nestle 2010 annual report en

8/6/2019 Nestle 2010 Annual Report En

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Annual Report2010


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Letter to our shareholders

Board o Directors o Nestl S.A.

Executive Board o Nestl S.A.

Creating value or society

UN Global Compact Communication on Progress

The Nestl Roadmap to Good Food, Good Life

Competitive advantages

Growth driversOperational pillars

Financial review

Principal key fgures (illustrative)

Overview

Management responsibilities: Food and Beverages

Leading positions in dynamic categories

Geographic data: people, actories and sales

Corporate Governance and Compliance

Creating Shared Value Key Perormance Indicators

Shareholder inormation

Table of contents 2

6

7

8

10

12

14

1822

26

27

28

38

40

42

44

46

48

Our objective is to be therecognised leader in Nutrition,Health and Wellness and theindustry reerence or fnancialperormance

The brands in italics are registered trademarks

o the Nestl Group.

Creating Shared Value

and Rural Development

Summary Report 2010

Corporate Governance

Report 2010;

2010 Financial

Statements

Accompanying reports


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Key gures(consolidated)

In millions o CHF (except per share data)

Sales

EBIT (Group) Earnings Beore Interest, Taxes, restructuring and impairments

as % o sales

EBIT (Continuing operations) Earnings Beore Interest, Taxes, restructuring and impairments

as % o sales (Continuing operations)

Prot or the year attributable to shareholders o the parent Net prot (a)

as % o sales

as % o average equity attributable to shareholders o the parent

Capital expenditure

as % o sales

Equity attributable to shareholders o the parent beore proposed appropriation o prot o Nestl S.A.

Market capitalisation, end December

Operating cash fow

Free cash fow (b)

Net nancial debt

Ratio o net nancial debt to equity (gearing)

Per share

Total basic earnings per share (a) CHF

Underlying (c) CHF

Equity attributable to shareholders o the parent beore proposed appropriation o prot o Nestl S.A. CHF

Dividend as proposed by the Board o Directors o Nestl S.A. CHF

(a) 2010 gure is not comparable as it includes a one-o gain on the disposal o the remaining interest in Alcon.

(b) Operating cash fow less capital expenditure, disposal o tangible assets, purchase and disposal o intangible assets, movement

with associates as well as with non-controlling interests.

(c) Prot per share or the year attributable to shareholders o the parent beore impairments, restructuring costs, results

on disposals and signicant one-o items. The tax impact rom the adjusted items is also adjusted or.

(d) ROIC calculation was amended in 2009 ollowing changes in segment reporting. 2008 gures have been restated accordingly.

201

109 72

16 19

14.8%

14 03

13.4%

34 23

31.2%

61.8%

4 57

4.2%

61 86

178 31

13 60

7 76

3 85

6.2%

10.1

3.3

18.3

1.8

2009

107 618

15 699

14.6%

13 222

13.1%

10 428

9.7%

20.9%

4 641

4.3%

48 915

174 294

17 934

12 369

18 085

37.0%

2.92

3.09

13.69

1.60


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EBIT (Group)

In millions o CHF

16 000

15 000

14 000

Net proft (a)

In millions o CHF

30 000

20 000

10 000

Dividend per share

In CHF

1.80

1.20

0.60

Capital expenditure

In millions o CHF

5 000

4 250

3 500

EBIT margin

In %

14

12

10

Continuing operationsGroup

Earnings per share

In CHF

9.00

6.00

3.00

Underlying(c)

Total (a)

Total cash returned to shareholders

In billions o CHF

15

10

5

Share Buy-Back

Dividend

Return on invested capital (d)

In %

32

24

16

Including goodwill

Excluding goodwill

13 3022006

15 0242007

15 6762008

15 6992009

16 1942010

13.5

2006

14.0

2007

14.3

2008

13.114.6

2009 2

9 197

2006

10 649

2007

18 039

2008

10 428

2009

34 233

2010

2.41

2.39

2006

2.80

2.78

2007

2.82

4.87

2008

3.09

2.92

2009

1

2

1.04

2006

+15.6%

+17.3%+14.8%

+14.3%

+15.6%

1.22

2007

1.40

2008

1.60

2009

1.85

2010

2.7

3.5

2006

4.4

4.0

2007

8.7

4.6

2008

7.0

5.0

2009 2

4 200

2006

4 971

2007

4 869

2008

4 641

2009

4 576

2010

11.7

21.2

2006

12.2

22.2

2007

14.7

34.8

2008

15.6

35.1

2009 2


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Highlights 2010Strong operating performance.

Broad-based: all operating

segments contribute

CHF 109.7 billion Group sales

CHF 104.6 billion continuing

operations sales

Net prot o CHF 34.2 billion,7.4% increase in underlying

earnings per share,

10.3% in constant currencies

Return on invested capital,

excluding goodwill, o 36.1%

CHF 16.2 billion Group EBIT

CHF 14.0 billion continuing

operations EBIT,

+30 basis points EBIT margin

improvement

CHF 13.6 billion in operatingcash fow

Return on invested capital,

including goodwill, o 15.5%

The Nestl Model achieved in 2010

Nestls commitment

to shareholder value creation

2011: a year already characterised

by high raw material costs

and volatile currencies

CHF 15.5 billion o cash returned

to shareholders through

CHF 5.4 billion dividend and

CHF 10.1 billion share buy-back

In excess o CHF 10 billion to be

returned to shareholders in 2011

through dividend and share buy-back

CHF 6.1 billion or a CHF 1.85

dividend per share (proposed) o

an increase o 15.6%

We are starting 2011 with continued

momentum, well placed to ace

uncertainties ahead, including volatileraw material prices. We are thereore

condent o achieving the Nestl

in 2011: organic growth betwee

5% and 6% and an EBIT marginimprovement in constant curren


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2 Nestl Annual Report 202

Letter to ourshareholders

Fellow shareholders,

The atershocks o the 2008 fnancial

meltdown echoed through 2009, with

recessions in many economies, and

continued through 2010 and into 2011,

with concerns over what may be still to

come. This unpredictable and volatile

macro-environment, particularly in the

developed world, has weighed heavilyon consumer confdence. On the other

hand, the emerging world has rallied

quickly, demonstrating that many

economies in Asia, Arica and Latin

America are more robust, and less

dependent on the developed world

than was perhaps thought. One might

say that many emerging economies are

indeed emerging, and doing so on their

own terms, with their own priorities,

rather than simply having a me too

ambition to mimic the developed

world. This must be a good thing, both

or those economies and or global

trade and development.

This environment has required

specifc, individual country-by-country

approaches rom your Company, so

that we could identiy opportunities or

growth in areas characterised by low

levels o consumer demand and also

capitalise on buoyant demand in other

markets. These approaches shared a

common strategic purpose, described

in the Nestl Roadmap, whichidentifes our operational and strategic

priorities. Our priorities were to ensure

that we put consumers frst; that we

oered outstanding value propositions

through our products and services,

appropriate to our dierent consumer

segments; that we achieved a high

level o dierentiation o our brands

rom those o our competition; and

that we continued to increase

investment in innovation, in consumer

communication, in operations and indistribution. And that we did this whilst

driving improved operational efciency

across the business, simultaneous

to achieving ever higher standards o

process and product quality.

This commitment lies at the heart

o our perormance in 2010, a year that

saw Nestls stock market valuation

make it preeminent amongst its

consumer goods peers and one o

the leading companies in Europe.

Nestls organic sales growth was

6.2%, including real internal growth

(RIG) o 4.6% and pricing o 1.6%. The

strength o the Swiss ranc relative to

many other currencies had a 3.6%

negative impact on reported sales,

whilst divestitures, net o acquisitionsresulted in a all o 0.6%. Overall, sale

rose by 2.0% to CHF 109.7 billion. The

Groups EBIT rose to CHF 16.2 billion

and the EBIT margin rose by 20 basis

points to 14.8%. Our continuing

operations had organic growth o 6.0

and RIG o 4.4%. Despite a higher lev

o investment in marketing and R&D,

the EBIT rose to CHF 14.0 billion

and the EBIT margin by 30 basis

points to 13.4%.

The Groups underlying earnings

per share rose 7.4% to CHF 3.32,

and by 10.3% in constant currencies.

The reported net proft was

CHF 34.2 billion, reecting the proft

on disposal o our remaining holding

in Alcon, as well as the underlying

improvement in our perormance.

The operating cash ow was

CHF 13.6 billion. The Groups return

on invested capital decreased by

10 basis points to 15.5% including

goodwill, but increased 100 basis

points to 36.1% excluding goodwill.In view o this perormance, and

your Companys robust fnancial

position, your Board is recommendin

a dividend per share o CHF 1.85,

an increase o 15.6% rom last year.

This will be paid in 2011, and is in

addition to the current CHF 10 billion

share buy-back, split equally between

2010 and 2011.

The 2010 results, achieved in

an exceedingly challenging

environment, were not the reectiono a single-minded ocus on achieving

short-term perormance, but were

achieved whilst investing or the utur

and laying oundations to shape the

uture direction o the Company:

in January we announced the

acquisition o the leading USA player

in rozen pizza. This deal complement


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Nestl Annual Report 2010

The 2010 results, achievedin an exceedingly challengingenvironment, were not thereection o a single-mindedocus on achievingshort-term perormance,but were achieved whilstinvesting or the uture

and laying oundationsto shape the uturedirection o the Company.

our existing leadership in rozen meals,

rozen snacks and ice cream in the US

market, enhances our distribution

capabilities there and complements the

know-how that we have developed in

our pizza operations in Europe. On an

annualised basis, we now have sales o

over CHF 8 billion in mainstream retail

rozen ood and ice cream in North

America, and clear leadership;

in August we closed the sale oAlcon. This transaction, together with

the earlier divestments o our Alcon

shares, brought the total realised by

Nestl to USD 41 billion rom an

investment in 1977 o USD 280 million.

Your Board thanks the past and present

Alcon management teams or their

great work over three decades in

building such a successul busin

which has enabled the creation

signifcant value or our shareho

Our desire to ensure that our

shareholders benefted rom tha

creation is reected in our comm

to buy back and cancel approxim

CHF 40 billion o our shares betw

2005 and 2011;

in September we announced

creation o both Nestl HealthScience S.A. and the Nestl Inst

o Health Sciences. Nestl is the

worlds leading Nutrition, Health

Wellness company: one respon

o leadership is to be a pioneer.

creation o these two organisati

will enable us to pioneer a new

between ood and pharmaceuti


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They will develop the innovative area

o personalised health science nutrition

to prevent and treat health conditions

such as diabetes, obesity,

cardiovascular and Alzheimers

diseases. Nestl Health Science will

incorporate the Nestl HealthCare

Nutrition business, with CHF 1.7 billion

o sales, including the 2010 acquisition

o Vitao, ocused on inheritedmetabolic disorders;

we also strengthened our position

through acquisitions in dierent

categories in both developed and

emerging markets. These included,

amongst others, Water in China,

Culinary in Ukraine, Conectionery in

Turkey and PetCare in North America.

Acquisitions play a role in helping

to accelerate the Groups strategic

priorities and to enhance its growth

profle, but our key driver o proftable

growth is the organic development

o our categories and geographic

positions. We have made or announced

major capital investments in the

developed world and in emerging

countries such as India, China,

Indonesia, the Philippines, the Middle

East, Russia, Brazil, Mexico, Chile,

Angola, the Democratic Republic o

Congo, Ghana, Kenya and Mozambique.

In total, or 2010 and 2011 we have

spent or committed CHF 4.3 billion to

capital investment in emerging countries.We oresee investment in the emerging

world continuing to run at signifcant

levels as we build on our position as

the largest ood and beverage

company in emerging markets. Equally,

we will continue to invest in North

America, Western Europe and the

developed economies o Oceania and

Japan: we see many opportunities or

growth in the developed world and are

investing to ensure that we are well

placed to beneft rom them. Capitalinvestment, expanding our capacity,

is only one part o the story: we are

supporting this with investment in

capabilities, both personal and

technical, in R&D, in distribution

and, o course, in our brands.

The strength o our balance sheet

means that we do not have to make

either/or decisions when we are

investing in our own business,

acquiring another company or driving

our perormance, but that we can

judge each opportunity on its own

merits. This means that we will make

appropriate investments and

acquisitions in both developed and

emerging markets, provided the

fnancials stand up; and that we willdrive short-term perormance and,

at the same time, invest in the

longer-term development o our

brands and market positions.

We are also using our fnancial

resources and technical expertise to

invest in countries and communities

that are themselves contributing to our

development. As an example, we are

seeking to improve the security o

supply o key ingredients, such as milk,

green coee and cocoa. In 2010, we

announced our intention to invest

CHF 500 million in a wide-ranging plan

to address responsible arming,

sourcing and consumption across the

coee supply chain. As part o this

plan, we intend to deliver over two

hundred million high-yielding plants to

armers over the next ten years. We are

also investing over CHF 100 million

in an initiative in cocoa with similar

objectives around the sustainability

o the cocoa industry.

These cocoa and coee initiativesare just two examples o us using our

fnancial resources to und investment

that will improve the quantity and

quality o local ingredients that we are

able to buy; this in turn will contribute

to increased economic prosperity

in those countries; equally, we are

expecting to make urther such

investments as our business continues

to grow, both locally and around the

world. The benefts to our Company

will be an improved security o supplyo higher-quality raw materials and

a reduced impact rom the volatility

o raw material prices.

These investments highlight the

ounding philosophy o how we go

about our business: we believe that

companies are only sustainable and

successul over the long term i they

Our commitment to CreatingShared Value and ourprinciple-based approachto running our businessstand ront-and-centre aswe pursue our objectiveo being the reerence or

fnancial perormance inour industry because wewant to achieve this whilstalso being trusted byall stakeholders.


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Peter Brabeck-Letmathe

Chairman o the Board

Paul Bulcke

Chie Executive Ofcer

and was replaced as Head o Nestl

Nutrition and on the Executive Board

by Doreswamy (Nandu) Nandkishore.

Nandu, o Indian nationality, has been

with Nestl since 1989 and was

previously the Market Head o Nestl

Philippines and then the Head o Inant

Nutrition globally. The Board thanks

Richard or his contribution over his

fve years at Nestl and particularlyor his contribution to the successul

acquisition and integration o the

three businesses which enabled Nestl

Nutrition to double in size under

his leadership.

One new director will be proposed

to shareholders at the 2011 Annual

General Meeting. Ms. Ann Veneman,

is a US citizen and ormer Executive

Director o the United Nations

Childrens Fund (UNICEF). She also

served as Secretary o the United

States Department o Agriculture

(USDA) and is a member o the Nestl

Creating Shared Value Advisory

Board, with extensive experience

in areas such as childrens health

and education.

The events o the last ew years have

been unprecedented in many ways,

and have created considerable

uncertainty or many people in many

countries around the world. Despite

this, our people, over 280 000 o them,

have continued to show a wonderullevel o commitment to their jobs and

o enthusiasm or their Company.

We would like to thank them on behal

o the Board and o all our ellow

shareholders or their eorts in 2010.

We would also like to welcome all

those who have joined Nestl in 2010

and to wish them every success,

in the knowledge that they have the

ull support o their colleagues.

We are starting 2011 with

continued momentum, well plac

to ace uncertainties ahead, incl

volatile raw material prices. We

thereore confdent o achieving

the Nestl Model in 2011: organ

growth between 5% and 6%

and an EBIT margin improvemen

in constant currencies.

create value not just or their

shareholders but also or the societies

in which they operate. We call this

Creating Shared Value. We talk about

this in more detail in this report, as well

as our progress in relation to the United

Nations Global Compact.

Our commitment to Creating Shared

Value and our principle-based

approach to running our businessstand ront-and-centre as we pursue

our objective o being the reerence or

fnancial perormance in our industry

because we want to achieve this whilst

also being trusted by all stakeholders.

The Nestl Model has the objective o

every year achieving a high level o

organic growth and improving the EBIT

margin. In the last ten years we have

averaged an annual 6.3% organic

growth and an annual 30 basis point

improvement in the reported EBIT

margin. The beneft o our EBIT

growing aster than our organic sales

is reected in the improving trend in

our cash-ow perormance, which is

in turn reected in the increased

dividend paid to our shareholders, up

236% per share over that same 10-year

time rame. And, in the last six years,

your Company has been paying a

dividend and carrying out a signifcant

share buy-back, which together total

CHF 60 billion over that time.

Comparability, transparency andthe ability to be benchmarked are

entry points to being the reerence or

fnancial perormance: your Board

committed in 2010 to change our

sales recognition policy with eect

rom 2011 to acilitate comparisons

o perormance with our peers

by bringing into line those o our key

reported fnancial perormance

indicators that were not already directly

comparable. We believe this will not

only acilitate external-benchmarkingo our perormance, but that it will

also bring even closer alignment

between internal targets and those

value drivers that are o most

importance to our shareholders.

There was one change to the

Executive Board in 2010. Richard

Laube decided to leave the Company


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Board o Directorso Nestl S.A.at 31 December 2010

Peter

Brabeck-Letmathe (3, 5)

Chairman

Term expires 2013 (1, 2)

Jean-Ren

Fourtou (3, 4)

Chairman o

the Supervisory

Board, Vivendi.

Term expires 2012 (1,2)

Paul Bulcke (3)

Chie Executive Of

Term expires 2011 (

Rolf Hnggi (3, 6)

2nd Vice Chairman

Former Chairman,

Rd, Blass & Cie AG

Bankers.

Term expires 2011 (

Jean-Pierre

Meyers (4)

Vice Chairman,

LOral S.A.


Nana Lal Kidwai (6)

Group General

Manager and Country

Head o HSBC Group

Companies in India.


Titia de LangeAssociate Director,

Anderson Cancer

Center, The

Rockeeller University.


Beat Hess (6)

Group Legal Directo

Royal Dutch Shell p

Term expires 2011 (

Jean-Pierre RothChairman Geneva

Cantonal Bank.

Term expires 2013 (

Carolina

Mller-Mhl (5)

President,

Mller-Mhl Group.Term expires 2012 (1,2)

Daniel Borel (4)

Co-ounder and Boa

member, Logitech

International S.A.

Term expires 2012 (

Andr Kudelski (6)

Chairman and CEO,

Kudelski Group.

Term expires 2013 (

Steven G. Hoch (5)

Founder and

Senior Partner,

Highmount Capital.Term expires 2013 (

Andreas

Koopmann (3, 4, 5)

1st Vice Chairman

Chairman o Alstom

(Suisse) S.A.

Term expires 2011 (1,2)Helmut O. MaucherHonorary Chairman

(1) On the date o the Annual General Meeting.

(2) As Nestls Articles o Association provide

or three-year terms, all members o the

Board are being re-elected over the course

o the ollowing three years.

(3) Chairmans and Corporate Governance

Committee.

(4) Compensation Committee.

(5) Nomination Committee.

(6) Audit Committee.

For urther inormation on the Board o

Directors please reer to the Corporate

Governance Report 2010, enclosed.

David P. FrickSecretary to the Board

KPMG SA Geneva branchIndependent auditors.

Term expires 2011 (1)


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Executive Boardo Nestl S.A.at 31 December 2010

Paul Bulcke

Chie Executive Ofcer

Members Executive Board

Werner Bauer

EVP, Innovation, Technology, Research

and Development

Frits van Dijk

EVP, Asia, Oceania, Arica, Middle East

Luis Cantarell

EVP, United States o America, Canada,

Latin America, Caribbean

Jos Lopez

EVP, Operations, GLOBE

John J. Harris

EVP, Nestl Waters

James Singh

EVP, Finance and Control,

Global Nestl Business Services,

Legal, Intellectual Property, Tax

Laurent Freixe

EVP, Europe

Executive Board

(rom let to right):

Werner Bauer,

Luis Cantarell,

David P. Frick,

James Singh,

Laurent Freixe,

John J. Harris,

Paul Bulcke,

Frits van Dijk,

Petraea Heynike,

Marc Caira,

Jos Lopez,

Doreswamy (Nandu)

Nandkishore,

Jean-Marc Duvoisin

Petraea Heynike

EVP, Strategic Business Units, Marketi

and Sales

Marc Caira

Deputy EVP, Nestl Proessional

Jean-Marc Duvoisin

Deputy EVP, Human Resources

Doreswamy (Nandu) Nandkishore

Deputy EVP, Nestl Nutrition

David P. Frick

SVP, Corporate Governance, Complian

and Corporate Services

Yves Philippe Bloch

Corporate Secretary

EVP: Executive Vice President

SVP: Senior Vice President

For urther inormation on the Executiv

please reer to the Corporate Governan

Report 2010, enclosed.


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Creating valueor society

Compliance with applicable laws

and international conventions such

as the Universal Declaration of

Human Rights and strong support

for the UN Global Compact, as

well as our internal standards and

regulations, is the foundation of

our business. Beyond compliance,

our business is based on

sustainability, ensuring our

activities protect the environment

for future generations. Yet we

believe we need to go further,

creating shared value for both the

Company and society in areas

where shareholders and societys

interests intersect. Three such

areas nutrition, water and rural

development are the focus

for this strategy.

Rural development: We strive

to increase armers incomes through

increasing productivity, growing high

value crops, using land more efcient

and gaining outside arming employme

and income. We urther contribute

to rural development by providing

technical and fnancial assistance and

access to markets, and by investing

in actories and rural areas that createinrastructure and employment.

Performance

Nutrition: While nutritional status has

improved worldwide over the past

fty years, malnutrition and obesity

still require solutions. To ensure both

taste preerence and nutritional

superiority in our products, we

assessed CHF 36.4 billion o our

product portolio and renovated

6502 products or nutrition or health

considerations. To provide lower-

income consumers with greater

access to aordable ood products,

Through TheNescaf Plan, Juan Lopez Cruz (left), a coffee farmer from Puebla, Mexico

receives high-yield coffee plantlets from Nestl agronomist Juan Sanchez.

Creating Shared Value goals

Nutrition: Using science-based

solutions, we contribute to the health

and wellbeing o consumers, including

those with specifc nutritional needs,

by oering products with higher

nutritional value at aordable prices

that appeal to consumers. We also

aim to generate greater awareness,

knowledge and understandingamong consumers through clear,

responsible communication.

Water: Our long-term success

depends on the water resources that

supply our business operations and

support the livelihoods o suppliers

and consumers, which is why water

is a key ocus area o Creating Shared

Value. We work with stakeholders,

ranging rom agricultural suppliers

to consumers, to manage water

consumption in our operations

and supply chain, and contribute

to sustainable community water

management schemes.


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we oer 4860 Popularly Positioned

Products at an aordable cost and

appropriate serving size through a

range o locally adapted distribution

methods. Annually, 90 billion servings

o Maggibouillon cubes are ortifed

with key micronutrients to address

defciencies in certain markets.

In 2008, Nestls CEO and

those rom eight major ood and

beverage companies made fve

global commitments to the World

Health Organizations Director

General, to tackle obesity and the

non-communicable diseasesassociated with it through diet and

physical activity. These commitments

led to the International Food and

Beverage Alliance (IFBA), which

Nestl has co-chaired since its

ormation, and in November 2009,

IFBAs frst annual report (see

www.iballiance.org) to the Director

General outlined its members

progress to date.

Water: Water has been identifed as

the most important actor or Nestls

long-term success, as it aects the

supply o raw materials, our operations

and the consumption o many o our

products. To become the most efcient

water user in our industry:

Water Resource Reviews are

conducted at actories and in

commodity-growing areas;

we help armers to become b

stewards o water;

we support water resource

awareness and education progr

we take a leading role in the g

dialogue on the issue.

We have also reduced our tot

water withdrawal by 32% to

144 million m3 since 2000.

Rural development: We will a

continue to support 144 926 arm

through capacity-building traini

programmes, access to fnancia

assistance, arm assessment too

investment in biogas generationamongst others. Full details o o

perormance are given in a

comprehensive separate report

also in more detail on line.

Our people: We continue to o

our workorce comprehensive t

development and career progre

opportunities, and our global nu

health and wellness training

programme has now reached

145 922 employees since 2007.

remained a key ocus, our main

indicator improved by 18% to 4.

recordable injuries per million h

worked, and relations between

employees, management and tr

unions are generally strong.

In Peru, schoolchildren learn about healthy eating in a fun way by participating in

Crecer Bien programme.

Nestl Prize in

Creating Shared Value

In May 2010, the frst Nestl Prize

in Creating Shared Value was

presented to International

Development Enterprises (IDE)

Cambodia, which employs

ranchised Farm Business Advisors.

Since 2005, IDE has increased

the productivity among

4500 smallholder armers in rural

Cambodia, boosting their income

and increasing their standard o

living, and the CHF 500 000 prizewill help IDE to reach an additional

20 000 armers.

Healthy Kids Programme

We believe that education helps

children to understand the value

o nutrition and healthy liestyles.

Building on Nestl-sponsored

education programmes, we will

have implemented our Healthy

Kids Global Programme through

partnerships in all countries

where we have operations by

the end o 2011.

TheNescaf Plan

In August 2010, we launched

The Nescaf Plan, bringing all our

Creating Shared Value coee

arming and production practices

together. This global initiative will

help us to optimise our coee supply

chain and reach our coee arming,

production and consumptiontargets. Under the Plan, we will,

among other things, invest

CHF 500 million in coee projects

by 2020, distribute 220 million

high-yield coee plantlets, train

30 000 armers and support

social projects in coee-growing

communities.


14/53


UN GlobalCompact Communicationon Progress

Commitment and systems

The Nestl Corporate Business

Principles (NCBP) endorsed by the

Chairman and CEO, and available

online orm the basis o our culture

and reect our values o airness,

honesty and respect or people and

the environment. A revised version

o the NCBP was developed during

2010, and translated into ftylanguages. A comprehensive

communication and training toolkit

has been provided to all markets

where local plans have been launched

to ensure each employee lives

up to the Principles. Follow-up

training is planned in 2011 to ensure

deeper understanding o each

Principle. Compliance is monitored

through external audits under our

CARE programme, and the Nestl

Group Audit unction. In 2010,

392 sites underwent CARE audits

and no critical non-compliances

were identifed.

To help maintain our reputation,

our Code o Business Conduct outlines

minimum standards o behaviour in

key areas, our new Employee Relations

Policy outlines international standards

and sets a tone o open dialogue on

labour matters, and the Nestl Supplier

Code commits suppliers to comply

with our core integrity standards.

Human rights and labour practice

Since November 2008, Nestl has

worked with the Danish Institute or

Human Rights (DIHR), to review our

human rights policy and assess our

labour practices and human rights

compliance. In July 2010, we signed a

two-year partnership through which th

DIHR will assist us in integrating huma

rights into our corporate systems,undertaking in-depth assessments wi

stakeholder consultations at a country

level, and other monitoring and

capacity-building activities.

Nestl recognises the corporate

responsibility to respect human rights

as outlined in the UN Framework on

Human Rights and Business propose

by John Ruggie, Special Representati

o the UN Secretary General on

Business and Human Rights. During

2010, labour rights and human rights

issues have been discussed by our CE

Paul Bulcke with Proessor Ruggie, an

other international stakeholders.

In cocoa-growing areas, child

labour is a challenge, so Nestl and

others in the International Cocoa

Initiative (ICI) continue to tackle

child labour and improve access to

education. In Cte dIvoire, the

Cocoa Plan has a strong child labour

component, and a new project with t

ICI will support twenty communities

Staff from all departments at Nestls Bugalagrande factory in Colombia attend

an editorial meeting for the bimonthly employee magazine.

Since joining the UN Global

Compact (UNGC) in 2001, we

have embraced its 10 principles,

integrated them into the Nestl

Corporate Business Principles

and continuously supported them.

Our annual Communication on

Progress illustrates our dedication

and efforts in the issue areas of

human rights, labour practices, the

environment and anti-corruption.

Our full Communication on

Progress is available online.


15/53


that supply cocoa or our conectionery

business.

In Colombia, Nestl is a ounding

participant o Guas Colombia

(Guidelines or Colombia), which brings

together companies, government,

NGOs and trade unions. We also have

a ormal dialogue with Alliance Sud,

a group o Swiss NGOs examining the

impact o our activities and ourrelationships with trade unions and

local communities on national

development and human rights.

In 2010, all operating companies

implemented action plans and are

tracking progress on our Gender

Balance initiative, while a network o

Gender Balance Champions regularly

shares best practice. Nestl also

published Corporate Guidelines or a

Flexible Work Environment, and paired

130 senior executives with mentors

in the second stage o our Corporate

Mentoring Programme.

In addition, several high-impact

training and capability workshops

are being rolled out as part o Nestl

Continuous Excellence (NCE) which

empowers people with the right

knowledge, skills and competencies

to drive business results and

personal development.

Environmental sustainability

Our aim is to continuously improveour perormance and produce tastier,

nutritious ood and beverages that are

better or the environment. We assess

the environmental impact o our value

chains including procurement,

logistics, manuacturing, marketing

and consumer engagement using

a lie cycle approach.

Through an ongoing commitment

to operational environmental efciency

and a move towards cleaner energy

we have kept our direct greenhouse gasemissions stable at 4 million tonnes

CO2eqand increased energy

consumption by only 4% to 88.6 PJ,

despite an increase in production

volume o 6.2%. We continue to ocus

on packaging optimisation and two

additional actories in the UK achieved

zero waste to landfll in 2010. Nestl

is also a ounding signatory o th

Global Compacts CEO Water M

and has provided a Communicat

Progress on water since 2009.

We are committed to use onl

oil rom sustainable sources by 2

became the frst company to co

eliminating tropical rainorest

deorestation in our supply chain. T

our membership o The Forest T

are working with our suppliers t

a series o principles to achieve

In recognition o our improve

environmental perormance, Ne

was ranked second in the consu

goods sector in the Carbon Disc

Projects (CDP) Carbon Disclosu

Leadership Index 2010, and con

to the CDPs Water Disclosure P

Anti-corruption

The Code o Business Conduct a

the NCBP condemn any orm o

corruption and bribery, and our

Supplier Code o Conduct requi

our partners to embrace our

zero-tolerance approach.

Having perormed a thoroug

corruption risk assessment, we

developed an anti-corruption tra

tool to provide employees with guidance on avoiding inappropr

behaviour, supplementing existi

training eorts in this area. Our

o Business Conduct introduced

whistle-blower procedures in 20

and we are complementing our

local hotlines with a Group-wide

integrity reporting system.

At a Nestl feld school in Nobertkr

Cte dIvoire, armers learn about

responsible labour practices and th

importance o education or childre

UNGC Principles

Human rights

1. Businesses should support

and respect the protection o

internationally proclaimed human

rights; and

2. make sure that they are not

complicit in human rights abuses.

Labour

3. Businesses should uphold the

reedom o association and the

eective recognition o the right

to collective bargaining;

4. the elimination o all orms

o orced and compulsory labour;

5. the eective abolition o child

labour; and

6. the elimination o discrimination

in respect o employment and

occupation.

Environment

7. Businesses should support a

precautionary approach to

environmental challenges;

8. undertake initiatives to promote

greater environmental responsibility;

and

9. encourage the development and

diusion o environmentally riendly

technologies.

Anti-corruption10. Businesses should work against

corruption in all its orms, including

extortion and bribery.


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The NestlRoadmap toGood Food,Good Lie

Our objective is to be recognised

as the world leader in Nutrition,

Health and Wellness, trusted by all

our stakeholders, and to be the

reference for nancial performance

in our industry. This objective

demands from our people a blend

of long-term inspiration, to build

for the future, and short-term

entrepreneurial actions, to deliver

the necessary performance today.

The 4x4x4 Roadmap combines

four competitive advantages, four

growth drivers and four operational

pillars with the aim of aligning

the priorities of the more than

280 000 people who are working

at Nestl, and thereby accelerate

the achievement of our objective.

Our competitive advantages are:

Our unmatched product and brand

portolio, with strong market positions.

Over 20 Nestl brands have annual

sales o over CHF 1 billion. Whether

global or regional, our brands are

always relevant to consumers locally.

Our unmatched R&D is the unseen

impetus behind the growth o our

brands. It is science-based, consumer-centric and ocused on dierentiation

rom our competitors. It goes

beyond ood to cover new products,

packaging, technology and

manuacturing, quality and saety.

Our unmatched geographic

presence has been established over

many years and is a reection o both

the breadth o our presence, with our

brands available more or less

everywhere, and the duration or which

we have been present in countries the

world over.

Our people, culture, values, and

attitude enable us to be decentralised

and entrepreneurial. It combines

devolved responsibilities with a

cohesive strategic direction. We are

patient and not averse to taking

reasonable risks. Our speed and ocus

enable us to remain competitive in spite

o any challenges in the marketplace.

Our growth drivers are:

Nutrition, Health and Wellness.Each o our product categories, rom

Chocolate to Baby Food, has a specifc

strategy to ensure that it can be the

nutrition leader in its space.

Emerging markets and Popularly

Positioned Products. We have tailored

not just our products, but also our

business models and marketing mix

to ensure that we are best able to

realise the growing opportunity to

provide nutritious, aordable, branded

ood to lower income consumersaround the world.

Out-o-home consumption is

growing aster than in-home. We are

the largest branded manuacturer, with

a business built on branded ingredients

but increasingly achieving new

standards in customer solutions,

systems and service.

Premiumisation. Incomes are

increasing; so is leisure time. These

are just two trends that point to

accelerated growth in premium ood

and drinks, each a moment o

aordable luxury, a moment o

pleasure. Each o our product

categories has its own specifc

premium strategy, encompassing

brands such as Nespresso, S.PellegrinPerrier, Hagen-Dazs and Cailler.

Our operational pillars are:

Innovation & renovation. Innovation

is about big steps and changing the

rules o the game, or even changing

the game. It is hard to copy. Its rewar

can be measured by proftable growt

or years to come and sustainable

competitive advantages. Renovation

is more incremental, and lies behind

the still-growing success o brands

such as Nescaf and KitKat, both

over 70 years old.

Operational efciency seeks to

ensure that we have the highest quali

the lowest cost and best customer

service. The aim is to improve our

sustainability by being better, aster,

more efcient, less wasteul and,

as a result, higher perorming.

Whenever, wherever, however

is the expression o our aim to have

our products always at an arms reach

o our consumers. We have createdspecifc business models, distribution

strategies and product solutions

to meet this objective.

Consumer communication is abou

building trust, exciting consumers,

and learning rom them to help drive

our R&D. It is about citizenship and

responsibility and being aligned with

the expectations o our consumers.

On the ollowing pages we are

touching in detail on one o each o thcompetitive advantages, the growth

drivers, and the operational pillars.

All, however, are o equal importance


17/53

Comp

l

i

ance

-Susta

inab

ility Creatin

gSha

re

dVal

ue

Nestlcultureandvalu

es

Competitive

advantages

Operational

pillars

Our objective is to be therecognised leader in Nutrition,

Health and Wellness, andthe industry reerence or

fnancial perormance

Unmatched

product

and brand

portfolio

Nutrition

Health an

Wellness

Innovation

& renovation

Unmatched

geographic

presence

Out-of-home

consumption

Whenever,

wherever,

however

Unmatched

research and

development

capability

Emergin

markets a

Popularly

Positione

Product

Operational

efciency

People,

culture, values

and attitude

PremiumisationConsumer

communication


18/53

Nestls unmatched global presence

is the result o the desire, soon ater

the Company was ounded, to expand

beyond domestic borders. The result

today, is that Nestl brands have been

present in many markets, including

emerging markets, or many

generations, even over 100 years.

With this presence come expertise,talent, experience, local knowledge

and traditions that make Nestl an

integrated part o those communities

where it is present.

Nestls sales are broadly spread

across the world. Our presence in

emerging markets, with about

CHF 39 billion o sales, about 36%

o the total, is an unrivalled platorm

to leverage our scale or a continued

high level o proftable growth.

In 2020, by when there will likely be

an additional one billion consumers

in emerging markets, we expect

to be achieving about 45% o Group

sales in those countries.

In total, our emerging markets

achieved organic growth o 11.5%

in 2010. There are 13 emerging markets

in which Nestls annual sales

exceed CHF 1 billion, and we have 5

with over CHF 2 billion in sales.

Our products are ideal or emergingmarkets, especially those that are

shel-stable and easily portioned,

with the potential to be locally

manuactured: Ambient dairy, Inant

nutrition, Culinary, Powdered

beverages, Soluble coee, Chocolate,

Ready-to-drink beverages and Water.

Ice cream and PetCare are growing

rapidly in the emerging world rom

smaller bases, whilst Frozen and

Chilled meals do not yet have anymeaningul presence.

This emerging market business is

supported by local manuacturing,

with 47% o our actories in emerging

markets, local R&D and product

technology centres, long-term

relationships with suppliers and

armers, and, o course, home-grown,

local talent working at Nestl.

About 80% o the worlds population

is living in emerging markets, and is

ideally placed both to contribute

better uture and to beneft rom

Nestls presence in the devel

world is also broad-based. We ar

one o the biggest ood compani

North America and we have lead

positions in our key categories in

European countries and in Austra

and Japan. We believe that thereopportunities or proftable grow

and improved market shares

everywhere in the developed wo

These opportunities include

particular channels, market segm

and consumer groups. They exist

at the premium end, but also amo

lower income consumers, just as

they do in emerging markets. The

opportunities are realised throug

a strong pipeline o innovation,

through increasing distribution,

through product superiority or b

taste and nutrition. Also, develop

markets are oten the launch pad

or innovations that will end up w

global reach.

Nestl has a decentralised stru

It is our people on the ground in e

country, who are closest to our

consumers, who are best able to

our progress locally. They all hav

their own challenges, but they arbound together by their alignmen

to our 4x4x4 Roadmap, and they

the same objective: to grow our

business or the beneft o our

consumers all over the world, o

our business partners, our people

and our shareholders.

Unmatched product

and brand portfolio

Unmatched research and

development capability

Unmatched geographic presence

People, culture, values and attitude

Competitive

advantages

KitKatcelebrated

its 75th anniversary

in 2010 but remains

young and in touch

with trends, having

over 2.5 million

Facebook ans.

It is sold in over

70 countries and

enjoys good growth

in the developed

world and emerging

markets, such as

the Middle East,

India and Russia.

Japan is its second


19/53



20/53


Comilfo, the

premium brand

launched in Russia,has added three

new products to its

range. The unique

boat-shaped

chocolate cups with

a cream flling, a layer

o caramelised waer

and a nut on top,combine to delight

consumers with

a multi-sensorial

experience.

Purina ONE

SmartBlend

combines natures

ingredients (such as

meat, fsh, poultry,

wheat, corn, rice,

omega-6 atty acids)

into concentrated,

nutrient-rich morselswith enticing taste

and texture: to

combine essential

amino acids, energ

throughout the day

high levels o

antioxidants and a

natural source o a

that works

harmoniously withthe pets body.

Nestl Fruit

Selection

Yogurt + Jelly is

a breakthrough

innovation in the

category in the

Philippines. Priced

at PHP 20, it has a

layer o jelly over ruit

yogurt, a frst in the

market. It has helped

to increase yogurt

consumption,

addressing the main

barriers o taste

and price.

Maggiis the leader

in the Central West

Arican Region. Toreinorce its position

as the best partner or

tasty and balanced

cooking, Maggihas

launched an

aordable range o

powder seasoningsTrobon and MixPy,

ortifed in iodine, that

enhance the taste

o everyday cooking.

Buitoni, the US

leader in chilled flled

pasta and sauces,

entered the biggest

segment o the rozen

ood market with a

super premium range

o meal solutions

which are composed

o flled pasta plus

sauce in a pouch.

This is providing

consumers with

an authentic and

extraordinary Italian

meal experience.

Nestls unmatched

depth and breadth in

emerging markets

brings benefts in all

aspects o the value

chain: we have close

customer relationships,

whilst our brands are

an integral part o

millions o peoples

lives on a daily basis.

Equally, we can

attract the best local

talent and have

well-established R&D,

manuacturing and

distribution

capabilities. We are

enhancing these

capabilities in 2011

with investments

running into billions

o Swiss Francs.

Nescaf Caf Vit

captures the intense

and unique taste oauthentic Vietnamese

coee: strong, black

with an intense and

bitter taste consumed

over ice. The Nescaf

Caf Vitproduct is

the result o a R&D

breakthrough whicled to a patented

process or

co-extracting roast

and ground coee

and soya.


21/53


22/53

Nestls Food and Beverages business

has the scale to touch consumers all

over the world; the intimacy to provide

the ood and beverages they want;

the diversity to do so at a great many

eating occasions and to provide

balance; the ubiquity to provide

it whenever and wherever consumers

want it; the presence to be therethroughout consumers lives; and

the know-how to advance nutritional

science and to bring nutrition, health

and wellness arguments to all ood

and beverage categories. These are

the pillars on which we make our claim

o leadership in Nutrition, Health

and Wellness: unmatched scale,

intimacy, diversity, ubiquity, presence

and know-how.

We use these pillars to build our

nutrition, health and wellness agenda

across our categories or the beneft o

the millions o consumers everywhere

who consume our products every day.

That agenda is encapsulated in the

expression Good Food, Good Lie.

This means that we aim to provide the

best tasting products in our categories

ater all, eating and drinking is frst

and oremost about enjoyment and

pleasure but that we also want to

bring improved nutrition to ourcategories: we do this by ensuring that

our product launches taste better and

are nutritionally superior to those o our

competitors in each category. We call

this 60/40+, with the 60/40 being our

targeted consumer preerence and

the + representing nutritional

advantage. Nutritional advantage

might be achieved by the reduction or

exclusion o certain ingredients or

by the addition o some, either or

ortifcation or or particular consumer

benefts through our Branded Active

Benefts. Further, we are committed to

providing clear nutritional inormation

and advice on-pack and through

channels such as dedicated websites

and helplines. And by doing so, we aim

to contribute to the pleasure, balance

and understanding that are critical

to a healthy diet.

There are consumers who have

addressing their needs through N

Nutrition, with its specifc produc

and services tailored to the need

those consumer groups. Our bigg

area o ocus is inants. We believ

that breast is best, and it is our

commitment to use our nutritiona

expertise to build healthier gener

one inant at a time. We are doingby pursuing a mission to build

awareness among parents o the

extreme importance o appropria

nutrition rom the very beginning

a childs lie through our Start He

Stay Healthyapproach to inant

nutrition, and by providing the pr

to help parents achieve that aim.

One responsibility o leadershi

to be a pioneer: we aim to develo

innovative area o personalised h

science nutrition to prevent and t

health conditions such as diabete

obesity, cardiovascular disease a

Alzheimers disease. In Septembe

we announced two initiatives: the

creation o Nestl Health Science

incorporating the existing global

CHF 1.7 billion Nestl HealthCare

Nutrition business; and the creati

o the Nestl Institute o Health

Sciences, which will conduct res

in relevant areas o biomedical scto translate this knowledge into

nutritional strategies to improve h

and longevity. We believe that

personalised health science nutri

will create value or Nestl, and

or society, by preventing, improv

and treating acute and chronic

medical conditions.

Nutrition, Health and Wellness

Emerging markets and

Popularly Positioned Products

Out-of-home consumption

Premiumisation

Growth

drivers

Acquired in 2010,DiGiorno is the leader

in rozen pizzas in the

USA. Made with high

quality cereals, meats,

vegetables and

cheeses, DiGiorno

pizzas deliver on key

elements o a balanced

Mediterranean diet,

such as carbohydrates,

ats and proteins

while adding variety

and pleasure to

peoples diet with

their resh baked

taste. Encouraging

consumers to create

balanced meals right

portions, addition

o salads strongly

delivers on the

Good Food


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24/53


Nestl Coee-Mate,

a billionaire brand,

has a strong positionin the USA and is

growing in emerging

markets, particularly

where Nescaf has a

strong presence. The

US market has

beneted rom recent

launches o the CaCollection favours,

such as White

Chocolate Caramel

Latte, as well as

seasonal editions.

Jenny Craig is a

clinically proven

weight management

programme with a

holistic approach to

weight loss and

weight maintenance

ocusing on ood,

body and mind.It oers the choice

o either in-person

support at a Centre

or at home support

by telephone throu

a dedicated person

consultant. In 2010

Jenny Craig was

launched in the UK

and France.

Nestl Golden

Morn is the leading

cereal brand in

Nigeria. It is an

aordable and

nutritious instant

porridge suitable or

the entire amily.

Made rom locally

sourced maize and

soya, Golden Morn

is a good source

o protein, calcium

and dietary bre.

Nestl Pure Lie,

the biggest selling

water in the USA andgrowing dynamically

in emerging markets,

is the worlds biggest

water brand. It

benets rom a

multi-year, on-going

light-weighting

programme or its

bottle. With its greattaste, Nestl Pure Life

makes healthy

hydration pleasurable

and aordable or

the whole amily.

Eskimo ice cream

is sold in Thailand,

and was developed

as a wide range o

products with the

right nutrition prole

or children,

combining pleasure

and un. Its marketing

communication

incorporates

education about the

right eating habits

and the benets o

physical activity.

Nestl brands touch

consumers in all

walks o lie,

throughout their lives.

From starting healthy

to staying healthy,

to pleasurable

indulgence. But also

or specic needs

as we get older.

This ability to touch

consumers

throughout their lives

and at all eating

occasions is

unmatched in our

industry and lies at

the heart o our

commitment to

delivering Good

Food, Good Lie

and to building

our leadership in

Nutrition, Health

and Wellness.

Vitafo was acquired

in 2010. Its products

are developed orspecic medical

purposes, such as

inborn errors o

metabolism (IEM)

and disease related

malnutrition (DRM)

The business, whic

has an internationapresence, will be

incorporated in Nes

Health Science S.A

rom 2011.


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26/53

Innovation & renovation is the process

through which we keep our brands

consumer-relevant and competitor-

dierentiated. It is driven by insights

rom our consumers and by our

own initiatives, nutritional and

scientifc developments and R&D

break-throughs.

Nestls R&D touches all aspectso the ood and beverage industry.

For example, our R&D capabilities in

beverage systems have been translated

into leadership in coee systems, with

about 30% o the market, and are being

extended across other opportunities.

Nespresso, with sales o

CHF 3.2 billion in 2010, is the leader

in super-premium portioned coee.

It has built its position on unsurpassed

coee quality, continuous innovation,

a unique route to market and a holistic

approach to sustainability. Its

leadership has been achieved with

the support o passionate consumers

with, or example, about 10 million

members in the Nespresso club.

Nescaf Dolce Gusto, with sales

o about CHF 450 million in its ourth

year, is becoming the system o

choice or consumers who want coee

shop quality drinks at home, made

in seconds. Launched across Europeand in the Americas, it oers a wide

range o drinks, with a particular ocus

on cappuccino coees, but also

chocolate, as well as Nesquik.

SPECIAL.T by Nestl, launched

in France and Switzerland in

September 2010 is Nestls frst entry

into the super-premium tea market.

It oers tea lovers the best tea in a

system that combines sophistication

and simplicity, with 25 varieties

sourced rom Asia and South Arica.

Nestl Proessional, our out-o-home

business, with sales o CHF 6.1 billion

in 2010, is the global leader in branded

hot beverage solutions. It has a series

o beverage systems, ranging rom

machines backed by personalised

service, aimed at high-end restaurants

and bars, to those which have been

designed or low-cost operators in

emerging markets. Recent launches

system and the super-premium

Viaggibarista system.

Research & development and

innovation & renovation also play

role at Nestl Nutrition, as we see

drive competitive dierentiation a

address consumer needs. Just on

example is Inant cereals, the frs

product made by Henri Nestl ansuch, the very heart o Nestl. W

the worldwide leader with brands

as Cerelac, Nestum, Mucilon, Ger

and Nestl, and have about 65%

market share in our top 20 marke

A signifcant driver o growth h

been science-led innovation. An

example is upgrading the entire I

cereal portolio in the area o Imm

Protection through the addition o

Bifdus BL, a proprietary Branded

Active Beneft developed in the N

Research Center. This, together w

Immunonutrients, such as Iron, Z

and Vitamins A&C, helps strengt

babies natural deences. The pro

has been launched in more than

100 markets in 2009 and 2010, an

been a great success, demonstra

by double-digit organic growth in

or the Inant cereals division.

In common with Nestl Nutriti

other categories, Inant cerealbenefts rom a multi-stage pipeli

o innovation which ensures that

the category and its consumers w

beneft rom innovations or years

come, enhancing the goodness o

cereals and providing big nutriti

or small tummies.

Innovation & renovation

Operational efciency

Whenever, wherever, however

Consumer communication

Operational

pillars

India is one o the

growing astest and

largest markets or

Nestl Inant Cereals.

As category leader,

Cerelac drives

innovation. The entire

portolio in India

now includes

Nutriprotect and

Growth Nutrients

or Healthy Growth

and development

o the baby. With

Cerelac Nutriprotect

(immunonutrients)

the baby will be


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28/53


SPECIAL.T by Nestl

is a pioneering

single-serve capsulesolution that invites

consumers to

discover the worlds

best teas: rom black,

green, blue and white

teas to favoured teas,

organic herbal

inusions and red

rooibos. The tea

leaves are protectedby hermetically

sealed capsules, and

the machine selects

the perect brewing

time and temperature

or each variety.

Nestl 8 Cereals:

Spain was a pioneer

market to launch

the range o Nestl

Inant Cereals with

Bidus BL. Nestl 8

Cereals contains

Immunonutrients

such as Iron, Zinc,

Vitamin A and

Vitamin C to help

support the babies

natural deenses.

Nescaf Dolce

Gusto: the new

Piccolo machine is

very small and

well-priced, but is

built to the same

standard as the

bigger machines. This

makes Piccolo a very

convenient way o

enjoying Nescaf

Dolce Gusto, and

incredible value or

money, whilst its

unique and quirky

design refects all

the personality

o our brand.

Nespresso allows

consumers to enjoy

the perect coeeevery time. Nespresso

starts with the highest

quality o coee and

combines that with its

cutting-edge machine

design. Designed to

t into urban living

spaces, the CitiZ

range satises

consumers demandsor style, convenience

and quality. TheCitiZ&Milkhas a

built-in resh

milk-rother or

cappuccino

and latte lovers.

The Viaggibarista

system oers, at the

touch o a button,

a menu o hot or

over-ice espresso,

cappuccino, and

chocolate-based

beverages to Nestl

Proessionalcustomers.

Breakthrough

proprietary

technologies,

specically developed

with Nescaf, Cailler,

and Nestl, will

enable the Viaggi

beverage programme

to oer, cup ater

cup, perect

consistency,

delivered througha dedicated

commercial and

service platorm.

Nestls beverage

R&D capabilities

cover all aspects romarm to cup, including

raw materials, favour

extraction, systems

and packaging.

The personalised

consumer experience

is at the heart o

the Nespresso oer,

with more than

200 boutiques such

as the one in Sydney

(top right), whilst

Nescaf Dolce Gustoprovides a un and

exciting experience

or consumers who

want ca-quality

coee at home.

These systems

enjoyed double-digit

growth in 2010 and

will continue to do

so in 2011.

Cerelac is a category

icon in the Middle

East, it includesBidus BL, a

proprietary Branded

Active Benet

developed in the

Nestl Research

Center, and theinherent goodness

o Cereals.


29/53


30/53

Financial review

Sales Group

CHF 109.7 billion

EBIT Group

CHF 16.2 billion

Sales continuing operations

CHF 104.6 billion

EBIT continuing operations

CHF 14.0 billion

Operating cash fow Group

CHF 13.6 billion

Underlying earnings per share

in constant currencies

+10.3%

Organic growth Group

6.2%

EBIT margin Group

+20 bpsto 14.8%

Organic growth continuing operations

6.0%

EBIT margin continuing operations

+30 bpsto 13.4%

Free cash fow Group

CHF 7.8 billion

Proposed dividend per share

+15.6%to CHF 1.85

Real internal growth Group

4.6%

Real internal growth continuing

operations

4.4%


31/53


In millions of CHF (except per share data)

Sales



Proft or the year attributable to shareholders o the parent Net proft (a)

Equity attributable to shareholders o the parent beore proposed appropriation o proft o Nestl S.A.


Per share

Total basic earnings per share (a) CHF

Equity attributable to shareholders o the parent beore proposed appropriation o proft o Nestl S.A. CHF

In millions of USD (except per share data)

Sales






Per share

Total basic earnings per share (a) USD

Equity attributable to shareholders o the parent beore proposed appropriation o proft o Nestl S.A. USD

In millions of EUR (except per share data)

Sales






Per share

Total basic earnings per share (a) EUR

Equity attributable to shareholders o the parent beore proposed appropriation o proft o Nestl S.A. EUR

(a) 2010 igure is not comparable as it includes a one-o gain on the disposal o the remaining interest in Alcon.

Principal keyfgures(illustrative)Income statement fgures translated

at weighted average annual rate;

Balance sheet fgures at year-end rate.

2009

107 618

15 699

13 222

10 428

48 915

174 294

2.92

13.69

2009

99 361

14 495

12 207

9 628

47 449

169 070

2.70

13.28

2009

71 259

10 395

8 755

6 905

32 922

117 308

1.93

9.22


32/53


Overview

This section should be read

in connection with the

2010 Consolidated Financial

Statements.

Ater the decline in economic growth

in 2009 and the related increases

in unemployment, the economic

environment in 2010 remained

uncertain, with continued concerns

over consumer confdence, as well as

increasing raw material ination and

currency volatility as the year evolved.

Nestl experienced its strongest

growth o 2009 in the fnal quartero the year, and thereore entered 2010

with strong momentum. This impetus

remained consistent throughout the

year, even in the fnal quarter o 2010

when we were lapping that strong

fnal quarter o 2009. We, thereore,

also entered 2011 with strong

momentum in our business: this will

help us to manage the challenges

that we ace and to take ull advantage

o our opportunities to drive

better perormance and enhance

shareholder value.

It was not only our business

momentum that remained consistent

throughout 2010; so did our ocus

on our strategic priorities, outlined

in the previous chapter. This alignment

around the world has created a

ramework within which we are driving

our business, and within which we

are able to adjust the dierent levers

in response to changing dynamics

and competitive environments around

the world.Nutrition has a critical role to play

or consumers in emerging markets,

many o whom would lose their

incomes i they were unable to work;

and it is a priority or developed

market consumers too, who have

an increasingly sophisticated

understanding o the relationship

between diet and health. Our drive to

address the needs o those low income

consumers with appropriate nutritional

enhancements to Popularly PositionedProducts (PPPs) is dierent rom our

approach in developed markets with,

or example, the launch o theJenny

Craig Weight Management system

in Europe. Out-o-home consumption

is a big part o peoples lives in both

developed and emerging markets,

but our approach might dier in New

York rom New Delhi. PPPs are growin

in the developed markets, whilst

premium products are growing in the

emerging, and each opportunity need

its own approach: or example, we

cannot use a PPP business model or

premium in emerging markets, or vice

versa. Equally, our route-to-market

strategies will be very dierent in

dierent markets.It is this exibility in terms o how

we manage our business, as well as

our agility in being able to respond

quickly to changing market dynamics

that have held us in good stead in 201

and will continue to do so in 2011.

Another constant in 2010 was our

mix o shorter-term perormance and

longer-term thinking. This resulted in

Nestl delivering improved top and

bottom-line perormances in 2010,

whilst investing in brands and R&D,

capabilities, distribution, structures

and capacities to ensure long-term

proftable growth and value creation.

Our delivery o shorter-term

perormance with longer-term thinkin

will remain our motivation in 2011.


33/53


Nestl bil lionaire brands achieved 7.1% organic growth in 2010


34/53


Sales (Group)

In billions o CHF

110

100

90

In billions o CHFP Europe (a)

P Americas (a)

P Asia, Oceania and Arica (a)

(a) Each region includes sales o the Zones, Nestl

Waters, Nestl Nutrition, Nestl Proessional,

Nespresso and Food and Beverages joint ventures.

0 10 20 30 40 CHF bio

Food and Beverages sales

and organic growth (OG) by continent

OG (%)

10.0

7.5

5.0

2.5

2010 sales

The Group achieved organic growth

o 6.2%, including real internal growth

(RIG) o 4.6%. Foreign exchange

impacted sales by 3.6%, whilst

divestitures, net o acquisitions,

reduced sales by 0.6%. Overall,

Group sales increased by 2.0% to

CHF 109.7 billion.

Continuing operations organicgrowth was 6.0%, with real internal

growth o 4.4%. The oreign exchange

impact was 3.8%, and acquisitions,

net o divestitures, added 1.8%.

Overall, continuing operations sales

increased by 4.0%.

Organic growth or the Food and

Beverages operations was 5.7% in the

Americas, 3.7% in Europe and 10.2% in

Asia, Oceania and Arica. We achieved

11.5% organic growth in emerging

markets, as well as growth in the

developed world. This perormance

reects market share gains in each o

the regions and across our categories.

It has been driven by continued

investment in our growth pillars,

aligned with our strategic roadmap.

These include increasing distribution o

Popularly Positioned Products (PPPs)

and the continuing roll-out o premium

products in both emerging and

developed countries; our ocus across

all our categories on Nutrition, Health

and Wellness; expanding our reachin the out-o-home market; building

our innovation pipeline; and increasing

our consumer marketing and

brand investment.

Proftability

The Groups EBIT margin increased

by 20 basis points to 14.8% o sales.

The EBIT margin is not comparable

to that o 2009 ollowing the disposal

o the remaining interest in Alcon

in August 2010.

The continuing operations EBIT

margin increased by 30 basis points

to 13.4%, both reported and inconstant currencies. This improveme

was delivered at the same time as we

increased our investment in our brand

our marketing expenses increased by

100 basis points, with consumer acin

marketing spend up 13.2% in constan

currencies. The improvement in EBIT

margin was driven by our sales growt

and business mix, as well as by the

achievement o operating efciencies

o over CHF 1.5 billion through Nestl

Continuous Excellence, which

benefted the cost o goods sold,

distribution and administrative costs.

This reects our continued drive or

operational excellence rom arm to

ork. We achieved signifcant cost

savings at the same time as increased

levels o saety, quality, service and

environmental perormance. These

actions contributed signifcantly to ou

2010 perormance; and at the same

time laid oundations or urther

perormance improvement in 2011.

The continuing operations cost ogoods sold reduced by 40 basis point

Savings and the leverage rom our

growth more than compensated the

cost pressures during the year, which

increased in the second hal.

109.92008

107.62009

109.72010

107.62007

98.52006

Sales34.7

46.822.2

OG3.7%

5.7%10.2%


35/53


EBIT (Group)

In billions o CHF

16

15

14

EBIT margin (Group)In %

14.5

14.0

13.5

EBIT (continuing operations)In billions o CHF

14

13

12

EBIT margin (continuing operations)

In %

13.5

13.0

12.5

The continuing operations

distribution costs reduced by 20 basis

points. This is another area o ocus

o efciencies, particularly in our more

distribution-intensive businesses

such as Nestl Waters and Ice cream.

These savings are pursued both

in our drive to urther improve our

environmental perormance

and as part o our ongoing driveor continuous improvement in

operating perormance.

The continuing operations

administrative costs ell by 70 basis

points. There was a rigorous control

o fxed costs, enabling leverage

rom growth.

Business review

Zone Americas had sales o

CHF 34.3 billion, 5.9% organic g

3.0% RIG and an EBIT margin o

down 30 basis points. In North

America, we saw a continued st

perormance rom the Purina Pe

business, with share gains over

year and all segments showing

double digit in Snacks. Innovatioincluded Purina ONE Shreds and

Feast Gravy Lovers. Chocolate a

a good year, helped by a strong

perormance rom our seasonal

business, the launch o Wonka i

the Chocolate category, as well

innovations such as Butterfnger

Snackerz. Frozen prepared meal

particularly Lean Cuisine, contin

suer rom weak consumer dem

or the category. There was grow

however, or Stouers in the am

value segments. There was a po

perormance rom the rozen piz

business in its frst year in our

ownership, including market sha

gains. Ice cream perormed wel

in a tough market, also achieving

gains; a particular highlight was

snacks business which grew do

digit, with strong perormances

brands such as Skinny Cow and

Drumstickcones. Other success

included Hagen-Dazs and our n

Cups business. The Cups oer aserve snacking occasion and als

provide the opportunity or new

consumers to try our brands. So

coee also had a good year, wit

Nesca Clsico continuing to be

the key growth driver. In Latin A

growth was double digit or the

Brazil, where Nestl will be cele

its 90th anniversary in 2011, had

strong year, with good perorma

across its categories, and partic

in milk. In Mexico, soluble coechocolate and powdered bevera

were among highlights. Across

region, all our categories grew,

o them double digit, including t

three, dairy, chocolate and solub

coee. There was also a very go

perormance rom ready-to-drin

beverages, in part due to the lau

15.72008

15.72009

16.22010

14.3

2008

14.6

2009

13.2

2009

13.1

2009

14.8

2010

14.0

2010

13.4

2010

15.02007

14.0

2007

13.32006

13.5

2006


36/53


in Brazil into PET o brands such as

Nescau andAlpina. The Zones EBIT

margin ell by 30 basis points, reecting

increased brand investment, not ully

compensated by efciency gains.

Zone Europe had sales o

CHF 21.6 billion, 2.5% organic growth,

1.7% RIG and an EBIT margin o 12.6%,

up 20 basis points. In Western Europe,

we grew in all major markets, in theace o difcult economic conditions

and despite the tough competitive

environment. France and Great Britain

had a particularly positive year, but

there were resilient perormances in

Germany, Iberian region and Italy, as

well as Switzerland. This reects

market share gains in many countries.

In Greece, the only market where we

didnt see growth, we did make market

share gains. In Eastern Europe, Russia

continued to deliver a lower level o

growth than we would normally

expect, reecting the impact on our

more impulsive-driven categories,

particularly Chocolate, o the tough

economic environment there. That

said, there were more dynamic

perormances rom soluble coee

and ambient culinary.

Amongst the Zones categories,

soluble coee, PetCare, rozen ood,

especially Wagnerand Buitonipizza,

and chocolate, especially KitKat, stand

out. The Zones big three regionalinnovation platorms, Maggi Juicy

Chicken, Nescaf Dolce Gusto and

Nescaf Green Blend, all perormed

well in 2010 and were key contributors

to growth. The Zones EBIT margin

increased by 20 basis points as

efciency gains and the leverage rom

the good level o growth more than

compensated the increased brand

support and investment in innovation

and product launches that drove the

market share gains.Zone Asia, Oceania and Arica had

sales o CHF 17.4 billion, 8.7% organic

growth, 7.0% RIG and an EBIT margin

o 16.9%, up 20 basis points.

The emerging markets achieved

double-digit growth, with strong

perormances across the Zone: rom

Arica, rom Asia, including India

and China, Indonesia and Thailand, an

rom the Middle East. The developed

markets also achieved growth,

meaning that we grew our business

in the developed markets o each o

our three Zones.

There were strong perormances b

most categories in Zone AOA. Ambie

culinary, primarily Maggi, ambient da

and ready-to-drink beverages, brandssuch as Milo and Nescaf, all grew

double digit. Other categories, such a

powdered beverages and chocolate,

enjoyed high single-digit growth.

Particularly notable was the

perormance o Nescaf in Japan,

where we sold about 500 000 coee

systems in the year, either Nescaf

barista or Nescaf Dolce Gusto, and

we also enjoyed success there with th

relaunch o our super-premium varian

o pure soluble Nescaf.

Innovation highlights included the

roll-out in Arica and South Asia o a

new avour enhancer by Maggi, and

PPPs across the Zone, including or

conectionery in China, India and

Indonesia. The Zones EBIT margin

increased by 20 basis points, again

reecting the benefts o growth and

increased efciencies.

Operating segments: Food and Beverages

EBIT margin

In %

Zone Europe

Zone Americas

Zone Asia, Oceania and Arica

Nestl Waters

Nestl Nutrition

Other Food and Beverages (a)

(a) Mainly Nestl Proessional, Nespresso and

Food and Beverages joint ventures managed on

a worldwide basis.

Operating segments: Food and Beverages

sales and organic growth (OG)

OG (%)

10.0

7.5

5.0

2.5

0 10 20 30 CHF bio

In billions o CHFP Zone EuropeP Zone AmericasP Zone Asia, Oceania and AricaP Nestl WatersP Nestl NutritionP Other Food and Beverages (a)

12.6

16.5

16.9

7.4

18.1

16.4

Sales21.634.3

17.49.1

10.311.0

OG2.5%5.9%

8.7%4.4%6.7%9.8%


37/53


Products: EBIT margin

In %

Powdered and liquid beverages

Water (a)

Milk products and Ice cream

Nutrition (a)

Prepared dishes and cooking aids

Conectionery

PetCare

Pharmaceutical products (b)

(a) The fgures between Operating segments and

Products are slightly dierent due to the act that

some water and nutrition products are also sold by

Operating segments other than Nestl Waters and

Nestl Nutrition.

(b) Including Alcon discontinued operations.

In billions o CHFP Powdered and liquid

beveragesP Water (a)

P Milk products and

nestle 2010 annual report en

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