A

PROJECT REPORT
ON
A STUDY ON CAPITAL BUDGETING OF NESTLE

FOR THE PARTIAL FULLFILLMENT OF MASTER AND BUSINESS

ADMINISTRATION

INSTITUTE AND TECHNOLOGY OF MANAGEMENT, GROUP OF INSTITIUTIONS

AFFILATED TO JIWAJI UNIVERSITY

SUBMITTED BY:
JAY SINGH RANA
MBA 4th SEM

SUBMITTED TO:
Mrs. PREETI SINGH
Mr. ANKIT GUPTA

1
 ACKNOWLEDGEMENT

I here with take the opportunity to express my profound sense of gratitude and
reverence to all those who have helped and encouraged me towards the successful
completion of the project .It’s been a great experience working on “A STUDY ON
CAPITAL BUDGETING OF NESTLE”.

.It give me complete insight about how an organization not only survives in cutthroat
completion but also maintain a killer instinct in the competitive world.

I would like to thank my project guider Mrs. PREETI SINGH, Mr. AKIT GUPTA
for his immense guidance. A valuable help and provided me the opportunity to
complete the project under his guidance.

I would like to thanks all the faculty members of INSTITUTE OF TECHNOLOGY

AND MANAGEMENT, GOI for guiding me and supporting me in the completion
of this project from time to time

Last but not least my greatest gratitude to the almighty and my parents, without their
support this dream would have remained dream

CERTIFICATE

2
This is to certify that VIPUL study in our institute INSTITUTE OF TECHNOLOGY AND
MANAGEMENT, GOI was allotted the project on “A A STUDY ON CAPITAL BUDGETING
OF NESTLE”
NESTLE by Jiwaji University has successfully completed it under the guidance of Mrs.
Preeti Singh, Mr. Amit gupta

DECLARATION

I here by declare that the project work entitled “A STUDY ON CAPITAL

BUDGETING OF NESTLE” NESTLE is an authentic work carried out by Jay Singh Rana
under the guidance of Mrs. Preeti Singh, Mr. Amit gupta for a practical fulfilment
of the degree of MBA and this has not been submitted anywhere else for the award of
any degree.

3
 Jay Singh Rana
MBA 4 th Sem

4
 INDEX

CHAPTER 1
 OJECTIVE
 INTRODUCTION
 COMPANY PROFILE

CHAPTER 2
 RESEARCH METHODOGY
 ANALYSIS OF DATA
 PRODUCTS

CHAPTER 3
 REVIEW LITERATURE

CHAPTER 4
 CONCLUSION
 LIMITATIONS

BIBLOGRAPHY
ANNEXURE

5
 EXECUTIVE SUMMARY

The current millennium has unfolded new business rules most the significant
of them being that company has to constantly look into minds of the customer.
Customer loyalty plays a significant role and today securing that loyalty
requires quality right price and of course last but not the least i.e. creating
awareness about their service. As a trainee, I was given knowledge about the
way and style of their working, their routine and their environment. It was a
great experience in getting under such a reputed company, which has in it the
ability to retain customer.

6
 OBJECTIVE

 To identify the services and products offered by NESTLE.

 To study and analyze the customer perception and preference about
NESTLE.
 Finally to draw the various conclusion and recommendation on the
on the basis of study conducted.

INTRODUCTION

7
Nestle India Ltd. is a part of the Nestle SA group which is one of the largest manufacturing companies in

the world. Henri Nestle founded the company (with its headquarters in Vevey, Switzerland) in 1867.

Nestle has two major divisions - Le Societe des Produits which looks after the production and

marketing and Nestec Ltd. which provides the technical assistance to the group companies. Since its

inception in 1867, the company has diversified it product range from the infant weaning formula (which

was its first product) to beverages, confectionery, ice creams and pet foods among others. In a span of

130 years the company has ranked 26th among the world’s largest corporations and boasts of a turnover

of $ 48932.5 million and employee strength of 221,144 people spread over 75 countries worldwide

(Annexure A).

Nestle has long been viewed as one of the most multinational of the multinationals.

This is because today only 2% of its turnover comes from Switzerland. Out of the

remaining 98%, Europe contributes 43.5%, North and South America contribute

36.5% and Africa and the Asia Pacific Regions contribute 18%.

8
 Company Profile

Although Nestle has been associated with India since the beginning of the century through

the importing and trading of infant food and condensed milk, manufacturing in India only began

with the setting up of the factory in Moga in 1962. The first product to be manufactured was

Milkmaid. In the last 35 years the company has shown rapid progress and has increased its product

range to 80 products as of October 1997. Nestle India Ltd. now ranks 22nd amongst India’s most

valuable companies (Annexure B) . Its gross revenue has increased from Rs 1001.1 crores to Rs.

1213.8 crores in 1996. This remarkable growth has been achieved through -

 Rapidly creating greater manufacturing capacity, both at factories as well as with co-packers.

 Taking measures to ensure availability and improved quality of key raw materials - fresh milk in

particular.

 Strengthening of the sales and distribution network (particularly in smaller towns)

 Ambitious and cohesive manpower training and development programs for the personnel of the

company across all disciplines.

The company’s exports also resulted in a very successful year in this area as exports grew by

27% to Rs. 250.8 crores in 2003. The main contributors to this increase were the export of tea and

coffee to USA, Japan, Russia, Hungary and Taiwan.

9
 Nestle India Ltd. wants to further increase its operations in India and has started

construction of its sixth Factory at Bicholim, Goa for the manufacture of culinary products (a key

thrust area) for this purpose.

10
 The Spirit of Nestle

“Organisational excellence is never achieved through a one time effort; It is always a

process of continuous improvement across a number of areas of operation.”

A key factor for Nestle’s success has been its quest for continuous improvement through

ushering in greater productivity and more efficiency in everyday operations. Despite the

infrastructure impediments in India, Nestle has set itself high standards of business performance.

This is reflected through the essence of the company - its mission statement.

Nestle’s mission

“To be in every way the leading company in the Indian food industry and a good corporate

citizen by providing our consumers with superior quality products, our shareholders with rapid

growth & fair returns and our employees with a challenging and satisfying work environment.”

To translate this spirit into a planned and measurable process, Nestle has set up key

objectives across all divisions.

Key Objectives

Production

 To optimise production costs while enhancing product quality so as to make Nestle products

even more competitive in the market place.

11
Sales and marketing

 To reach a sales turnover of 3000 crores by the year 2003

 To double the turnover every three years

People

 To help employees to retain a long term perspective and integrate them fully with the company’s

business goals

 To retain a broad perspective while addressing individual needs

 To view growth as a continuous process

 To concentrate on attitudinal changes by developing leadership skills, an appreciation of

interdependence between units and the enhancement of a sense of belonging to Nestle.

Finance

 To maintain profit levels above the average for the food industry in India.

The Business Excellence and Common Application (BECA) initiative essentially translates the spirit

of the Journey towards excellence into an organised, systematic and measurable approach. The aim

is to aid the achievements of the company’s key objectives of rapid growth by ensuring that all

12
operations incorporate the spirit of meaningful planning, effective cost control and efficient

implementation. BECA is about “ planned improvement in everything we do ”

Factories

Nestle has 6 factories in India. These are

1. Moga (punjab) : The Nestle factory in Moga has the pride of being the first and most

comprehensive factory of Nestle India. Set up in 1962, it represents the core competence of Nestle

India in the manufacture of milk products (Everyday, Milkmaid), beverages, culinary products

(Maggi sauces, noodles, soups etc.), weaning cereals (Cerelac) and infant milk formulae.

2. Choladi ( Tamil Nadu): The factory in Choladi started production in 1967. Situated about 60

miles from Calicut, the factory today has 81 employees and produces 1.5% of the total turnover of

Nestle India. It is a 100 percent export oriented unit which processes freshly picked tea leaves into

soluble instant tea.

3. Nanjagud (Karnataka): Production in this factory began in 1989 with the manufacture of

Nestle instant coffee and Sunrise. Today in addition to instant coffee the factory also manufactures

health beverages. The plant to manufacture MILO was also commissioned at this factory. This

factory employs 145 people and is cited as a model in terms of environment protection for its

installations to purify waste water as well as for its provisions for recycling coffee wastes.

4.Samalakha (Haryana): This factory was set up in 1993. Located 70 kilometres from Delhi , it

manufactures weaning cereals , culinary products ,health beverages and milk products. Recently the

13
expansion of manufacturing capacity for Milkmaid Dessert Mixes was undertaken at this factory as

this new and unique product category is viewed to have great potential in the future.

5.Ponda (Goa): This Kit-Kat factory was set up in Goa in 1995 at a cost of Rs. 50 crores. It

represented a major step by Nestle towards becoming the Number 1 Chocolates and Confectionery

Company in India.

6.Bicholim (Goa)

The construction work at this new factory is progressing with speed. This factory will soon

commence the manufacture of culinary products, which is a key thrust area for the company and

will include latest technological improvements relating to this category of products.

As a part of Nestles efforts towards continuous improvement and excellence in

Manufacturing operation, a Moga Improvement team (MIT) was put in place at the Moga factory.

The team comprised of international experts from Nestle Technical Services (NESTEC) and the

local staff. In 1996, it embarked on a program with the single minded objective of optimizing

production costs while enhancing the product quality so as to make Nestle products even more

competitive in the market place. Drawing upon Nestle’s global experience and manufacturing

expertise in 75 countries the team identified the following areas for detailed study -

 Process improvement to ensure the optimal usage of resources

 Improvement of operational efficiency

 Cost optimization

14
 A series of small but critically important initiatives ranging from redesigning laboratories to

palletisation of raw materials and packaging material utilization, manufacturing and filling loses and

labour man hours resulting in substantial savings and improved productivity and machine utilization.

In addition, several non tangible benefits in the form of systems for sustainable improvement in

areas like factory maintenance planning tools , down time recording systems and performance

measurement tools were also realized .

This project was highly successful and the company is now implementing its key learning’s

of MIT in its other factories.

In a country as vast and diverse as India, supply chain management is absolutely critical to

rapid growth. Through BECA, Nestle has concentrated heavily on streamlining and improving their

supply chain management in order to make it more dependable, more cost effective and most

importantly, more responsive to market needs.

For better supply chain integration the planning of key operations - purchase, production,

distribution and sales are synchronised to ensure that everybody works towards a common business

plan. Monthly objectives are broken down into weekly and (wherever necessary) into daily plans

and monitored regularly to ensure smooth implementation and quick corrective action when

needed . Major benefits accrued thus far include reduction in working capital through lower

inventories of finished goods and materials, better stock availability and reduction in obsolescence

of materials.

In addition to traditional performance indicators, quantifiable performance measures have

been identified and implemented in all functional areas such as sales planning, production output,

quality assurance, material ordering transportation and warehouse management. These measures are

15
monitored regularly to gauge the extent of improvement and identify root problems for taking

corrective actions.

Teams have been put in place at all factories and sales offices to ensure the implementation

is continuous and self-sustaining. Areas of improvement are regularly identified and time bound

action plans established. For this purpose, standard tools such a Total Quality Management(TQM),

Kaizen, 5S and Small Group improvement activity (SGIA) are being extensively used.

The efficacy of this hierarchical structure is seen in Nestle’s performance over past few years

of various products.

By 1989 the company had achieved a sales figure of approximately Rs. 258 crores. 1989

was the year of launches. Seven new product lines were launched in this year. This was also the year

in which the Nanjagud factory was set up. By the year 1992, this sales figure was touching Rs 500

crores. In the 1995 the pace of launches quickened and since the construction of the factory at

Samalakha, 20 new products have been introduced. By 2003, Nestle had about 76 different

products in its portfolio with various new products in the pipeline as well. The sales figure now

touched Rs. 1214 crores. Thus sales grew by 450% over a period of one and a half decades.

Marketing Strategy

Nestle has adopted a four pronged growth strategy: -

1. Gunning the market with new products and brand extensions.

2. Expansion of the distribution network to small towns for extensive availability.

16
3. Reduce prices and introduce smaller packages for products to make them more affordable (a

tool to enter price sensitive markets).

4. Focus on employ training and develop a positive attitude through enhanced manpower

development.

5. By year 2003 it expects chocolate & confectionery to account for one in every third rupee in

sale.

In the late 1996 fear of breading complacency by not having a continuous improvement, gave

birth to an international sales & marketing improvement teams (SMIT).

SMIT maps the latest in helping towards the target of year. 2003. The SMIT exercise is a

major global initiative of Nestle to enhance sales & marketing productivity. Linked with the already

existing BECA project, which in turn emphasises on excellence by improving the distribution set

up , this gave rise to the following growth objectives for the year 2003

 Ensure direct coverage of all urban towns in India.

 Expand distribution to reach 1 million retail outlets on a regular basis.

 Work in partnership with the distributor for the achievement of these objectives.

 Provide sustainable solution to optimize our secondary sales from distributor to retailer.

17
NEW PRODUCT LAUNCHES

To put all the product launches into perspective, Nestle now has 80 products including

various flavours and variants this awesome list of 80 products for most companies is an overfull

palate. Nestle India Ltd. Still have a variety of new products in the pipelines. It believes in slowly

colonizing as much territory as fast as it can, adapting to native conditions and then work at

“holding off the advancing herds”. Nestle products can be broadly classified into 5 main ranges -

 Milk Products

 Chocolate and Confectionery

 Beverages

 Culinary

 Food service

Milk Products

This category which comprises of condensed milk, baby milk foods , milk powders ,

acidified infant food , and other milk products, showed a slump in 1996 as sale of milk products fell

18
from Rs 31.4 crores in 1995 to Rs 31.2 crores in the said year. Consumer offtake remained

depressed throughout this year as a consequence of high price increases necessitated by substantial

increases(+50%) in the cost of basic raw materials( fresh milk ) , over the past two years .

However Nestle retained its leadership in the infant food market with Cerelac, Lactogen and

Nestum and even introduced a new flavour of Cerelac - Cerelac Rice in 1996.

Chocolates and Confectionery

Nestle pursues the objective of accounting for one in every three rupees in its sales figures

through chocolates and confectionery. This has thus been one of the thrust areas in Nestle. Nestle

this year widened its range of flavours in POLO, backed by its tremendous success in the Indian

Market by adding POLO Spearmint to its Portfolio. This new flavour has also received an

encouraging response in the market according to market analysts.

Milkybar also retained its position as the number one white chocolate brand in India,

however it did not record a significant increase in sales as a majority of Indian tastes still do not

accept this flavour.

This year however, was a year of tremendous success for Kit Kat .This internationally

renowned brand gained a large increase in the Market share in the past year and Nestle officials are

hopeful that this will further increase in the coming years. However this Brand along with it success

has brought with it its share of Controversy as the Union of India has launched a Litigation against

the Kit Kat family pack.

19
 In 1997 Nestle added to its range of confectionery by introducing SPLASH, “A soft hearted,

hard boiled sweet ” this is being promoted as a sweet unique to India and is positioned to a target

audience in the age group of 4 to 12 years and “anyone with a soft heart” is a potential customer.

Priced at Rs. 1 for a 7.5 gram candy splash has been introduced selectively in the South and has

been speculated to repeat Polo’s performance. Nestle’s officials claim that this candy has the

potential to grab a quarter of the 700 crores confectionery market.

The most recent of Nestle affairs with the confectionery market has been the introduction of

Mithai Magic which is “a little Mithai , a little magic “ .This new product was launched in

September 1997 ,in time for the Diwali purchases of sweets . This brand has been positioned

somewhere between chocolates and traditional sweets and the company is employing a push

strategy to promote this brand.

20
Beverages

This year has been very successful in the beverages market for Nestle .The sales of

beverages has increased from Rs 323.3 crores in 2002 to Rs 398.8 crores in 2003.

Nestles Flagship Nescafe which was pegged at Rupees 1040 per Kilogram before the launch

of Tata Cafe, met with stiff competition from Tata Cafe priced at Rupees 550 per Kg once it was

introduced . Tata cafe claimed to have garnered a market share of 17% by December 1996. This

forced Nestle to cut prices of Nescafe to Rupees 840 per Kg. However Nescafe still retains 83%

market share in the Rs 177 Crores market for pure instant coffee.

Nestle Sunrise also showed an increase in sales and captured 20 % of the Rs 253 crores

market in Mixed instant coffee.

This year Nestle also launched MILO, an internationally renowned chocolate energy drink, and the

response for this has been encouraging.

Nestle has also introduced Tasters Choice tea bag pitched against Taj mahal tea bags.

21
Culinary Products

The market in culinary products had witnessed a high growth consequent to aggressive

pricing decisions on existing products and the introduction of a variety of new products to match

the needs of the Indian Housewife. Encouraged by this success Nestle launched Maggi Macoroni

Snack in three flavors - Chicken , Masala and Tomato. Nestle officials’ say that this would

consolidate Maggis position as the number 1 culinary brand in India. The product focuses on

convenience and innovation as its Unique Selling Proposition. This snack has opened a new

segment for the maggi brands. The brand is positioned as youthful and is represented by the twists

and curls of the macaroni snack. It is speculated to be introduced in a phase manner nation-wide to

be placed in the 7.5 lakh outlets that Maggi noodles sells in .

In the spirit of catering to Indian tastes Maggi introduced maggi pickles in five variants

benchmarked to give the “ghar ka swad”. Maggi Dosa Mix was also introduced to offer superior

quality and added convenience. Apart from this Milkmaid Kalakand Mix, a traditional north Indian

sweet of premium quality was added to the milkmaid dessert mixes. Maggi soup also launched three

new variants. Maggi Rassam in particular was noticeable as yet another attempt to make traditional

Indian cooking a little bit easier.

22
Food Service

Food service items basically deal with the out of home segments, which would include

vending machines. Nestle’s food service business is poised for rapid expansion to meet the growing

need for such a reliable, time saving and cost effective service in this modern age .

Nestle wants to sell 500 million cups of tea and coffee through its vending machines in the

year 2003. It currently has 3500 vending machines at assorted locations (both public and private).

In 1995 Nestle food service did well to vend 40 million cups of Nescafe and Tasters Choice tea. Its

2003 sales were placed at 59 million cups of Nescafe and 36 million cups of tea, this figure was

however way below the expected sales for the year.

Distribution strategy

It is an indisputable fact that fundamentally all consumers marketing must first assure

availability of the product to the consumer. In India, the urban population alone is of a whooping

250 million consumers -an unbelievable potential for any FMCG . The potential being spread across

more than 4000 towns have to be very effectively and efficiently tapped. Nestle till now was

retailing in a limited number of towns with only 200 towns accounting for 70 % of their business.

For Nestle to be a leader in the food industry, expanding the distribution network for more retail

outlets was a must.

To meet this challenge, Nestle is working towards an objective of increasing the retail base

to 1,000,000 outlets by the year 2003. This network is feasible as Nestle has a triangular

distribution structure thus the span of control is still retained. The Distribution Network is explained

in figure 2.

23
 In order to achieve these distribution objectives Nestle has formulated an international sales

and marketing improvement team (SMIT). SMIT focuses on a single objective -provide sustainable

solutions to optimize the distributor and retailer sales through a step by step approach starting with

analysis of market followed by identification of the probable retail outlets and finally selection of the

same .The team also focuses on proper implementation of resources and timely follow ups for

effective solutions.

Advertising Strategy

Nestle, a cash rich company has plenty of marketing prowess. This can be credited to a

strong and sound advertising strategy.

Nestle in the year 2002 had an advertisement spending of Rs 43.3 crores (net) . Tracing

Nestles advertising responses the ad campaign by HTA of ‘Hot and Sweet’ was a runway success

this ad was actually meant to fend off a challenge from H.J Heinz. The Maggi ranges of sauces were

introduced in 1985 but sales didn’t catch up until 1990 but till 2003 it got considerable market

share. At this point the popular and memorable campaign of Javed Jaffrey and Pankaj Kapoor was

launched by Producer Pralad Kakkar . This commercial was an instant success. The volume of sales

kept rising from an initial growth of 13% to 20% in the next year. Today the sales figure for Maggi

Sauces is growing at a steady 6% per year.

Another noteworthy campaign was that of POLO (the mint with a hole), devised by Mudra

advertising agency. This campaign was awarded 11 industry ad awards.

In 2002 the advertisement budget has been approximately Rs 56 crores where again

innovation was the main focus. The new nation-wide product launch of Maggi Macaroni Snack and

24
Mithai Magic have been designed by Mudra . The Macaroni ad with its use of “English “ and a

catchy beat (which is the latest trend amongst the Indian Advertisers) appeals well to the target

audience and the Mithai Magic commercial does keep the secret of the contents in the box , intact.

“Training is an integral and indispensable part of Nestle . I regard the importance of training a

highly as research and development .It is a major investment in the Future of the company and

imperative because it is an investment in people ”

- Mr. Helmut Maucher

Chairman and CEO Nestle S A Group

Nestle India Ltd. has an employee base of 3040 people and aims to be in the top quartile of

the FMCG companies .For this purpose it follows a very stern and rigorous recruitment policy .

Recruitment Policy

Recruitment of fresh management trainees and sales officers is done every April-May. These

graduates are generally selected from the best institutes in the country through a series of

interviews. They are then put through a probation period of 12-18 months. Although Nestle does

not offer some of the highest pay packets in the industry, it is considered a growth oriented

company.

Training and Development

Continuous development of skills and attitudes of employees is critical to the achievement of

excellence. At Nestle therefore training and development of human resources is viewed as a long

term investment .

25
 “ If you are planning for one year , Plant wheat;

If you are planning for ten years, plant a tree;

If you are planning for life, train people.”

- Old Chinese proverb

This proverb goes with the organizations most enduring beliefs worldwide -

 That long term planning is the key to Nestles global success

 That Nestle’s most valuable assets are its people

 Nestle’s policy is to rely on a more decentralized form of management by building in the habit to

“ Think Nestle”.

At Nestle India training and development is an integral part of the business plan and strategy

in line with the objectives for the year 2003 and aims to -

 Help employees to retain long term perspective and integrate them fully with the company’s

business goals

 View the growth of both the personnel and the company as a continuous process.

26
 Concentrate on attitudinal changes by developing leadership skills, an appreciation of

interdependence between units and the enhancement of a sense of belonging to Nestle.

In 2003 Nestle India benefited greatly from the training program offered at the Rive Reine

International Training Center at Vevey, Switzerland. This training program helped facilitate the

transfer of common Knowledge (technical, marketing, and finance) across the Nestle Group and

ensure interdisciplinary approach to learning and uniform progress with a tailor-made approach for

all.

Company Training needs -

 analysis of training needs of Managers

 self development programs for staff at HO

 programs for company orientation and information sharing

 programs aimed at computer training and computerization

 Establishment of contact with leading management institutes with a view to use the same for

meeting local training requirements

Nestle’s Corporate Culture

27
 As we had discussed before, Nestle is one of the most multinational of multinationals and is

spread over 75 countries worldwide. This implies that it has employees from diverse cultural

backgrounds. Nestle respects the distinctive culture, mentality and traditions of every employee in

every country. What Nestle aims at is to incorporate its own culture into its employees without

stifling the individual employee’s culture and identity. When we went to Nestle we could feel the

existence of a distinctive work culture amongst the management - the staff seemed highly motivated

& cheerful and everybody had pin up boards in front of their tables with reminders, motivational

messages and even time logs (the Nestle people seemed as if they availed of the benefits of time

management) .

Nestle has a diverse product range and so it also has diversified risks Thus Management on

Information systems plays a vital role in Nestle to provide information to the Sales and Apart

Marketing as well a the finance department .The Electronic Data Processing Department from

looks after Management Information Systems . this,

Nestle has a vast distribution network. In order to support the BECA process, an integrated

computer system has been put in place across the company to link all functional areas and locations.

This common linked system will improve information availability, aid quick decision-making and

improve supply chain integration.

28
 RESEARCH METHODOLOGY

Managers need information in order to introduce products and services that create value in

the mind of the customer. But the perception of value is a subjective one, and what

customer’s value this year may be quite different from what they value next year. As such,

the attributes that create value cannot simply be deduced from common knowledge. Rather,

data (information) must be collected and analyzed. The goal of Marketing Research

29
(analysis) is to provide the facts and direction that managers need to make their more

important marketing decisions.

The analysis involves the following steps:

 Define the problem.

 Determine research design.

 Identify data types and sources.

 Determine sample plan and size.

 Collect the data.

 Analyze and interpret the data.

 Prepare the research report.

For the purpose of study, data from the in-house survey conducted by the marketing

department (secondary data) has been used and also for coming out with the

recommendation. It was also felt that mere secondary data would not provide in-depth

information for the analysis, hence it was decided that interactive discussions with the

managers and the head of every department would help in an in-depth and true

understanding of challenges faced by the department.

The methodology adopted was to gather relevant information from the appropriate

department, correlate the information obtained and to present the information in a logical

and systematic manner.

30
Nestle India Ltd., is a part of the Nestle SA group, which is one of the largest

manufacturing companies in the world. The company (with its headquarters in Vevey,

Switzerland) was founded by Henri Nestle in 1867. Nestle has two major divisions- Le

Societe des Produits which looks after the production and marketing and Nesstec Ltd.

which provides the technical assistance to the group companies. Since its inception in

1867, the company has diversified it product range from the infant weaning formula

(which was its first product) to beverages, confectionery, ice creams and pet foods

among others. In a span of 130 years the company has ranked 26 th among the world's

31
largest corporations and boasts of a turnover of $48932.5 million and an employee

strength of 221,144 people spread over 75 countries worldwide (Annexure A).

Nestle has long been viewed as one of the most multinational of the multinationals. This

is because today only 2% of its turnover comes from Switzerland. Out of the remaining

98%, Europe contributes 43.5%, North and South America contribute 36.5% and 18% is

contributed by Africa and Asia Pacific Regions.

OVERVIEW

Although Nestle has been associated with India since the beginning of the century

through the importing and trading of infant food and condensed milk, manufacturing in

India only began with the setting up of the factory in Moga in 1962. The first product to

be manufactured was Milkmaid. In the last 35 years the company has shown rapid

progress and has increased its product range to 80 products as of October 1997. Nestle

India Ltd. now rank 22 nd amongst India's most valuable companies (Annexure B). Its

gross revenue has increased from Rs. 1001.1 crores to Rs. 1213.8 crores in 1996. This

remarkable growth has been achieved through:

32
 Rapidly creating greater manufacturing capacity, both at factories as well as with

copackers.

 Taking measures to ensure availability and improved quality of key raw materials-

fresh milk in particular.

 Strengthening of the sales and distribution network (particularly in smaller towns).

 Ambitious and cohesive manpower training and development programs for the

personnel of the company across all disciplines.

The company's exports also resulted in a very successful year in this area as exports

grew by 27% to Rs. 250.8 crores in 1996. The main contributors to this increase were

the export of tea and coffee to USA, Japan, Russia, Hungary and Taiwan.

Nestle India Ltd. wants to further increase its operations in India and has started

construction of its sixth Factory at Bicholim, Goa for the manufacture of culinary

products (a key thrust area) for this purpose.

33
The spirit of Nestle

"Organizational excellence is never achieved through a one time efforts; It is always a

process of continuous improvement across a number of areas of operation."

A key factor for Nestle's success has been its quest for continuous improvement through

ushering in greater productivity and more efficiency in everyday operations Despite the

infrastructure impediments in India, Nestle has set itself high standards of business

performance. This is reflected through the essence of the company-its mission statement.

Nestlé’s mission

"To be in every way the leading company in the Indian food industry and a good

corporate citizen by providing our consumers with superior quality products, our

shareholders with rapid growth and fair returns and our employees with a challenging

and satisfying work environment."

To translate this spirit into a planned and measurable process, Nestle has set up key

objectives across all divisions.

KEY OBJECTIVES

34
Production

 To optimize production costs while enhancing product quality so as to make Nestle

products even more competitive in the market place.

Sales and Marketing

 To reach a sales turnover of 3000 crores by the year 2000.

 To double the turnover every years.

People

 To help employees to retain a long-term perspective and integrate them fully with the

company's business goals.

 To retain a broad perspective while addressing individual needs

 To view growth as a continuous process.

 To concentrate on attitudinal changes by developing leadership skills, an appreciation

of interdependence between units and the enhancement of a sense of belonging to

Nestle.

35
Finance

 To maintain profit levels above the average for the food industry in India.

Key Fact

This section offers a quick and simple overview of NESTLE, making it an excellent place

to begin learning more about the World’s Largest Food Company. Here introduction is

given with some key facts and figures, including 2001 Financial Information,

Company Profile, Historical Development and Main Brand .

36
DATA ANALYSIS AND INTERPRETATION

By Geographic Area

In Million of CHF 2006 (%)

Europe 25/706 36.7

North and South America 22/262 31.8

Africa, Asia and Oceania 13/493 19.3

Other Activities 8/537 12.2

69/998

By Main Product Group

Other
Activities
12.2%
Africa, Asia Europe
and Oceania 36.7%
19.3%

North and
South
Am erica
31.8%

In Million of CHF 2001(%)

Beverages 19/142 27.4

37
Milk Products, Nutrition and Ice Cream 334 27.6

Prepared Dishes and Cooking Aids 17/660 25.2

Chocolate and Confectionery 10/663 15.2

Pharmaceuticals 3/1999 4.6

Chocolate Pharm aceutic

and als
Cofectionary 4.6% Beverages
15.2% 27.4%

Prepared
Dishes and
Cooking Aids Milk
25.2% Products,
Nutrition and
Ice Cream
27.6%

38
Breakdown of 2006 Trading Expenses (in %)

Percentage

Raw Materials 26.2

Packaging 8.8

Salaries and Welfare Expenses 16.6

Depreciation 4.1

Other Trading Expenses 34.5

Total Trading Expenses 90.2

Trading Profit 9.8

Go to Financial Guide for additional facts and figures.

Company Profile

Raw Materials
13.8%
Trading Profit
5.2% Packaging
4.6%

Salaries and
Welfare
Expenses
8.7%

Depreciation
2.2%

Total Trading
Other Trading
Expenses
Expenses
47.4%
18.1%

 Chairman of the Board: Helmut O. Maucher

39
 Chief Executive Officer: Peter Brabeck-Letmathe

 World’s leading food company

 Switzerland’s largest industrial company

 Worldwide operations

 495 factories

 Group’s total work force: 225, 808 people.

Historical Development

1866 Company’s foundation

1905 Merger between Nestle and Anglo-Swiss Condensed Milk

Company

1929 Merger with Peter-Cailler-Kohler Chocolates Suisses. S. A.

1947 Merger with Alimentana S.A. (Maggi)

1971 Merger with Ursina-Franck (Switzerland)

1985 Acquisition of Carnation (USA)

1990 Acquisition of Buitoni-Perugina (Italy)

1992 Acquisition of Row tree (GB)

40
1994 Acquisition of Perrier (France)

1998 Acquisition of Spillers (GB)

2002 Divestiture of Findus brand and parts of Nestlé's frozen food

business in Europe. Divestiture of Hills Bros, MJB and Chase &

Sanborn roast and ground coffee brands (USA).

2006
Acquisition of Power Bar.

Factories

Nestle has 6 factories in India. These are

1. Moga (punjab)

The Nestle factory in Moga has the pride of being the first and most comprehensive

factory of Nestle India. Set up in 1962, it represents the core competence of Nestle India

in the manufacture of milk products (Everyday, Milkmaid), beverages, culinary products

(Maggi sauces, noodles, soups etc.), weaning cereals (Cerelac) and infant milk formulae.

2. Choladi ( Tamil Nadu)

41
The factory in Choladi started production in 1967. Situated about 60 miles from Calicut,

the factory today has 81 employees and produces 1.5% of the total turnover of Nestle

India. It is a 100 percent export oriented unit which processes freshly picked tea leaves

into soluble instant tea.

3. Nanjagud (Karnataka)

Production in this factory began in 1989 with the manufacture of Nestle instant coffee

and Sunrise. Today in addition to instant coffee the factory also manufactures health

beverages. The plant to manufacture MILO was also commissioned at this factory. This

factory employs 145 people and is cited as a model in terms of environment protection

for its installations to purify waste water as well as for its provisions for recycling

coffee wastes.

4.Samalakha (Haryana)

This factory was set up in 1993. Located 70 kilometres from Delhi , it manufactures

weaning cereals , culinary products ,health beverages and milk products. Recently the

42
expansion of manufacturing capacity for Milkmaid Dessert Mixes was undertaken at this

factory as this new and unique product category is viewed to have great potential in the

future.

5.Ponda (Goa)

This Kit-Kat factory was set up in Goa in 1995 at a cost of Rs. 50 crores. It represented

a major step by Nestle towards becoming the Number 1 Chocolates and Confectionery

Company in India.

6.Bicholim (Goa )

The construction work at this new factory is progressing with speed. This factory will

soon commence the manufacture of culinary products, which is a key thrust area for the

company and will include latest technological improvements relating to this category of

products.

43
As a part of Nestles efforts towards continuous improvement and excellence in

Manufacturing operation, a Moga Improvement team (MIT) was put in place at the

Moga factory. The team comprised of international experts from Nestle Technical

Services (NESTEC) and the local staff. In 1996, it embarked on a program with the

single minded objective of optimizing production costs while enhancing the product

quality so as to make Nestle products even more competitive in the market place.

Drawing upon Nestle’s global experience and manufacturing expertise in 75 countries the

team identified the following areas for detailed study -

 Process improvement to ensure the optimal usage of resources

 Improvement of operational efficiency

 Cost optimization

A series of small but critically important initiatives ranging from redesigning laboratories

to palletisation of raw materials and packaging material utilization, manufacturing and

filling loses and labour man hours resulting in substantial savings and improved

productivity and machine utilization. In addition, several non tangible benefits in the

form of systems for sustainable improvement in areas like factory maintenance planning

tools , down time recording systems and performance measurement tools were also

realized .

44
This project was highly successful and the company is now implementing its key

learning’s of MIT in its other factories.

In a country as vast and diverse as India, supply chain management is absolutely

critical to rapid growth. Through BECA, Nestle has concentrated heavily on streamlining

and improving their supply chain management in order to make it more dependable, more

cost effective and most importantly, more responsive to market needs.

For better supply chain integration the planning of key operations - purchase,

production, distribution and sales are synchronised to ensure that everybody works

towards a common business plan. Monthly objectives are broken down into weekly and

(wherever necessary) into daily plans and monitored regularly to ensure smooth

implementation and quick corrective action when needed . Major benefits accrued thus

far include reduction in working capital through lower inventories of finished goods and

materials, better stock availability and reduction in obsolescence of materials.

In addition to traditional performance indicators, quantifiable performance measures

have been identified and implemented in all functional areas such as sales planning,

production output, quality assurance, material ordering transportation and warehouse

management. These measures are monitored regularly to gauge the extent of

improvement and identify root problems for taking corrective actions.

Teams have been put in place at all factories and sales offices to ensure the

implementation is continuous and self-sustaining. Areas of improvement are regularly

45
identified and timebound action plans established. For this purpose, standard tools such a

Total Quality Management(TQM), Kaizen, 5S and Small Group improvement activity

(SGIA) are being extensively used.

The efficacy of this hierarchical structure is seen in Nestle’s performance over past few

years of various products.

By 1989 the company had achieved a sales figure of approximately Rs. 258 crores. 1989

was the year of launches. Seven new product lines were launched in this year. This was

also the year in which the Nanjagud factory was set up. By the year 1992, this sales

figure was touching Rs 500 crores. In the 1990’s the pace of launches quickened and

since the construction of the factory at Samalakha, 20 new products have been

introduced. By 1996, Nestle had about 76 different products in its portfolio with various

new products in the pipeline as well. The sales figure now touched Rs. 1214 crores. Thus

sales grew by 450% over a period of one and a half decades.

46
CAPITAL BUDGETING

Capital budgeting consists of various techniques used by managers such as:

1. Payback Period
2. Discounted Payback Period
3. Net Present Value

1. Payback Period

Payback Period Initial Investment

= Net Cash Flow per Period

Year INVESTMENT Cash Flow

2018 45036 6826

2017 36432 6906

47
 2016 28472 6719

2015 25789 5293

2014 22695 4925

Payback Period = 45036+36432+28472+25789+22695

6826+6906+6719+5293+4925

Year Investment Cash Flow Payback Period

2018 45036 6826 6.60

2017 36432 6906 5.27

2016 28472 6719 4.23

2015 25789 5293 4.87

2014 22695 4925 4.60

Discounted Cash Inflow = Actual Cash Inflow

(1 + i) n

Present Cumulative
Cash Value Discounted Discounted
Year Flow Factor cash Flow Cash Flow
2018 6826 0.87 5938.62 5938.62
2017 6906 0.75 5179.5 11118.12
2016 6719 0.65 4367.35 15485.47

48
 2015 5293 0.57 3017.01 18502.48
2014 4925 0.49 2413.25 20915.73
30669

Discounted Cash Inflow = 30669

9753.27 = 3.14 days

NPV = R ×1 − (1 + i) − Initial Investment

-n

Initial Investment = 158424

Net Cash Inflow per Period = 30669
Number of Periods = 12
Discount Rate per Period = 12% ÷ 12 = 1%

NPV = Cash flow --- Investment

NPV = 345182---- 158424 =186758

Literature Review
Literature Rewiew
1.

Ann Farragher & Leung (1987) stated that the results of a survey of the capital investment
practices of larger corporations in Malaysia, Singapore and Hong Kong. The findings of the
study are fairly consistent with those from similar U.S surveys (Gitman & Forrester, 1977).
However, Malaysia, Singapore and Hong Kong companies seem to use multiple techniques,
both simple and sophisticated, in evaluating investment projects (as cited in Rishi & Rao,
2005).

2.

Babu & Sharma (1996) surveyed the different kinds of capital budgeting practices in Indian
industry. Their survey found that more than ninety percent of the companies have been using
capital budgeting methods. Further, most of the companies have been using discounting cash
flow (DCF) methods. The popular investment appraisal methods are ‘IRR’ and ‘PBP’.
According to the Drury & Tayles (1997) capital budgeting practices in the United Kingdom
(UK) and United States of America (USA) reveal a trend towards the increased use of more
sophisticated investment appraisals requiring the application of DCF (as cited in Rishi & Rao,
2005).

49
3

3.

The study by Farragher, Kleiman & Sahu (2001) attempts to measure the relationship
between capital budgeting sophistication and business performance. It builds on earlier
studies by utilizing a more comprehensive capital budgeting sophistication metric,
incorporating industry-adjusted independent variables (firm size, risk, capital intensity and
degree of focus), and by focusing on United States Corporations. The results are similar to
those of earlier studies; there is no discernible relationship between capital budgeting
sophistication and corporate performance (as cited in Rishi & Rao, 2005).

4.

Graham & Harvey (2002) reported that chief finance officers (CFOs) said that they always or
Almost used a particular evaluation technique i.e., IRR and NPV. The survey was based on
the responses of three hundred and ninety two CFOs. Another study conducted by Ehrhardt &
Wachowicz (2006) found that according to recent surveys, most companies use DCF methods
to evaluate capital budgeting decisions. DCF methods typically assume that a project’s initial
cash outlay (ICO) is known with certainty. A proper capital budgeting analysis should
Incorporate the additional risk that is due to an uncertain ICO. Sensitivity analysis is an
Effective way to address ICO risk, but the finance literature often overlooks the adjustments
Needed to satisfactorily address ICO risk within a sensitivity analysis (as cited in Rishi &
Rao, 2005) .

5.

Over the past four decades, financial research has recorded how business use
capital management methods and how large corporations determine the cost of capital
used in capital budgeting decisions. Financial managers and academics have not been in
full agreement as to the choice of the best capital budgeting method.

50
6.

In Exhibit 1, Miller (1960), Schall, Sundam, and Geijsbeek (1978), and Pike (1996) report payback
technique as the most preferred method, while Istvan (1961) reports a preference for accounting
rate of return. Early studies generally report discounted cash flow models to be the leastpopular
capital budgeting methods. This might be attributed to the lack of financial
sophistication and limited use of computer technology in that era. Mao (1970) and
Schall, Sundam, and Geijsbeek (1978) specifically point to NPV as the least popular
capital budgeting tool; a result in contrast to modern financial theory. Klammer (1972)
reports a preference for general discounted cash flow models, and subsequently, the
overwhelming majority of published research indicate management prefer the use of
internal rate of return (IRR) over all other capital budgeting methods. 1 Eight studies
dating from 1970 to 1983 show profitability index, a ratio of present value and initial
cost, to be the least most popular capital budgeting tool.

7.

Recently, Jog and Srivastava (1995) and Pike (1996) indicate a decreased acceptance of accounting
rate of return inCanada and the United Kingdom, respectively.2 Interestingly, throughout the
literature, NPV has always trailed IRR in management preference. Managers have argued the
perception of a percentage return is more easily understood and comparable than an
absolute dollar value increase in shareholder wealth. Therefore, in the past, managers
have chosen IRR over NPV. Evans and Forbes (1993) argue management view IRR as a
more cognitively efficient measure of comparison. In a comparison of past studies, it is
seen that managers are moving toward NPV as a method of choice, but never to the level
of IRR.

8.

Academics have long argued for the superiority of NPV over IRR for several
reasons. First, NPV presents the expected change in shareholder wealth given a set of
1 See Williams, 1970; Fremgen, 1973; Brigham, 1975; Petry, 1975; Petty, Scott, and Bird, 1975;
Gitman and Forrester, 1977; Oblak and Helm, Jr., 1980; Hendricks, 1983; Ross, 1986.
2 In a recent multinational study of the Asia-Pacific, Kester (et.al) found internal rate of return and
net present value the most popular capital budgeting tools for large companies in that region.

51
9.

Afonso, Jose, Fatima and Ney (2017) on a Brazilian cotton ginning firms and it was interviewed 10
managers from these companies. The study was to analyse capital budgeting practice in a group of
small cotton ginning firms in Brazil, the results showed that a practical managerial approach was
needed when ensuring satisfactory net operating results in short period of time. Capital budgeting is
not seen as sophisticated and considered as essential, as businesses and strategic environment
directly affects and impose high risks. Managerial experiences are highly influenced investment
decision-making process. Mooi and Mustapha (2001) conducted a study on the degree of
complexity of the capital budgeting aspects of the firms. The study used a sample of 42
organizations of which 19% use average budgeting methods with the 43% supporting the method.
The study was intended to test the level of association and performed a T-test; the findings indicated
that capital budgeting sophistication didn’t have an effect on the organization’s performance.

10.

Kadondi (2002) set to determine the capital budgeting mechanism used by companies on the
Network Stock Exchange (NSE) and the effect of firms’ traits affect the usage of some techniques
in capital budgeting. He took a sample size of 43 organizations while 27 companies responded to
his questionnaire. The results that came out indicated that many of these companies ignored the
very first stages of capital budgeting methods, and the number of these companies ignored are 22
companies. Also, these companies 31% of them used payback method, net present value method
used by 27% while 23% used the internal rate of return method (IRR).

11.

Gilbert (2005) established to determine the usage of capital budgeting methods and how they are
related to the performance of South African organizations in the manufacturing sector. The study
used of 318 manufacturing organizations as a sample. The study tested the usage of the tools and
their impact of accounting Capital Budgeting Decisions And Profitability In Manufacturing Firms.

52
12.

Rate of return (ARR), payback method, net present value (NPV) and the internal return rate (IRR).
From this study it was established that 48 of the firms employed the payback period technique, 25
organizations used purely discounting methods while the rest of these 318 companies applied a
combination of all methods. Even though the management of these companies had recognized the
advantages of using the discounted methods like cost benefit. Their feedback indicated that the used
mostly approximation and shortcuts, but they have admitted that discounted cash flows methods are
very significant and needs to be considering when making investment decisions. conducted a study
where he compared the use of capital budgeting methods and their effect on performance of
organizations in China and Netherlands.

13.

In his study he had received a total of 87 organizations, 42 enterprises were from Netherlands
while the rest were from China. Therefore, the results indicated that 22 Chief Executive Officers of
Chinese companies applied or used Net present value methods unlike only 4 CEO used the
traditional way of investment decisions techniques. According to Gupta & Pradhan (2017)
conducted a research about capital budgeting decisions in India. They study was applied to
manufacturing and non-manufacturing companies. A sample of 250 companies was given a
questionnaire and only 75 of them responded. Their results indicated that the discounted techniques
are used most of these companies when the social benefits and accounting are applied when
evaluating the rate of return of the project. The result shows that there is a similar kind of approach
adopted by both manufacturing and non-manufacturing sectors for capital budgeting decisions in
India.

14.

Capital budgeting decisions are extremely important and complex and have inspired many research
studies. In an in-depth study of the capital budgeting evaluations, Marc Ross found in 1972, that
although techniques that incorporated discounted cash flow were used to some extent, firms relied
rather heavily on the simplistic payback model, especially for smaller projects. In addition, when
discounted cash flow techniques were used, they were often simplified. For example, some firms'
simplifying assumptions include the use of the same economic life for all projects even though the
actual lives might be different. Further, firms often did not adjust their analysis for risk (Ross,
1986).

15.

53
In 1972 Thomas P. Klammer surveyed a sample of 369 firms from the 1969 Compustat listing of
manufacturing firms that appeared in significant industry groups and made at least $1 million of
capital expenditures in each of the five years 1963-1967. Respondents were asked to identify the
capital budgeting techniques in use in 1959, 1964, and 1970. The results indicated an increased use
of techniques that incorporated the present value (Klammer, 1984).

16.

James Fremgen surveyed a random sample of 250 business firms in 1973 that were in the 1969
edition of Dun and Bradstreet's Reference Book of budgeting decisions require a long-term
commitment. Finally, the timing of capital budgeting decisions is important. When large amounts of
funds are raised, firms must pay close attention to the financial markets because the cost of capital is
directly related to the current interest rate.

17.
The need for relevant information and analysis of capital budgeting alternatives has inspired the
evolution of a series of models to assist firms in making the "best" allocation of resources. Among
the earliest methods available were the payback model, which simply determines the length of time
required for the firm to recover its cash outlay, and the return on investment model, which evaluates
the project based on standard historical cost accounting estimates. The next group of models
employs the concept of the time value of money to obtain a superior measure of the cost/benefit
trade-off of potential projects. More current models attempt to include in the analysis non-
quantifiable factors that may be highly significant in the project decision but could not be captured
in the earlier models.
18.

In 1965, J William Petty, David P. Scott, and Monroe M. Bird examined responses from 109 controllers of 1971
Fortune 500 (by sales dollars) firms concerning the techniques their companies used to evaluate new and existing
products lines. They found that internal rate of return was the method preferred for evaluating all projects. Moreover,
they found that present value techniques were used more frequently to evaluate new product lines than existing
product lines (Petty, 1975)

19.

Laurence G. Gitman and John R. Forrester Jr. analyzed the responses from 110 firms who replied to
their 1977 survey of the 600 companies that Forbes reported as having the greatest stock price
growth over the 1971-1979 period. The survey containing questions concerning capital budgeting
techniques, the division of responsibility for capital budgeting decisions, the most important and
most difficult stages of capital budgeting, the cutoff rate and the methods used to assess risk.

20.

They found that the discounted cash flow techniques were the most popular methods for evaluating
projects, especially the internal rate of return. However, many firms still used the payback method

54
as a backup or secondary approach. The majority of the companies that responded to the survey
indicated that the Finance Department was responsible for analyzing capital budgeting projects.
Respondents also indicted that project definition and cash flow estimation was the most difficult and
most critical stage of the capital budgeting process. The majority of firms had a cost of capital or
cutoff rate between 10 and 15 percent, and they most often adjusted for risk by increasing the
minimum acceptable rate of return on capital projects (Gitman, 1977).

21.
Robert S. Raplan and Anthony A. Atkinson suggested, in 1985, that users often employ too high a
discount rate, either by choosing too high a cost of capital or by using a higher rate as an
adjustment for risk. An inappropriately high discount rate yields too high a hurdle rate or too low a
net present value and thus a negative signal about the project. They recommend using a discount
rate that reflects the firm's true cost of capital according to sound theory of finance. Moreover, they
say that risk should be analyzed by modeling multiple scenarios (best to worst cases) in a manner
similar to flexible budgeting. Finally, when the discount rate incorporates inflation, the user must be
careful to adjust future cash flows for inflation as well (Kaplan, 1985).

TODAY NESTLE IS PRESENT IN DIFFERENT MARKETS WITH THE

FOLLOWING MAIN BRANDS

Soluble coffee

Nescafe, Taster's Choice, Ricore, Ricoffy.

Roast and Ground Coffee

Hills Bros., MJB, Bonka, Zoegas, Loumidis

Mineral Water

55
Perrier, Contrex, Vittel, Valvert, Quezac, Arrowhead, Poland Spring, Buxton, Vera,

Blaue Quellen, Calistoga, Santa Maria, San Pellegrino.

Other beverages

Nesquik, Nescau, Nestea, Milo, Carnation, Libby's Caro.

56
Dairy Product

Nido, Nespray, Carnation, Milkmaid/ La Lechera, Gloria, Neslac, Barenmarke.

Breakfast Cereals

Nestle

Coffee Creamers

Coffee-mate

Infant Foods and Dietetic Products

Nestle, Nan, Lactogen, Cerelac, Nestum, Guigoz

Culinary Products (Bouillons, soups, seasonings, prepared dishes, canned food,

pasta, sauces)

Maggi, Crosse and Blackwell, Libby's, Thomy, Builtoni, Contadina

Frozen Foods

Findus, Stouffer's Buitoni, Maggi

57
Ice Cream

Nestle, Frisco, Dairy Farm, Magnolia, Motta, Camy , ect.

Refrigerated Products (yogurts, desserts, pasta sauces)

Nestle, Locatelli, Vismara, Buitoni, Contadina

Chocolate and Confectionery

Nestle, Crunch, Cailler, Frigor, Chokito, Sarotti, Galak/Milkybar, Yes, Kit Kat, Quality

Street, Smarties, Baci, After Eight, Baby Ruth, Butterfinger, Lion, Nuts, Rolo, Aero,

Polo, etc.

58
Food Services and Professional Products

Chef, Davigel, Santa Rica

Pet Care

Friskies, Fancy Feast, Aplo, Mighty Dog, Gourmet.

Specialized products for the food industry

Food Ingredients Specialties (FIS)

Ophthalmological products

Alcon

Cosmetics

L'Oreal

59
 BIBLIOGRAPHY

 www.nestle.com

 www.google.com

NEWSPAPER

MAGZINES

60
 ANNEXURE

Financial Results and Operation

2006(Rs. in millions) 1996(Rs. in millions)

Gross Revenue 12144 10011

Gross Profit (BIT) 1343 1183

Interest 506 315

Depreciation 227 165

Provision for Tax 68 171

Profit after taxation 542 532

Extraordinary tax Payment 14 116

Profit after taxation and 528 416

extraordinary item

Profit brought forward 215 145

Reserves written back 49 130

Balance available for 792 691

appropriation

61
Interim dividends paid 353 321

Final Dividend proposed - 97

Transfer to debenture 42 2

redemption reserve

transfer to general reserve 54 56

Surplus carried in Profit 343 215

and loss Account

Gross Revenue increased by 21% during the year, and crossed the 1200 crores mark .

Domestic sales grew by 19% and exports (including sales to Nepal ) grew by 27 %. Net profit after

tax grew by 27% - From Rs 41.6 crores to Rs 52.8 crores.

Throughout 2003, there was a marked lack of buoyancy in the domestics market caused

primarily by increased inflation and the financial liquidity squeeze which affected all segments of the

industry and trade .

Interest costs rose substantially on account of higher funding needs to service recently

commissioned projects as well as to meet increased exports for which materials often had to be

purchased in advance .

Considering the recessionary market conditions, Nestles overall sales and progression during

2003 can be considered satisfactory.

62
Financial Information

In millions of CHF 2006

Sales 81 422

EBITDA (a) 12 516

as % of sales 15.4%

EBITA (b) 9600

63
 as % of sales 11.8%

Trading Profit 9 186

as % of sales 11.3%

Net Profit 5 763

as % of sales 7.1%

Capital expenditure 3305

Equity 29 904

Total Assets 65 524

Research and development costs 1 038

Market Capitalization, end December 146 864

(a) Mainly Pharmaceutical products and Water, managed on a worldwide basis.

(b) Mainly corporate expenses, research and development costs, amortisation of

goodwill.

64
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