances.

Directors

The Board of Directors at their meeting held on 13th May, 2014 appointed Mr. Rajya Vardhan Kanoria as an Additional Director and Independent Non-Executive Director of the Company with effect from 13th May, 2014 for a period of five consecutive years for a term upto 12th May, 2019. The above appointment was based on the recommendation of the Nomination and Remuneration Committee and subject to the approval of the Shareholders of the Company at the forthcoming Annual General Meeting. Mr. Rajya Vardhan Kanoria holds office upto the date of the forthcoming Annual General Meeting and is eligible for appointment. Details of the proposal for the appointment of Mr. Rajya Vardhan Kanoria as an Independent Director with effect from 13th May, 2014 for a period of five consecutive years for a term upto 12th May, 2019, are mentioned in the Explanatory Statement under Section 102 of the Companies Act, 2013 of the Notice of the 56th Annual General Meeting of the Company. His appointment is appropriate and in the best interest of the Company.

Mr. Aristides Protonotarios shall retire at the forthcoming Annual General Meeting and being eligible offers himself for re-appointment.

Statutory Auditors

The Statutory Auditors of the Company, M/s. A. F. Ferguson & Co., Chartered Accountants, New Delhi, hold office till the conclusion of the ensuing Annual General Meeting of the Company and being eligible, offer themselves for re-appointment. The Company has received their written consent and a certificate that they satisfy the criteria provided under Section 141 of the Companies Act, 2013 and that the appointment, if made, shall be in accordance with the applicable provisions of the Companies Act, 2013 and rules framed thereunder. The Audit Committee and the Board of Directors recommends the re-appointment of M/s. A. F. Ferguson & Co., Chartered Accountants, as the Auditors of the Company in relation to the financial year 2015 till the conclusion of the next Annual General Meeting. The re-appointment proposed is within the time frame for transition under the third proviso to sub-section (2) of Section 139 of the Companies Act, 2013.

Cost Auditors

In terms of Section 148 of the Companies Act, 2013 read with Companies (Cost records and audits) Rules, 2014, as amended, milk powder products manufactured by the Company and falling under the specified Central Excise Tariff Act heading, are covered under the ambit of mandatory cost audits from the financial years commencing on or after 1st April, 2015. As your Company''s financial year begins from January, cost audit is applicable on the Company for the financial year from 1st January, 2016. The Audit Committee recommended and the Board of Directors appointed M/s. Ramanath Iyer and Co., Cost Accountants, New Delhi (Registration No. 00019) as the Cost Auditors of the Company, to carry out the cost audit of the milk powder products manufactured by the Company falling under the specified Central Excise Tariff Act heading, on a voluntary basis in relation to the financial year from 1st January, 2015 to 31st December, 2015. The Company has received consent from M/s. Ramanath Iyer and Co. for their appointment.

Secretarial Auditors for 2015 and Voluntary Secretarial Audit Report for 2014

On the recommendation of the Audit Committee, the Board of Directors of the Company have appointed M/s. S.N. Ananthasubramanian & Co., Company Secretaries (PCS Registration No. 1774) as the Secretarial Auditor of the Company in relation to the financial year 2015, in terms of Section 204 of the Companies Act, 2013. The Company has received consent from M/s. S.N. Ananthasubramanian & Co, Company Secretaries, for their appointment.

The Board of Directors on a voluntary basis appointed M/s S.N. Ananthasubramanian & Co., Company Secretaries (PCS Registration No. 1774) as the Secretarial Auditor of the Company in relation to the financial year 2014. The Secretarial Audit Report for financial year 2014 done on a voluntary basis is available on the Company''s website www.nestle.in. Any member interested in hard copy of the Secretarial Audit Report may inspect the same at the Registered Office of the Company or write to the Company Secretary for a copy.

Information Regarding Conservation of Energy etc. and Employees

Information required under Section 217(1)(e) of the Companies Act, 1956 (hereinafter referred to as ''the Act'') read with Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure - 2 forming part of this Report. Information as per Section 217(2A) of the Act, read with the Companies (Particulars of Employees) Rules, 1975, as amended from time to time, forms part of this Report. However, as per the provisions of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent to all the members excluding the statement containing the particulars of employees to be provided under Section 217(2A) of the Act. Any member interested in obtaining such particulars may inspect the same at the Registered Office of the Company or write to the Company Secretary for a copy.

Corporate Social Responsibility

With the enactment of the Companies Act, 2013 and the Companies (Corporate Social Responsibility) Rules, 2014 read with various clarifications issued by Ministry of Corporate Affairs, the Company has undertaken activities as per the CSR Policy (available on your Company''s website www.nestle.in) and the details are contained in the Annual Report on CSR Activities given in Annexure - 3 forming part of this Report. Even though CSR spend is applicable from 1st April, 2014, the spend on CSR activities for the financial year 2014 together with the amount unspent which will be done in 2015 on projects of 2014, is around one percent of the average net profits of the Company during the three immediately preceding financial years. It is planned to step up this spend in a staggered manner in the coming years.

In accordance with Nestle''s way of doing business, your Company''s approach is to spend on activities for the welfare of society under umbrella of Creating Shared Value activities, Corporate Social Responsibility activities etc. ensuring that the total spend in each financial year would be above the level prescribed under the Companies Act, 2013. Following this approach, the cumulative spend under the umbrella on such activities for the welfare of the society during 2014, was above the level prescribed under the Companies Act, 2013.

Trade Relations

The Company maintained healthy, cordial and harmonious industrial relations at all levels. Despite severe competition, the enthusiasm and unstinting efforts of the employees have enabled the Company to remain at the forefront of the Industry.

Your Company continued to receive co-operation and unstinted support from the distributors, retailers, stockists, suppliers and others associated with the Company as its trading partners. The Directors wish to place on record their appreciation for the same and your Company will continue in its endeavor to build and nurture strong links with trade, based on mutuality, respect and co-operation with each other and consistent with consumer interest.

Appreciation

Your Company has been able to operate efficiently because of the culture of professionalism, creativity, integrity and continuous improvement in all functions and areas as well as the efficient utilisation of the Company''s resources for sustainable and profitable growth.

The Directors wish hereby to place on record their appreciation of the efficient and loyal services rendered by each and every employee, without whose whole-hearted efforts, the overall satisfactory performance would not have been possible.

Your Directors look forward to the long term future with confidence.

On behalf of the Board of Directors

Date : 13th February, 2015 Antonio Helio Waszyk Place : Gurgaon Chairman


Dec 31, 2012

The Directors are pleased to present their report and the statement of accounts for the year ended 31st December 2012.

The economic environment in 2012 has been tough and the growth in India moderated for one more year. There were various Internal and external factors that played a role, The effect of the uncertainty and recessionary trends in the global economies was compounded by the complexity in the domestic environment. Unpredictable weather and fear of delayed monsoons again triggered a negative focus on the output gap and high food Inflation persisted at uncomfortable levels and remained a concern. The economic sentiment remained subdued as the government policy and measures were keenly watched for their impact on fiscal deficit and interest rates. The GDP growth rate remained positive and relatively healthy despite all this but currency volatility, some concern on the economic growth model, transitional imbalances and emerging focus on corruption issues softened the sentiments.

In the immediate term these are areas of serious concern but despite that the general consensus remains optimistic about long term growth. There is underlying confidence that consumption will continue to sustain on the back of rising aspirations, urbanization, more working professionals, favorable demographics, low penetration of consumer products, prerniumisation trends and the ongoing shift to branded products.

Your Company anticipates that the moderation In the growth rates will show steady recovery in the short term and the growth momentum will revive soon.

In this new reality and a volatile, uncertain environment your Company believes that to ensure long term profitable and sustainable growth, we have to think ahead and constantly ask ourselves how we could be Creating Shared Value. Your Company maintained a forward looking approach to ensure that it is well prepared to seize new opportunities and handle new challenges with speed. Since the success of your Company depends on the ability of the business to keep understanding the changing environment and to keep adapting its responses in a seamless manner it has continued to focus on realigning its initiatives internally and externally. The Company remained focused on the principles of Nestle Continuous Excellence to drive efficiencies and strengthen the basic businesses, and focused on strengthening its ability to provide Nutrition. Health and Wellness, through deeper insights, bigger innovations, faster responses and adequate capacity.

Since balanced nutrition is a challenge across the income pyramid in India, your Company has constantly innovated and renovated its product portfolio with products that are tasty and provide nutrition, health and wellness. As you are aware, your Company has a very significant advantage in this through Usability to access Nestle Group''s expertise and knowledge in science based nutrition and food technology from its global R&D network. There is concern about the increasing problems of lifestyle diseases in the country including diabetes, obesity and heart, and your Company has consistently worked to achieve better insights into the nutritional aspects and taste profiles of traditional Indian cuisine to be able to develop products that are useful for the consumers. With the increasing focus from the Nestle Group on India and its investment in the R&D Centre in India, your Company''s competitive advantage will become even stronger.

Your Directors are satisfied that the Company has conducted Itself with fairness and integrity and believes that its operations and activities are creating value for stakeholders as well as for the society. Your Company has a strong leadership team in place and is continuing to develop a culture of safety, better gender balance and an environment that empowers everyone with the philosophy of "Dream, Dare. Deliver."

Your Directors'' are pleased that during 2012, your Company has again sustained its healthy and profitable performance even as it strengthened its business base for sustainable growth in the long term. Net Sales have increased by a satisfactory 10.8%. Domestic Sales increased by 11% mainiy on account of net realizations and product mix, and Export Sales moved up by 7.6% contributed largely by exports to third parties.

Financial Results and Operations

(Rs. in millions)

2012 2011

Net sales 83,023 74,908

Add: Other operating Revenue 323 237

Less; Operating expenses 67,537 60,914

Less : Impairment loss on Fixed assets (Net) 69 104

Less : Net provisions for contingencies 340 287 from operations

DPBIT # 15,400 13,840

ADD: other incomes 310 272

Less : Financial Costs ## 266 51

Less : Net provisions for contingencies- others (82) 182

Less : Tax Expenses 4,847 4,264

Net Profit 10,679 9,615

Add : Profit Brought Forward 6,569 3,343

Balance available for Appropriation 17,248 12,950

Less: Interim Dividend 4,673 3,471

Less : Financial Dividend Proposed - 1,285

Less : Corporate Dividend Tax 759 754

Less : Transfer to General reserve 1,068 951

Surplus Carried in the statement of Profit 10,745 6,569 and loss

Key Ratio

Earning per Shares 110.73 39.73

Dividend per Share (Rs.) 48.50 48.50

# Profit from operations other income, Finance costs, other Net provisions for contingencies ( non operation) and taxation.

## Exclusive Rs. 549 Millions (Previous year 1,100 Millions) treated as capital Expenditure.

Net Profit for the year 2012 increased by 11.1% The cost of materials for goods sold In percentage of Net Sales has decreased to 45.5% from 48.0% In 2012, mainly due to borrowing, which comprise largely of the exchange loss on External Commercial Borrowing, as this has deen treated as capital expenditure in line with applicable Accounting Standards.

Your Company continued to emphasize cash generation and delivered strong operating cash flow during the year. Short term surplus funds arising out of timing differences between generation and utilization thereof, have been prudently invested after ensuring that such investments satisfy the Company''s criteria of safety, liquidity and returns.

The Impairment Loss on Fixed Assets of Rs. 69 million relates to various items of plant and machinery that have been brought down to their recoverable value upon evaluation of future economic benefits from their use and is net of deferred taxes of Rs. 46 million.

The Company supplemented the Provision for Contingencies with further amount of Rs. 258 million (net) for contingencies resulting mainly from issues, which are under litigation/ dispute and other uncertainties requiring management judgment. This was after the reversal / utilisation of Rs. 223 million provision, due to settlement of certain disputes for which provision was no longer required.

The current year has commenced with uncertainties and ambiguity especially with respect to the overall environment which requires careful attention and your Directors are committed to sustain performance. Your Company is hopeful the government, through ifs policies, will continue to support food processing sector which is integral to India''s growth mode.

Your Directors are confident of the long-term business prospects of the Company.

EXPORT

During the year, Export Sales at Rs. 4,257 million grew by 7.6%. There has been a general slowdown in exports out of India and your Company has also been impacted by the sluggish economic conditions in Europe and North America.

Tire rate of growth for Instant Tea products was lower than anticipated as economic conditions in the export markets continued to falter. Nevertheless, the sales of Instant Tea grew during the year due to the focus maintained on the high value-added grades. Your Company continued to promote the exports of culinary products for the Indian Diaspora and made breakthroughs into a few new markets during the year. It also succeeded in developing new markets for coffee exports, and the forthcoming year should see better sales in both categories.

The strategy to develop new products and target new export regions would continue, so that we have a broad-based direction of exports, in particular, for Instant Tea, we shall seek to add variety and value to the portfolio in the coming years.

DIVIDENDS

The Board of Directors declared third interim dividend for 2012 of Rs. 12.50 per equity share (Face value Rs. 10/-per equity share), amounting to Rs. 1205 million, which will be paid in March, 2013. This is in addition to the two interim dividends of Rs.18.00 each per equity share paid in August and December 2012 (amounting to Rs. 3471 million). The total dividend per share in 2012 aggregates to Rs. 48.50, the same is in line with the financing strategy for capital expenditure.

BUSINESS DEVELOPMENT

One of the key drivers for the Company is its insight and expertise in Nutrition, Health and Wellness. Good Food, Good Life is the commitment to consumers, to enhance lives, throughout life, with good food and beverages. Your Company has consistently advocated balanced and healthy diets and has been conducting basic nutrition related programmes in partnership with experts. Your Company focused on expanding distribution and strengthening the groundwork for bigger innovations that will add value to consumers. Though rapid growth revival is not expected, there is general consensus that consumption led growth revival can be expected in the short term. Your Company also understands the change that Is taking place in the market place and the consumers, and the businesses have been working rapidly to realign themselves to ensure that their products and communication continue to be relevant as leaders.

The business for ''Prepared Dishes and Cooking Aids''

maintained its market leadership and growth. The business continued to drive penetration with its Popularly Positioned Products including the small packs of MAGGI Noodles and MAGGI Pichkoo sauce and continued to build and strengthen its bonds with consumers. The new ''Meri MAGGI 2 Minute meln Khushiyan'' advertising campaign that has the iconic statesman Amitabh Bachchan as the storyteller of consumer stories further strengthened the emotional connect mat MAGGI already has with consumers. Maggi Noodles continued to drive growth of the Instant Noodles category, offering the consumer ''Taste Bhi Health Bhi''. During the year, your Company further consolidated its position as the market leader in sauces and continued to build the business for MAGGI Masala-ae-Magic fortified seasoning mix with well thought out initiatives and new pack sizes that are more convenient for regular consumption. A new range of MAGGI Healthy Soups was rolled out. Your Company believes that one of the key reasons why consumption of packaged soups has not been growing in India is because the products available till now have not delighted consumers. Your Company worked closely with Nestle R&D in Shanghai and using Nestle''s new and proprietary ''granulation based technology'' have developed delightful soups that retain the freshness of the vegetables and deliver a multi-sensorial experience. These soups contain fresh vegetable purees and deliver the fresh taste and aroma of home-made soups. For the first time, the consumer has a product thai delights her from the moment she picks up the pack, starting with the rustle of the granules, the sight of colorful real vegetables, the aroma of fresh vegetable purees, and the taste of real soup, all of which add to the overall enjoyment. The range contains six delicious popular varieties and for the first time ever, this technology allows us to make a delicious Spinach soup which is popular in Indian homes. Your Company is amongst the first in the Nestle world to adopt this unique technology for making soups.

The consistent hard work and commitment, consumer engagement and innovation has continued to add value to consumers and provide the growth momentum. While the Meri MAGGI faceboak page by your Company has crossed 1 million fans and is today the largest MAGGI face book page in the world, MAGGI continues to be rated as amongst the Top 10 MOST TRUSTED BRANDS and has been ranked very high amongst the ''Buzziest Brands'' in India.

The ''Chocolate and Confectionery'' business continued to grow steadily and there has been consistent focus on developing insights and understanding of emerging consumer needs. While sweet snacking is an intrinsic part of traditional consumption habits there is a growing awareness of nutritional balance and preference for products that can make this experience more beneficial. Over the years your Company is established as the leader in the chocolaty wafer segment for ''lighter eating'' with NESTLE KITKAT and NESTLE MUNCH and Whites'' with NESTLE MILKYBAR. With the growing awareness about the benefits of dark chocolates your Company had earlier launched NESTLE Dark Chocolate. During the current year NESTLE KITKAT Dark Crisp wafer fingers covered with Plain Chocolate was also launched and is doing well in the market. With the changing lifestyles of consumers across the country, the business focused on developing more innovative products and enhancing capacity to prepare for the emerging demand. While NESTLE KITKAT was renovated and is now available in a very exciting new packaging, MUNCH ROLLZ Wafer Tube filled with Toffee was launched from the new plant in Himachal Pradesh.

NESTLE POLO which continues to be iconic and defines the irreverent ''youth defining'' mint with the hole strengthened its partnership with Wendell Rodricks to create POLO Fashion and cues strong aspiration for the youth white providing the unique POLO ''refreshment1.

During the year, ''Coffee and Beverages ''continued to define the coffee drinking market in North, East and West of India where it has significant market share and maintained leadership in the instant coffee business. As the leader, your Company understands the need to provide the right product experience to the right consumers and continued to accelerate its work on developing stronger consumer insights and rolling out relevant products and initiatives. The portfolio was strengthened with the re-launch of NESCAFE Classic in a unique jar of contemporary shape and stature, ramped up distribution for NESCAFE GOLD which is the premium freeze dried coffee, and launch of SUNRISE Strong which is a stronger coffee-chicory blend specifically tailor made for the consumers in Andhra Pradesh. NESCAFE Cappuccino which has a taste advantage over similar competitive products continued to be liked by the younger generation and increased market share. NESTEA also increased its presence and market share and is fast developing into a strong pillar for the beverage business of your Company. Your Directors are pleased that the advertising communication for the business is being received well by the consumers and also that your Company''s NESCAFE Facebook page is the most popular NESCAFE page in the world with over 2.2 million fans.

The ''Milk Products and Nutrition'' business faced a challenging year but delivered a satisfactory performance. In line with the vision to nurture a healthier, happier generation, your Company organized several educational initiatives to support breast feeding. During the year, your Company marked its entry into the maternal nutrition category through the launch of NESTLE BABY & ME, a maternal nutrition supplement for pregnant women and breastfeeding mothers. Your Company also launched CERELAC Shishu Aahar, a range of Indianised infant cereals providing Indian tastes while delivering age appropriate nutrition. LACTOGEN and CERELAC were renovated with nutritional improvements in line with the latest science. Healthcare nutrition aligned its new manufacturing solution, re-faunched the improved product portfolio and added PEPTAMEN and NUTREN Junior.

The portfolio of dairy products and UHT Milk continued to consolidate and put in place further initiatives to enhance the consumers'' appreciation of its premium quality. Late in 2011,

your Company had launched Nestle A Milk and Nestle A Dahi to encourage consumers to make informed choices when selecting milk or dahi. During the year, activities were sustained to educate consumers on the steps taken to implement and track the high quality standards and good practices across the value chain of these products on the premise ''Good makes Good''. Your Company has consistently leveraged the strength of NESTLE MILKMAID which is amongst the successful and fast moving brands in India for decades. Your Company launched MILKMAID CREATIONS developed by expert chefs as a range of powdered dessert mixes especially for the contemporary convenience-seeking consumers. They have been developed on the insight that contemporary families do not have time to prepare elaborate desserts but still want the quality and taste of traditional delicacies.

''Nestle- Professional'' the out-of-home segment, continued to maintain overall leadership in the Coffee vending solutions business despite increased competitive intensity. Based on Insights established through comprehensive research, plans are underway to launch new solutions and recipes catering both to the mainstream and premium segment. Pilot test launch of base gravy products specially meant for chefs and cooks yielded positive results and are now being expanded. A wider range of relevant culinary products specifically designed for the hotel/restaurant/catering industry are proposed to be launched during the current year, based on the development efforts during the year. Your Company''s focus would continue to remain as the out-of-home industry''s preferred food and beverage solutions partner,

SALES

Your Company has consistently made efforts to improve the availability of its products wherever and whenever the consumer may want it and has continued to build a deeper and wider distribution network. During the year, it added another 500,000 outlets accelerating from 400,000 incremental outlets in the previous year. Working with its long term distribution partners it leveraged its efficient and broad based network to scale up the infrastructure necessary for growth. While accelerating the expansion of its distribution network, your Company also increased the focus on enhancing the capabilities, improving processes and operations and cutting out waste. Nestle Continuous Excellence has been rolled out across the regions.

In order to further enhance productivity in sales operations, your Company had earlier initiated a drive to equip its distributors with advanced sales automation. The increased transparency into secondary sales data and improved channel insights at the granular level is helping direct the resources and Inputs more efficiently, while also increasing visibility and merchandising impact. Your Company also strengthened partnerships with key customers in organized trade by ensuring high levels of consumer service, faster speed to shelf and impactful shopper engagement.

TECHNOLOGY, QUALITY AND SAFETY

During the year, your Company completed the capacity expansion plans initiated in 2010, commissioning the new Factory in Tahliwal, Himachal Pradesh, a new unit in Samaikha Factory, Haryana and new plant in Ponda Factory, Goa. In addition a new line was commissioned in Moga Factory for dessert mixes as well as a new plant for granulated soups in Bicholim Factory. All of these new installations have been completed with state of the art technology received from Nestle Group, Switzerland under the General License Agreement and support your Company''s permanent endeavors for excellence in quality and high performance.

All the factories of your Company successfully passed the re-certification against food safety and quality management as well as for safety and environment; by a highly reputed third party agency.

All the factories had embraced NestI6 Continuous Excellence last year to further improve in all areas, based on LEAN mindset for war on waste and Total Performance Management concepts. Your Company benefitted from the deployment of Nestle Continuous Excellence programme generating improvements, delivering cost savings from operations, reducing waste and improving quality. Nestle Continuous Excellence will continue to be important for the operations to ensure consumer trust and preference whilst enhancing competitiveness.

Your Company is committed to providing consumers with high quality products and is continuously improving them to ensure a 60:40 taste preference with nutritional advantage, These products touch the lives of lakhs of consumers everyday and sustained delivery on this commitment has placed your Company and its products amongst the most trusted. Apart from the fact that your Company follows stringent quality assurance norms, has state-of-the-art technology and high degree of automation, your Company has a competitive advantage In the ability to develop superior products. It has continuous access to the Nestle Group research & development and the technical expertise, as well as the best practices available in the global Nestle network. These enable it to consistently stay aligned with the best and efficient processes.

SAFETY

Your Company had earlier Initiated activities to strengthen the safety culture and had launched a safety engagement programme ''Safe by Choice'' in partnership with DuPont. During the year, the program was extended to all operating factories and enabled the organization to take quantum leaps in terms of improvement in safety culture. Despite the fact that during 2012 more than 20 million man-hours were engaged for major construction work at the factories at Ponda, Nanjangud, Samatkha and the construction of new Factory at Tahliwal, the ''Safe by Choice'' programme contributed to a good outcome on the Safety front,

Your Company believes that safety practices are important in every activity, function and location where our employees are engaged. To further strengthen this commitment your Company put up dedicated safety structure for all sales branches as well. Safe driving has emerged as the main

focus area for the field force and the ''B-SAFE'' programme was launched across all sites and offices. Your Company is committed to equip the field force with a defensive driver attitude and ensure their safety while on road.

NESTLE R&D CENTRE IN INDIA

In 2010, Nestle S.A, Switzerland had agreed to the request of your Company to set up an R&D Centre in India. The R&D Centre was established under a separate wholly owned subsidiary Nestle R&D Centre India Private Limited, in November 2012, Nestle S.A., announced the opening of this R&D Centre In India. It Is built close to the Head Office of your Company and will be additional competitive advantage for your Company in the future and will also help to strengthen and accelerate product innovation and renovation.

Nestle R&D Centre in India will work towards developing fortified products and Populariy Positioned Products (PPP) that will seek to address nutritional deficiencies especially In India and also across the world. PPP are developed to meet the specific needs of consumers at lower income levels by offering them high-quality, nutritionally enhanced products at affordable prices. Nestle has an extensive global R&D network and expertise in science based nutrition and Indian R&D Centre will further help accelerate regional adaptation of global technologies.

ENVIRONMENT

Your Company has consistently emphasized the need for sustainable use of natural and non-renewable resources. it ensures that all processes follow the Nestle Environment Management System, use state-of-the-art technology and equipment, and comply with government policies as well as environmental laws and regulations. New initiatives are constantly being discussed and implemented within the factories to reduce waste and emission, and consistent efforts are being made to constantly increase awareness about the need to sustain the environment.

It is a matter of pride that over the past 15 years these efforts have enabled us to achieve very high efficiencies in the use of natural and non-renewable resources. Even as the production volumes have been increasing, your Company has reduced the usage per tonne of production by as much as 65% for energy, 70% for emission of green-house gases and 73% for consumption of water.

CAPAC1TYAND FUNDING

Your Company has been delivering steady performance over the past years and continues Its leadership across businesses. Though the growth rate of the economy has moderated, your Company believes that there will be steady recovery. The Food Processing Sector can play a significant role in food security as well as in creating employment and your Directors are hopeful that the Government will continue to support ft. Your Company has to think ahead to ensure long term profitable and sustainable growth and be prepared to cater to the emerging demand with speed,

During the past six years, your Company has invested close to Rs. 38000 million responsibly and sustainably, to expand the existing manufacturing facilities at Bicholfm, Moga, Nanjangud and Ponda, commissioning of a new unit at Samalkha, a Greenfield facility at Tahliwal and a new plant for MAGGI products at Nanjangud as well as to strengthen the distribution footprint. This includes substantial investments of around Rs. 17000 million in 2011 and around Rs. 10000 million in 2012 respectively.

Your Company has been funding this accelerated capital expenditure with a judicious mix of ''internal accruals'' and ''debt''. During the year, US Dollar (USD) 56 millions were drawn down from Nestle SA for 5 years under the External Commercial Borrowing approval from Reserve Bank of India. The total amount outstanding as at 31.12.2012 was USD 192 million (Rs. 10500 million). Your Company is maintaining very strict financial discipline and during the year has repaid all its short term loans.

SUPPLY CHAIN

While infrastructure improving slowly and Goods and Services Tax not yet implemented, your Company continues to operate in a complex supply chain configuration.

The Supply Chain operation of your Company continued to procure quality materials at competitive prices. Some key projects to source milk and to localize milk derivates have been completed successfully and are delivering sustainable savings.

Your Company has entered into an agreement for acquiring 26% minority stake In Indoor Agra and Allied Activities Private Limited, engaged in milk, collection business in Western India. This business investment will contribute to sustainable sourcing and creating shared value with farmers engaged in milk.

The replenishment and delivery of products to the customers have been further improved. During the year, your Company has increased the service levels achieving top tier status with key account customers. The number of Stock Keeping Units (SKUs) was reduced by over 20%, bringing down complexity costs across the value chain. Improved planning process contributed to further reduction of stock levels. During the year, Nestle Continuous Excellence (NCE), covering all supply chain and procurement processes, achieved Important milestones. The Goal Alignment initiatives and LEAN in Ponda Factory, delivered improvements in productivity and people engagement. Over 300 employees are now running 40 operational reviews targeting waste elimination with problem solving tools.

The modernization of warehousing and transport remain a key priority for your Company and all the new Distribution Centers have modem infrastructure. Your Company has also started implementing warehouse management systems (WMS) with RF technology to increase speed, further improve accuracy and productivity levels. The Responsible Sourcing program, initiated in 2010, has been extended to more vendors with continuous support and education. Your Company launched the NESCAFE PLAN to work with the coffee farmers, experts and R&D Centers and a traceability initiative on sugar.

HUMAN RESOURCES AND TRADE RELATIONS

Your Company strongly believes that People are its core competitive advantage. Accordingly your Company took measures to ensure that it is attracting and retaining the right talent, creating a high performance culture, ensuring development conversations, providing learning and development opportunities, and recognising performance on an ongoing basis. Your Company launched a comprehensive Leadership Development Framework with all necessary tools and processes, thus ensuring that the depth, quality and diversity of the talent pool is consistently increased.

Your Company strongly believes in fostering a culture of trust and mutual respect in all its employee relations endeavors, Your Company has ensured that there is sustained communication and engagement with workforce through various forums. These efforts have been very well received by employees and have helped in fostering high engagement and sound industrial relations,

Your Company upholds the strong culture which is explicit in the ''Nestle Management and Leadership Principles'' and ''Nestle Corporate Business Principles and Nestle India Code of Business Conduct''. Accordingly, your Company has put a lot of emphasis in ensuring that all employees have a common understanding of the Company principles and values and that the same needs to be adhered and complied with in all our business operations.

SWOT ANALYSIS FOR THECOMPANY

Strengths

- Being NESTLE

- General License Agreement which gives access to the Nestle Group''s proprietary technology/ brands, expertise and the extensive centralised Research and Development facilities.

- High quality and safe food products at affordable prices, and trusting Nestle.

- Understanding of Nutrition, Health and Wellness.

- Strong and well differentiated brands with market share leadership.

- Product innovation and renovation, based on consumer insights.

- Well diversified product portfolio across categories and income strata,

- Efficient supply chain and sales automation.

- Distribution structure that allows wide reach and coverage in the target markets.

- Capable and engaged human resources.

- Participation in Global Business Excellence (GLOBE).

- Strong financial position.

- Manufacturing capacities in place to cater to emerging demand with speed.

Weakness

- Complex supply chain configuration.

- Cascading indirect taxes.

- Price point portfolio.

Threat

- Price volatility of key raw, packaging materials and fuels.

- Availability of agro based commodities.

- Food inflation.

- White-collar talent.

- Global and local uncertainty in the economic environment.

Opportunities

- Potential for expansion in smaller towns and other geographies.

- Increasing demand for premium products.

- Introduction of GST to simplify the distribution network.

- Development of ''Out-of-Home'' segment and Health Care Nutrition.

- Leverage Nestle Technology to develop more products that provide Nutrition, Health and Wellness at affordable prices.

WORKING WITH COMMUNITIES AND BUSINESS RESPONSIBILITY REPORT

Nestle''s approach to business is Creating Shared Value. While creating value for stakeholders business must also create value for the society through its products, operation and social responsibility. In India the Company calls it Saanjhapan as that is more commonly accepted in the Indian context. A separate Business Responsibility Report is attached as Annexure-3, detailing the various initiatives of the Company and aligned to the National Voluntary Guidelines on the Social, Environmental and Economic responsibilities of Business Issued by Ministry of Corporate Affairs and with the requirements of Clause 55 of the Listing Agreement with the Stock Exchange.

CONTRIBUTION TO EXCHEQUER

Your Company has been a leading taxpayer of the country and over the years has been enabling significant contribution to various taxes. During the year 2012, the Company through its business, enabled tax collections at Central and State level of close to Rs. 20 billion, in aggregate,

AWARDS & RECOGNITIONS

Your Company continues to be a highly trusted company for the quality of its products, innovation and renovation of products that are based on strong consumer insights and ability to engage with consumers across the country. During the year your Company received many honors which reflect the hard work and sustainability of its successful strategies. Some of the Key awards and recognitions:

Nestte India was named Business Standard''s Star MNC of the year. The announcement wrote ''The award that took the least time to decide was the Star MNC of the year and everyone agreed the best part of Nestle was its ability to localize brands -MAGGI, for example.''

Mr. Shobinder Duggal, Director - Finance & Control of the Company, was recognized as ''Best CFO of an MNC in the Business Today - YES Bank awards for2012.

- For the second year in a row MAGGI in 2012 was rated amongst India''s Top 10 ''Most trusted Brands'' by Economic Times Brand Equity.

- In the annual ICMR study on India''s most valuable brands, MAGGI was ranked No.1 amongst FMCG Food Products, and a separate ranking by Nielsen for Social Media Brand Equity ranked MAGGI as No.1 Food Brand.

- MAGGI Masala-ae-Magic was recognised as one of the ''Most trusted Brands of 2012'' in the Reader''s Digest awards.

The communication activities for the various brands have been recognized for excellence including some of the work they are doing in digital marketing. NESCAFE SUNRISE received a bronze at the EFFIES. NESCAFE ''Know Your Neighbors'' Face book page has become the largest Face book page for NESCAFE in the Nestle world with over 2 million fans, the NESCAFE Commercial The Morning Band'' received over 1 million views on YouTube within days of release.

The new KITKAT'' Babies TVC crossed 3,5 million public views on You Tube, making It the most highly viewed Indian FMCG commercial so far. Nestle KITKAT also has over 1 million fans on its Face book page ''Break Banta Hai'' and is now the largest KITKAT page in the world, just as MILKMAID has over 5 million fans on Face book and is the largest,

- KITKAT UK range gift packs was honored for Excellence in Packaging Design at the INDIASTAR AWARDS 2012,

DIRECTORS'' RESPONSIBILITY

STATEMENT

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors confirm that;

- in the preparation of the annual accounts, the applicable accounting standards have been followed and no material departures have been made from the same;

- they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profits for that period;

- they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

- they have prepared the annual accounts on a going concern basis.

CORPORATE GOVERNANCE

In compliance with the requirements of Clause 49 of the Listing Agreement with the Stock Exchange, a separate report on Corporate Governance along with Auditors certificate on its compliance is attached as Annexure-1 to this Report.

CAUTIONARYSTATEMENT

Statements in this Report, particularly those which relate to Management Discussion and Analysis as explained in the Corporate Governance Report, describing the Company''s objectives, projections, estimates and expectations may constitute ''forward looking statements'' within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied in the statement depending on the circumstances.

DIRECTORS

Dr. Rakesh Mohan relinquished his membership of the Board of Directors of the Company with effect from 31th October, 2012, It is a matter of great pride for your Company that Dr. Rakesh Mohan has been appointed as an Executive Director of the International Monetary Fund, with effect from 1st November, 2012, The Directors wish to place on record their appreciation for the contributions made by Dr. Mohan during his tenure.

Mr. Christian Schmid. Whole-time Director designated as Director-Technical'', shall be stepping down after 31st March, 2013. He shall be taking up a new assignment with another Nestle affiliate. The Directors wish to place on record their appreciation for the contributions made by Mr. Schmid during his tenure.

In terms of the Articles of Association of the Company, your directors appointed Mr. Aristides Protonotarios as an additional Director of the Company with effect from 1st April, 2013. Subject to approvals, Mr. Protonotarios has also been appointed as Whole-time Director, designated as "Director- Technical", Mr, Protonotarios has the qualifications and experience, necessary to take over the position of Director - Technical, He is currently heading the R&D function of the Beverages Strategic Business Unit of Nestec Limited, Switzerland which he established. Mr, Protonotarios holds office till the Annual General Meeting and is eligible for re- appointment. Notice has been received from a member signifying his intention to propose Mr. Protonotarios as a Director. Details of his proposal are mentioned in (he Explanatory Statement under section 173{2) of the Companies Ad, 1956 covered under item no. 5 & 6 of the Notice of the 54th Annual General Meeting.

In accordance with Article 119 of the Articles of Association, Dr. (Mrs) Swati A. Piramal retires by rotation and being eligible offers herself for re-appointment.

STATUTORY AUDITORS

The Statutory Auditors of the Company, M/s. A. F. Ferguson & Co,, Chartered Accountants, New Delhi, retire in accordance with the provisions of the Companies Act, 1956 and are eligible for re-appointment. M/ss A. F. Ferguson & Co., Chartered Accountants, New Delhi have sought the re-appointment and have confirmed that their re-appointment if made shali be within the limits of Section 224{1)(B) of the Companies Act, 1956. The Audit Committee and the Board of Directors recommends the re-appointment of M/s. A. F, Ferguson &Co., Chartered Accountants, as the Auditors of the Company.

COST AUDITORS

Complying with the provisions of Section 233B of the Companies Act, 1956 and the MCA General Circular No. 15/2011 dated April 11,2011. (as amended vide General Circular No. 36/2012 dated 601 November, 2012) subject to the approval of the Central Government, the Audit Committee has recommended and the Board of Directors had appointed M/s. Ramanath Iyer and Co., Cost Accountants, New Delhi (Registration No. 00019) being eligible and having sought re-appointment, as Cost Auditors of the Company to carry out the cost audit of all the products manufactured by the Company for the year ending December2013.

INFORMATION REGARDING CONSERVATION OF ENERGY ETC. AND EMPLOYEES

Information required under Section 217(1) (e) of the Companies Act, 1956 (hereinafter referred to as ''the Act'') read with Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure - 2 forming part of this Report. Information as per Section 217(2A) of the Act, read with the Companies (Particulars of Employees) Rules, 1975, as amended from time to time, forms part of this Report. However, as per the provisions of Section 219(1) (b) (iv) of the Act, the Report and Accounts are being sent to all the members excluding the statement containing the particulars of employees to be provided under Section 217(2A) of the Act. Any member interested in obtaining such particulars may inspect the same at the Registered Office of the Company or write to the Company Secretary for a copy.

TRADE RELATIONS

The Company maintained healthy, cordial and harmonious industrial relations at all levels. Despite severe competition, the enthusiasm and unstinting efforts of the employees have enabled the Company to remain at the forefront of the Industry.

Your Company continued to receive co-operation and unstinted support from the distributors, retailers, stockiest, suppliers and others associated with the Company as its trading partners. The Directors wish to place on record their appreciation for the same and your Company will continue In its Endeavour to build and nurture strong links with trade. based on mutuality, respect and co-operation with each other and consistent wilts consumer interest.

APPRECIATION

Your Company has been able to operate efficiently because of the culture of professionalism, creativity, integrity and continuous improvement in all functions and areas as well as the efficient utilisation of the Company''s resources for sustainable and profitable growth.

The Directors wish hereby to place on record their appreciation of the efficient and loyal services rendered by each and every employee, without whose whole-hearted efforts, the overall very satisfactory performance would not have been possible.

Your Directors look forward to the future with confidence.

On behalf of the Board of Directors

Date : 20th February, 2013 Antonio Hello Waszyk

Place: Gurgaon Chairman


Dec 31, 2010

Dear Members,

The Directors are plessed to submit their report and statement of accounts for the year ended 31st December 2010

The Government continued with its strenuous efforts to steer the economy. With continued focus on reforms and a comb nation of stimulus packages, rural Income generation schemes and monetary policy amongst others the government was successful In keeping the GDP growth Largely on track especially when many parts of the word struggled on this front

This past year highlighted the increasing complexity and volatility of the economic environment While the Government staking action and new food regulation is being put In place, faster Implementation could sustain the growth momentum

Against this background, your companys success can be measured on three dimensions - Growth inclusion. Leadership,

Your Company has alwaya reiterated that good food Is essential for ensuring productivity and good life. With economic growth, the lifestyles in India ana evolving and changing People need to eat better and stay healthy to keep pace with their aspirations but the evolving scenario is complex On the one hand a very largo population does not have access to affordable nutrition, and on the other hand there is an Increasing problem of diabetes, obesity and heart diseases, The need for better nutrition is a chalenge across the income pyramid. Your Company has access to the Nestle Groups immense nutritional expertise and food technology for developing products that provide taste and science-based nutrition With strong consumer centric innovation and Renovation supported by the Nestley R&D network, your Company remained focused on developing Indian concepts and relevant products that help people manage their need for taste and nutrition and enabled the Company to grow.

Your Directors believe the Company remained sensitive to the need for efficient and sustainable utilisation of resources and following Its basic approach to business to Create Shared Value. It continued to inspire happiness for Its shareholders and the communities where It operates With the own sphere of activities your Company continued to utilise its expertise and knowledge and consciously implemented Initiatives to ensure that while its core business continued to grow, the impact of Its business on the communities, rasults In a better quality of life for them and is in their interest. Your Company continued to Invest resources both in terms of talent and capital In the areas of water, nutrition and rural development because these are also the areas where shareholders interest and the interests of society strongly intersect and where your Company can create significant value for both, in an inclusive manner

The factories Invested in state-of-the-art technology and equipment to process and add value to agricultural produce, worked closely with the farmers, suppliers and communities, transferring technology and knowledge to help them upgrade the quality of their raw materials.

Your Director* are pleased to inform that during 2010 your Company delivered a strong performance Net Sate for the year 2010 increased by 21 9% over the previous year Domostic Sales increased by 22.9% on Increased volumes and realisations, Export Sales increased by 7.6% Overall, the businesses continued to grow the market while retaining leadership in most businesses

The consistent performance of your Company over the years, reflects the strength of the brands, the trust in Its products and the strong support coming from Nestle Group, Switzerland It also demonstrates the continuous engagement and performance of the people and business partners.

Financial Results and Operations

(Rs In Millions)

2010 2009

Gross Revenue 62,974 51f672 Profit before Interest Impairment. contingencies and taxation 11,646 9,610 Interest 11 14 Impairment Loans on Fixed Assets (Net) - 103 Provision for Contingencies (Net) 164 323 Provision for Tax 3,264 2,620 Net Profit 8,187 6,560 Profit Brought Forward 1,425 1,001 Balance Available for Appropriation 9,612 7,551 Interim Dividends 3,471 3,471 Final Dividend Proposed 1,205 1,205 Corporate Dividend Tax 772 795 Transfer to General Reserve 619 655 Surplus carried in Profit and Lose Account 3,345 1,425 Key Rates Earnings per Share (Rs.) 84.91 67.94 Dividend per Share (Rs ) 48.50 48.50

Total Income

Net Profit for the Year 2010 increased by 25% The operating margins Improved due to better absorption of fixed cost end Improved product / channel mix- The Impact of Increase In cost of materials was largely offset by the one-off Cost In 2009 relating to actuarial losses on retirement benefits The improvement in

FIXED ASSETS

Net Profit Margin is due to the Increase In operating margin as the effect of lowering lncome tax rates has been offset by tower contribution of the income tax

SHAREHOLDERS FUNDS

holiday at Pantnagar factory Your Company continued to emphasise on cash generation and delivered strong operating cash flow during the year. Surplus Funds have been prudenlly invested after ensuring that such Investments satisfy the Companys criteria of safety. liquidity end returns.

Cash Flow

The Company supplemented the Provision for Contingencies with further amount of Rs 184 million (net) for contingencies resulting mainly from issues, which are under litigation/dlspute and other uncertainties requiring management judgment This was after the reversal/utilisation of Rs 250 million provision, due to settlement of certain dtsputes for which provision was no longer required

While the current year has also commenced as per plan, the beginning has been with a number of uncertainties. Including the Intensity of cost Increases specially the volatile raw material prices. Your Company will focus efforts to overcome these challenges and is hopeful that the Government would continue to support the food processing sector. Your Directors are confident of the long-term business prospects of the Company.

Exports

During the year, Export Sales at Rs 3,537 million was higher by 7 6%. At constant exchange raise the same would be 10.3%.

The Increase in exports was largely on account of new exports of Coffee to South Africa and Egypt which wore started during the year There was also a significant Increase in exports of instant Tee to certain European markets and to the Far East and a broadened customer base has now been established This was offset by the discontinuation of exports of Infant nutribon products to Sri Lanka and Bangladesh due to capacity constraints, and the Lower exports of cuinary products.

Your Company continued Rs efforts to develop more products for the Indian athnic community abroad and certain new products were shipped out during the year. Some new grades of instant Tea have also been developed and these will add variety and value to the portfolio.

Dividends

The Board of Directors has recommended a final dividend of Rs. 12.50 per equity share of the face value of Rs. 10/- each for the year 2010, amounting to Rs, 1,205 Million. This is in addition to the two Interim Dividends for 2010, aggregating to Rs 36.00 per equity share, paid in May 2010 end November 2010 (amounting to Rs 3,471 million) The total dividend payout for 2010 would be Rs. 4,676 million (excluding the corporate dividend tax), and maintain the total dividend payout for 2009, and is in keeping with the financing needs for capital expenditure

Business Development

India is evolving rapidly and people are becoming more health conscious and eat bettor. Nutrition plays a key role In enhancing Health and Wellness in our lives and India will be challenged by the need for better nutrition across the income pyramid Your Company intends to play a definitave role in providing consumers with Good Food, Good Life Nestle products are trusted for their high quality and this drives your Company to Innovate and renovate products to further strengthen its bonds with consumers.

The business of "Prepared Dishes and Coolding Aids grow rapidly MAGGI continued to strengthen its wide portfolio at an accelerated pace. Being one of the top Most Trusted Food Brands in the country, MAGGI has gone beyond offering products, to building emotional relationships with consumers. MAGGI products provide Taste and Health and bring Happiness to every home, delivering Taste Bhi Health Bhi Khushiyan Bhi.

With the support of Nestley global network of R&D centres applying knowledge in science based nutrition. MAGGI products were innovated and renovated In accordance with the changing needs of all members of the family During the year, an Innovative range of Me & Meri MAGGI testes were introduced In Noodles.

The Me & Man MAGGI campaign started in 2009. to celebrate 25 years of the emotional relationship of MAGGI wtth Its consumers The overwhelming response to the campaign brought out some very distinct experiences and emotions that consumers associate with MAGGI, and the cullinary experts worked extensively on concepts that capture these experiences In the taste of the Noodles. Three flavour launched were Me & Meri THRILLIN CURRY. Me & Meri TRICKY TOMATO and Me & Meri ROMANTIC CAPSICA Soon after. MAGGI Vegetable Multigralnz Noodles was raited out MAGGI Vegetable Multigralnz Noodles is a combination of traditional Ingredients, known for their goodness, such as Ragi, Com, Jowar. and Wheat with real vegetables, and are a source of Fibre, Calcium and Protein MAGGI Masala-ac-Magic and MAGGI NUTRI-LICIOUS PAZZTA launched in Late 2009 established themselves during the last year MAGGI NLTRI-LICIOUS PAZZTA is already the market leader and continues to grow the market for light meals MAGGI Masala-ac-Magic, fortifed with Iron, Iodine end Vitamin A, is helping housewives In kitchens across the income pyramid, to provide tasty and nutritious food to their families everyday.

MAGGI continued to connect with consumers. In innovative and Impactful ways MAGGI Sauces advertising acknowledged the increasing stress on consumers and advocated Hasaon, Khushi Phaolao lndia ko Heatthy Banaol It promoted happiness and spontaneous joy for a healthy living and encouraged a dialogue with the consumer. The campaign for MAGGI Vegetable Multigralnz Noodles revived another dimension In consumers lives. It brought alive the strong emotional bonds within the family and rested the multi-benefits of MAGGI Multigralnz to the multi- benefits In every motherl Marketing Taste Bhi Health Bhi" solutions to consumers at the bottom of the pyramid has its own challenges These are Inherent in the lifestyle of these consumers that is driven by traditional values, lack of education and limited affordabillty. While the solutions have to be affordable, most people may lack the basic understanding of nutrition Since MAGGI Masala-ae-Magic is an affordable product that even low income families can use, the challenge Is to spread nutrition education. Starting out with the first programme in Dharavi in Mumbai, MAGGI has been sending out people to Increase nutrition awareness In association with a social organisation Drishtee it is also organising heath camps in rural areas. These camps create awareness, amongst others, about micronutrient deficiencies, while the organisation also develops retail entrepreneurs for products like MAGGI Masala-ae- Magic With all these Initiatives, MAGGI continued to be ranked as the No. 1 Most valuable Food Brand1 and amongst the Top 10 Buzziest Brands; in the country

The Chocolate and Confectionery business continued to drive growth in the newer segments that are more relevant to emerging consumer needs and wellness preferences. Driven primarily by better understanding of consumers and extending the portfolio Innovatively your Companys chocolate and confectionery business has grown faster than Industry. White the overal penetration for the chocolate category is still in single digits and has a long way to go, the consumption is impulse led and driven largely by convenient price points. As economic growth creates more disposable income with more people the consumption is expected to increase. The challenge is to manage the correct colnage for these products man Inflationary enviornment. Your Company has grown this business steadily and it is now the leader in the chocolaty water segment for lighter eating1 with NESTLE KIT KAT and NESTLE MUNCH and Whites (goodness of milk) with NESTLE MILKYBAR, During the year this business continued to Innovate and renovate brands to increase relevance to the consumers Some of the more recent and successful launches were NESTLE MILKYBAR Choo Choko at Rs.5/- NESTLE MILKY BAR Crispy at Rs.5/- NESTLE MUNCH Guru pack at Rs.10/- and NESTLE KIT KAT single finger at Rs 5/-.

During the year your Company re-launched NESTLE BARONE Rigorous work with the R&D Centres has enabled us to develop taste superiority in NESTLE BARONE, which is supported by consumer research It was re-launched as the companion for the confident young Indian and the re-launch campaign goes beyond the product benefit to strengthen the emotional experience of the consumer NESTLE BARONE is available at price points of Rs 5/- and Rs 10/-. and this new thrust is further strengthened by revamped packaging which is fresh, youthful and premium.

Your Company continues to believe that sweet snacking is an Intrinsic part of peoples lives and with in this category the commitment is to offer teste as well as balance to consumers. The NESTLE KIT KAT squirrels communication is an Illustration of this where it Innovativety brings alive the importance of breaks in routine.

In the sugar sub-segment your company continued to focus on the two need states of indulgence and refreshment with success While it grew the overall Eclairs portfolio to make your Company the largest player, volume gains by NESTLE POLO has now made your Company the biggest NESTLE POLO market In the world.

Your Company is the value leader in Instant Coffee with NESCAFE. During the year, the Coffee and Beverages business not only strengthened Its market position but also strengthened its bonding with consumers. The business continued to focus its efforts on the value chain and leveraged Nestles world class proprietary aroma recovery technology to further Improve the aroma and taste of NESCAFE CLASSIC.

NESCAFE is a brand with a progressive world view and reflects the thinking that we can reach our destination when we have a sense of purpose it talks to the youth of todays progressive India and sees the world as they see it During the year it engaged with consumers with the Simple message "Switch on your purpose. Switch on the best In you The business associated with the successful and vibrant Deepika Padukone as the brand ambassador and to further engage with the youth, a digital page Know your neighbours" was created. This page is today the biggest fan page for NESCAFE in the world with more than three and a half lakh fans, and is continuing to grow These initiatives along with the ones already planned are expected to move NESCAFE to a new growth trajectory. During the year Milk Products and Nutrition- business performed well and continued to consolidate and grow. Science based nutrition, stringent quality standards end innovation and renovations are strong pillars for the business which is focused on enhancing the quality of life During the year your Company launched the NESTLE START HEALTHY STAY HEALTHY educational initiative in partnership with doctors, with the aim of making good nutrition a way of life. It emphasises the fact thai the nutrition that children get in the early years of life can affect their health forever. And It all starts with mothers milk. As we progress through different stages of life, we have different nutritional needs and we need to understand and balance our nutritional requirements to stay healthy. While your Company actively supports and promotes breastfeeding as being the best possible source of nutrition for the developing Infant it recognises that there are circumstances where the mother to unable to feed Your Company continued to build on the heritage that Nestle has of quality. trust and science based nutrition to meet the needs of infants, as they grow up, and in later life. NESLAC Nutritious Milk Drink for children was launched towards the end of the year in select geographies

Your Company has a portfolio of high quality UHT milks that pass stringent quality checks and are preferred by discerning consumers who demand the confidence of good taste and putty. The range comprises NESTLE MILK (Rich and Creamy). NESTLE MILK (Half Fat) and NESTLE SLIM [Skimmed Milk], and NESTLE PRO-HEART MILK with Omega 3 Your Company continued to strengthen the business and also extended the range of NESTLE DAHl to include dahi in pouches. In the dairy whitener category NESTLE EVERYDAY continued to leed volume and value growth and introduced affordable price formats to Improve accessibility for lower income users. The brand was renovated and research shows that 8 out of every 10 consumers prefer NESTLE EVERYDAY making it Indias most preferred Dairy Whitener During the year there was greater emphasis on activations and sampling to bring the brand experience closer to consumers MILKMAID sweetened condensed milk has in the past successfully introduced a new generation of home cooks to easy 3 step recipes. Your Company continued to strengthen this activity and scale-up business

The Healthcare Nutrition Business that was acquired from Specially Foods India Private Limited, with products for consumers with special nutritional requirements performed satisfactorily Work to underway to develop ft further. The products In this portfolio are marketed under brands like RESOURCE, OPTIFAST and SPERT. RESOURCE is specially formulated for the management of malnutrition and other medical conditions associated with increased nutritional needs. It has a range of formulations Including, amongst others, RESOURCE Diabetic, a ready to use, fibre rich diet for better nutritional management of diabetics and RESOURCE High Protein that provides easily digestible whey protein. OPTIFAST is a Nutrition supplement In overweight condition and SPERT is a Protein supplement to address the Increased protein needs of the fanny With mom women entering the workforce and Increasing disposable Incomes, there la growing opportunity In the Out or Home segment Your Company is well placed to tap this During the year as the economic environment Improved and hiring by corporates Increased the business was positively benefited Your Company successfully launched vending machines taking into account the specific needs of the customers in the large as well as small establishments.

Sales

Your Company is aware that the emerging and the Increasing competitive Intensity, requires us to be even more efficient, as we go forward. The process of back- end sales automation that was initiated earlier is now, fully implemented and provides a robust and integrated distributor management solution that supports our efficiency In primary and secondary sales This also facilitates a more transparent record of the transactions from distributors, to retailers We strive to improve the avaliability of our products with a clear focus on building distributon by going deep & wide across urban and rural geographies This has resulted In Improving our reach to more than 400,000 outlets In the last year alone Your Company Is committed to continuous excellence in the operations. During the year the focus was on building capacity through the wiling and able distributors who are long term partners of your Company, and provided the front lino field force, the support and know-how to improve their capability.

Technology and Quality

Your Companys products touch the lives of millions every day and Nestle is amongst the most trusted companies in India. The commitment to high integrity Nestle products is supported by stringent quality assurance norms, state-of-the-art technology and high degree of automation The access to Nestles globel R&D and emphasis on science based innovation and renovation to develop high quality products are significant competitive advantages Your Company Is also working on a robust and comprehensive Improvement programme Nestle Continuous Excellence (NCE) that is based on LEAN mindset for war on waste and Total Performance Management concepts The initial results from prior areas Indicated that bettor efficiencies have been achieved from the same assets while also reducing costs

Nestle R&D Centre in India

Your Directors are extremely pleased to inform that at the request of your Company, Nestle S. A. Switzerland has agreed to the setting up of a R&D Centre In India as a part of its global network of R&DCentres Nestle R&D Centre India Pvt Ltd. Is a wholly owned subsidiary of Nestle S A and at the request of your Company, the RAD facility has been located In the proximity of your Companys Head Office The foundation stone for the R&D Centre was laid by the Honble Minister for Food Processing Industries In September, 2010 and It is expected to be operational in 2012.

Nestles decision to establish an R&D centre In India will be an additional competitive advantage in the future and well further strengthen the benefits of technology and know-how received by your Company from Nestle Group. The research at this Centre will provide exerting opportunities for Innovation and will focus on Popularly Positioned Products (PPPe), especially for India but also worldwide PPPs meet the specific needs of consumers with lower income levels by offering them high-quality, nutritionally enhanced products at affordable prices it should help to accelerate your Companys growth and contribute towards reducing nutritional deficiencies in lndia.

Environment

Your Company is sensitive to the fragility of non- renewable resources and continues to work towards creating and Increasing awareness for environmental sustainabllity Emphasis on conservation of resources is a priority within the factories and in the manageable areas there is a continuous effort to minimise consumption of natural resources and reduce waste and emission. while maximising production All processes follow the Nestle Environment Management System and business practices comply with government policies, environmental laws and regulations using state-of-the-art technology and equipment You writ bo proud to know that as production volume has been increasing, during the past ten years, there has been a significant reduction in usage of energy and water and reduction in emission of green house gases per tonne of production Water consumption per tonne of production has reduced substantially and water use efficiency has improved by almost 60% by employing efficient methods and technologies Energy consumption per tonne of produce has reduced by almost 51% through investments in energy efficient systems and processes and cutting down on energy losses At the same time waste water discharge per tonne of produce reduced by almost 70% as a result of the reusing of water and more efficient processes that reduce water DMA The carbon footprint has been significantly reducing through focus on technologies that improve combustion and emphasis on utilising renewable fuels such as coconut shells and process waste to replace non-renewable fuels

Capacity and Funding

Your Company has boon growing at a healthy rate In recent years with continuing Leadership across its businesses. This market leadership position and Indias positive economic environment coupled with a progressive population provides opportunities for growth Your Company is therefore, accelerating Investment in capacities to provide consumers a wide product range, from Popularty Positioned Products far low income consumers to premium offerings In the recent past some significant investments have already been initiated Your Directors are hopeful that the Government continues to support the Food Processing Sector so that your Company can continue to expand manufacturing and employment to provide consumers with affordable products Over the Last three years, Nestle India has spent over Rs 650 crones In capital Investments, but the Investments during 2010 atone were In excess of Rs 480 crores and additional commitments of around Rs 680 crores already existed at the year end. Current plans foreses a further acceleration in 2011 and beyond This capital expenditure will go into expanding facilities at Bhichogm, Moga, Nanjangud, Porda, Samakha and in new Greenfield fecilities while a new plant for MAGGl products is getting ready for commissioning at the Nanjangud Factory, work has been initiated for a green field project at Tahliwal In Himachal Pradesh

In order to finance this accelerated capital expenditure trajectory your Company would have a Judicious mix of Internal Accruals and Debt The Borrowings Free balance sheet of your Company and the strong credit ratings of Nestle should facilitate this strategy Your Directors are pleased that the Reserve Bank of India has approved availment of External Commercial Borrowing from the foreign equity holders of upto US$ 450 million for the sourcing of capital goods, expansion/modernisation of facilities and new projects. The drawdown of the loan would be based on the funding requirements from time to time

Supply Chain

The current volatile and complex economic environment requires efficient and cost effective processes. During 2010 your Company has ensured timely and efficient supply of materials to run the factories, according the development of local suppliers The distribution of finished goods to consumers across the country continues to be cost effective and mora environmental friendly with Increasing share of rail deliveries.

During the year, your Company also delivered sustainable coat optimisation Initiatives as part of Nestle Continuous Excellence (NCE) to eliminate waste and manage input coils This year the NCE programme will be expanded further to cover all supply chain processes and select distribution centres.

In line with the philosophy of Greeting Shared Value, Nestle India rolled out Its Responsible Sourcing programme in 2010. All the key vendors were engaged on this initiative through procurement tod vendor meets at the Companys Head office and factories Vendors were supported through a pre-assessment process, consultant visits, dedicated help desk and continuous engagement and education AH vendors were registered on the SEDEX platform and Independent Audits by internationally approved agendas were conducted on the key vendors shortlisted A these vendors were found complaint with minor gape for which road maps have been agreed mutually

Human Resources and Trade Relations

Your Company strongly believes that people are its assets and they are key to drive competitive advantage With the vision given to employees to "Seek the Peak in all endeavours, the emphasis has been on alignment of company goals with individual objectives and than empowering employees to give their beat with the mindset of Dream Dare Deliver, Recognising the importance of Human Resources, an efforts have been put by your Company to ensure that best talent is recruited, continuously developed and retained During the year, your Company has put heavy emphasis on performance driven culture and appropriate HR tools and processes have been deployed to ensure clear linkage with rewards. Strong recognition platforms have been crested to encourage people to deliver stretched goals. There has been a lot of emphasis on training and development including self learning, manager inspired learning through coaching and censer development opportunities.

All these efforts have ensured that your Company retains Its position as a preferred employer and an employer of choice. Your Company believes in fostering trust end mutual respect In employee rotations Your Company engaged employees with trust and respect by continuously transparently sharing Information through various forums, dialogues and other communication means. These efforts have received excellent redprocation from employees and in its Industrial Relations.

SWOT Analysis of the Company

Strengths:

* Being NESTLE

* General Licence Agreement which gives access to the Nestle Groups proprietary technology/ brands, expertise and the extensive centralised Research and Development facilities

* High quality and safe food products at affordable prices, and trust in Nestle.

* Understanding of Nutrition, Health and Wellness

* Strong end well differentiated brands with market share leadership.

* Product innovation and renovation, based on consumer insights.

* Well diversified product portfolio across categories and income strata

* Efficient supply chain

* Responsive Organisation Structure and strong Management Team

* Distribution structure that allows wide reach and coverage in the target markets.

* Capable and engaged human resources

* Participation in Global Business Excellence (GLOBE)

* Strong financial position

Weakness:

* Complex supply chain configuration.

* Cascading indirect taxes.

* Price point portfolio

Threat:

* Price volatility of key raw, packaging materials and fuels

* Availability of agro based commodities

* Food Inflation

* While-collar talent

Opportunity*:

* Potential for further expansion In smaller towns and other geographies

* Growing demand for premium products

* Introduction of GST to simply the taxation and distribution

* Recovery of Our of Home Segment

* Leverage Nestle Technology to cave op more products that provide Nutrition. Health and Wellness at affordable prices

Working with Communities

Evan as growth and soda! change accelerate the desire to move up the income pyramid, the issues of rural development, conservation of water and environmental resources, access to nutrition and food security are potential challenges Your Company believes that our response to these common issues will not only have a bearing on our own progress but also the ability to create sustainable inclusive growth

Nestles approach to business is Creating Shared Value or "Saajhapan" as we call it in Nestle India and it la about the impact of our business and engagement through it In colloquial thinking Saanjhapan refects joint benefit Your company is focused on the three ansae of Nutrition, Water and Rural Development where it has the greatest potential for Joint value with the communities.

Understanding of nutrition, knowledge of balanced diets and access to good nutrition is essential for a good life in a survey conducted by your Company around Its factories in 2009 lack of knowledge and even awareness about balanced nutrition had emerged as a major concern Your Company has expertise and understanding of nutrition and Intends to use this to help people Improve the quality of their lives. It has developed a simple but engaging programme In partnership with Universities that have knowledge of food habits and availability in their areas The programme modules are structured in a way that students absorb the basic knowledge relating to foods In a practical manner it helps them understand the role of food in our bodies, the manner in which food is digested and how we can improve the balance of nutrients in diet The module specifically devotes time to explaining how cooking practices can improve nutrition, as well as the need for food hygiene, sanitation, and physical exercise to improve health and wellness

This programme was rolled out nationally from April and during the year around 5000 students in village schools have already participated The Universities also help to ensure that the programme Is being implemented in the beat interest of the community.

The well being of the communities from where we draw our agricultural raw materials are important for us. Consequently your Company continues to do extensive work with fanners and other suppliers, transferring technology and knowledge to the communities and helping them build their capabilities so that they can participate more effectively in business and build on progress through economic prosperity.

During the year your Company continued to extend its Clean Drinking Water Projects that Improve access to dean drinking water in village schools and increase awareness for water conservation in the communities around our factories During the year, 17 Clean Drinking Water Projects were constructed to benefit 6300 more students, As a result the number of these projects around our factories has increased to 156 and 66,000 students in village school are directly benefitting every year

Your Company has been working extensively to develop dairy fanning and to make It a sustainable income source even for small and marginal farmers, This effort continued in the Moga region with your companys veterinarians and agronomists providing support, expertise and knowledge that benefits over 110,000 farmers directly Your Company also continued with the Village Women Dairy Development Programmes that train them in good dairy practices as well as spread awareness about personal hearth, hygiene, water conservation and economic independence. 160 more programmes helped to reach out to 5300 additional women during the year, cumulatively benefitting over 45,000 village women

During recent years your Company has also been working with chicory farmers Transfer of technology, education and better knowledge of roasting and processing has increased yields and quality During the past 10 years the number of chicory farmers benefitting from this has increased from 1000 to 7500

Contribution to Exchequer

Your Company has been a leading taxpayer of the country and over the years has been enabling significant contribute" to various taxes During the year 2010, the Company through Its business, enabled tax collections at Central and State Law of close to Rs 13.98 billion in the aggregate

Awards and Recognitions

While your Companys products continued to be trusted for their high quality, your Company has Increasingly emphasised better consumer engagement The success is reflecting in the awards and recognitions that your brands received during the year They are also a strong indication of the hard work and sustainable initiatives being implemented to delight consumers. Soma of the key awards and recognitions:

* Conferred Marketing Company of the Year award at PITCH Indias Top 50 Marketers Awards 2010 to recognise excellence in Marketing

* Pitch Magazine recognised MAGGI amongst the top 3 Ageless Brands and adjudged MAGGI Masala-ae-Magic amongst the top 3 for innovative work at the Bottom of the Pyramid.

* NESTEA Voted Product of the Year In the powdered beverages category by Nielsens Consumer Survey of product innovation 2010.

* KIT KAT adjudged Master Brand by the World Brand Congress

* MAGGI Masala-ae-Magic; recognised amongst The Chartbusters" of 2010 by The Economic Times

* NESCAFE Know Your Neighbours campaign amongst Top 5 Most Liked Digital Campaigns of 2010 listing by AFAQS

* MAGGI again rated the No 1 Food Brand in India by an ICMR consumer study.

* Me and Med MAGGI campaign recognised by Campaign India Digital Media Awards - Silver for Best Website (FMCG) and Bronze for Beet Loyally Campaign.

* MAGGI rated amongst Indias Top 10 Buzziest Brands by AFAQS Survey 2010

* Me and Mart MAGGI advertising campaign received Silver and Bronze Awards at 2010 ABBYS,

* Coffee Board Awards for Best Exporter of Coffee to Russia and C S. and Second Best Exporter of instant Coffee (2009-2010)

* In a survey by Business Today and indicus Analytics to understand external perceptions Nestle India amongst the section toppers for FMCG on Best Companies to Work for 2010.

Directors Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act. 1956, the Directors confirm that

* In the preparation of the annual accounts, the applicable accounting standards have been followed and no material departures have been made from the same;

* They have selected such accounting policies and applied them consistently and made Judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profits for that period;

* They have taken proper and sufficient care for the maintenance of adequate accounting records In accordance with the provisions of the Companies Act 1956 for safeguarding tho assets of the Company and tor preventing and detecting fraud end other irregularities.

* They have prepared the annual accounts on a going concern basis.

Corporate Governance

In compliance with the requirements of Clause 49 of the Listing Agreement with the Stock Exchange, a separate report on Corporate Governance along with Auditors certificate on Its compliance is attached as Annexure to this Report.

Cautionary Statement

Statements in this Report, particularly those which relate to Management Discussion and Analysis as explained in the Corporate Governance Report. describing the Companys objectives, projections, estimates and expectations may constitute forward looking statements within the meaning of applicable laws and regulations Actual results might differ materially from those either expressed or Implied In the statement depending on the circumstances

Directors

Mr Rajendra S Pawar resigned as a Director of the Company with effect from 22nd April 2010. The Directors wish to place on record their appreciation for the contributions made by Mr Pawar during his tenure;

Dr. Rakesh Mohan, appointed in the casual vacancy. is currently Professor in the Practice of international Economics and Finance at the School of Management and Senior Fellow in the Jeckson Institute for Gobal Affairs at Yale University He is also Non Resident Senior Research fellow of Stanford Centre for international Development, Stanford University He has been Deputy Governor of the Reserve Bank of India for many years (2005-2009 and 2002-2004) and held senior positions In the Government of India Including Secretary, Department of Economic Affairs (2004-2005) as well as Chief Economic Advisor to the Government of Ends (2001-2002), Director General of National Council for Applied Economic Research, and Chief Executive of Indian Council for Research and international Economic Rotations Dr Mohan is well known and respected internationally for his extensive work in the areas of economic reforms and liberalisation. Industrial economics, urban economics, Infrastructure studies, economic regulation, monetary policy and the financial sector

His experience would be of Immense benefit to your Company and adds a valuable perspective in the Board of Director Dr Rakesh Mohan holds office till the Annual General Meeting and is eligible for re-appointment.

In terms of the Articles of Association of the Company, your Directors appointed Dr (Mrs ) Swati A Piramal and Mr Christian Schmid as additions directors of the Company effective from 2nd August 2010 Further, Mr. Christian Schmid was also appointed as the Whole- bme Director of the Company designated as Director - Technical, for a period of five years with effect from 2nd August, 2010

Dr. Swati A. Piramal is Vice Chairperson of Piramal Life Sciences Limited She is the past President of ASSOCHAM. She has completed her MBBS Medical Degree from University of Bombay. Industrial Medicine from DIM College of Physicians & Surgeons, Bombay and Master of Public Health from Harvard. USA Her contribution to the Industry, achievements, membership of prestigious organisations and her directorship in other companies are mentioned In detail in the Explanatory Statement under Section 173(2) of the Companies Act, 1936 covered under item no. 5 of the Notice of the 52nd Annual General Meeting. Your Company will be immensely benefitted with her appointment on the Board Dr Piramal holds office All the Annual General Meeting and is eligible for re-appointment.

Mr Schmid took over as Executive Vice President Technical in August 2009 and comes with Immense expertise in technology and process efficiencies. He is responsible far, amongst others, the manufacturing operations, cost optimisations, quality end safety standards, as of which have a critical role in ensuring a competitive advantage for the Company Mr Schmid is a process engineer from the Swiss Federal Institute of Technology and Joined Nestle in 1991 as a Productivity Specialist and has had a distinguished career with varied International experience and his last assignment was Group Technical Director at Nestle United Kingdom Details of his proposal are mentioned in the Explanatory Statement under Section 173(2) of the Companies Act, 1956 covered under Item no 6&7 of the Notice of the 52 nd Annual General Meeting. Mr Schmid holds office till the Annual General Meeting & is eligible for re-appointment.

In accordance wih Article 119 of the Articles of Association, Mr Pradip Baijal retires by rotation and due to personal commitments has not sought re-appointment The Directors wish to place on record their appreciation tor the contributions made by Mr Baijal during his tenure

Auditors

The Statutory Auditors of the company, M/s. A.F Ferguson & Co, Chartered Accountants. Now Delhi, retire in accordance with the provisions of the Companies Act, 1956 and are eligible for reappointment M/s A F. Ferguson & Co.. Chartered Accountants. New Delhi have sought the reappointment and have confirmed that their re-appointment if made, shall be within the limits of Section 224(1) (B) of the Companies Act, 1956 The Audit Committee and the Board recommends the re-appointment of M/s A.F Ferguson & Co., Chartered Accountants, as the Auditors of the Company Complying with the provisions of Section 233(B) of the Companies Act, 1956, the Board of Directors have appointed M/s Ramanath Iyer and Co., Cost Accountants, New Delhi, to carry out an audit of cost accounts of the Company in respect of Milk Foods for the year 2011. This appointment has also been subsequantly approved by the Central Government

Information regarding Conservation of Energy etc. and Employees

Information required under Section 217(1) (e) of the Companies Act, 1956 (hereinafter referred to as the Act) read with Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexuro * 2 forming part of this Report Information as per Section 217(2A) of the Act road with the Companies (Particulars of Employees) Rules, 1975, as emended from time to time, forms part of this Report However, as per the provisions of Section 219(1) (b) (iv) of the Act the Report and Accounts are being sen! to all the members excluding the statement containing the particulars of employees to be provided under Section 217(2A) of the Act any member interested in obtaining such particulars may Inspect the same at the Registered Office of the Company or write to the Company Secretary for a copy.

Trade Relations

The Company maintained healthy cordial and harmonious Industrial relations at all levels Despite severe competition, the enthusiasm and unstinting efforts of the employees have enabled the Company to remain at the fore front of the Industry Your Company continued to receive co-operation and unstinted support from the distributors, retailers, stockists, suppliers and others associated with the Company as Its trading partners The Directors wish to place on record their appreciation to the same and your Company will continue in Its endeavour to bulid end nurture strong links with trade, based on mutuality. respect and co-operation with each other and consistent with consumer interest.

Appreciation

Your Company has been able to operate efficiently because of the culture of professionalism, creativity integrity and continuous improvement in all functions and areas as well as the efficient utilisation of the Companys resources for sustainable and profitable growth

The Directors wish hereby to place on record their appreciation of the efficient and loyal services rendered by each and every employee, without whose whole-hearted efforts, the overall very satisfactory performance would not have been possible Your Directors look forward to the future with confidence

On behalf of the Board of Directors

Date: 18th February 2011 Antonio Helio Waszyk Place: Gurgaon Chairman


Dec 31, 2009

The Directors have pleasure in submitting their report and statement of accounts for the year ended 31 st December 2009.

The global financial crisis that began in the later part of 2008 kept the economic environment uncertain. There were occasional green shoots but consumer sentiments and business confidence continued at low ebb globally. This also impacted Indias growth during 2009 and the economy slowed down.

India, however, managed the situation effectively, through a combination of financial stimulus and other policies that supported the inherent potential of the economy. Towards the later part of 2009, GDP growth appeared to have stabilised and projections for the future are reflecting optimism, although the agricultural growth is a concern.

Nevertheless, even as the economy appeared to reverse the slowdown and picked up speed, the macro-environment continued to be challenging. Long term trends in food inflation indicate growing mismatch between demand and supply of food and agricultural commodities. Despite corrective actions by the Government, commodity prices and other input costs continued to harden. This past year effectively highlighted the increasing complexity of the economic environment and the need for the economy to urgently address issues such as the inflationary trends, food security and inclusive growth that is sustainable. Amongst others, the immediate priority includes infrastructure, rural development and agricultural policies, conservation of natural resources, and better access to nutrition for far more people.

Your Directors believe that while the Government is addressing these structural issues, we need to manage the environment and resources in a manner that we are part of the solution that India and its people need. Based on this underlying principle of Creating Shared Value, your Company continued to implement initiatives that will add value to agricultural products by processing at the factories, will help more and more people to receive affordable and better nutrition, while emphasizing conservation of natural resources within the Companys sphere of influence.

Your Company has a unique advantage in this journey. Nestle S.A is the worlds leading Nutrition, Health and Wellness Company and its expenditure for ongoing research in food and nutrition is the largest in the global food industry. This helps translate scientific advances and new discoveries into relevant products that provide superior taste, convenience and Nutrition, Health and Wellness. Your Company has always advocated that good food is central to health and wellness and also has access to Nestle Groups immense nutritional expertise, latest food technology and brands. Today, as lifestyles are changing rapidly, your Company continues to focus on understanding the evolving needs of the consumer and is constantly innovating and renovating to develop products that are convenient, enhance taste, improve nutrition and wellness, and are affordable.

During 2009, despite the uncertainties and complexities, your Company remained focused on continuous excellence and strengthened or implemented initiatives across functions to eventually create value for stakeholders and delight consumers. Your Company continued to Innovate and Renovate with the help of Nestle Global R&D centres, worked with local suppliers to enhance their capabilities to make them more competitive, invested for further improving manufacturing efficiencies to increase sustainability of natural resources, initiated the automation process for sales and distribution network, emphasised people engagement, and continued working with the communities. Your Directors are pleased to inform you that during 2009 your Company delivered strong turnover and profits.

Net Sales for the year 2009 increased by 18.6% over the previous year. Domestic Sales increased by 20.4% due to increase in volumes as well as better realisations. Export sales were lower by 2.9%.

Financial Results and Operations

(Rs. in Millions) 2009 2008

Gross Revenue 51,672 43,581

Profit before interest, impairment, contingencies and taxation 9,610 8,052

Interest 14 16

Impairment Loss on Fixed Assets (Net) 103 3

Provision for Contingencies (Net) 323 305

Provision for Tax 2,620 2,387

Net Profit 6,550 5,341

Profit Brought Forward 1,001 125

Amount transferred from Share Premium Account* - 432

Amount transferred from General Reserve* - 431

Balance Available for Appropriation 7,551 6,329

Interim Dividends 3,471 2218

Special Dividend* - 723

Final Dividend Proposed 1,205 1157

Corporate Dividend Tax 795 696

Transfer to General Reserve 655 534

Surplus carried in Profit and Loss Account 1,425 1001

Key Ratios

Earnings per Share (Rs.) 67.94 55.39

Dividend per Share (Rs.) 48.50 42.50**

* Pursuant to Scheme of Arrangement.

** Includes special dividend of Rs. 7.50 per share, paid under the Scheme of Arrangement.

Net Profit for the year 2009 increased by 22.6%. The net profit margin has been positively affected by tax benefits. Operating margin has been positively affected by better sales mix, improved net realisations, energy cost savings and scale efficiencies, partially offset by higher expenditure on advertising and sales promotion and actuarial losses on retirement benefits. Your Company continued to emphasise cash generation and delivered strong operating cash flow during the year. Surplus funds have been prudently invested after ensuring that such investments satisfy the Companys criteria of safety, liquidity and returns.

The Company supplemented the Provision for Contingencies with further amount of Rs. 323 Million (net) for contingencies resulting mainly from issues, which are under litigation/dispute and other uncertainties requiring management judgement. This was after the reversal/utilisation of Rs. 134 Million provision, due to satisfactory settlement of certain disputes and other matter for which provision was no longer required.

The current year has also commenced as per plan. Raw materials costs, in particular the recent spike in milks solids and sugar whose prices are at record high levels, continue to pose an ongoing challenge. The economic environment has not completely stabilized yet, but your Directors are confident of the long-term business prospects of the Company.

Exports

During the year, Export Sales at Rs. 3,286 million were lower by 2.9%. This was largely on account of lower exports to Russia and Bangladesh, partially offset by improved realisations due to the depreciation of Indian Rupee in the first nine months of the year.

Exports of culinary products, continued to grow steadily notwithstanding the slowdown in some of the importing markets. Sales of noodles and sauces particularly grew satisfactorily. The overall performance was, however, negatively impacted due to lower exports of infant nutrition products to Sri Lanka and Bangladesh.

In continuation of efforts to develop more products for the Indian ethnic community abroad, certain new products were shipped out during the year. These should help to form a base for future growth.

Dividends

The Board of Directors has recommended a final dividend of Rs. 12.50 per equity share of the face value of Rs. 10/- each for the year 2009, amounting to Rs. 1,205 Million.

This is in addition to the two Interim Dividends for 2009, aggregating to Rs. 36.00 per equity share, paid in May 2009 and November 2009 (amounting toRs. 3,471 Million).

The total payout for 2009 would be Rs. 5,470 Million (including the corporate dividend tax). Future dividends will continue to be based on the needs of the Company to deploy internal accruals for business expansion and an appropriate debt equity ratio.

Business Development

Your Company is acknowledged for its understanding of consumer needs and robust business model. During the year, the Company sustained focus on generating consumer insights, innovation and renovation, while continuing its ongoing efforts to strengthen capabilities that help it to leverage its strong and trusted brands.

The business of Prepared Dishes and Cooking

Aids grew rapidly as it focused on delighting the consumer and developing products that enhance accessibility to nutrition. The business encompasses the MAGGI brand which is the pioneer of TASTE BHI HEALTH BHI concept. Its inherent ability to add value has made MAGGI a favourite of generations and trusted by families across age/income groups. MAGGI philosophy is that everyday meals should be a celebration of taste, health and happiness throughout the year.

In the 25 years since MAGGI Noodles was launched in India as a wholesome convenience food, it has become part of the lives of millions of consumers with unique associations and fond memories. To commemorate completion of 25 years, the business launched the Me and Meri MAGGI campaign that established how well the brand is engaging with consumers and has built enduring emotional relationships with consumers across age groups. In the "Me and Meri MAGGI" campaign instead of the brand talking to the consumers, it allowed the consumers to talk about their unique experience with MAGGI and made the consumer the real hero of its communication. Just as the campaign was innovative and trendsetting because it was the consumers celebration of their favourite brand, it reflected the fact that MAGGI Noodles has always innovated and renovated to reach out and touch the consumers. During the year, MAGGI demonstrated its DNA and pioneered several new products specially for the bottom of the pyramid.

With its knowledge of culinary art in India, your Company provided inputs to the Nestle Group R&D for development of an innovative product

MAGGI Bhuna Masala. This ready-to-use gravy base provides the same fresh taste, nutrition and health aspects as traditional cooking, without having to go through the time consuming process of preparing the gravy base. The product has been well received and consumers have appreciated the fact that it contains low levels of oil and does not have any added preservatives. This expertise was further seen in the launch of MAGGI NUTRI-LICIOUS PAZZTA. Though the demand for Pasta in India is still nascent and the market includes traditional pasta variants and some recent attempts at developing pasta based products, MAGGI NUTRI-LICIOUS PAZZTA offers significant advantages. Developed with the technology from Nestle Group R&D this pasta is specially developed for the Indian consumer - it is made from 100% Suji, is a source of Protein and Fibre, has a very short cooking time of only 5 minutes, and is very Delicious! Your Directors believe that MAGGI NUTRI-LICIOUS PAZZTA will define and create the market.

During the year, MAGGI further leveraged its strengths to drive affordable nutrition. The Company launched two new products which are unique. MAGGI RASILE CHOW has been developed especially for the rural/semi urban markets, to provide a low cost, tasty light meal that is fortified with Iron. MAGGI MASALA-ae-MAGIC is a unique fortified taste enhancer that is fortified with Iron, Iodine and Vitamin A and will be useful in kitchens, especially for lower income families who are unable to afford meals that can give them balanced nutrition. These initiatives to pioneer low priced concepts for tasty and healthy meals, have the potential to significantly improve the Nutrition, Health and Wellness of the people especially at the bottom of the pyramid.

Your Company is the value leader in Instant Coffee with NESCAFE. Though 2009 was a challenging year for the coffee business in India primarily due to adverse climatic and weather conditions that were experienced, the Coffee and Beverages business further strengthened its position as the leader in instant coffees. Traditionally coffee sales are better during the colder seasons but the past year was the hottest recorded year in Indias history with a weak monsoon. The business-group focused its efforts across the value chain, innovated and renovated to launch new products, along with strong in-store activities and impactful advertising campaigns. While NESCAFE Cappuccino had a successful start, popularly priced packs supported growth. In the South the limited edition NESCAFE SUNRISE Rich Mountain Blend received very good feedback and despite the challenging environment NESCAFE performed satisfactorily, achieving volume and market share growth in India.

Your Company believes that sweet snacking is an intrinsic part of peoples lives and within this category the commitment is to offer taste as well as balance to consumers. Taste comes first but consumption in moderation should be part of daily life. Sweets give pleasure which can reduce stress, which in turn can contribute to the health and wellbeing of consumers. Keeping this in mind your Company innovates and renovates products, using the technology and expertise from Nestle Group to create products and segments that help consumers manage their wellness quotient better. In 2009 your Company has undertaken innovation and renovation to continue to delight the consumers and has grown the market for lighter eating and is the leader in the wafer-chocolayer segment of the Chocolate and Confectionery business.

During the year based on relevant consumer insights, NESTLE KITKAT was relaunched with an improved taste delivery making it more chocolaty and crispy and to further improve penetration NESTLE KITKAT was also launched in a new unique single finger format at the price point of Rs. 5/-. Further innovation in NESTLE MUNCH saw the launch of the GURU pack at the higher price point of Rs.10/- and this coupled with the reintroduction of NESTLE CHOTU MUNCH at the price point of Rs. 21- contributed to the brand performance. In recent years NESTLE MILKYBAR with its strong communication supported with successful innovations has continued to lead the growth in white confectionary segment. During the year, the portfolio was further extended with the launch of NESTLE MILKYBAR CHOKO CHOO (a unique combination of a brown centre enrobed in white choco-layer) and NESTLE MILKYBAR Crispy, leveraging the Companys leading position in the white confectionary segment. Both these launches have seen a strong start. During the year, your Company also became the leader in the Eclairs category with NESTLE ECLAIRS, and in the mint segment NESTLE POLO continued to grow its market share. In 2009 your Company continued its efforts to increase the availability and visibility of the range of confectionery products.

During the year, Milk Products and Nutrition

business continued to perform well as per expectations. Science based nutrition and innovation and renovation to develop products that enhance wellbeing and lifes opportunities are key considerations at Nestle, and are the central focus for this business. Nestle Group has a deep knowledge of nutrition and how it impacts the health and wellbeing of people in different stages of their lives. Your Company believes, that the foundation of good health starts during infancy. This belief is also widely supported by other nutritionists and scientists. As infants become older and growth takes them through various developmental stages, the body needs different nutrition and consumers need products that can deliver it, while providing superior taste, quality and convenience. While your Company actively supports and promotes breastfeeding as being the best possible source of nutrition for the developing infant, it recognises that there are circumstances where the mother is unable to feed. Nestle continues to build on its heritage of quality, trust and science based nutrition to meet the needs of infants, as they grow up, and in later life. Your Company has a portfolio of high quality products ranging from infant nutrition products such as LACTOGEN, NAN and CERELAC and extending to other products for children including NESTLE NIDO which is nutritious milk for growing up children above the age of 2 years providing Calcium, Vitamin D and 25 other essential nutrients. The other products that the portfolio contains include NESTLE EVERYDAY Dairy Whitener, NESTLE MILKMAID Sweetened Condensed Milk, NESTLE SLIM Milk, NESTLE NESVITA Dahi and NESVITA yogurts which continued to do well during the year. In a very competitive market, the EVERYDAY brand has led volume growth in the Dairy Whitener category resulting in a further increase in the overall market share and consolidating the Companys position as market leader. The Companys continued focus on scaling up distribution reach has enabled NESTLE EVERYDAY to expand consumer base and attract new consumers to the brand.

Acquisition of Healthcare Nutrition Business

Speciality Foods India Private Limited approached the Company for divestiture of their Healthcare Nutrition Business. Your Company was pleased to acquire the Healthcare Nutrition Business with effect from 1 st January, 2010.

The product portfolio under the Healthcare Nutrition Business is meant to satisfy the needs of consumers with special nutritional requirements and sold in India under brands like RESOURCE, OPTIFAST and SPERTRESOURCEis specially formulated for the management of malnutrition and other medical conditions associated with increased nutritional needs. It has a range of formulations including, amongst others, RESOURCE Diabetic, a ready-to- use, fibre rich diet for better nutritional management of diabetics and RESOURCE High Protein that provides easily digestible whey protein. OPTIFAST is a nutrition supplement in overweight condition and SPERT is a protein supplement to address the increased protein needs of the family.

Your Company believes that Healthcare Nutrition plays a vital role in satisfying the needs of consumers with special nutritional requirements, so they can enjoy a good life. This business will further strengthen the leadership of your Company in providing Nutrition, Health and Wellness products.

Sales

Your Company believes that while its products must be available to as many people who may prefer to buy them, the freshness and quality of the stocks is important and the distribution system needs to continuously improve to ensure this despite a larger reach. The retail trade in India is predominantly fragmented General Trade where the Distributors play a major role in the route-to-market. In order to use this network more efficiently and be able to better track the movement of stocks through this pipeline, your Company has decided to connect the Distributors through a uniform, robust and integrated Distribution Management System and in the last quarter of the year, started the process of Advanced Sales Automation. This will increase transparency, accuracy, speed, enable enhanced efficiencies in trade spends and ultimately, execution in the market. It will also liberate the frontline sales force from some of their administrative burden and enable them to focus more on their core function. It will improve white-collar productivity and internal controls.

Technology and Quality

Nestle products touch the lives of millions of consumers everyday and is trusted for the high quality. To reciprocate this trust and to ensure competitive advantage in the market, it is important to have the latest food technologies that support the development of products relevant to your Company and manufacturing them to high international standards. You can be proud that your Company has adequate systems and processes in place to ensure this. The Company has a General Licence Agreement with the Nestle Group, Switzerland that enables access to their continuing investments in Research and Development and advanced technology, and efficient manufacturing processes. The stringent quality assurance norms and the commitment to product integrity are supported by state-of-the-art technology and a high degree of automation. The product innovation and renovation during the year has all been possible due to the ongoing support received under the General Licence Agreement.

Your Company has seven factories spread across the country and they are amongst the Best in Class within the global Nestle Group. All the factories comply with the Nestle Quality Management Systems and have been certified by independent and reputed external bodies as being compliant as well as aligned with the external Standard for Quality Systems ISO 9001, the Food Safety Management Standard ISO 22000, the Environment Management Standard ISO 14001 and the Occupational Health and Safety Management Standard OHSAS 18001. During the year, the audits for these certifications established continuous improvement in performance against these standards.

Your Company has a very strong foundation of Information Systems provided by Nestle groups GLOBE initiative which are being leveraged to enable business growth. The current version of GLOBE is being upgraded to better prepare your Company forfuture opportunities.

Environment

Your Company is sensitized to the need for responsible action that helps sustain the environment and natural resources. At all the factories, efficiency and controlling cost extends beyond the commercial and includes the objective of minimising consumption of natural resources. During the past year they continued to follow the two-fold approach to achieve this. On the one hand they continuously increased efficiencies in areas within their control and have been a forerunner in conserving water, saving energy, recycling waste and reducing pollution. On the other hand, as partners in growth, they enabled people in the community to be more aware and responsible towards the environment and its resources.

Your Company complies with governmental policies, environmental laws and regulations, and adheres to strict internal Nestle Environmental Management System norms. The Environmental Performance Indicators [EPIs] help to constantly monitor the use of natural resources in the manufacturing operations. During the past ten years, for every tonne of production your Company has reduced the usage of energy by almost 50%, reduced the generation of greenhouse gases by almost 60% and generation of waste water by around 70%. The efforts to make the operations more environment- friendly are continuous and ongoing. For example, innovative utilisation of alternate fuels likes coconut shells and process waste to replace fuels with high sulphur content has contributed to reduction of green house gases per tonne of the product while also reducing the energy consumption per tonne of the product. To do this your Company continuously reviews energy usage to track and replace energy inefficient equipment, invests in installing processes that reduce energy losses, modifies processes to reduce energy need, and innovatively use waste heat of one process as input for another. Your Company believes that every such step, no matter how small it may seem, is important. Therefore, even in the supply chain that is not directly within your Companys control, the Company is considering initiatives that include the installation of solar lights where feasible, and developing green belt projects to reduce the carbon footprints of the distributors.

Capacity

Your Company has shown sustained performance over the years and in the recent past it has achieved a higher growth trajectory. To maintain this momentum it will ensure investments in capacity expansion at existing /new sites.

SupplyChain

Ensuring timely and efficient supply, both of input commodities and material, as well as that of the finished goods to consumers across the country plays an important role in the long term, sustainable and profitable operations of your Company. The ability to devise efficient process and cost efficient systems despite the increasingly complex economic environment has been a challenge in recent times, especially in the past year. Your Company has done considerable innovative work to manage this area using technology and by implementing best practice processes that are possible with the implementation of GLOBE. During the year, your Company initiated the process of implementing Radio Frequency technology that will help to maintain higher inventory accuracy and improve traceability of materials, in turn increasing efficiency and productivity in the warehouses and shop-floors.

During the later part of the year your Company also started the process of implementing a Nestle Group initiative under Nestle Continuous Excellence umbrella. The objective is to improve business alignment, to focus on waste elimination and to improve employee engagement to accelerate consumer satisfaction and increase competitiveness.

Human Resources and Trade Relations

Your Company firmly believes that its employees are key to driving performance and developing competitive advantage. The emphasis has been on proper recruitment of talent and empowerment, while devoting resources for their continuous development. During the year, your Company has nurtured a strong performance driven culture and winning mindset through Senior Management interactions and processes that are backed by training, exposure and coaching to develop functional and behavioural skills, as well as other communication initiatives.

During the year, your Company launched the Nestle Continuous Excellence initiative that trains and empowers employees with a mindset to Coach and transfer the benefit of experience and best practices to further improve performance. Your Company encourages its employees to foster an attitude of continuous learning and facilitates this by providing them various opportunities to learn and enhance their skills. These efforts in the management and development of the human resources, along with the increased campus activities by your Company at targeted business schools have improved the visibility of your Company as a preferred employer.

While your Company has strong recognition and reward programmes for employees to appreciate and recognise achievements, your Company believes in creating trust and mutual respect in Industrial Relations. Your Company engaged employees with trust and respect by continuously sharing information through various forums, cross functional activities, meets, dialogues and electronic media. These efforts have received excellent reciprocation and appreciation from employees and in its Industrial Relations.

SWOT Analysis for the Company

Strengths:

- Being NESTLE

- General Licence Agreement which gives access to the Nestle Groups proprietary technology/ brands, expertise and the extensive centralised Research and Development facilities.

High quality and safe food products at affordable prices, endorsed by the Nestle Seal of Guarantee.

- Recognised Nutrition, Health and Wellness Company.

Strong and well differentiated brands with market share leadership.

Product innovation and renovation, based on consumer insights.

- Well diversified product portfolio across categories and income strata.

Efficient supply chain.

Responsive Organisation Structure and strong Management Team.

Distribution structure that allows wide reach and coverage in the target markets.

- Capable and committed human resources.

- Participation in Global Business Excellence (GLOBE).

- Strong financial position.

Weakness:

- Complex supply chain configuration.

- Cascading indirect taxes. Price point portfolio.

Threat:

Prices of raw materials and fuels.

- Availability of agro based commodities.

- Food inflation.

- White-collar talent.

Opportunities:

Potential for expansion in smaller towns and other geographies.

- Recovery of Out of Home segment.

- Leverage Nestle Technology to develop more products that provide Nutrition, Health and Wellness at affordable prices.

Working with Communities

Over the years, the Nestle in the Community model has been simple. Your Company has continued to transfer technology and knowledge to the communities and worked with the people to build capabilities that allowed them to participate in business growth. This empowerment has enabled these people and their families, as is particularly acknowledged in the Moga Milk district, to build on and progress through economic prosperity.

Nestles business philosophy has always been to create value for society in a sustainable manner and to improve the quality of life, especially in the communities where it operates. For this, it follows a robust business model to ensure that the growth is sustainable in the long term for business, the economy and for society.

This is possible only when the business model is profitable and there is greater awareness and responsibility in the utilisation of resources, both renewable and non-renewable. Your Company believes that this is the essence of inclusive growth that policymakers and economists today consider necessary for healthy economic development of India. Consequently, your Company has continued to do extensive work to further develop dairy farmers around the Moga and Samalkha operations, provide access to clean drinking water and sanitation facilities for girl students in village schools, enhance awareness about scarce resources and the need to conserve, while empowering village women to be able to participate in the economic process more effectively. Your Company is focused on three key areas in community development that comprises Water, Nutrition and Rural Development.

During the year, your Company continued to extend its Clean Drinking Water Projects to increase sustainable access to clean drinking water in village schools and water conservation awareness in the communities across its 7 factories in India. 22 more Clean Drinking Water Projects benefiting over 11,000 students were constructed, taking the total to 139 such projects which benefit over 60,000 village students. In the Moga region, the extensive work with milk farmers continued through the year with your Company veterinarians and agronomists providing support, expertise and knowledge that benefit over 110,000 farmers. Well-attended veterinary camps, supported by regular visits to the farm by the veterinarians and visits to the factory organized for the milk farmers continue to be appreciated by them and are helping to develop sustainable dairy practices. Your Company also continued with the Village Women Dairy Development programmes that train them in good dairy practices as well as spread awareness about personal health, hygiene, water conservation and economic independence. 187 more such programmes reaching out to additional 5488 women were conducted during 2009, cumulatively benefiting over 40,000 village women.

Nutrition is a fundamental pillar for good health and wellness that are essential for a good quality of life. Your Company constantly supports initiatives that can improve access to and the quality of nutrition available to consumers. In a recent survey conducted by the

Company in the communities around its factories, lack of awareness and knowledge about balanced nutrition emerged as a major issue. In order to address this serious concern, your Company joined hands with Punjab Agricultural University, Ludhiana and launched a pilot project to develop a sustainable methodology for creating nutrition awareness. This pilot for the Nutrition Awareness Programme was carried out in the Moga milk district to educate adolescent girls regarding good nutritional practices. The feedback from the 8 village schools was very encouraging and the project will soon be rolled out to reach communities more extensively, around the factories across the country.

Contribution to the Exchequer

Your Company has been a leading taxpayer of the country and over the years has been enabling significant contribution to various taxes. During the year 2009, the Company through its business, enabled tax collections at Central and State level of close to Rs. 11.27 Billion in the aggregate.

Awards and Recognitions

- Conferred with Business Leadership Award 2009 for the second consecutive year by NDTV PROFIT.

- Declared "Star" Multinational for 2009 by Business Standard.

- Judged as Runner Up in Best Value Creator category by OUTLOOK MONEY NDTV PROFIT

- Ranked amongst THE MOST CONSISTENT TOP 10 Wealth Creators in the 14th Annual Wealth Creation Study released by Motilal Oswal, Financial Analysts. Recognised for excellence in Coffee Exports by the Coffee Board of India for the year 2008-09.

- Conferred with the Golden Peacock Environment Management Award for Nanjangud factory in the Foods and Beverages Sector by The Institute of Directors.

- Awarded the Greentech Environment Excellence Award 2009 for the FMCG sector by Greentech Foundation.

- Ranked amongst the top twenty five marketers of India by PITCH Magazine, in recognition of the sustained strategies to create value for consumers.

- MAGGI ranked as the Most Valuable Food Brand in the survey conducted by ICMR.

These recognitions reflect your Companys culture of continuous excellence and also indicate the hard work and sustainable initiatives being put in by the employees to deliver growth for the Company and delight for the consumers.

Directors Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors confirm that:

- in the preparation of the annual accounts, the applicable accounting standards have been followed and no material departures have been made from the same;

- they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profits for that period;

- they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

- they have prepared the annual accounts on a going concern basis.

Corporate Governance

In compliance with the requirements of Clause 49 of the Listing Agreement with the Stock Exchange, a separate report on Corporate Governance along with Auditors certificate on its compliance is attached asAnnexure-1 to this Report.

Cautionary Statement

Statements in this Report, particularly those which relate to Management Discussion and Analysis as explained in the Corporate Governance Report, describing the Companys objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied in the statement depending on the circumstances.

Directors

Your Directors appointed Mr. Antonio Helio Waszyk as the Managing Director of the Company, for a period of five years with effect from 22nd October, 2009, pursuant to the nomination received from Nestle S.A., Switzerland, under the Articles of Association of the Company. Mr. Waszyk is well qualified and has had a distinguished career with varied international experience including position of Head of Nestle R&D Centres, Switzerland and his last posting as the Head of the Food Strategic Business Unit, Switzerland. Details of his proposal are mentioned in the Explanatory Statement under Section 173(2) of the Companies Act, 1956 covered under Item no. 5 of the Notice of the 51st Annual General Meeting. His appointment is appropriate and in the best interest of the Company.

Mr. Martial Rolland, relinquished office as Managing Director with effect from 30th September, 2009, consequent upon his appointment with Nestle Group, Switzerland. Mr. Rolland assumed office as Managing Director of the Company in December, 2004 and his contributions are reflected in the growth and sustained performance of your Company during his tenure. The Directors wish to place on record their appreciation for the leadership and contributions of Mr.Rolland, which have helped your Company reach the current position.

In accordance with Article 119 of the Articles of Association, Mr. Ravinder Narain retires by rotation and being eligible offers himself for re-appointment.

Auditors

The Statutory Auditors of the Company, M/s. A. F. Ferguson & Co., Chartered Accountants, New Delhi, retire in accordance with the provisions of the Companies Act, 1956 and are eligible for re-appointment. M/s. A. F. Ferguson & Co., Chartered Accountants, New Delhi have sought the re-appointment and have confirmed that their re-appointment if made, shall be within the limits of Section 224(1) (B) of the Companies Act, 1956. The Audit Committee and the Board recommends the re-appointment of M/s. A.F. Ferguson & Co., Chartered Accountants, as the Auditors of the Company.

Complying with the provisions of Section 233-B of the Companies Act, 1956, the Board of Directors have appointed M/s. Ramanath Iyer and Co., Cost Accountants, New Delhi, to carry out an audit of cost accounts of the Company in respect of Milk Foods for the year 2010. This appointment has also been subsequently approved by the Central Government.

Information regarding Conservation of Energy etc. and Employees

Information required under Section 217(1) (e) of the Companies Act, 1956 (hereinafter referred to as "the Act") read with Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure - 2 forming part of this Report. Information as per Section 217(2A) of the Act, read with the Companies (Particulars of Employees) Rules, 1975, as amended from time to time, forms part of this Report. However, as per the provisions of Section 219(1) (b) (iv) of the Act, the Report and Accounts are being sent to all the members excluding the statement containing the particulars of employees to be provided under Section 217(2A) of the Act. Any member interested in obtaining such particulars may inspect the same at the Registered Office of the Company or write to the Company Secretary for a copy.

Trade Relations

The Company maintained healthy, cordial and harmonious industrial relations at all levels. Despite severe competition, the enthusiasm and unstinting efforts of the employees have enabled the Company to remain at the forefront of the Industry.

Your Company continued to receive co-operation and unstinted support from the distributors, retailers, stockists, suppliers and others associated with the Company as its trading partners. The Directors wish to place on record their appreciation for the same and your Company will continue in its endeavour to build and nurture strong links with trade, based on mutuality, respect and co-operation with each other and consistent with consumer interest.

Appreciation

Your Company has been able to operate efficiently because of the culture of professionalism, creativity, integrity and continuous improvement in all functions and areas as well as the efficient utilisation of the Companys resources for sustainable and profitable growth.

The Directors wish hereby to place on record their appreciation of the efficient and loyal services rendered by each and every employee, without whose whole-hearted efforts, the overall very satisfactory performance would not have been possible.

Your Directors look forward to the future with confidence.

On behalf of the Board of Directors

Date: 19th Feb., 2010 Antonio Helio Waszyk Place : Gurgaon Chairman



 
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