Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d CONTENTS

2 Letter to our shareholders 6 Enhancing lives and well-being

8 The strategy 14 The highlights 26 The future

34 Our brands

42 Financial review 43 Leading positions in dynamic categories 44 Business review 55 Principal risks and uncertainties 56 Geographical data: factories

58 Corporate Governance and Compliance 59 Corporate Governance 60 Board of Directors of Nestlé S.A. 62 Executive Board of Nestlé S.A. 63 Compliance 64 Shareholder information

Accompanying reports

Corporate Governance Report 2014 Compensation Report 2014 Nestlé in society Financial Statements 2014 Creating Shared Value and meeting our commitments 2014

Corporate Governance Report 2014 Nestlé in society Compensation Report 2014 Creating Shared Value and meeting Financial Statements 2014 our commitments 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d NESTLÉ IN NUMBERS

Group sales (in CHF) Trading operating profit (in CHF) 91.6 billion 14.0 billion

Employees Countries we operate in 339 000 197

Where we sell (in CHF billion) Our top 10 Markets Switzerland (in CHF billion)

EUROPE UNITED STATES 23.5 GREATER CHINA REGION 6.6 25.9 FRANCE 5.5 BRAZIL 5.1 GERMANY 3.3 UNITED KINGDOM 3.0 AMERICAS ASIA, MEXICO 3.0 OCEANIA AND AFRICA PHILIPPINES 2.5 39.4 ITALY 2.1 26.3 CANADA 2.0 SWITZERLAND 1.6

What we sell (in CHF billion)

20.3 16.7 13.5 13.1 11.3 9.8 6.9 POWDERED AND MILK PRODUCTS PREPARED DISHES NUTRITION AND LIQUID BEVERAGES AND ICE CREAM AND COOKING AIDS HEALTH SCIENCE PETCARE CONFECTIONERY WATER

Nestlé Annual Report 2014 1 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d NESTLÉ IN SOCIETY

98% 73 of our children’s products met all of the Our Healthy Kids Global Programme reached more Nestlé Nutritional Foundation criteria (a) for than 7.6 million children in 73 countries in 2014. children at the end of 2014.

Top 3 73% We are ranked one of the top 3 global food and We audited 8700 of our 10 000 Tier 1 suppliers and beverage manufacturers in the current Access found 73% fully complied with our Supplier Code. to Nutrition Index.

FTSE4Good Leader We remain the only manufacturer We were ranked number one by the charity Oxfam included in FTSE’s responsible investment index, in its 2014 scorecard, Behind the Brands. The survey based on our performance in human rights, labour scored 10 food and beverage companies on their rights, responsible marketing of breast-milk efforts to improve food security. substitutes and more.

38% 52% Volume of high-priority categories of raw material Water discharges per tonne of product cut that are traceable back to the primary source. by 52% since 2005.

72 12 458 factories achieving zero waste for disposal in 2014. farmers sensitised on child labour issues in 2014.

11 832 26% Nestlé Needs YOUth helped 11 832 young people Energy consumption per tonne of product cut in Europe find work or apprenticeship opportunities by 26% since 2005. in 2014.

(a) The Nestlé Nutritional Foundation criteria are based on nutrition science and public health dietary recommendations, such as those of the World Health Organization (WHO), the Institute of Medicine and other global or local authorities. Our products are evaluated against these criteria, using the Nestlé Nutritional Profiling System, which determines their nutritional value and whether they achieve the Nestlé Nutritional Foundation status. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d KEY FIGURES (CONSOLIDATED)

In millions of CHF (except for data per share and employees) 2013 2014 Results Sales 92 158 91 612 Trading operating profit 14 047 14 019 as % of sales 15.2% 15.3% Profit for the period attributable to shareholders of the parent (Net profit) 10 015 14 456 as % of sales 10.9% 15.8%

Balance sheet and Cash flow statement Equity attributable to shareholders of the parent 62 575 70 130 Net financial debt 14 690 12 325 Ratio of net financial debt to equity (gearing) 23.5% 17.6% Operating cash flow 14 992 14 700 as % of net financial debt 102.1% 119.3% Free cash flow (a) 10 486 14 137 Capital expenditure 4 928 3 914 as % of sales 5.3% 4.3%

Data per share Weighted average number of shares outstanding (in millions of units) 3 191 3 188 Basic earnings per share CHF 3.14 4.54 Underlying earnings per share (b) CHF 3.50 3.44 Dividend as proposed by the Board of Directors of Nestlé S.A. CHF 2.15 2.20

Market capitalisation, end December 208 279 231 136

Number of employees (in thousands) 333 339

(a) Operating cash flow less capital expenditure, expenditure on intangible assets, investments (net of divestments) in associates and joint ventures, and other investing cash flows. (b) Profit per share for the year attributable to shareholders of the parent before impairments, restructuring costs, results on disposals and significant one-off items. The tax impact from the adjusted items is also adjusted for. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d LETTER TO OUR SHAREHOLDERS

Dear fellow shareholder, the sale of 48.5 million L’Oréal shares to L’Oréal for cancella- tion. Part of the proceeds were used for the acquisition of the The business environment was again marked by great uncer- 50% stake in our joint venture from L’Oréal, bring- tainty in 2014. Disruptive socio-economic and political change ing our ownership of Galderma to 100%. Galderma formed continued to affect growth in many parts of the world. In the the foundation of a new Nestlé subsidiary, Nestlé Skin Health. emerging markets, economic volatility worsened as growth Its goal is to be recognised as the leading company in skin rates slowed and currencies weakened. In the developed health, offering science-based solutions to protect, nourish markets, deflationary pressures and soft consumer demand and enhance skin, and where needed to treat, correct and resulted in a continued challenging trading environment. In restore damaged skin over the course of people’s lives. Nestlé the face of such uncertainty it was more important than ever Skin Health provides prescription drugs, self-medication, to stay the course and remain loyal to our strategy, driving therapeutic skin care and aesthetic and corrective medi- short-term performance while ensuring we made the right cine, allowing us to compete in the growing and promising decisions to deliver our long-term goals. We took decisive multi-billion global skincare market. Nestlé Skin Health was steps to further our ambition to be the world’s recognised further strengthened by the acquisition of the full rights to leading Nutrition, Health and Wellness company, trusted by commercialise several key aesthetic dermatology products in all stakeholders, while again delivering financial results in the United States and Canada. 2014 that outperformed the market. These developments ensure that, building on the strong Sales were CHF 91.6 billion, with organic growth of 4.5%, foundations of our food and beverages business and guided composed of real internal growth of 2.3% and pricing of increasingly by science, we can further expand our portfolio 2.2%. The Group’s trading operating profit was CHF 14.0 bil- to provide promising platforms for future growth in line with and the margin increased by 10 basis points to 15.3%, our strategy of Nutrition, Health and Wellness. At the same up 30 basis points in constant currencies. This performance time, we continue the drive to ensure our company is organ- was achieved whilst we again increased consumer facing ised efficiently and effectively to deliver continuous profitable marketing support for our brands. The net profit rose to growth over the long term. With this objective in mind we CHF 14.5 billion. The CHF 4.4 billion increase in net profit also made some key decisions, adapting our organisational struc- reflects the profit realised on the disposal of part of the stake ture to better prepare ourselves today to meet the challenges in L’Oréal and the revaluation gain on the 50% of Galderma of tomorrow. already held when the Group brought its ownership from 50% While our company continues to benefit from its decen- to 100% (see below). Earnings per share were CHF 4.54, up tralised structure, allowing key decisions to be made as close 44.6%. Underlying earnings per share were up 4.4% in con- as possible to consumers, there is still an important oppor- stant currencies. The Group’s operating cash flow remained tunity to better leverage our scale. That is why in 2014 we strong at CHF 14.7 billion. In view of this performance and the set up Nestlé Business Excellence at Executive Board Level, company’s strong financial position, the Board is proposing combining GLOBE (Nestlé’s Global Business Excellence a dividend of CHF 2.20 per share up from CHF 2.15 last year. function) with Nestlé Business Services (our shared operation Through continuous innovation and renovation of our food for transactional services around the world) and Nestlé Con­ and beverages portfolio we are able to offer people healthier tinuous Excellence (our continuous improvement and LEAN and tastier choices at every stage of their life, at any time programme). Through a focus on three areas: Simplifying, of the day. Science-based innovation enables us to enhance Standardising and Sharing, Nestlé Business Excellence will the quality of people’s diets, using our knowledge and our allow us to decrease structural costs and operational expens- research and development capability to make a positive con- es, freeing up resources to support growth. This will also al- tribution to society. Wherever you are in the world, we have low our markets to keep a sharp focus on generating demand. safe, nutritious products to help you care for yourself and We have integrated the Maghreb, the Middle East, the your family. A few years ago, we expanded the boundaries North East Africa region, Turkey and Israel into Zone Europe of Nutrition, Health and Wellness with the creation of Nestlé to form Zone EMENA (Europe, Middle East and North Africa). Health Science, motivated by the opportunity to forge a major This balances the different consumer dynamics and oppor- therapeutic role for nutrition in the management of health. In tunities in each geography. Additionally it allows a sharper line with this broadened strategy, in 2014 the Board approved focus in Zone Asia, Oceania and Africa, a fast-growing part

2 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d , Chief Executive Officer (left), and Peter Brabeck-Letmathe, Chairman (right).

Nestlé Annual Report 2014 3 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d LETTER TO OUR SHAREHOLDERS

of the world where three quarters of the global population and respect for the world we live in. What we do and the live, enabling us to dedicate more attention to countries and effects of what we do are highly visible. It is our responsibility regions which are highly complex but have huge potential. to connect with different stakeholders, to show transparency The new Nestlé Business Excellence function is led by Chris and build trust. We have therefore again in 2014 reported on Johnson, the former head of Zone Americas. Zone Americas our social performance and our compliance in our Nestlé in is now led by Laurent Freixe, the former head of Zone Europe, society report, and our progress towards meeting the tough and the new Zone EMENA by Luis Cantarell, who previously targets we set ourselves. was in charge of Nestlé Nutrition and Nestlé Health Science. In 2014 we held another successful Creating Shared Value The new head of Nestlé Nutrition is Heiko Schipper, who was forum, this time at the Nestlé Research Center in Lausanne, formerly responsible for our Global Infant Nutrition division. co-organised for the first time with a United Nations body, Nestlé Health Science is led by Greg Behar, who joined the the UN Conference on Trade and Development (UNCTAD). company from Boehringer Ingelheim in July. The newly estab- The President of the Swiss Confederation used his address to lished Nestlé Skin Health is led by Humberto Antunes, former- the event to plead for water to become a self-standing goal ly the Chief Executive Officer of our joint venture Galderma. of the future global development agenda. At the event we We further reinforced our business through continued renewed our long-standing partnership with the International active portfolio management, reviewing the performance Federation of Red Cross and Red Crescent Societies. Since of different products in different markets to assess strate- 2006 this collaboration has focused on the improvement of gic fit, the extent to which they were accretive against our rural communities’ access to clean water and sanitation. financial targets, and what investments were necessary to Currently, at the United Nations there are intense discus- deliver growth. We made choices about where we wanted to sions about the global development goals for the period after invest, where we wanted to improve, and what we wanted to 2015. At the same time, governments and international organ- divest. Making such choices enables us to align our resourc- isations are increasingly reliant on the expertise, experience es behind our best ideas, products and categories, to deliver and resources of the private sector to help address some of sustained financial performance and help us on our journey the world’s most pressing problems. This offers an oppor- to recognised Nutrition, Health and Wellness leadership over tunity for global companies such as Nestlé to make a valu- the short term and the long term. able contribution, in partnership with governments and civil We also announced new investments and research society. We are participating actively in the policy dialogue in collaborations, which will enhance our ability to deliver sci- areas which will deeply influence our future business, such as ence-based solutions to improve the quality of people’s lives. food security, nutrition and health, water, sustainability, and A newly-announced research partnership with the EpiGen human rights. consortium will help us to better develop our understanding The Board of Directors has actively supported the decisions of the influence of nutrition and genetics at the beginning of we have taken to further strengthen our Nutrition, Health and life and continue to build our knowledge in this important Wellness strategy in 2014. It carried out a review of the Wyeth area. The Nestlé Institute of Health Sciences began a collab­ acquisition, received an update on Nestlé Professional, and oration on a groundbreaking project, which could one day visited our operations in France, where the discussions includ- lead to the development of made-to-measure vitamin com- ed a focus on Nestlé Waters. The Board discussed our global binations tailored to individual needs. Our company was strategy in November, and reviewed our business in the United founded almost 150 years ago on the product Henri Nestlé States, as well as Nestlé Nutrition, Nestlé Health Science and invented, farine lactée. It saved the life of a child. Today we Nestlé Skin Health. It also examined our past capital invest- continue to invest in science-based innovation to ensure we ments and future needs, as well as our continuing active port- can answer current and future needs. folio management. The Board exercised its responsibilities for It is our fundamental belief that to be successful over time financial planning and oversight, risk and compliance man- we need to create value for our shareholders while at the agement, and setting the right tone at the top of the company. same time creating value for society. We call this Creating At our 2014 shareholders’ meeting, the Board proposed Shared Value. To prosper we have to take a long-term view, significant changes to our corporate governance in response framed in a robust set of principles and values that are based to changes in Swiss legislation. The changes to our Articles on respect: respect for people, respect for the environment, of Association were approved by a large majority. For the first

4 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d time in 2014, shareholders had to elect all members of the Board for annual terms and to directly elect the Chairman of the Board and the Members of the Compensation Committee. The new governance framework had a significant impact on our Annual General Meeting (AGM) and put compliance at the forefront of the meeting. The role of the Board has changed and the AGM has been given increased responsibilities. We therefore lead an active dialogue with our shareholders and proxy advisors to explain these changes and new responsibilities. At our next AGM in April, we will for the first time submit our proposals for the compensation of the Board of Directors and the Executive Board for approval by our shareholders as required by the new legislation. We have implemented these measures in a manner designed to preserve legal certainty, while ensuring that compensation remains competitive. We continue our active dialogue with investors and encourage all shareholders to vote and to help preserve our long-term focus as set out in our Articles of Association. Our success has always been based upon our determin­ation to stay the course and look ahead, to understand the environ- ment in which we operate, to organise ourselves to seize op- portunities to deliver profitable growth, now and in the future. Although we are operating in a challenging and turbulent eco- nomic environment, we see these as fascinating times, full of opportunities. We continue to commit ourselves to ambitious fi- nancial targets. We aim to achieve organic growth of around 5% to 6%, improvements in margins and underlying earnings per share in constant currencies, as well as capital efficiency. There will be years when we exceed our ambition and years where we come close, but this is the line we want to walk over time. We would like to thank our 339 000 employees, whose com- mitment to Nestlé, hard work and disciplined alignment behind our strategy ensured that we achieved our common goals. Their talent, their creativity, their discipline and entre­preneurship are key to delivering our results. We would also like to thank you, our shareholders, for your investment and your confidence, which have enabled us to deliver good ­returns for investors over the long term.

Peter Brabeck-Letmathe Paul Bulcke Chairman Chief Executive Officer

Nestlé Annual Report 2014 5 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d ENHANCING LIVES AND WELL-BEING

6 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Supporting parents in raising healthier children

12

Developing innovative products to safeguard skin health

16

Helping ageing dogs maintain brain health

20

Continuing to deliver the highest quality espresso coffee through

24

Extending new job opportunities to European youth

30

Nestlé Annual Report 2014 7 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d THE STRATEGY

For almost 150 years we have enhanced people’s lives by offer- ing tastier and healthier food and beverages choices at all stages of life and at any time of day, helping them care for themselves and their families. We have built our success by anti­cipating the future and continuously adapting ourselves to seize the oppor­ tunities it presents. Through the continuous innovation and renovation of our pro­ ducts we are helping people enjoy healthier diets. In 2014 we continued to invest behind the ideas, the products and the cat­ egories that help us on our journey towards recognised Nutrition, Health and Wellness leadership, and deliver sustained financial performance. The Nestlé Strategic Roadmap (facing page) is our compass, driving internal alignment behind our goals. The roadmap shows the strengths we leverage to drive performance and deliver com- petitive advantage. Our strong culture, values and principles, all based on respect, unite us worldwide. Our ambition is not just to be the leader but the industry refer- ence for Nutrition, Health and Wellness. In recent years we have built on the strong foundations of our unrivalled food and bev- erage portfolio, exploring the benefits of nutrition’s therapeutic role with Nestlé Health Science. In 2014 we again expanded the boundaries of Nutrition, Health and Wellness with the creation of Nestlé Skin Health, offering scientifically-proven products and solutions for people’s skin health needs throughout their lives. In the following pages we highlight some of our efforts to con- tribute to society, driven by our determination to offer Nutrition, Health and Wellness for all.

8 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Operational Growth pillars drivers

Nutrition, Health and Wellness Emerging markets and Innovation Popularly and renovation Positioned Products

Whenever, ty ili C Out-of-home wherever, b re a a consumption however n t i in ta g s u S S h a – r e e d c

n V

a a i l l u p

e

m

Operational o

C Premiumisation efficiency Our objective is to be the leader in Nutrition, Health and Wellness, and the industry reference for financial performance, trusted by all stakeholders

Unmatched Consumer product N s engagement es le and brand tlé ip c inc portfolio ultu pr re, values and

Unmatched People, research culture, values and development and attitude Unmatched capability geographic presence

Competitive advantages

Nestlé Annual Report 2014 9 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d THE STRATEGY

Nutrition, Health and Wellness – We ensure global compliance with responsible advertis- ing and marketing standards for children, abiding by external our promise for a better life pledges such as the EU Pledge. At the end of 2014, the Ex- ecutive Board approved an updated and strengthened Nestlé We enhance people’s lives by offering tastier Marketing Communication to Children Policy, which will come and healthier food and beverage choices into effect in December 2015. To ensure consistent and effec- tive implementation, detailed internal guidelines have been at all stages of life and at all times of the day. developed and external stakeholders are encouraged to pro- vide feedback via our Tell us reporting mechanism. We have Nutrition, Health and Wellness is a priority for the people who phased out our marketing communication in schools and buy our products, for society as a whole and for us as a busi- reinforced our health and wellness education activities, par- ness. As the world’s leading food and beverage company we ticularly those that positively impact children’s development have a responsibility to use our knowledge and our research and support governments’ goals to increase physical activity. and development capability to make a positive difference to By the end of 2014 the Nestlé Healthy Kids programme society. We have an important role to play in not only provid- was in 73 countries, supporting initiatives which demonstrate ing good nutrition but in helping people understand its value. how appropriate nutrition and exercise can improve the health Start Healthy Stay Healthy is our interactive, science-based of children and their communities. In addition, our own stud- education programme designed to help parents and care­ ies in four countries have shown that two thirds of children givers provide nutritionally and developmentally adequate are insufficiently hydrated when they arrive at school. In 2014 nutrition in the crucial first 1000 days of life. We support and we provided tools and information that schools, parents and promote breastfeeding as the best start a baby can have in caregivers need to ensure children learn about the benefits of life. Our educational programmes are targeted at people who healthy hydration. are most involved in implementing good practices during this United for Healthier Kids is a platform, created by Nestlé important early period in a child’s development. We help to in 2014, where society can engage and collaborate to find guide parents and caregivers to raise healthier children and ways to improve the health and wellness of children, from help healthcare professionals have a greater impact on the conception to the age of 12 years. In Mexico, a TV series was nutritional aspects of care of future generations. launched which supports and encourages five families look- We continue to reinforce our leadership in the area of chil- ing to change their eating and lifestyle habits over six months. dren’s nutrition. By the end of 2014 98% of all our products The platform has also been launched in the Philippines. for children met the Nestlé Nutritional Foundation criteria for Through innovation and renovation we continue to make children. These criteria are based on nutrition science and our products tastier and healthier. In line with the recommen- public health dietary recommendations from bodies such as dations from public health authorities, we are reducing the the World Health Organization and the Institute of Medicine. amount of salt, sugar and saturated fats in our products as Our products are evaluated against these criteria using the part of our contribution towards the fight against non-com- Nestlé Nutritional Profiling System which determines their municable diseases in society. Our reduction targets are in- nutritional value and whether they achieve Nestlé Nutritional cluded in our public nutrition commitments (detailed in the Foundation status. Nestlé in society report) so our progress can be measured. We are carrying out large-scale studies together with lead- We are also ensuring that whole grains are the primary ingre- ing scientists of children’s diet and lifestyles, based on the dient in our breakfast cereals for children and teenagers. success of the Nestlé Feeding Infants and Toddlers Study. In We want to help people who buy our products to make addition to dietary intakes and behaviours, our research ex- informed decisions by giving them better nutritional infor- plores family dynamics around diets and key lifestyle patterns mation on our product labels. We are enhancing our portion of children while documenting their height and weight. We guidance and have committed to print GDAs (Guideline Daily use this data to support our product reformulation, consumer Amounts) on the front of all relevant packaging. These make communication and educational programmes, and we share it easier for people to see how much salt, sugar or fat is in the the results with the wider scientific community, non-govern- product, and how the amounts compare to reference daily mental organisations and others. guidelines. Nestlé Portion Guidance is a voluntary initiative

10 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d that bridges the gap between dietary recommendations and more user-friendly information to promote the right portion size. It is designed to help reframe portion norms, particularly in energy dense categories where habitual servings have in- creased over time. In parts of the world where people find it difficult to get essential vitamins and minerals in their daily diets, we fortify foods to help them and their families stay healthy. We are Nestlé Healthy Kids on track to deliver our commitment of 200 billion servings of Finding ways to help children, like these micronutrient fortified foods and beverages annually around in Brazil, to be more active and to make the world by next year. In 2014 we continued to extend the healthy eating choices helps them achieve and maintain a healthy body weight. reach of our microfortification programmes, focusing on cat- egories for children and women of child-bearing age, such as fortified infant cereals and growing-up milks.

Salt reduction Nestlé scientists at the Product Technology Centre in Singen, Germany, are working to reduce the amount of salt in Tomato Mozzarella Soup by enhancing other flavours.

Guiding the portions This label from Italy gives detailed information about the contents of a recommended portion made with 13.5 g of Nestlé and 200 ml of milk.

Read more about Nutrition, Health and Wellness: www.nestle.com/nutrition-health-wellness www.nestle.com/csv/nutrition

Nestlé Annual Report 2014 11 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 12 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Supporting parents in raising healthier children

Nestlé aims to support parents with the information they need to make the most informed decisions about their children’s health and eating habits, such as the importance of regular consumption of fruits and vegetables, and of exercise.

We believe getting it right early in life pays big dividends in terms of health and well-being throughout life.

Supporting parents is part of Nestlé’s commitment to helping future generations develop their full potential and live healthier lives by providing high-quality, science-driven nutrition for infants and children in the first 1000 days of life.

Research carried out by the Nestlé Research Center, and published in the journal Appetite, indicates that children who help their parents prepare their own meals eat significantly more vegetables than those children who are not involved in cooking with their parents.

Nestlé Annual Report 2014 13 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d THE HIGHLIGHTS

Our company was founded almost 150 years ago on the product Henri Nestlé invented, farine lactée. It saved the life of a child. Nestlé’s success has been built on innovation, which will con- tinue to drive performance and deliver profitable growth in the years ahead. Across our portfolio, innovation reinforced our growth platforms in 2014. Increasingly, science-based innovation enables us to improve the quality of people’s lives with new ideas, products and solutions. We introduced a new lactose free infant formula with probiotic L. reuteri that helps infants recover from diarrhoea. We rolled out new organic fruit purée pouches for infants, combining good nutrition with convenience. In South East Asia we launched new premium designed for growing urban populations. Maggi ‘so Tender from the Pan’, the unique seasoning paper that can be used to cook meat without oil, was rolled out to new markets. Nestlé Skin Health offered people innovative ways to protect, nourish and enhance their skin health over the course of their lives. Our expertise in beverage systems ensured a good response from consumers in North America to Nespresso’s new VertuoLine system. By the end of 2014, , the fastest growing coffee system business in the world, was being sold in more than 70 countries. In Japan we started using humanoid ro- bots to sell Nescafé Dolce Gusto and Nescafé Gold Blend Barista coffee machines. Across the globe, our petcare business benefited from an in­ novation pipeline that delivered new products with proven bene- fits based on good nutrition. Some of these highlights are detailed on the following pages.

14 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Skin health, clear ahead

Nestlé Skin Health’s unique holistic approach Dermatology leader The strength and breadth of our suite will help to protect, nourish and enhance skin of innovative products and medical solutions health, while working to preserve and, when has made Nestlé Skin Health a global needed, to treat, correct and restore damaged leader in dermatology. skin back to its healthy state.

The skin is the largest organ in the human body and it is respon ­sible for safeguarding our health. Longer lifespans will mean good skin care will become more important if we are Nestlé Skin Health’s vision to extend a good quality of life to those of all ages. Seven out is to enhance the quality of life of ten people are affected by a skin disease at some point in by delivering science-based their life. solutions for the health of skin, Nestlé Skin Health’s goal is to be recognised as the leading company in skin health. Created in 2014, it focuses on the hair and nails over the course CHF 130 billion health-conscious segment of the growing and of people’s lives. promising global skincare market that was worth CHF 245 bil- lion in 2013. It provides prescription drugs, self-medication, therapeutic skin care and aesthetic and corrective medicine, with innovative products from moisturisers to sunscreen, from medical aesthetic procedures to medicines used to treat serious conditions such as skin cancer.

Product range Nestlé Skin Health has a range of products that protect, nourish and enhance skin health and, when needed, treat, correct and restore damaged skin over the course of people’s lives.

Skin research Nestlé Skin Health is supported by five research and development centres Read more about Nestlé Skin Health: www.nestleskinhealth.com around the world www.galderma.com in France, Japan, Sweden, Switzerland, Follow the blog of Galderma’s CEO: and the United States. committed.galderma.com

Nestlé Annual Report 2014 15 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 16 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Developing innovative products to safeguard skin health

The skin is the largest organ in the human body and it is responsible for safeguarding our health. Because our skin is our interface with the world, healthy skin leads to improved ­well-being.

Given the importance of skin in each of our daily lives, Nestlé Skin Health’s focus on science-based solutions is a way to enhance the quality of people’s lives.

Our focus is to provide a complete range of innovative products and solutions, and to make them available everywhere people go, so we are there, every day, to help protect, nourish and enhance, treat, correct and restore the health of your skin.

We look at our skin and it influences our self-view and well-being. Other people look at our skin and it shapes their perception of who we are.

Nestlé Annual Report 2014 17 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d THE HIGHLIGHTS

Start Healthy Stay Healthy: nurturing a healthier generation together

Breast is best We provide high-quality, innovative, science- We firmly believe that breastfeeding is proven nutrition for mothers and infants. best for babies and fully support the World Health Organization’s recommendation on breastfeeding. We also provide a conducive environment for our employees to breastfeed, The importance of the right nutrition and feeding practices such as through flexible work arrangements. during the first 1000 days of life, from conception to a child’s second birthday, is now widely accepted by the public health community. Our Start Healthy Stay Healthy programme is dedicated to supporting mothers and caregivers to get nu- trition right in the first 1000 days. Good nutrition is crucial for We have 150 breastfeeding health, growth and development, and establishing the right feeding practices in early childhood also supports the estab- rooms at our premises around lishment of good eating habits. the world. We promote and support breastfeeding which is the best start a baby can have in life. Where breastfeeding is not pos- sible, we provide breast-milk substitutes. In addition, we have developed science-based nutritional solutions for infants with specific medical needs, who are unable to absorb, digest or metabolise standard infant formulas and are at risk of death or abnormal development without access to these products. We also provide a range of complementary foods, such as infant cereals and meals and drinks. These baby foods contain carefully selected high-quality ingredients and are fortified with nutrients to meet the specific needs of infants in this important phase of life. We market our breast-milk substitutes in line with the aims Unique ingredients BabyNes and principles of the World Health Organization’s Internation­ Illuma is a premium BabyNes is the first al Code of Marketing of Breast-Milk Substitutes as imple- brand containing a advanced nutrition unique ingredient system for infants and mented by governments. Our marketing standards are the blend designed to toddlers that offers strictest in the industry. We are the only breast-milk substitute enhance infants’ age-specific, single- manufacturer to be included in the FTSE4Good responsible absorption of key serve formulas for nutrients. children up to the age investment index (see the Nestlé in society report). of three years old.

For more information: www.nestle.com/aboutus/ask-nestle/answers/ how-does-nestle-support-breastfeeding

18 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Prolonging pet companionship

Nestlé Purina is addressing cognitive decline in pets using research techniques that Nutritional benefits Purina Pro Plan Bright Mind helps support focus on adding nutritional enhancements cognitive function in pets. to pet food.

Nestlé Purina scientists, veterinarians and nutritionists have been studying the effects of ageing on pets since 1986, when Purina began the breakthrough ‘Lifespan Study’ of canine diets. Around age seven a dog’s glucose metabolism in the brain begins to change, which can affect memory, learning, aware- ness or decision-making. Our scientists have discovered that medium chain triglycerides (MCTs) in certain botanical oils can be used as an additional alternative source of energy for the brain in these ageing dogs. Our scientists have also developed a proprietary brain Better together protection blend that includes fish oil to promote cognitive Nestlé Purina PetCare hosted its second ‘Better function in cats and dogs. Extensive testing in cats and dogs with Pets’ summit in New York as a forum demonstrated improved cognitive and learning ability in pets for discussing a range of pet care issues. The one-day event brought together opinion leaders fed this blend. from across the pet world, including retailers, bloggers, veterinary practitioners, leading animal welfare groups, and, of course, pet-lovers and owners.

In December 2014, Glassdoor, an online jobs and career community, rated Nestlé Purina number three in its 2015 list of top 50 Best Places to Work.

Read more about Nestlé Purina: www.purina.com/innovation Cognitive testing This task, for an older dog, tests its mental Read more about the ‘Better with Pets’ summit: capabilities. www.purina.com/better-with-pets/summit

Nestlé Annual Report 2014 19 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 20 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Helping ageing dogs maintain brain health

We understand the need for good nutrition to live healthily, so it’s imperative that pet owners are aware of similar nutritional breakthroughs available for their pets that help slow the changes associated with ageing.

Nestlé Purina scientists, veterinarians and nutritionists have been studying the effects of ageing on pets since 1986, when Purina began the breakthrough ‘Lifespan Study’ to look at canine diets.

Nestlé Purina’s recent work addresses cognitive decline in pets by using research techniques that focus on adding nutritional enhancements to pet food.

Nestlé Purina’s research has involved developing neuron-targeted nutrition with a blend of nutrients sourced from vegetable oils, such as coconut oil, to help improve memory function in older dogs.

Nestlé Annual Report 2014 21 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d THE HIGHLIGHTS

Creating Shared Value – our way of doing business

It is our fundamental belief that for a company Water at the well to prosper over the long term we need to In 2014, we renewed a long-standing collaboration with the International Federation create value for shareholders while at the same of Red Cross and Red Crescent Societies, with a particular focus on improving rural time creating value for society. We call this communities’ access to water. Creating Shared Value.

In the Nestlé in society report we detail our progress towards meeting our 38 Creating Shared Value commitments (includ- ing three new ones for 2014). These commitments, which “We believe that there should we introduced in 2013, make it possible for stakeholders to be universal access to truly hold us accountable, while at the same time encouraging our safe, not only improved, management, and all our employees, to achieve continuous improvement. Creating Shared Value requires compliance drinking water by 2025.” with the highest standards of business practice, including Peter Brabeck-Letmathe, Nestlé Chairman, international codes and standards as well as our own. addressing the CSV Forum. Global companies like Nestlé have a role to play and can make a valuable contribution to the efforts to address some of the critical issues the world faces, such as food security, nutrition and health, water, sustainability and human rights. Our Creating Shared Value approach focuses the business on the long term, where the success of society and economic activity are intertwined and mutually reinforcing. In 2014, at our sixth Creating Shared Value Forum, held in Switzerland, participants discussed how civil society and the private sector could work in partnership to strengthen and speed up sustainable development, focusing on the key areas of nutrition, water and rural development.

Presidential greeting Then-President of the Swiss Confederation, Didier Burkhalter, is greeted by Peter Brabeck-Letmathe, Nestlé Chairman, at the 2014 Creating Shared Value Forum in Switzerland.

Bees make honey The 2014 Nestlé Creating Shared Value prize was awarded to Honey Care Africa, an East African fair trade honey company, which works with farmers in South Sudan.

22 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Intelligent brewing An intelligent extraction system allows the new Nespresso VertuoLine machine to recognise the different Grand Cru coffee capsules and brew each blend in the optimal way.

Nespresso VertuoLine – a coffee revolution for North America

Nestlé Nespresso’s revolutionary system – VertuoLine – was launched in 2014 in the US and Canada. It brews long cups, matching North American preferences, as well as authentic espresso.

The new system introduces Centrifusion technology to achieve The VertuoLine rotates a high level of precision, using bar-code recognition to adjust the coffee capsule 7000 times the extraction parameters for each Grand Cru coffee, deliver- a minute to extract every ing the perfect cup. VertuoLine is pioneering a new segment of highest-quality, long-cup, freshly-brewed coffee. It brings drop of flavour. the quality seal of espresso, the crema, to the world of fresh- ly-brewed long-cup coffee. It is the most important innovation breakthrough for Nestlé Nespresso since the invention of portioned coffee in 1986. VertuoLine features a new line of 12 Grands Crus, eight large-cup coffees and four espresso blends. The machine is Ensuring a sustainable supply sold directly to consumers through the network of Nespresso of the best quality coffee is a top priority for Nespresso boutiques, over the phone and online and at selected North The Nespresso AAA Sustainable Quality American retailers. Programme, developed with the Rainforest Alliance, was launched in 2003. It aims to secure the highest sustainable quality coffee for Nespresso’s Grands Crus while helping to improve the livelihoods of coffee farmers and their families through support and training. Nespresso pays above-market prices for its coffee beans, as part of its commitment in the programme.

Another research breakthrough A researcher at the Nestlé System Technology Centre in Orbe, Switzerland, where many Nestlé technology systems have originated, Read more about Nespresso: including Nespresso www.nestle-nespresso.com VertuoLine. www.nestle-nespresso.com/ecolaboration

Nestlé Annual Report 2014 23 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 24 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Continuing to deliver the highest-quality espresso coffee through Nespresso

The Nespresso story began with a simple idea: enable anyone to create the perfect cup of espresso coffee, just like a skilled barista.

From its beginning in 1986, Nespresso has redefined and revolutionised the way millions of people enjoy their espresso coffee.

The entire Nespresso system – the interaction of the Nespresso aluminium capsule with the Nespresso machine – is designed to ensure the highest quality that has made Nespresso the reference point in the portioned coffee sector and one of the fastest-growing global food and beverage brands.

Nespresso’s new coffee technology is delivering both American-style large-cup coffee and espresso to North American consumers.

Nestlé Annual Report 2014 25 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d THE FUTURE

Across the world societies are getting older and the burden of healthcare costs is increasing. More than ever there is a need for safe, effective and affordable solutions to help people stay healthy. Our understanding of the importance of good nutrition to help manage health and treat disease continues to grow. We will play our part in addressing the issues the world faces with the strategy we set out some time ago: expanding the boundaries of Nutrition, Health and Wellness, investigating the role of diet and nutrition in health, and innovating and renova­ ting constantly to provide effective solutions based on science. Building on the strong foundation of our food and beverages business we will expand our portfolio to provide promising plat- forms for future growth. We also need to attract and retain the best talent: we are pleased that regularly Nestlé is ranked as one of the best global employ- ers, but we are not complacent. We work hard to offer our staff the opportunity to grow and develop throughout their careers. We report on the result of our efforts in these pages; in nutrition, in sustainable production, workplace policies and more.

26 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Changing the course of health

Nestlé Health Science is a company engaged in advancing the role for nutritional therapy in the management of people’s health through investing in innovation and leveraging leading edge science.

By 2020, one billion people in the world will be over 60, in- creasing the burden on society from obesity and chronic Technology health product hub diseases. It is estimated global healthcare costs could rise to The Product Technology Centre in Konolfingen, between USD 5–10 trillion by the end of the decade. At the Switzerland, develops and manufactures a same time scientific understanding of health, disease and the range of products for Nestlé Health Science. potential of nutrition is growing. Nestlé Health Science aims to champion the role of nutri- tional therapies that have proven clinical and health economic value, and improve the quality of people’s lives. The company focuses on three areas: Consumer Care, which aims to address Nestlé Institute of Health specific health conditions with an emphasis on enhancing Sciences is involved in ‘healthy ageing’; Medical Nutrition, which supplies hospitals over 170 research collaborations and other healthcare facilities; and Novel Therapeutic Nutri- tion, which works on new nutritional therapies (including pre- with more than 60 partners. scribed medicines) for specific diseases and conditions that would be administered by a health professional.

Nestlé Health Science products Nestlé Health Science has a range of nutrition solutions, diagnostics, devices and drugs that target health areas, such as paediatric and acute care, metabolic and obesity care, healthy ageing, and gastrointestinal and brain health.

Young at heart Meritene, launched in Europe, is a nutritional Read more about Nestlé Health Science: www.nestlehealthscience.com range targeting age-related health Read more about the Nestlé Institute of Health Sciences: challenges. www.nestleinstitutehealthsciences.com

Nestlé Annual Report 2014 27 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d THE FUTURE Close concentration A scientist at work in the Nestlé Institute of Health Sciences, located on the EPFL campus near Lausanne, Switzerland.

Nestlé Health Science is supported in its work by the Nestlé Institute of Health Sciences (NIHS) which under- takes fundamental scientific research into how nutrition can be used to empower people to improve and maintain their health. NIHS research teams are providing greater insight into how our environment, diet and lifestyle intersect with our genetic make-up, gut microorganisms, metabolism and nutritional status to determine our health. NIHS has established the first complete essential nutrient profiling platform for accurate analysis of nutrient status. Thanks to the development of digital applications that capture dietary intake, the institute can now combine the informa- tion about the nutritional content of diet with measurements in people’s blood. This research offers the prospect of de- Nestlé biscuits veloping personalised nutrition products, including dietary Nestlé biscuits are recommendations. wholegrain cereal-based snacks It has also built a natural products screening platform to low in fat and calories. After just three years, Nestlé Fitness biscuits discover compounds that may already exist in diets around hold the number one position in the world and which can be used to improve metabolic and Brazil’s healthy biscuit segment. ageing health. The biscuits are sold across South America and in Israel.

Special milk for seniors Nestlé’s Jian Xin Double Care, a specially designed milk to enhance heart and bone health for middle-aged and senior adults, was launched in China in December 2013. The product contains phytosterols, which lower LDL (‘bad’) cholesterol, as well as calcium and vitamin D. The brand raises awareness of heart health with in-store health checks and offers toll-free phone contact with doctors to discuss cardiovascular health.

Fortified morn Golden Morn is a ready-to-eat breakfast cereal sold in , made of maize or millet, and fortified with micronutrients vitamin A and iron.

28 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Alliance for YOUth

At our 2014 CSV Forum, we announced that we will transform our European Youth Employment Initiative into a global programme. The initiative has two aims – to recruit and Hiring young talent develop the next generation of Nestlé leaders A group of newly-hired Nestlé employees in Greece, where we launched our European and to help young people with the transition Employment Initiative in 2013. Rates of from education to work. unemployment in the country are among the highest in Europe.

For the Nestlé Needs YOUth programme in Europe, where one in four people under the age of 25 is unemployed, we pledged to offer 20 000 jobs, apprenticeships and traineeships over three years, and establish readiness for work activities across our operations. We are well on schedule to achieve this with 11 832 job and training opportunities created by the end of 2014 and around 1600 readiness for work events completed. We built on the success of this initiative in 2014 by estab- lishing the Alliance for YOUth, a collaboration with around 200 other companies, to scale up and coordinate our efforts to tackle youth unemployment. The efforts of the Alliance for YOUth will result in the creation of more than 100 000 oppor- tunities for young people in Europe.

We will continue to lead the initiative to help tackle youth unemployment in Europe and globally, offering young people the chance of a more secure and productive future.

Follow Nestlé on LinkedIn: www.linkedin.com/company/nestle-s.a.

Nestlé Annual Report 2014 29 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 30 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Extending new job opportunities to European youth

Helping young people become better prepared to enter the professional world and to improve their chances in a challenging job market is one of the great public policy issues in Europe today.

With youth unemployment in Europe at over 20%, we are committed to working hand in hand with policy- makers and the education sector to foster both employability and job creation.

Building on our efforts, around 200 companies have now joined forces with us to tackle protracted joblessness among young people in Europe.

The Nescafé Dolce Gusto factory in Germany is among the many Nestlé sites in Europe hiring young talent.

Nestlé Annual Report 2014 31 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d THE FUTURE

Gender balance and diversity

We want to create a workplace culture that provides equal opportunities for everyone and ensures that people are always treated Helping protect women in the workplace with dignity and respect. Our talent pool The Infant Nutrition team in was looking to increase women in the field force, especially should reflect the societies in which we since they would be able to bring their personal operate and promoting gender balance and insights and experience to the table. A number of factors had to be considered in hiring women diversity makes good business sense. as a part of the field force. These were both cultural and logistical: safety of women during their travel and stay across locations being of We believe that different ways of thinking complement each prime importance. other and lead to better decisions being made. Diverse teams are more creative, inclusive and competitive, and better re- flect the markets we serve. We are a growing business and we need to recruit and nurture the best qualified people. This is not just about meeting a talent gap or the expectations “Nestlé builds success and our culture of regulators. Gender balance and diversity strengthen our on strong diversity. We will accelerate business. gender balance. Women represent In 2014, 33.5% of our managers were women, up from 31% in 2013. We promote gender balance by focusing on aware- 80% of our consumer spending ness and education, flexible working, mentoring and mobility decisions. 60% of graduates in the solutions. However, more remains to be done. Removing all EU and USA are women. Improving gender-related barriers to women reaching top management gender balance will enrich our positions is a priority for the company. Quotas are not the answer. We prefer to take strategic decisions with the pri­- leadership and improve consumer mary goal of increasing the diversity and gender balance understanding.” of our talent pool, but always promoting the best qualified Paul Bulcke, Nestlé Chief Executive Officer person for each role. We recognise too that we have responsibilities to promote gender balance and diversity in our supply chains. We have taken steps, such as our work with the Fair Labor Association on the role of women in the communities that supply us with cocoa, to increase women’s participation in these areas in a sustainable way. Since we signed the United Nations Wom- en’s Empowerment Principles, a set of seven steps that busi- nesses can take to advance gender equality and empower women, more than 700 000 women around the world have been empowered with the support of Nestlé’s programmes through education and other means.

Ongoing learning The training sessions at the Rive-Reine international training centre in Switzerland provide additional education and training opportunities to Nestlé employees.

32 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Zero water – reducing water use in Mexico

In 2014, we transformed a dairy factory in Mexico into the company’s first ‘zero water’ manufacturing site in the world. Cow’s milk is 88% water, so by extracting some of it to use in the factory’s systems, we are saving enough water to meet the average daily consumption of 6 400 people in the surrounding area.

The new technology used at the factory in Jalisco, Mexico, heats milk at low pressure to remove some of the water. The Zero water resulting steam is then condensed and treated and used A researcher at the to clean machines. It is then recycled and used again. The zero water factory process reduces by 15% the total amount of water used by in Jalisco, Mexico, does a quality check. Nestlé Mexico. Work is now underway to deploy similar tech- The water resource nology in five other manufacturing sites in water stressed are- savings at the factory as around the world. It is just one of a number of water-saving are equivalent to the volume needed per initiatives we have introduced in recent years, allowing us to day to fill an Olympic- reduce total water withdrawal in absolute terms by almost size swimming pool. one third in the last decade.

Today our people are carrying out 170 water-saving projects in Nestlé factories, which will save around Safety at top of priority list 3.6 million cubic metres of water. In March 2014, we opened the Nestlé Food Safety Institute in Beijing, China. The new centre has three objectives: to collaborate with Chinese universities, research institutes and regulatory authorities in food safety research; to increase our ability to assess risks, anticipate problems and provide accurate information in any food safety situations; Read about Nestlé’s Commitment on Water Stewardship: www.nestle.com/csv/water/policy-stewardship and to engage on scientific communication and food safety Read the blog of Nestlé’s Chairman: training. www.water-challenge.com

Nestlé Annual Report 2014 33 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d OUR BRANDS

34 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Nestlé is deeply integrated into people’s lives with many buying our products on a daily basis. This gives us opportunities to contribute meaningfully to their quality of life. It is what our promise of Good Food, Good Life is all about: offering the best tasting, healthiest choices across a wide range of food and beverages, from morning to night and throughout life, helping people to live more enjoyable, healthy lives.

However, today, even brands that enjoy a high level of loyalty and trust need attention- grabbing, engaging consumer communication to ensure they remain relevant to consumers. Therefore, excellence in brand- building discipline and conviction about the importance of strong, sustainable brand equity is more important than ever, especially in an increasingly complex and crowded digital world.

Nestlé Annual Report 2014 35 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 36 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d N˚1 bottled water brand in the world, in value Nestlé Pure Life is the world’s top-selling water brand by value and our biggest bottled water brand. Present in A high-quality brand with an affordable price and reliable purity; it is the best 56 41 choice for healthy family hydration. Nestlé Pure Life production sources worldwide countries

More than 16 1500 glasses drunk every second worldwide year old brand

Nestlé Pure Life, launched in 1998, is available in 41 countries from 56 production sources. It became the first bottled water brand to carry the Nestlé name, strength- ening our NHW strategy. The brand was introduced in Europe in 2000 as Nestlé Aquarel, where it adopted a multi-source model. Today, Nestlé Pure Life is available as still and sparkling water in a variety of bottle sizes, from bottles that are small enough for a child to hold, to bigger sizes for a family, or for an office. In 2010, Nestlé Pure Life became the top-selling bottled water in the United States, where it is the standard bearer for the Drink Better. Live Better. movement to promote drinking water as a natural, healthier, low-calorie option for hydration. In our healthy hydration communication, we emphasise the needs of families, and specifically mothers and caregivers. Water is the best way to hydrate, and we want to safeguard healthy habits in future generations.

Nestlé Annual Report 2014 37 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 38 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Nourishing champions for 80 years

Nestlé , an iconic brand with a long and distinguished history, has been re-launched in parts of South Present in East Asia and Africa with a new visual identity and a branded active benefit, 32 Activ-Go. It is made from a unique mio 47 malt extract and a combination of

cups of Nestlé Milo nine micronutrients (six vitamins and consumed every day countries three minerals). 11.4 36 billion servings fortified 6 vitamins and 3 minerals with iron each year in Nestlé Milo Activ-Go

Parents want their children to make the most of their potential. Nestlé Milo, which is mainly consumed by children aged 7–12, can help to provide the nourishing energy they need to succeed. Activ-Go plays a role in energy release, muscle function, bone maintenance and red blood cell formation, all essential for physical activity. The re-launched recipe with Activ-Go was developed by our scientists and intro- duced in 2014 in Indonesia, and Vietnam. It will be launched in other Asian, African and Latin American countries this year. Nestlé Milo celebrated its 80th birthday in 2014. It was created by Nestlé engi- neer Thomas Mayne to help children who had poor diets get sufficient nutrition. He created Nestlé Milo from malt, milk and cocoa to give children the nutritious energy they need to get the best out of their day. It was launched at the Sydney Easter Show in 1934. Nestlé Milo has been a staunch supporter of youth sports throughout its history, and has fuelled generations through their formative years.

Nestlé Annual Report 2014 39 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 40 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 130

countries where Maggi products are sold Last year, Maggi created a new breakfast option for the Indian market, Maggi Oats Noodles, offering Nutrition, Health and Wellness in a bowl. The noodles are made 250 from 51% wholegrain oat flour, fibre mio (equivalent to one bowl of oats), with a real vegetable garnish, as well as fortified servings everyday the popular authentic masala taste.

12 6 0 0 5.2 tonnes billion packs sold per year of salt reduced since 2005

The successful roll-out of Maggi Oats Noodles demonstrated that healthy eating can be both enjoyable and tasty. Strong sales of the new product show that it is also good business. Maggi Oats Noodles meet Nestlé Nutritional Foundation criteria, which are based on public health recommendations. The consumer communica- tion reinforces the importance for families to start the day with a well-balanced breakfast, including fruits and milk. In 2014, we continued to renovate Maggi products all around the world, reducing salt and fat and improving their nutritional benefits. The Maggi company began selling powdered soups in Switzerland in 1885. Julius Maggi had pioneered the production of pea and bean soups at the request of the Swiss Public Welfare Society to address the dietary deficiency of the work- ing population. The advent of factory work for women meant less time to prepare food, and the soups were a convenient and nourishing alternative. Maggi entered the Nestlé family in 1947, when the holding company, Alimen­ tana S.A., merged with Nestlé to become Nestlé Alimentana S.A.

Nestlé Annual Report 2014 41 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Financial review

Group sales (in CHF) Organic growth 91.6 billion 4.5% Real internal growth 2.3%

Trading operating profit (in CHF) Trading operating profit margin 14.0 billion 15.3% +30 basis points

constant currencies

Earnings per share (in CHF) Underlying earnings per share 4.54 +4.4% constant currencies

Operating cash flow (in CHF) Free cash flow (in CHF) 14.7 billion 14.1 billion

Proposed dividend (in CHF) Proposed dividend increase 2.20 +2.3%

Outlook While delivering in the short term, we remain focused on our business long term, strengthening the foundations of future growth. We expect 2015 to be similar to 2014 and we aim to achieve organic growth of around 5% with improvements in margins, underlying earnings per share in constant curren- cies and capital efficiency.

42 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d LEADING POSITIONS IN DYNAMIC CATEGORIES

In millions of CHF 2013 2014 RIG (%) OG (%) Powdered and Liquid Beverages Soluble coffee / coffee systems 9 619 9 328 45.9% Other 10 876 10 974 54.1% Total sales 20 495 20 302 100.0% +4.2% +5.4% Trading operating profit 4 649 4 685 23.1%

Water Total sales 6 773 6 875 +6.2% +5.3% Trading operating profit 678 710 10.3%

Milk products and Ice cream Milk products 13 010 12 626 75.4% Ice cream 4 347 4 117 24.6% Total sales 17 357 16 743 100.0% –1.0% +3.4% Trading operating profit 2 632 2 701 16.1%

Nutrition and Health Science (a) Total sales 11 840 13 046 +5.3% +8.7% Trading operating profit 2 228 2 723 20.9%

Prepared dishes and cooking aids Frozen and chilled 7 782 7 302 53.9% Culinary and other 6 389 6 236 46.1% Total sales 14 171 13 538 100.0% –1.2% –0.1% Trading operating profit 1 876 1 808 13.4%

Confectionery 7 477 7 053 72.2% Sugar confectionery 1 230 1 148 11.7% Biscuits 1 576 1 568 16.1% Total sales 10 283 9 769 100.0% –0.1% +4.2% Trading operating profit 1 630 1 344 13.8%

PetCare Total sales 11 239 11 339 +5.0% +5.6% Trading operating profit 2 163 2 246 19.8%

(a) Renamed following the integration of Galderma as from July 2014.

Nestlé Annual Report 2014 43 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d BUSINESS REVIEW

Introduction Employees by geographic area In 2014 we delivered strong results in a soft trading envir­ 2013 2014 onment, building on the good growth of past years. They Europe (a) 28.0% 28.2% demonstrate the intrinsic strengths of Nestlé: the commit- Americas 32.5% 32.7% ment of our people, our global footprint, the strength of our Asia, Oceania and Africa 39.5% 39.1% portfolio and the quality of our innovation. While delivering Total 100.0% 100.0% in the short term, we remain focused on our business long (a)1 1 177 employees in Switzerland in 2014. term, strengthening the foundations of future growth.

Employees by activity In thousands 2013 2014 Factories 178 175 Administration and sales 155 164 Total 333 339

Factories by geographic area Nestlé has operations in 197 countries and 442 factories in 86 countries. Eight were acquired during the year and 13 divested. 2013 2014 Europe 140 136 Americas 164 163 Asia, Oceania and Africa 143 143 Total 447 442

44 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Principal key figures(a) (illustrative) in CHF, USD, EUR In millions (except for data per share) Total CHF Total CHF Total USD Total USD Total EUR Total EUR 2013 2014 2013 2014 2013 2014 Sales 92 158 91 612 99 452 99 961 74 858 75 431 Trading operating profit 14 047 14 019 15 159 15 296 11 410 11 543 Profit for the period attributable to shareholders of the parent (Net profit) 10 015 14 456 10 808 15 774 8 135 11 903 Equity attributable to shareholders of the parent 62 575 70 130 70 329 70 863 51 030 58 307 Market capitalisation, end December 208 279 231 136 234 087 233 553 169 850 192 170

Data per share Basic earnings per share 3.14 4.54 3.39 4.95 2.55 3.74

(a) Income statement figures translated at weighted average annual rate; Balance sheet figures at year-end rate.

Trading operating profit Operating segments: trading operating profit 15.3% In % of sales 14 047 14 000 15.2% 14 019 15.2% Zone Europe 15.3 Zone Americas 18.8 13 500 15.0% Zone Asia, Oceania and Africa 18.7 Nestlé Waters 9.7 Nestlé Nutrition 20.8 13 000 14.8% Other businesses (a) 19.1

2013 2014 (a) Mainly Nespresso, Nestlé Professional, Nestlé Health Science and Nestlé Skin Health (renamed following the integration of Galderma P In millions of CHF as from July 2014). P In % of sales

Nestlé Annual Report 2014 45 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d BUSINESS REVIEW

Group results Geographic sales In 2014 Nestlé’s organic growth was 4.5%, composed as % of total sales of 2.3% real internal growth and 2.2% pricing. Sales were Europe 28% CHF 91.6 billion, down 0.6%, impacted by negative foreign exchange of –5.5%. Acquisitions, net of divestitures, added 0.4% to sales. Americas 43% The Group’s trading operating profit was CHF 14.0 billion, representing a margin of 15.3%, up 10 basis points, and up Asia, Oceania and Africa 29% 30 basis points in constant currencies. The cost of goods sold fell by 30 basis points as a percentage of sales, driven by product mix and pricing actions and savings created by Nestlé Continuous Excellence which more than offset increases in raw material costs. Distribution costs were up by 10 basis points. Total marketing and administration Geographic sales and organic growth expenses rose by 10 basis points as we increased consumer facing marketing support for our brands. OG (%) Net profit rose CHF 4.4 billion to CHF 14.5 billion. The 6 P Americas +5.4% increase also reflects the profit realised on the disposal of CHF 39.4 billion 4 part of the stake in L’Oréal and the revaluation gain on the P Europe +1.9% 50% of Galderma already held when the Group brought its CHF 25.9 billion ownership from 50% to 100%. Reported earnings per share 2 P Asia, Oceania were CHF 4.54, up 44.6%. Underlying earnings per share in and Africa +5.7% constant currencies were up 4.4%. CHF 26.3 billion The Group’s operating cash flow remained strong at CHF 14.7 billion. Sales 25.0 30.0 35.0 40.0 CHF billion

Each region includes sales of the Zones, Nestlé Waters, Nestlé Nutrition, Nespresso, Nestlé Professional, Nestlé Health Science and Nestlé Skin Health.

46 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Sales by geographic areas Business review Differences 2014/2013 (in %) The Nestlé Group’s organic growth was broad-based, 5.4% in local in CHF in the Americas, 1.9% in Europe and 5.7% in Asia, Oceania in CHF currency millions and Africa. Our business in developed markets grew 1.1%, By principal markets 2014 achieving sales of CHF 51.4 billion. Our emerging markets United States +0.7% +1.8% 23 489 business grew 8.9%, delivering sales of CHF 40.2 billion. Real Greater China Region +0.3% +1.6% 6 638 internal growth was 2.3% in the Americas, 2.4% in E­ urope France –1.3% +0.1% 5 507 and 2.4% in Asia, Oceania and Africa. Brazil +0.0% +10.6% 5 117 In 2014 we created Nestlé Skin Health, complementing Germany +0.6% +2.0% 3 340 Nestlé Health Science, further expanding our existing food United Kingdom +5.8% +1.7% 2 987 and beverage business in line with our strategic ambition Mexico –6.9% –1.8% 2 960 to be the world’s recognised leading Nutrition, Health and Philippines +3.3% +9.4% 2 489 Wellness company. We also established Nestlé Business Italy +0.5% +1.9% 2 108 Excellence at Executive Board level, aggregating business Canada –5.0% +2.9% 1 962 support services. This allows us to better leverage our scale, Spain +0.7% +2.1% 1 856 decrease structural costs, increase the quality of support ser- Russia –6.5% +13.4% 1 731 vices and free up resources to deliver growth and to allow –8.6% –0.8% 1 622 our markets to focus on generating demand. Switzerland +3.5% +3.5% 1 566 Japan –5.0% +4.1% 1 491 Rest of the world –1.2% (a) 26 749

By continent Europe –0.6% (a) 25 903 United States and Canada +0.8% (a) 25 601 Asia +1.5% (a) 20 801 and Caribbean –5.0% (a) 13 836 Africa +0.7% (a) 3 421 Oceania –7.7% (a) 2 050 Total –0.6% (a) 91 612

(a) Not applicable.

Nestlé Annual Report 2014 47 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d BUSINESS REVIEW

Zone Americas Zone Europe Sales of CHF 27.3 billion, 5.0% organic growth, 1.1% real Sales of CHF 15.2 billion, 1.5% organic growth, 2.2% real internal growth; 18.8% trading operating profit margin, internal growth; 15.3% trading operating profit margin, +60 basis points. +30 basis points. The Zone’s organic growth was supported by double-digit Relative to the market this was good growth, driven by growth for Nescafé Dolce Gusto and strong performances innovation and premiumisation. The European trading en- in ambient dairy and petcare. In North America growth im- vironment continued to be volatile and intense, with defla- proved towards the end of the year while in Latin America tionary pressure increasing during the year and consumer good growth was helped by pricing, reflecting inflationary confidence very fragile, reducing the flexibility to price. pressures. Good performances in France, Switzerland, Austria and Our performance in North America was affected by the the Netherlands, and a recovery in Spain and Portugal sup- frozen category. Projects are underway to reposition Lean ported the growth in Western Europe. The Great Britain Cuisine, and Stouffers. They address all elements region, Germany, Italy and Greece were more challenged. of the marketing mix, reflecting trends such as organic and There were strong performances from petcare and ­Nescafé ethnic, enhancing the brands’ relevance to consumers. We Dolce Gusto across Western Europe and we saw good are taking the same approach in frozen pizza where our growth from innovations in several categories. Highlights ­ did well. In ice cream the super pre­ included Nescafé Gold and Azzera premium soluble coffee, mium segment performed well with Gelato, and snacks re- Fresh Up and Fiesta in frozen pizza, Maggi snacking turned to growth, although the premium segment was sub- noodles in ambient culinary and the launch of premium dued. In confectionery the successful roll-out of Butterfinger chocolate tablets Les Recettes de l’Atelier in France. Peanut Butter Cups continued. Innovations like Natural Bliss In Central and Eastern Europe, Russia and Ukraine drove and seasonal renovations of flavours helped Coffee-mate de- the growth in a deteriorating economic environment. Pet- liver good growth. Innovation also ensured the petcare busi- care, Nescafé Dolce Gusto, soluble coffee, particularly Gold ness in North America continued to grow with , Blend, and confectionery with KitKat were the highlights. Pro Plan and Tidy Cats Lightweight cat litter as highlights. The The ongoing roll-out of Papyrus cooking papers in ambient launch of Beyond natural pet food gained momentum. ­culinary also continued to do well. Latin America delivered good organic growth despite a Petcare delivered broad-based growth across the Zone, worsening of the macroeconomic situation towards the end further strengthening its positions, in particular through the of the year. Although consumer sentiment varied across the premium category with , Purina ONE and Gourmet, and region, most markets did well. All Brazil’s categories grew, our snacks range. with Ninho in growing-up milks, KitKat in confectionery, The Zone’s trading operating profit margin was 15.3%, ­Nesfit in biscuits and Nescau in cocoa and malt beverages up 30 basis points, reflecting our achievements in leverag- making strong contributions. In Mexico the changes in fiscal ing our real internal growth and continuous improvement in legislation, pricing and subdued consumer demand affect- efficiencies. ed the market. Nescafé Dolce Gusto delivered double-digit growth across the region, while Dog Chow and Pro Plan drove sales in the petcare business. Despite higher input costs the Zone’s trading operating profit margin improved by 60 basis points to 18.8%, reflect- ing operational and structural efficiencies and lower other trading expenses.

48 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Zone Americas (a) In millions of CHF 2013 2014 RIG (%) OG (%) United States and Canada 16 701 16 396 60.1% Latin America and Caribbean 11 657 10 881 39.9%

Powdered and Liquid Beverages 3 447 3 190 11.7% Milk products and Ice cream 7 939 7 676 28.1% Prepared dishes and cooking aids 5 196 4 745 17.4% Confectionery 4 186 3 972 14.6% PetCare 7 590 7 694 28.2% Total sales 28 358 27 277 100.0% +1.1% +5.0%

Trading operating profit 5 162 5 117 18.8% Capital expenditure 1 019 1 039 3.8%

Zone Europe (a) In millions of CHF 2013 2014 RIG (%) OG (%) Western 12 722 12 610 83.1% Eastern and Central 2 845 2 565 16.9%

Powdered and Liquid Beverages 4 067 4 027 26.6% Milk products and Ice cream 1 587 1 455 9.6% Prepared dishes and cooking aids 3 879 3 737 24.6% Confectionery 3 061 2 915 19.2% PetCare 2 973 3 041 20.0% Total sales 15 567 15 175 100.0% +2.2% +1.5%

Trading operating profit 2 331 2 327 15.3% Capital expenditure 964 747 4.9%

(a) 2013 comparatives have been restated following the transfer of responsibility for RTD businesses in geographic Zones to Nestlé Waters effective as from 1 January 2014.

Nestlé Annual Report 2014 49 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d BUSINESS REVIEW

Zone Asia, Oceania and Africa Nestlé Waters Sales of CHF 18.3 billion, 2.6% organic growth, –0.3% real Sales of CHF 7.4 billion, 5.4% organic growth, 6.3% real internal growth; 18.7% trading operating profit margin, internal growth; 9.7% trading operating profit margin, –20 basis points. +50 basis points. The slower growth in the Zone was due to our largest mar- Nestlé Waters delivered solid broad-based organic and ket China and to Oceania. In China we needed to adapt our real internal growth in all three geographies. Nestlé Pure Life portfolio to reconnect with the fast-changing expectations of continued to be a growth engine, particularly in the emerging the Chinese consumer. Therefore, in addition to correcting markets but also in North America and the United Kingdom. trade stocks throughout the year, we focused on innovation, and S.Pellegrino, our premium international brands, on reformulation and on re-launches, particularly in coffee, continued to demonstrate our ability to create value in the ready-to-drink and confectionery. We continued to see good category. Complementing these performances, strong ­local performances in ambient culinary, ice cream and ready-to- brands also delivered good growth, especially Buxton in drink coffee. In Oceania we are focused on developing new the United Kingdom, Erikli in Turkey, La Vie in Vietnam and trade channels. ­Yunnan Shan Quan in China. Strong growth continued in most other emerging mar- The trading operating profit margin was 9.7%, up 50 basis kets, in particular the Philippines, South Asia, the Indochina points, mainly driven by solid growth on the back of con- region, Turkey and many markets in Africa. We introduced tained structural costs. Lower input costs were partly offset new premium noodles in and Malaysia. In the by higher distribution costs. ­Philippines the new fortified Bear Brand milk powders were well received. Maggi created a new breakfast option for the Indian market, Maggi Oats Noodles, and Nestlé Milo Activ-Go was launched in parts of South East Asia. It was also rolled out in Africa, helping to deliver good growth across the ­continent. Strong innovation in products and business models drove performance in Japan with the coffee systems Nescafé Dolce Gusto and Nescafé Gold Blend Barista doing well and KitKat maintaining its growth momentum. The Zone’s trading operating profit margin was 18.7%, down 20 basis points, mainly due to slower growth, input cost increases and some exceptional items.

50 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Zone Asia, Oceania and Africa (a) In millions of CHF 2013 2014 RIG (%) OG (%) Oceania and Japan 3 050 2 802 15.3% Other Asian markets 10 274 9 860 54.0% Africa and Middle East 5 527 5 610 30.7%

Powdered and Liquid Beverages 5 868 5 733 31.4% Milk products and Ice cream 6 814 6 547 35.8% Prepared dishes and cooking aids 2 835 2 888 15.8% Confectionery 2 659 2 500 13.7% PetCare 675 604 3.3% Total sales 18 851 18 272 100.0% –0.3% +2.6%

Trading operating profit 3 562 3 408 18.7% Capital expenditure 1 280 697 3.8%

Nestlé Waters (a) In millions of CHF 2013 2014 RIG (%) OG (%) Europe 2 205 2 190 29.6% United States and Canada 3 702 3 780 51.2% Other regions 1 350 1 420 19.2% Total sales 7 257 7 390 100.0% +6.3% +5.4%

Trading operating profit 665 714 9.7% Capital expenditure 377 308 4.2%

(a) 2013 comparatives have been restated following the transfer of responsibility for Nestea RTD businesses in geographic Zones to Nestlé Waters effective as from 1 January 2014

Nestlé Annual Report 2014 51 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d BUSINESS REVIEW

Nestlé Nutrition Other businesses Sales of CHF 9.6 billion, 7.7% organic growth, 3.6% real Sales of CHF 13.9 billion, 7.1% organic growth, 5.6% real intern­al growth; 20.8% trading operating profit margin, internal growth; 19.1% trading operating profit margin, +80 basis points. +140 basis points. Our infant nutrition business saw a very strong perform­ The growth for Nestlé Professional was driven by the ance in many Asian markets including China. Growth was emerging markets, particularly China, the Philippines, the double-digit across Asia, despite political unrest in parts of Indochina region, Middle East and Russia whilst Western the Middle East that hindered the distribution of products Eur­ope and North America continued to face challenges in there. Growth in Latin America was solid, while in Europe the out-of-home environment. The strategic growth drivers; and North America, the environment was more challenging. beverage solutions and desserts solutions, continued to Infant formula’s growth was driven by strong sales of NAN ­perform well. and our premium brands S-26 and Illuma which benefited Nespresso grew in all regions, further expanding its from the roll-out of successful innovation. In baby food, in- ­presence around the world. The focus on quality and in- fant cereals saw a steady recovery in the United States and vestments in products, machines and services were the Gerber Organic fruit purée pouches for infants, combining base for its strong results. Nespresso continued to drive the good nutrition with convenience, were a highlight for meals expansion of the global single-serve coffee market with the and drinks. successful launch of the VertuoLine system in North America We divested our Performance Nutrition business ­PowerBar creating a new premium coffee segment. The roll-out of the during the year. innovative automated retail boutique, the Nespresso Cube, is The trading operating profit margin rose 80 basis points to pioneering a new way of shopping and a personalised ser- 20.8%, despite the impact of higher input costs. The improve- vice for consumers. ment was driven by the effects of portfolio management, the Nestlé Health Science continued to develop nutritional good performance in Wyeth Nutrition and efficiencies. therapies that have proven clinical benefit and health eco- nomic value. Growth was primarily driven by strong perfor- mances in Europe and by its increasing presence in China. New innovations for Vitaflo in the United Kingdom, the new Boost bottle in Canada, and the Meritene range in Europe all helped deliver good growth. Nestlé Skin Health delivered double-digit growth in line with expectations with strong performances in all geograph­ ies but particularly in the Americas and Asia. All business lines contributed to the growth. Nestlé Skin Health was further strengthened by the acquisition of the full rights to commercialise several key aesthetic dermatology products in the United States and Canada. The trading operating profit margin of the Other businesses increased by 140 basis points to 19.1%, driven mainly by the good performance of all businesses and helped by the excep- tional contribution during the first six months of ­Galderma’s integration into Nestlé Skin Health.

52 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Nestlé Nutrition In millions of CHF 2013 2014 RIG (%) OG (%) Europe 1 742 1 655 17.2% Americas 3 724 3 323 34.6% Asia, Oceania and Africa 4 360 4 636 48.2% Total sales 9 826 9 614 100.0% +3.6% +7.7%

Trading operating profit 1 961 1 997 20.8% Capital expenditure 430 363 3.8%

Other businesses (a) In millions of CHF 2013 2014 RIG (%) OG (%) Total sales 12 299 13 884 +5.6% +7.1%

Trading operating profit 2 175 2 654 19.1% Capital expenditure 642 573 4.1%

(a) Mainly Nespresso, Nestlé Professional, Nestlé Health Science and Nestlé Skin Health (renamed following the integration of Galderma as from July 2014).

Nestlé Annual Report 2014 53 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d BUSINESS REVIEW

Net profit and earnings per share Evolution of the Nestlé S.A. share in 2014 Net profit rose CHF 4.4 billion to CHF 14.5 billion. The increase In CHF includes the profit realised on the disposal of part of the stake in L’Oréal and the revaluation gain on the 50% of Galderma 110.0% already held when the Group brought its ownership from 72.50 50% to 100%. As a consequence, reported earnings per 107.5% share were CHF 4.54, up 44.6%. Underlying earnings per 70.00 105.0% share were up 4.4% in constant currencies. The underlying tax rate was 27.1%, relatively flat compared to 27.0% in 2013. 67.50 102.5% 100.0% Cash flow 65.00 97.5% The Group’s operating cash flow was CHF 14.7 billion com- pared to CHF 15.0 billion in 2013, and was again affected by 62.50 95.0% the strength of the Swiss Franc in a challenging foreign ex- .00 change environment. The Group’s free cash flow remained 40 | | | | | | | | | | | | strong at CHF 14.1 billion. While this figure includes the pro- ceeds from the partial disposal of the L’Oréal stake, it is also J F M A M J J A S O N D a reflection of our ongoing focus on capital discipline, includ- P Nestlé S.A. share ing all elements of working capital, capital expenditure and P Nestlé relative to Swiss Market Index a continuous focus on efficiencies and profitable growth.

Financial position The Group’s net debt fell from CHF 14.7 billion to CHF 12.3 bil- lion reflecting our strong free cash flow during the year Dividend per share at CHF 14.1 billion more than offsetting the payment of the In CHF dividend of CHF 6.9 billion and the initial phase of the current 2.20 share buy-back programme. 2.15 2.05 Return on invested capital 1.95 The Group’s return on invested capital was 10.8% including goodwill, impacted partially by the integration of Galderma 1.85 and it was 30.4% excluding goodwill, up 30 basis points.

Dividend The Board of Directors is proposing a dividend of CHF 2.20 2010 2011 2012 2013 2014 per share, up from CHF 2.15 in 2013.

Outlook While delivering in the short term, we remain focused on our business long term, strengthening the foundations of future growth. We expect 2015 to be similar to 2014 and we aim to achieve organic growth of around 5% with improvements in margins, underlying earnings per share in constant cur­ rencies and capital efficiency.

54 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d PRINCIPAL RISKS AND UNCERTAINTIES

Group Risk Management Factors affecting results The Nestlé Group Enterprise Risk Management Framework Nestlé’s reputation is based on consumers’ trust. Any major (ERM) is designed to identify, communicate, and mitigate event triggered by a serious food safety or other compliance risks in order to minimise their potential impact on the Group. issue could have a negative effect on Nestlé’s reputation or Nestlé has adopted a dual approach in identifying and as- brand image. The Group has policies, processes, controls sessing risks. A top-down assessment is performed at Group and regular monitoring (dedicated dashboard with relevant level once a year to create a good understanding of the com- KPIs) in place to prevent such events. pany’s mega-risks, to allocate ownership to drive specific The success of the Nestlé Group depends on its ability to actions around them and take any relevant steps to address anticipate consumer preferences and to offer high-quality, them. A bottom-up assessment occurs in parallel annually appealing products. The Group’s business is subject to some and focuses on the global risk portfolio in the businesses/ seasonality, and adverse weather conditions may impact sales. corporate functions. It involves the aggregation of individual The food industry as a whole is faced with the global chal- assessments by the Zones, Globally Managed Businesses lenge of increasing obesity. The Group makes all its products and all markets. It is intended to provide a high-level risk available in a range of sizes and varieties designed to meet all mapping and allows Group Management to make sound de- needs and all occasions. cisions on the future operations of the company and ensure Nestlé is dependent on the sustainable supply of a number that any risk growing in importance within the organisation of raw materials, packaging materials and services/utilities. is captured and addressed in Nestlé’s ERM agenda. In 2014, Any major event triggered by natural hazards (drought, flood, a total of 42 risk assessments were performed and updated. etc.), change in macroeconomic environment (shift in pro- An annual compliance risk assessment is performed in the duction patterns, biofuels, excessive trading, etc.), resulting Group Compliance Committee. Risk assessments are the in input price volatilities and/or capacity constraints, could responsibility of line management; this applies equally to a potentially impact Nestlé’s financial results. The Group has business, a market or a function, and any mitigating actions policies, processes, controls and regular monitoring in place identified in the assessments are the responsibility of the to (if ever possible) anticipate such events and adequately individual line management. If Group-level intervention is re- mitigate against them. quired, responsibility for mitigating actions will generally be Nestlé manages risks and opportunities related to climate determined by the Executive Board. The results of the Group change proactively given the impact it may have on agricul- ERM are presented annually to the Executive Board and to the ture and food production systems. Audit Committee, and conclusions reported to the Board of The Group’s liquidities/liabilities (currency fluctuation, inter­- Directors. Nestlé uses the outcome of stakeholder meetings est rate, derivatives, and/or hedging, pension funding obli- to better understand potential gaps between internal and gations/retirement benefits, banking/commercial credit, and external perception of risks and their impact on reputation. cost of capital, etc.) could be impacted by any major event in the financial markets. Again, Nestlé has the appropriate risk mitigation measures in place. Nestlé is dependent on sustainable manufacturing/supply of finished goods for all product categories. A major event in one of Nestlé’s key plants, at a key supplier, contract manu­ facturer, co-packer, and/or warehouse facility could poten- tially lead to a supply disruption and impact Nestlé’s financial results. Business continuity plans are established and regu- larly maintained in order to mitigate against such an event. The Group depends on accurate, timely information and numerical data from key software applications, without dis- ruption, to enable day-to-day decision making. The Group is subject to environmental regimes applying in all countries where it operates and has put controls in place to comply with legislation concerning the protection

Nestlé Annual Report 2014 55 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d GEOGRAPHIC DATA: FACTORIES

of the environment, including the use of natural resources, Americas release of air emissions and waste water, and the generation, Argentina 7 PL PL PL PL PL L PL storage, handling, transportation, treatment and disposal of Bolivia 1 L L L L PL L waste materials. Brazil 23 PL PL PL PL PL PL PL Nestlé is subject to health and safety regimes in all coun- Canada 11 PL PL PL PL PL PL PL tries where it operates and has procedures in place to com- Chile 7 PL L PL PL PL PL L ply with legislation concerning the protection of the health Colombia 4 PL L PL L PL PL PL and welfare of employees and contractors. Costa Rica 1 L L L PL L L L Our Group companies are party to a variety of legal pro- Cuba 3 L PL PL L L L ceedings arising out of the normal course of business. The Dominican Republic 2 L L PL L PL L L relevant companies believe that there are valid defences for Ecuador 2 PL L PL L PL PL L the claims, and such companies intend to defend any such Guatemala 3 PL L L L PL L L litigation. Jamaica 1 PL L PL L L L L Mexico 11 PL PL PL PL PL PL PL Nestlé has factories in 86 countries and operations in Nicaragua 1 PL L PL L L L L 197 countries around the world. Security, political instability, Panama 1 L L PL L PL L L legal and regulatory, fiscal, macroeconomic, foreign trade, Peru 1 PL L PL PL PL PL L labour and/or infrastructure risks could potentially impact Trinidad and Tobago 1 PL L PL L L L L Nestlé’s ability to do business in a country or region. United States 77 PL PL PL PL PL PL PL Events such as infectious disease could also impact the Uruguay 1 PL L L L PL L L Group’s ability to operate. Any of these events could lead Venezuela 5 PL L PL PL PL PL PL to a supply disruption and impact Nestlé’s financial results. Regular monitoring and ad hoc business continuity plans are established in order to mitigate against such events. One of the most valuable assets of Nestlé is the Group- wide geographical and product category spreads, which represent a tremendous natural hedge.

The figure in black after the country P Powdered and Liquid Beverages denotes the number of factories. P Water P Local production (may represent P Milk products and Ice cream production in several factories). P Nutrition and Health Science L Imports (may, in a few particular P Prepared dishes and cooking aids cases, represent purchases P Confectionery from third parties in the market P PetCare concerned).

56 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Europe Asia, Oceania and Africa Austria 1 PL L PL L PL L L Algeria 2 PL PL PL L L L Belgium 1 L PL L L L L L Angola 1 L L PL L L Bulgaria 2 L L PL L L PL L Australia 9 PL L PL PL PL PL PL Czech Republic 3 L L L L PL PL L Bahrain 1 L PL L L L L L Denmark 1 L L L L PL L L 1 PL PL PL PL P Finland 3 L L PL PL PL L L 1 PL L PL L PL France 23 PL PL P L PL PL L PL Côte d’Ivoire 2 PL PL L P Germany 18 PL PL PL PL PL PL PL Democratic Republic Greece 3 PL PL PL L L L L of Congo (DRC) 1 L L L L PL Hungary 3 PL PL L L L PL PL Egypt 3 PL PL PL PL P PL Ireland 1 L L PL PL L L L 1 PL L PL PL L L Italy 15 PL PL PL L PL PL PL Greater China Region 29 PL PL PL PL PL PL PL Netherlands 1 L L PL PL L L L India 7 PL L PL PL P PL Poland 7 PL PL PL L PL PL L Indonesia 4 PL L PL PL PL PL L Portugal 3 PL L PL PL L L L Iran 2 L P PL PL L L L Republic of Serbia 2 L L PL L PL PL L Iraq 1 L PL L L L L Romania 1 PL L L L L PL L Israel 9 PL L PL PL P PL L Russia 8 PL PL PL PL PL PL PL Japan 3 PL L PL L PL PL L Slovak Republic 1 L L L L PL L L Jordan 1 L PL L L L L L Spain 12 PL PL PL PL PL PL PL Kenya 1 PL L PL PL PL L Sweden 2 PL L L PL L L L Lebanon 2 L PL L L L L L Switzerland 11 PL PL PL PL PL PL L Malaysia 6 PL L PL PL PL PL L Turkey 2 PL PL PL L P PL L Morocco 1 PL L PL PL PL L L Ukraine 3 PL L L L PL PL L 2 PL L PL L PL PL PL United Kingdom 9 PL PL PL PL L PL PL Nigeria 2 PL P PL PL PL P 4 PL P PL PL PL Papua New 1 PL PL L PL L Philippines 6 PL L PL PL PL L L Qatar 1 L PL L L L L L Republic of Korea 1 L PL L L L L L Saudi Arabia 7 L PL L L L L L 1 L L L L PL Singapore 2 PL L PL PL PL L L South Africa 8 PL L PL PL PL PL PL Sri Lanka 1 PL PL PL P L Syria 1 L L L L L Thailand 7 PL PL PL L PL L PL Tunisia 1 PL PL L L United Arab Emirates 2 PL PL PL L PL PL L Uzbekistan 2 L P PL PL L L Vietnam 5 PL PL PL L PL Zimbabwe 1 PL L PL PL PL L

Nestlé Annual Report 2014 57 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Corporate Governance and Compliance

58 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d CORPORATE GOVERNANCE

For our company to be successful over the long term and Distribution of share capital by geography (a) create value for shareholders, it must create value for society. Our approach to Creating Shared Value is built upon a set of 100% Others 8.83% strong principles and values set by the Board of Directors. France 1.91% In our governance, our Board of Directors plays a central 80% China 2.04% role, among other things, for our long-term strategy; com- Canada 2.13% pany values, culture and ‘tone at the top’; the oversight of 60% Japan 2.33% management and long-term performance; financial planning Luxembourg 3.00% and audit process; risk oversight, compliance and integrity; 40% Belgium 3.49% compensation and performance goals; director nomination Germany 4.51% and evaluation; succession planning; and our engagement 20% United Kingdom 6.17% with shareholders and other stakeholders. United States 28.53% In this report, we give examples of our key strategies, crit- 0% Switzerland 35.28% ical developments in 2014 and an outlook on the future. We 2010 2012 2014 aim to give insights into our strategy, factors that affect our ability to create value over time and our relationship with key stakeholders. Our Nestlé in society report includes both our financial Share capital by investor type, long-term evolution (a) and nonfinancial commitments in line with the UN Global Compact and the Global Reporting Initiative. It reflects our 100% continuous journey towards integrated reporting. Our Corporate Governance Report describes how our 80% governance ensures the effectiveness of our Board. In 2014, we were an early adopter of new Swiss governance require- 60% ments; the related revision of our Articles of Association was adopted by a strong majority of our shareholders. 40% Our Compensation Report explains our compensation system and pay-outs and is submitted annually to a separate 20% Institutions 79% advisory vote of our shareholders. In 2015, we will for the first Private time submit the compensation of our Board of Directors and 0% Shareholders 21%

Executive Board for approval by our shareholders. 1998 2002 2006 2010 2014 We regularly review our governance against legal require- ments and best practices. We lead an intensive dialogue with (a) Percentage derived from total number of registered shares. Registered shares represent 57.1% of the total share capital. Statistics are rounded, investors through our periodic reports, roadshows, investor as at 31.12.2014. meetings, shareholder surveys, analyst and engagement calls, Chairman’s Roundtables and bilateral meetings with share- holders. Our engagement follows a holistic approach that manages both their financial and governance expectations.

Nestlé Annual Report 2014 59 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d BOARD OF DIRECTORS OF NESTLÉ S.A.

Peter Brabeck-Letmathe

Helmut O. Maucher Board of Directors of Nestlé S.A. Honorary Chairman at 31 December 2014

David P. Frick Peter Brabeck-Letmathe )(1, 2, 4 Secretary to the Board Chairman Paul Bulcke (1, 2) Paul Bulcke KPMG SA Geneva branch (1) Chief Executive Officer Independent auditors Andreas Koopmann (1, 2, 3, 4) 1st Vice Chairman Chairman, Georg Fischer AG Rolf Hänggi )(1, 2, 5 2nd Vice Chairman Former Chairman, Rüd, Blass & Cie AG Beat Hess (1, 2) Former Group Legal Director, Royal Dutch Shell plc. Daniel Borel (1, 3) Co-founder and Board member, Logitech International S.A. Steven G. Hoch (1, 4) Founder and CEO, Highmount Capital Naïna Lal Kidwai (1, 5) Chairperson, HSBC Group of Companies in India Titia de Lange (1) Associate Director, Anderson Cancer Center, The Rockefeller University (1, 3) Jean-Pierre Roth Andreas Koopmann Chairman, Geneva Cantonal Bank Ann M. Veneman (1, 4) Former Executive Director, UNICEF, and Secretary, U.S. Department of Agriculture (1) T erm expires on the date of the Henri de Castries (1, 5) Annual General Meeting 2015. Chairman and CEO, AXA (2) C hairman’s and Corporate (1, 5) Governance Committee. Eva Cheng (3) Compensation Committee. Former Corporate Executive (4)  Nomination Committee. Vice President and Chairwoman, (5) Audit Committee. Amway China

60 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Rolf Hänggi Beat Hess Daniel Borel

Steven G. Hoch Naïna Lal Kidwai

Titia de Lange Jean-Pierre Roth Ann M. Veneman

Henri de Castries Eva Cheng

For further information on the Board of Directors, please refer to the Corporate Governance Report 2014.

Nestlé Annual Report 2014 61 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d EXECUTIVE BOARD OF NESTLÉ S.A.

12 10 13 14

11

9

5 4 2 7

1

6 8 3

For further information on the Executive Board, please refer to the Corporate Governance Report 2014.

62 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d COMPLIANCE

Compliance at Nestlé means we will not sacrifice our prin­ The right tone at the top is reflected in our Corporate ciples and values for short-term success. We follow applic­ Business Principles, our Management and Leadership Prin­ able laws and our own commitments across the ten Corporate ciples, our Code of Business Conduct and our Supplier Code. Business Principles, including our commitments to integrity Awareness campaigns and regular risk assessments help us in the Code of Business Conduct, to maintain sustainable in their continuous implementation. Proper consequence trust with employees, shareholders and other stakeholders. management is reinforced by our performance evaluation While compliance is a leadership responsibility, line man- system, which includes an assessment of “how” goals were agement is supported by all functions engaged in our risk- accomplished. and principles-based compliance programme. A dedicated We monitor compliance through our corporate functions, Corporate Compliance function and a cross-functional Com- internal and external audit, as well as our CARE programme pliance Committee define the framework, facilitate coord­ relying on independent external auditors. 120 audits were ination and provide guidance and best practices. Under our conducted in 2014 and gaps addressed. custodian concept, our Market Heads play a critical role for In 2014, we addressed 920 complaints from employees compliance. Market Compliance Officers and committees through our integrity reporting system, which complements ensure a consistent approach and help identify local compli- our ombudsman system for WHO Code compliance. Our ance priorities. new Tell Us reporting system allowed us to address 87 com- plaints from suppliers and other third parties. All complaints are investigated and remedial action taken. Our WHO Code compliance programme covers all Nestlé operations involved in the marketing of infant nutrition prod- ucts. We adhere to the decisions of all governments regard- ing the application of the WHO Code in their countries and voluntarily apply the WHO Code in all developing countries. Our continued inclusion in the FTSE4Good index is a testi­ mony to our commitment. Our Human Rights compliance programme is based on Executive Board of Nestlé S.A. the applicable UN Framework and includes risk and impact at 31 December 2014 assessments perfomed together with the Danish Institute 1 Paul Bulcke 9 Stefan Catsicas for Human Rights, training, monitoring and stakeholder Chief Executive Officer EVP, Innovation Technology, engagement. Research and Development 2 Luis Cantarell 10 Marco Settembri We continuously reinforce our compliance programme EVP, Europe, Middle East, EVP, Nestlé Waters based on selected focus areas. In 2014, they included our North Africa 11 Peter Vogt enhanced anti-bribery programme; improved efficiency of 3 José Lopez Deputy EVP, Human EVP, Operations Resources processes and tools; the launch of ‘Tell us’; renovated and 4 Laurent Freixe 12 Martial Rolland re-launched trainings; improved transparency; and a focus EVP, United States of America, Deputy EVP, Nestlé on new regulations. Canada, Latin America, Professional Caribbean 13 Heiko Schipper 5 Chris Johnson Deputy EVP, Nestlé Nutrition EVP, Nestlé Business 14 David P. Frick Excellence SVP, Corporate Governance, 6 P atrice Bula Compliance and Corporate EVP, Strategic Business Units, Services Marketing and Sales 7 Doreswamy (Nandu) Nandkishore Yves Philippe Bloch EVP, Asia, Oceania, Africa Corporate Secretary 8 Wan Ling Martello EVP, Chief Financial Officer (includes Legal, Intellectual EVP: Executive Vice President Property, Tax, Treasury) SVP: Senior Vice President

Nestlé Annual Report 2014 63 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d SHAREHOLDER INFORMATION

Stock exchange listing Important dates At 31 December 2014, Nestlé S.A. shares are listed 16 April 2015 on the SIX Swiss Exchange, Zurich (ISIN code: 148th Annual General Meeting, Beaulieu Lausanne, CH0038863350). Lausanne (Switzerland) American Depositary Receipts (ISIN code: US6410694060) representing Nestlé S.A. shares are offered in the USA by 17 April 2015 Citibank, N.A., New York. 2015 First quarter sales figures

Registered Offices 17 April 2015 Nestlé S.A. Last trading day with entitlement to dividend Avenue Nestlé 55 CH-1800 Vevey (Switzerland) 20 April 2015 tel. +41 (0)21 924 21 11 Ex-dividend date

Nestlé S.A. (Share Transfer Office) 22 April 2015 Zugerstrasse 8 Payment of the dividend CH-6330 Cham (Switzerland) tel. +41 (0)41 785 20 20 13 August 2015 2015 Half-yearly Results For additional information, contact: Nestlé S.A. 16 October 2015 Investor Relations 2015 Nine months sales figures Avenue Nestlé 55 CH-1800 Vevey (Switzerland) 18 February 2016 tel. +41 (0)21 924 35 09 2015 Full Year Results fax +41 (0)21 924 28 13 e-mail: [email protected] 7 April 2016 149th Annual General Meeting, Beaulieu Lausanne, As to information concerning the share register Lausanne (Switzerland) (registrations, transfers, dividends, etc.), please contact: Nestlé S.A. (Share Transfer Office) Zugerstrasse 8 CH-6330 Cham (Switzerland) tel. +41 (0)41 785 20 20 fax +41 (0)41 785 20 24 e-mail: [email protected]

The Annual Report, and its accompanying reports are available online as a PDF in English, French and German. The consolidated income statement, balance sheet and cash flow statement are also available as Excel files. www.nestle.com

64 Nestlé Annual Report 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Financial Statements 2014

Consolidated Financial Statements of the Nestlé Group 2014

148th Financial Statements of Nestlé S.A. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 57 Principal exchange rates

58 Consolidated income statement for the year ended 31 December 2014

59 Consolidated statement of comprehensive income for the year ended 31 December 2014

60 Consolidated balance sheet as at 31 December 2014

62 Consolidated cash flow statement for the year ended 31 December 2014

63 Consolidated statement of changes in equity for the year ended 31 December 2014

65 Notes 65 1. Accounting policies 75 2. Acquisitions and disposals of businesses 78 3. Analyses by segment 83 4. Net other trading and operating income/(expenses) 84 5. Net financial income/(expense) 6. Inventories 7. Trade and other receivables 86 8. Property, plant and equipment 88 9. Goodwill and intangible assets 92 10. Employee benefits 100 11. Equity compensation plans 102 12. Provisions and contingencies 104 13. Financial instruments 113 14. Taxes 115 15. Associates and joint ventures 117 16. Earnings per share 17. Cash flow statement 120 18. Equity 123 19. Lease commitments 124 20. Transactions with related parties 125 21. Guarantees 22. Group risk management 127 23. Group exposure in Venezuela 24. Events after the balance sheet date 25. Group companies

128 Report of the Statutory Auditor on the Consolidated Financial Statements

130 Financial information – 5 year review

132 Companies of the Nestlé Group

56 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Principal exchange rates

CHF per 2014 2013 2014 2013 Year ending rates Weighted average annual rates 1 US Dollar USD 0.990 0.890 0.916 0.927 1 Euro EUR 1.203 1.226 1.215 1.231 100 Chinese Yuan Renminbi CNY 15.957 14.699 14.875 15.065 100 Brazilian Reais BRL 37.262 37.986 38.898 42.994 1 Pound Sterling GBP 1.540 1.471 1.508 1.450 100 Mexican Pesos MXN 6.716 6.808 6.885 7.262 100 Philippine Pesos PHP 2.208 2.004 2.062 2.184 1 Canadian Dollar CAD 0.852 0.836 0.830 0.899 1 Russian Ruble RUB 0.017 0.027 0.024 0.029 1 Australian Dollar AUD 0.810 0.794 0.826 0.896 100 Japanese Yen JPY 0.827 0.847 0.862 0.944

Consolidated Financial Statements of the Nestlé Group 2014 57 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Consolidated income statement for the year ended 31 December 2014

In millions of CHF Notes 2014 2013 Sales 3 91 612 92 158

Other revenue 253 215 Cost of goods sold (47 553) (48 111) Distribution expenses (8 217) (8 156) Marketing and administration expenses (19 651) (19 711) Research and development costs (1 628) (1 503) Other trading income 4 110 120 Other trading expenses 4 (907) (965) Trading operating profit 3 14 019 14 047

Other operating income 4 154 616 Other operating expenses 4 (3 268) (1 595) Operating profit 10 905 13 068

Financial income 5 135 219 Financial expense 5 (772) (850) Profit before taxes, associates and joint ventures 10 268 12 437

Taxes 14 (3 367) (3 256) Income from associates and joint ventures 15 8 003 1 264 Profit for the year 14 904 10 445 of which attributable to non-controlling interests 448 430 of which attributable to shareholders of the parent (Net profit) 14 456 10 015

As percentages of sales Trading operating profit 15.3% 15.2% Profit for the year attributable to shareholders of the parent (Net profit) 15.8% 10.9%

Earnings per share (in CHF) Basic earnings per share 16 4.54 3.14 Diluted earnings per share 16 4.52 3.13

58 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Consolidated statement of comprehensive income for the year ended 31 December 2014

In millions of CHF Notes 2014 2013 Profit for the year recognised in the income statement 14 904 10 445

Currency retranslations – Recognised in translation reserve 2 660 (3 160) – Reclassified from translation reserve to income statement 1 003 214 Fair value adjustments on available-for-sale financial instruments – Recognised in fair value reserve 191 9 – Reclassified from fair value reserve to income statement (4) (532) Fair value adjustments on cash flow hedges – Recognised in hedging reserve 31 161 – Reclassified from hedging reserve (87) 85 Taxes 14 5 290 Share of other comprehensive income of associates and joint ventures 15 – Recognised in the reserves 83 40 – Reclassified from the reserves (436) — Items that are or may be reclassified subsequently to the income statement 3 446 (2 893)

Remeasurement of defined benefit plans 10 (1 745) 1 632 Taxes 14 352 (848) Share of other comprehensive income of associates and joint ventures 15 (153) 47 Items that will never be reclassified to the income statement (1 546) 831

Other comprehensive income for the year 18 1 900 (2 062)

Total comprehensive income for the year 16 804 8 383 of which attributable to non-controlling interests 556 371 of which attributable to shareholders of the parent 16 248 8 012

Consolidated Financial Statements of the Nestlé Group 2014 59 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Consolidated balance sheet as at 31 December 2014 before appropriations

In millions of CHF Notes 2014 2013 Assets

Current assets Cash and cash equivalents 13/17 7 448 6 415 Short-term investments 13 1 433 638 Inventories 6 9 172 8 382 Trade and other receivables 7/13 13 459 12 206 Prepayments and accrued income 565 762 Derivative assets 13 400 230 Current income tax assets 908 1 151 Assets held for sale 2 576 282 Total current assets 33 961 30 066

Non-current assets Property, plant and equipment 8 28 421 26 895 Goodwill 9 34 557 31 039 Intangible assets 9 19 800 12 673 Investments in associates and joint ventures 15 8 649 12 315 Financial assets 13 5 493 4 550 Employee benefits assets 10 383 537 Current income tax assets 128 124 Deferred tax assets 14 2 058 2 243 Total non-current assets 99 489 90 376

Total assets 133 450 120 442

60 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Consolidated balance sheet as at 31 December 2014

In millions of CHF Notes 2014 2013 Liabilities and equity

Current liabilities Financial debt 13 8 810 11 380 Trade and other payables 13 17 437 16 072 Accruals and deferred income 3 759 3 185 Provisions 12 695 523 Derivative liabilities 13 757 381 Current income tax liabilities 1 264 1 276 Liabilities directly associated with assets held for sale 2 173 100 Total current liabilities 32 895 32 917

Non-current liabilities Financial debt 13 12 396 10 363 Employee benefits liabilities 10 8 081 6 279 Provisions 12 3 161 2 714 Deferred tax liabilities 14 3 191 2 643 Other payables 13 1 842 1 387 Total non-current liabilities 28 671 23 386

Total liabilities 61 566 56 303

Equity 18 Share capital 322 322 Treasury shares (3 918) (2 196) Translation reserve (17 255) (20 811) Retained earnings and other reserves 90 981 85 260 Total equity attributable to shareholders of the parent 70 130 62 575 Non-controlling interests 1 754 1 564 Total equity 71 884 64 139

Total liabilities and equity 133 450 120 442

Consolidated Financial Statements of the Nestlé Group 2014 61 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Consolidated cash flow statement for the year ended 31 December 2014

In millions of CHF Notes 2014 2013 Operating activities Operating profit 17 10 905 13 068 Non-cash items of income and expense 17 6 323 4 352 Cash flow before changes in operating assets and liabilities 17 228 17 420

Decrease/(increase) in working capital 17 (114) 1 360 Variation of other operating assets and liabilities 17 85 (574) Cash generated from operations 17 199 18 206

Net cash flows from treasury activities 17 (356) (351) Taxes paid (2 859) (3 520) Dividends and interest from associates and joint ventures 15 716 657 Operating cash flow 14 700 14 992

Investing activities Capital expenditure 8 (3 914) (4 928) Expenditure on intangible assets 9 (509) (402) Acquisition of businesses 2 (1 986) (321) Disposal of businesses 2 321 421 Investments (net of divestments) in associates and joint ventures (a) 15 3 958 (28) Outflows from non-current treasury investments (137) (244) Inflows from non-current treasury investments 255 2 644 Inflows/(outflows) from short-term treasury investments (962) 400 Inflows from other investing activities(b) 294 1 273 Outflows from other investing activities (392) (421) Cash flow from investing activities (3 072) (1 606)

Financing activities Dividend paid to shareholders of the parent 18 (6 863) (6 552) Dividends paid to non-controlling interests (356) (328) Acquisition (net of disposal) of non-controlling interests (49) (337) Purchase of treasury shares (1 721) (481) Sale of treasury shares 104 60 Inflows from bonds and other non-current financial debt 2 202 3 814 Outflows from bonds and other non-current financial debt (1 969) (2 271) Inflows/(outflows) from current financial debt (1 985) (6 063) Cash flow from financing activities (10 637) (12 158)

Currency retranslations 42 (526) Increase/(decrease) in cash and cash equivalents 1 033 702

Cash and cash equivalents at beginning of year 6 415 5 713 Cash and cash equivalents at end of year 7 448 6 415

(a) Mainly relates to the partial disposal of L’Oréal shares. The Group sold part of its shares to L’Oréal for a price of CHF 7342 million (see Note 15) in exchange for the remaining 50% stake in Galderma for an equity value of CHF 3201 million (see Note 2) and cash of CHF 4141 million. (b) In 2013 mainly relates to the disposal of Givaudan shares.

62 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Consolidated statement of changes in equity for the year ended 31 December 2014

In millions of CHF

Share capital Treasury shares Translation reserve Retained earnings and other reserves equity Total attributable to shareholders of the parent Non-controlling interests Total equity Equity as at 31 December 2012 322 (2 078) (17 924) 80 687 61 007 1 657 62 664

Profit for the year — — — 10 015 10 015 430 10 445 Other comprehensive income for the year — — (2 887) 884 (2 003) (59) (2 062) Total comprehensive income for the year — — (2 887) 10 899 8 012 371 8 383

Dividend paid to shareholders of the parent — — — (6 552) (6 552) — (6 552) Dividends paid to non-controlling interests — — — — — (328) (328) Movement of treasury shares — (612) — 190 (422) — (422) Equity compensation plans — 214 — (39) 175 — 175 Other transactions settled with treasury shares (a) — 280 — — 280 — 280 Changes in non-controlling interests — — — (297) (297) (136) (433) Total transactions with owners — (118) — (6 698) (6 816) (464) (7 280)

Other movements (b) — — — 372 372 — 372

Equity as at 31 December 2013 322 (2 196) (20 811) 85 260 62 575 1 564 64 139

Profit for the year — — — 14 456 14 456 448 14 904 Other comprehensive income for the year — — 3 556 (1 764) 1 792 108 1 900 Total comprehensive income for the year — — 3 556 12 692 16 248 556 16 804

Dividend paid to shareholders of the parent — — — (6 863) (6 863) — (6 863) Dividends paid to non-controlling interests — — — — — (356) (356) Movement of treasury shares — (1 943) — 204 (1 739) — (1 739) Equity compensation plans — 221 — (48) 173 — 173 Changes in non-controlling interests — — — (297) (297) (10) (307) Total transactions with owners — (1 722) — (7 004) (8 726) (366) (9 092)

Other movements — — — 33 33 — 33

Equity as at 31 December 2014 322 (3 918) (17 255) 90 981 70 130 1 754 71 884

(a) The other transactions relate to the acquisition of a business (see Note 2). (b) Relates mainly to the adjustment for hyperinflation in Venezuela, considered as a hyperinflationary economy.

Consolidated Financial Statements of the Nestlé Group 2014 63 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 64 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Notes

1. Accounting policies Consolidated companies Companies, in which the Group has the power to exercise Accounting convention and accounting standards control, are fully consolidated. This applies irrespective of The Consolidated Financial Statements comply with the percentage of interest in the share capital. The Group International Financial Reporting Standards (IFRS) issued controls a company when it is exposed to, or has rights to, by the International Accounting Standards Board (IASB) variable returns from its involvement with the company and and with Swiss law. has the ability to affect those returns through its power over They have been prepared on an accrual basis and under the company. Non-controlling interests are shown as the historical cost convention, unless stated otherwise. All a component of equity in the balance sheet and the share significant consolidated companies, joint arrangements and of the profit attributable to non-controlling interests is shown associates have a 31 December accounting year-end. as a component of profit for the year in the income statement. The Consolidated Financial Statements 2014 were approved Newly acquired companies are consolidated from the for issue by the Board of Directors on 18 February 2015 and effec­tive date of control, using the acquisition method. are subject to approval by the Annual General Meeting on 16 April 2015. Joint arrangements Joint arrangements are contractual arrangements over which Key accounting judgements, estimates and the Group exercises joint control with partners. assumptions The preparation of the Consolidated Financial Statements Joint ventures requires Group Management to exercise judgement and to Joint arrangements whereby the parties have rights to the make estimates and assumptions that affect the application net assets of the arrangement are joint ventures and are of policies, reported amounts of revenues, expenses, assets accounted for using the equity method. and liabilities and disclosures. These estimates and associated assumptions are based on historical experience and various Joint operations other factors that are believed to be reasonable under the The joint arrangements where the parties control the rights circumstances. Actual results may differ from these estimates. to the assets and obligations for the liabilities are joint The estimates and underlying assumptions are reviewed operations and the individual assets, liabilities, income and on an ongoing basis. Revisions to accounting estimates are expenses are consolidated in proportion to the Group’s recognised in the period in which the estimate is revised if contractually specified share (usually 50%). the revision affects only that period, or in the period of the revision and future periods if the revision affects both current Associates and future periods. Those areas affect mainly provisions and Companies where the Group has the power to exercise contingencies (see Note 12), goodwill impairment tests (see a significant influence but does not exercise control are Note 9), employee benefits (see Note 10), allowance for accounted for using the equity method. The net assets and doubtful receivables (see Note 7), taxes (see Note 14) and results are adjusted to comply with the Group’s accounting hyper­inflation (see Note 23). policies. The carrying amount of goodwill arising from the acquisition of associates is included in the carrying amount Scope of consolidation of investments in associates. The Consolidated Financial Statements comprise those of Nestlé S.A. and of its affiliated companies, including joint Foreign currencies arrangements and associates (the Group). The list of the The functional currency of the Group’s entities is the currency principal companies is provided in the section “Companies of their primary economic environment. of the Nestlé Group.” In individual companies, transactions in foreign currencies are recorded at the rate of exchange at the date of the

Consolidated Financial Statements of the Nestlé Group 2014 65 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 1. Accounting policies

transaction. Monetary assets and liabilities in foreign Finally, the Group provides information attributed to the currencies are translated at year-end rates. Any resulting country of domicile of the Group’s parent company (Nestlé S.A. exchange differences are taken to the income statement, – Switzerland) and to the ten most important countries in except when deferred in other comprehensive income as terms of sales. qualifying cash flow hedges. Segment results represent the contribution of the different On consolidation, assets and liabilities of Group entities segments to central overheads, research and development reported in their functional currencies are translated into costs and the trading operating profit of the Group. Specific Swiss Francs, the Group’s presentation currency, at year-end corporate expenses as well as specific research and exchange rates. Income and expense are translated into Swiss development costs are allocated to the corresponding Francs at the annual weighted average rates of exchange or segments. at the rate on the date of the transaction for significant items. Segment assets and liabilities are aligned with internal Differences arising from the retranslation of opening net reported information to the CODM. Segment assets comprise assets of Group entities, together with differences arising property, plant and equipment, intangible assets, goodwill, from the restatement of the net results for the year of Group trade and other receivables, assets held for sale, inventories, entities, are recognised in other comprehensive income. prepayments and accrued income as well as specific financial The balance sheet and net results of Group entities assets associated to the reportable segments. Segment operating in hyperinflationary economies are restated for liabilities comprise trade and other payables, liabilities directly the changes in the general purchasing power of the local associated with assets held for sale, some other payables currency, using official indices at the balance sheet date, as well as accruals and deferred income. Eliminations before translation into Swiss Francs. represent inter-company balances between the different When there is a change of control in a foreign entity, segments. exchange differences that were recorded in equity are Segment assets by operating segment represent the recognised in the income statement as part of the gain situation at the end of the year. Assets and liabilities by or loss on disposal. product represent the annual average, as this provides a better indication of the level of invested capital for Segment reporting management purposes. Operating segments reflect the Group’s management Capital additions represent the total cost incurred to structure and the way financial information is regularly acquire property, plant and equipment, intangible assets reviewed by the Group’s chief operating decision maker and goodwill, including those arising from business (CODM), which is defined as the Executive Board. combinations. Capital expenditure represents the investment The CODM considers the business from both a geographic in property, plant and equipment only. and product perspective, through three geographic Zones Depreciation of segment assets includes depreciation and several Globally Managed Businesses (GMB). Zones and of property, plant and equipment and amortisation of GMB that meet the quantitative threshold of 10% of sales, intangible assets. Impairment of assets includes impairment trading operating profit or assets, are presented on a stand- related to property, plant and equipment, intangible assets alone basis as reportable segments. Other business activities and goodwill. and operating segments, including GMB that do not meet Unallocated items represent non-specific items whose the threshold, like Nestlé Professional, Nespresso, Nestlé allocation to a segment would be arbitrary. They mainly Health Science and Nestlé Skin Health, are combined and comprise: presented in Other businesses. Therefore, the Group’s – corporate expenses and related assets/liabilities; reportable operating segments are: – research and development costs and related assets/ – Zone Europe; liabilities; and – Zone Americas; – some goodwill and intangible assets. – Zone Asia, Oceania and Africa; Non-current assets by geography include property, plant – Nestlé Waters; and equipment, intangible assets and goodwill that are – Nestlé Nutrition; attributable to the ten most important countries and the – Other businesses. country of domicile of Nestlé S.A. As some operating segments represent geographic Zones, information by product is also disclosed. The seven product groups that are disclosed represent the highest categories of products that are followed internally.

66 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 1. Accounting policies

Valuation methods, presentation and definitions also includes other financing related income and expense, Revenue such as exchange differences on loans and borrowings, Sales represent amounts received and receivable from third results on foreign currency and interest rate hedging parties for goods supplied to the customers and for services instruments that are recognised in the income statement. rendered. Revenue from the sales of goods is recognised in Certain borrowing costs are capitalised as explained under the income statement at the moment when the significant the section on Property, plant and equipment. Others are risks and rewards of ownership of the goods have been expensed. transferred to the buyer, which is mainly upon shipment. It is measured at the list price applicable to a given distribution Taxes channel after deduction of returns, sales taxes, pricing The Group is subject to taxes in different countries all over the allowances, other trade discounts and couponing and price world. Taxes and fiscal risks recognised in the Consolidated promotions to consumers. Payments made to the customers Financial Statements reflect Group Management’s best for commercial services received are expensed. estimate of the outcome based on the facts known at the Other revenue is primarily license fees from third parties balance sheet date in each individual country. These facts which have been earned during the period. may include but are not limited to change in tax laws and interpretation thereof in the various jurisdictions where the Expenses Group operates. They may have an impact on the income tax Cost of goods sold is determined on the basis of the cost as well as the resulting assets and liabilities. Any differences of production or of purchase, adjusted for the variation of between tax estimates and final tax assessments are charged inventories. All other expenses, including those in respect to the income statement in the period in which they are of advertising and promotions, are recognised when the incurred, unless anticipated. Group receives the risks and rewards of ownership of the Taxes include current taxes on profit as well as actual or goods or when it receives the services. potential withholding taxes on current and expected transfers of income from Group companies and tax adjustments Other trading income/(expenses) relating to prior years. Income tax is recognised in the income These comprise restructuring costs, impairment of property, statement, except to the extent that it relates to items directly plant and equipment and intangible assets, litigations and taken to equity or other comprehensive income, in which onerous contracts, result on disposal of property, plant and case it is recognised against equity or other comprehensive equipment, and specific other income and expenses that fall income. within the control of operating segments. Deferred taxation is the tax attributable to the temporary Restructuring costs are restricted to dismissal indemnities differences that arise when taxation authorities recognise and employee benefits paid to terminated employees upon and measure assets and liabilities with rules that differ from the reorganisation of a business. Dismissal indemnities paid the principles of the Consolidated Financial Statements. for normal attrition such as poor performance, professional It also arises on temporary differences stemming from tax misconduct, etc. are part of the expenses by functions. losses carried forward. Deferred taxes are calculated under the liability method Other operating income/(expenses) at the rates of tax expected to prevail when the temporary These comprise impairment of goodwill, results on disposals differences reverse subject to such rates being substantially of businesses (including impairment and subsequent enacted at the balance sheet date. Any changes of the tax remeasurement of businesses classified as held for sale), rates are recognised in the income statement unless related acquisition-related costs, the effect of the hyperinflation to items directly recognised against equity or other accounting and other income and expenses that fall beyond comprehensive income. Deferred tax liabilities are recognised the control of operating segments and relate to events such on all taxable temporary differences excluding non-deductible as natural disasters and expropriation of assets. goodwill. Deferred tax assets are recognised on all deductible temporary differences provided that it is probable that future Net financial income/(expense) taxable income will be available. Net financial income/(expense) includes net financing cost Income from associates and joint ventures and the share and net interest income/(expense) on defined benefit plans. of other comprehensive income of associates and joint Net financing cost includes the interest expense on ventures are shown net of tax effects. borrowings from third parties as well as the interest income earned on funds invested outside the Group. This heading

Consolidated Financial Statements of the Nestlé Group 2014 67 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 1. Accounting policies

Financial instruments Loans and receivables Classes of financial instruments Loans and receivables are non-derivative financial assets The Group aggregates its financial instruments into classes with fixed or determinable payments that are not quoted based on their nature and characteristics. The details of in an active market. This category includes the following financial instruments by class are disclosed in the notes. classes of financial assets: loans; trade and other receivables and cash at bank and in hand. Financial assets Subsequent to initial measurement, loans and receivables Financial assets are initially recognised at fair value plus are carried at amortised cost using the effective interest rate directly attributable transaction costs. However when method less appropriate allowances for doubtful receivables. a financial asset at fair value to income statement is Allowances for doubtful receivables represent the Group’s recognised, the transaction costs are expensed immediately. estimates of losses that could arise from the failure or inability Subsequent remeasurement of financial assets is determined of customers to make payments when due. These estimates by their categorisation that is revisited at each reporting date. are based on the ageing of customers’ balances, specific Derivatives embedded in other contracts are separated credit circumstances and the Group’s historical bad and treated as stand-alone derivatives when their risks and receivables experience. characteristics are not closely related to those of their host Loans and receivables are further classified as current contracts and the respective host contracts are not carried and non-current depending whether these will be realised at fair value. within twelve months after the balance sheet date or beyond. In case of regular-way purchase or sale (purchase or sale under a contract whose terms require delivery within the Financial assets designated at fair value through time frame established by regulation or convention in the income statement market place), the settlement date is used for both initial Certain investments are designated at fair value through recognition and subsequent derecognition. the income statement because this reduces an accounting At each balance sheet date, the Group assesses whether mismatch which would otherwise arise due to the its financial assets are to be impaired. Impairment losses are remeasurement of certain liabilities using current market recognised in the income statement where there is objective prices as inputs. evidence of impairment, such as where the issuer is in bankruptcy, default or other significant financial difficulty. Held-for-trading assets In addition, for an investment in an equity security, Held-for-trading assets are derivative financial instruments. a significant or prolonged decline in its fair value below its Subsequent to initial measurement, held-for-trading assets cost is objective evidence of impairment. Impairment losses are carried at fair value and all their gains and losses, realised are reversed when the reversal can be objectively related to and unrealised, are recognised in the income statement. an event occurring after the recognition of the impairment loss. For debt instruments measured at amortised cost or Available-for-sale assets fair value, the reversal is recognised in the income statement. Available-for-sale assets are those non-derivative financial For equity instruments classified as available for sale, the assets that are either designated as such upon initial reversal is recognised in other comprehensive income. recognition or are not classified in any of the other financial Impairment losses on financial assets carried at cost because assets categories. This category includes the following their fair value cannot be reliably measured are never classes of financial assets: bonds, equities, commercial reversed. paper, time deposits and other investments. They are Financial assets are derecognised (in full or partly) when included in non-current financial assets unless an investment substantially all the Group’s rights to cash flows from the matures or management intends to dispose of it within respective assets have expired or have been transferred and 12 months of the end of the reporting period. In that case the Group has neither exposure to substantially all the risks it would be accounted for as short-term investments, or inherent in those assets nor entitlement to rewards from them. cash and cash equivalents, as appropriate. The Group classifies its financial assets into the following Subsequent to initial measurement, available-for-sale categories: loans and receivables, financial assets designated assets are stated at fair value with all unrealised gains or at fair value through income statement, held-for-trading and losses recognised against other comprehensive income available-for-sale assets. until their disposal when such gains or losses are recognised in the income statement.

68 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 1. Accounting policies

Interest earned on available-for-sale assets is calculated hedges of net investments in foreign operations (net using the effective interest rate method and is recognised investment hedges). The effectiveness of such hedges is in the income statement. assessed at inception and verified at regular intervals and at least on a quarterly basis, using prospective and Financial liabilities at amortised cost retrospective testing. Financial liabilities are initially recognised at the fair value of consideration received less directly attributable transaction Fair value hedges costs. The Group uses fair value hedges to mitigate foreign currency Subsequent to initial measurement, financial liabilities are and interest rate risks of its recognised assets and liabilities. recognised at amortised cost unless they are part of a fair The changes in fair values of hedging instruments are value hedge relationship (refer to fair value hedges). The recognised in the income statement. Hedged items are also difference between the initial carrying amount of the financial adjusted for the risk being hedged, with any gain or loss liabilities and their redemption value is recognised in the being recognised in the income statement. income statement over the contractual terms using the effective interest rate method. This category includes the Cash flow hedges following classes of financial liabilities: trade and other The Group uses cash flow hedges to mitigate a particular payables; commercial paper; bonds and other financial risk associated with a recognised asset or liability or highly liabilities. probable forecast transactions, such as anticipated future Financial liabilities at amortised cost are further classified export sales, purchases of equipment and raw materials, as current and non-current depending whether these will fall as well as the variability of expected interest payments and due within 12 months after the balance sheet date or beyond. receipts. Financial liabilities are derecognised (in full or partly) The effective part of the changes in fair value of hedging when either the Group is discharged from its obligation, instruments is recognised in other comprehensive income, they expire, are cancelled or replaced by a new liability with while any ineffective part is recognised immediately in the substantially modified terms. income statement. When the hedged item results in the recognition of a non-financial asset or liability, including Derivative financial instruments acquired businesses, the gains or losses previously A derivative is a financial instrument that changes its values recognised in other comprehensive income are included in in response to changes in the underlying variable, requires the measurement of the cost of the asset or of the liability. no or little net initial investment and is settled at a future Otherwise the gains or losses previously recognised in date. Derivatives are mainly used to manage exposures to other comprehensive income are removed and recognised foreign exchange, interest rate and commodity price risk. in the income statement at the same time as the hedged Derivatives are initially recognised at fair value. They are transaction. subsequently remeasured at fair value on a regular basis and at each reporting date as a minimum. The fair values of Net investment hedges exchange-traded derivatives are based on market prices, The Group uses net investment hedges to mitigate while the fair value of the over-the-counter derivatives are translation exposure on its net investments in affiliated determined using accepted mathematical models based on companies. market data. The changes in fair values of hedging instruments are Derivatives are carried as assets when their fair value is taken directly to other comprehensive income together with positive and as liabilities when their fair value is negative. gains or losses on the foreign currency translation of the The Group’s derivatives mainly consist of currency hedged investments. All of these fair value gains or losses forwards, futures, options and swaps; commodity futures are deferred in equity until the investments are sold or and options; interest rate forwards, futures, options and otherwise disposed of. swaps. Undesignated derivatives Hedge accounting Undesignated derivatives are comprised of two categories. The Group designates and documents certain derivatives The first includes derivatives acquired in the frame of risk as hedging instruments against changes in fair values of management policies for which hedge accounting is not recognised assets and liabilities (fair value hedges), highly applied. The second category relates to derivatives that are probable forecast transactions (cash flow hedges) and

Consolidated Financial Statements of the Nestlé Group 2014 69 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 1. Accounting policies

acquired with the aim of delivering performance over agreed inventories includes the gains/losses on qualified cash flow benchmarks. hedges for the purchase of raw materials and finished goods. Subsequent to initial measurement, undesignated Raw material inventories and purchased finished goods derivatives are carried at fair value and all their gains and are accounted for using the FIFO (first in, first out) method. losses, realised and unrealised, are recognised in the The weighted average cost method is used for other income statement. inventories. An allowance is established when the net realisable value Fair value of any inventory item is lower than the value calculated above. The Group determines the fair value of its financial instruments on the basis of the following hierarchy: Prepayments and accrued income i) The fair value of financial instruments quoted in active Prepayments and accrued income comprise payments made markets is based on their quoted closing price at the in advance relating to the following year, and income relating balance sheet date. Examples include commodity to the current year, which will not be invoiced until after the derivative assets and liabilities and other financial assets balance sheet date. such as investments in equity and debt securities. ii) The fair value of financial instruments that are not traded Property, plant and equipment in an active market is determined by using valuation Property, plant and equipment are shown on the balance techniques using observable market data. Such valuation sheet at their historical cost. Subsequent costs are included techniques include discounted cash flows, standard in the asset’s carrying amount only when it is probable that valuation models based on market parameters for future economic benefits associated with the item will be interest rates, yield curves or foreign exchange rates, realised. The carrying amount of a replaced part is dealer quotes for similar instruments and use of derecognised. All other repairs and maintenance are charged comparable arm’s length transactions. For example, the to the income statement. fair value of forward exchange contracts, currency swaps Depreciation is provided on components that have and interest rate swaps is determined by discounting homogenous useful lives by using the straight-line method estimated future cash flows using a risk-free interest rate. so as to depreciate the initial cost down to the residual iii) The fair value of financial instruments that are measured on value over the estimated useful lives. The residual values the basis of entity specific valuations using inputs that are are 30% on head offices and nil for all other asset types. not based on observable market data (unobservable inputs). The useful lives are as follows: When the fair value of unquoted instruments cannot be Buildings 20 – 40 years measured with sufficient reliability, the Group carries Machinery and equipment 10 – 25 years such instruments at cost less impairment, if applicable. Tools, furniture, information technology and sundry equipment 3 – 10 years Cash and cash equivalents Vehicles 3 – 8 years Cash and cash equivalents include cash at bank and in hand Land is not depreciated. and other short-term highly liquid investments with maturities Useful lives, components and residual amounts are reviewed of three months or less from the initial recognition. annually. Such a review takes into consideration the nature of the assets, their intended use including but not limited to Short-term investments the closure of facilities and the evolution of the technology Short-term investments are those which have maturities of and competitive pressures that may lead to technical more than three months at initial recognition and which are obsolescence. expected to be realised within 12 months after the reporting Depreciation of property, plant and equipment is allocated date. to the appropriate headings of expenses by function in the income statement. Inventories Borrowing costs incurred during the course of construction Raw materials and purchased finished goods are valued at are capitalised if the assets under construction are significant purchase cost. Work in progress and manufactured finished and if their construction requires a substantial period to goods are valued at production cost. Production cost includes complete (typically more than one year). The capitalisation direct production costs and an appropriate proportion of rate is determined on the basis of the short-term borrowing production overheads and factory depreciation. The cost of rate for the period of construction. Premiums capitalised for leasehold land or buildings are amortised over the length of

70 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 1. Accounting policies

the lease. Government grants are recognised in accordance Nestlé ownership interest in the acquiree and the amount of with the deferral method, whereby the grant is set up as any non-controlling interest exceeds the fair value of the deferred income which is released to the income statement acquiree’s net assets. If the fair value of the acquiree’s net over the useful life of the related assets. Grants that are not assets exceeds this amount a gain is recognised immediately related to assets are credited to the income statement when in the income statement. they are received. Acquisitions and disposals of non-controlling interests Leased assets The Group treats transactions with non-controlling interests Leasing agreements which transfer to the Group substantially that do not result in loss of control as transactions with equity all the rewards and risks of ownership of an asset are treated holders in their capacity as equity holders. For purchases of as finance leases. All other leases are classified as operating shares from non-controlling interests, the difference between leases. any consideration paid and the relevant share acquired of the Assets acquired under finance leases are capitalised carrying amount of net assets of the subsidiary is recorded in and de­preciated in accordance with the Group’s policy on equity. The same principle is applied to disposals of shares property, plant and equipment unless the lease term is to non-controlling interests. shorter. Land and building leases are recognised separately provided an allocation of the lease payments between these Intangible assets categories is reliable. Finance leases are capitalised at the This heading includes intangible assets that are internally lower of the fair value of the leased property and the present generated or acquired, either separately or in a business value of the minimum lease payments. The associated combination, when they are identifiable and can be reliably obligations are included under financial debt. measured. Intangible assets are considered to be identifiable Rentals under operating leases are charged to the income if they arise from contractual or other rights, or if they are statement on a straight-line basis over the period of the lease. se­parable (i.e. they can be disposed of either individually The costs of the agreements that do not take the legal or together with other assets). Intangible assets comprise form of a lease but convey the right to use an asset are indefinite life intangible assets and finite life intangible assets. separated into lease payments and other payments if the Internally generated intangible assets are capitalised, provided entity has the control of the use or of the access to the they generate future economic benefits and their costs are asset or takes essentially all the output of the asset. Then clearly identifiable. the entity determines whether the lease component of the Indefinite life intangible assets are those for which there agreement is a finance or an operating lease. is no foreseeable limit to their useful economic life as they arise from contractual or other legal rights that can be Business combinations and related goodwill renewed without significant cost and are the subject of Business combinations are accounted for using the acquisition continuous marketing support. They mainly comprise certain method. Identifiable assets acquired and liabilities and brands, trade­marks and intellectual property rights. They are contingent liabilities assumed in a business combination are not amortised but tested for impairment annually or more measured initially at their fair values at the acquisition date. frequently if an impairment indicator is triggered. The The consideration transferred is measured at fair value and assessment of the classification of intangible assets as includes the fair value of any contingent consideration. indefinite is reviewed annually. Subsequent changes in contingent consideration, when not Finite life intangible assets are those for which there is classified as equity, are recognised in the income statement. an expectation of obsolescence that limits their useful The acquisition-related costs are charged to the income economic life or where the useful life is limited by contractual state­ment in the period in which they are incurred. Where or other terms. They are amortised over the shorter of their not all of the equity of a subsidiary is acquired the non- contractual or useful economic lives. They comprise mainly controlling interests are recognised at the non-controlling management information systems, patents and rights to interest’s share of the acquiree’s net identifiable assets. carry on an activity (e. g. exclusive rights to sell products or Upon obtaining control in a business combination achieved to perform a supply activity). Finite life intangible assets are in stages, the Group remeasures its previously held equity amortised on a straight-line basis assuming a zero residual interest at fair value and recognises a gain or a loss to the value: management information systems over a period income statement. ranging from 3 to 5 years; other finite intangible assets over Goodwill is recorded when the sum of the fair value of the estimated useful life or the related contractual period, consideration transferred plus the fair value of any existing generally 5 to 20 years or longer, depending on specific

Consolidated Financial Statements of the Nestlé Group 2014 71 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 1. Accounting policies

circumstances. Useful lives and residual values are reviewed consider the assets in their current condition. They are then annually. Amortisation of intangible assets is allocated to the projected to perpetuity using a multiple which corresponds appropriate headings of expenses by function in the income to a steady or declining growth rate. The Group assesses statement. the uncertainty of these estimates by making sensitivity analyses. The discount rate reflects the current assessment Research and development of the time value of money and the risks specific to the CGU Internal research costs are charged to the income statement (essentially country risk). The business risk is included in in the year in which they are incurred. Development costs the determination of the cash flows. Both the cash flows are only recognised as assets on the balance sheet if all the and the discount rates include inflation. recognition criteria set by IAS 38 – Intangible Assets are met An impairment loss in respect of goodwill is never before the products are launched on the market. Development subsequently reversed. costs are therefore charged to the income statement in the year in which they are incurred due to uncertainties inherent Impairment of property, plant and equipment in the development of new products because the expected and finite life intangible assets future economic benefits cannot be reliably determined. As Consideration is given at each balance sheet date to long as the products have not reached the market place, there determine whether there is any indication of impairment is no reliable evidence that positive future cash flows would of the carrying amounts of the Group’s property, plant and be obtained. equipment and finite life intangible assets. Indication could Payments made to third parties in order to in-license or be unfavourable development of a business under competitive acquire intellectual property rights, compounds and products pressures or severe economic slowdown in a given market are capitalised as they are separately identifiable and are as well as reorganisation of the operations to leverage their expected to generate future benefits. scale. If any indication exists, an asset’s recoverable amount Other development costs (essentially management is estimated. An impairment loss is recognised whenever information system software) are capitalised provided that the carrying amount of an asset exceeds its recoverable there is an identifiable asset that will be useful in generating amount. The recoverable amount is the greater of the fair future benefits in terms of savings, economies of scale, etc. value less cost of disposal and value in use. In assessing Capitalised development costs are subsequently value in use, the estimated future cash flows are discounted accounted for as described in the section Intangible assets to their present value, based on the time value of money above. and the risks specific to the country where the assets are located. The risks specific to the asset are included in the Impairment of goodwill and indefinite life determination of the cash flows. intangible assets Assets that have suffered an impairment are tested for Goodwill and indefinite life intangible assets are tested for possible reversal of the impairment at each reporting date if impairment at least annually and upon the occurrence of indications exist that impairment losses recognised in prior an indication of impairment. periods no longer exist or have decreased. The impairment tests are performed annually at the same time each year and at the cash generating unit (CGU) level. Assets held for sale, disposal groups The Group defines its CGU for goodwill impairment testing and discontinued operations based on the way that it monitors and derives economic Non-current assets held for sale (and disposal groups) are benefits from the acquired goodwill. For indefinite life presented separately in the current section of the balance intangible assets, the Group defines its CGU as the smallest sheet. Immediately before the initial classification of the identifiable group of assets that generates cash inflows that assets (and disposal groups) as held for sale, the carrying are largely independent of the cash inflows from other assets amounts of the assets (or all the assets and liabilities in the or groups of assets. The impairment tests are performed by disposal groups) are measured in accordance with their comparing the carrying value of the assets of these CGU applicable accounting policy. Non-current assets held for with their recoverable amount, based on their value in use, sale (and disposal groups) are subsequently measured at which corresponds to their future projected cash flows the lower of their carrying amount and fair value less cost discounted at an appropriate pre-tax rate of return. Usually, to sell. Non-current assets held for sale (and disposal the cash flows correspond to estimates made by Group groups) are no longer amortised or depreciated. Management in financial plans and business strategies An operation is classified as discontinued if it is covering a period of five years after making adjustments to a component of an entity which is either a separate major

72 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 1. Accounting policies

line of business or geographical area of operations, or a part minimum funding requirements in relation to past service of a plan to exit such a business or area of operations, which are considered when determining pension obligations. has been disposed of or is classified as held for sale. Upon Pension cost charged to the income statement consists occurrence of discontinued operations, the income statement of service cost (current and past service cost, gains and of the discontinued operations is presented separately in the losses arising from settlement) and administration costs consolidated income statement. Comparative information is (other than costs of managing plan assets) and net interest restated accordingly. Balance sheet and cash flow information expense or income. Past service cost is recognised at the related to discontinued operations are disclosed separately earlier of the following dates: in the notes. – when the plan amendment or curtailment occurs; and – when the related restructuring costs or termination Provisions benefits are recognised. Provisions comprise liabilities of uncertain timing or amount Remeasurements of the defined benefit plans are reported that arise from restructuring plans, environmental, litigation in other comprehensive income. They correspond to the and other risks. Provisions are recognised when there exists actual return on plan assets, excluding interest income, a legal or constructive obligation stemming from a past event changes in actuarial assumptions and differences between and when the future cash outflows can be reliably estimated. actuarial assumptions and what has actually occurred. Obligations arising from restructuring plans are recognised Some benefits are also provided by defined contribution when detailed formal plans have been established and when plans. Contributions to such plans are charged to the there is a valid expectation that such plans will be carried out income statement as incurred. by either starting to implement them or announcing their main features. Obligations under litigation reflect Group Equity compensation plans Management’s best estimate of the outcome based on the The Group has equity-settled and cash-settled share-based facts known at the balance sheet date. payment transactions. Equity-settled share-based payment transactions are Contingent assets and liabilities recognised in the income statement with a corresponding Contingent assets and liabilities are possible rights and increase in equity over the vesting period. They are fair obligations that arise from past events and whose existence valued at grant date and measured using generally accepted will be confirmed only by the occurrence or non-occurrence pricing models. The cost of equity-settled share-based of one or more uncertain future events not fully within the payment transactions is adjusted annually by the expectations control of the Group. They are disclosed in the notes. of vesting, for the forfeitures of the participants’ rights that no longer satisfy the plan conditions, as well as for early Post-employment benefits vesting. The liabilities of the Group arising from defined benefit Liabilities arising from cash-settled share-based payment obligations, and the related current service cost, are transactions are recognised in the income statement over determined using the projected unit credit method. Actuarial the vesting period. They are fair valued at each reporting advice is pro­vided both by external consultants and by date and measured using generally accepted pricing models. actuaries employed by the Group. The actuarial assumptions The cost of cash-settled share-based payment transactions used to calculate the defined benefit obligations vary is adjusted for the forfeitures of the participants’ rights that according to the economic conditions of the country in no longer satisfy the plan conditions, as well as for early which the plan is located. Such plans are either externally vesting. funded (in the form of independently administered funds) or unfunded. Accruals and deferred income The deficit or excess of the fair value of plan assets over Accruals and deferred income comprise expenses relating the present value of the defined benefit obligation is to the current year, which will not be invoiced until after the recognised as a liability or an asset on the balance sheet. balance sheet date, and income received in advance relating An excess of assets is recognised only to the extent that it to the following year. represents a future economic benefit which is available in the form of refunds from the plan or reductions in future contributions to the plan. When these criteria are not met, it is not recognised but is disclosed in the notes. Impacts of

Consolidated Financial Statements of the Nestlé Group 2014 73 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 1. Accounting policies

Dividend IFRS 15 – Revenue from Contract with Customers In accordance with Swiss law and the Company’s Articles This standard combines, enhances and replaces specific of Association, dividend is treated as an appropriation of guidance on recognising revenue with a single standard. profit in the year in which it is ratified at the Annual General It defines a new five-step model to recognise revenue Meeting and subsequently paid. from customer contracts. The Group is currently assessing the potential impact of this new standard. Events occurring after the balance sheet date This standard is mandatory for the accounting period The values of assets and liabilities at the balance sheet date beginning on 1 January 2017. are adjusted if there is evidence that subsequent adjusting events warrant a modification of these values. These Improvements and other amendments to IFRS/IAS adjustments are made up to the date of approval of the A number of standards have been modified on miscellaneous Consolidated Financial Statements by the Board of Directors. points. None of these amendments are expected to have Other non-adjusting events are disclosed in the notes. a material effect on the Group’s Financial Statements.

Changes in accounting policies A number of standards have been modified on miscellaneous points with effect from 1 January 2014. Such changes include Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36), which the Group early-adopted in 2013, as well as IFRIC 21 Levies, and Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32). None of these amendments had a material effect on the Group’s Financial Statements.

Changes in IFRS that may affect the Group after 31 December 2014 The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the accounting period beginning on 1 January 2015 or later. The Group has not early adopted them.

IFRS 9 – Financial Instruments The standard addresses the principles for the financial reporting of financial assets and financial liabilities, including classification, measurement, impairment, derecognition and hedge accounting. The standard will affect the Group’s accounting for its available-for-sale financial assets, as IFRS 9 only permits the recognition of fair value gains and losses in other comprehensive income under some circumstances and gains and losses on certain instruments with specific cash flow characteristics are never reclassified to the income statement at a later date. There will be no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value to income statement, and the Group does not have any such liabilities. The Group is currently assessing the impact of the new hedge accounting and impairment requirements. This standard is mandatory for the accounting period beginning on 1 January 2018.

74 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 2. Acquisitions and disposals of businesses

2.1 Modification of the scope of consolidation

Acquisitions The main acquisitions are: – Remaining 50% of Galderma, worldwide, dermatology pharmaceuticals products (Nutrition and Health Science), July. – Aesthetic products business commercialisation rights from Valeant Pharmaceuticals International, USA and Canada, aesthetic dermatology products (Nutrition and Health Science), 100%, July.

Disposals There was no major disposal in 2014.

2.2 Acquisitions of businesses The major classes of assets acquired and liabilities assumed at the acquisition date are:

In millions of CHF 2014 2013

Aesthetic business commercial rights Other Galderma Valeant acquisitions Total Total Property, plant and equipment 401 — 87 488 35 Intangible assets (a) 5 401 959 20 6 380 125 Inventories and other assets (b) 1 171 17 76 1 264 39 Financial debt (179) — (50) (229) (1) Employee benefits, deferred taxes and provisions (1 015) — (19) (1 034) (41) Other liabilities (525) (17) (81) (623) (26) Fair value of identifiable net assets 5 254 959 33 6 246 131

(a) Mainly trademarks, trade names, patents, technology, research & development intangible assets and reacquired rights. (b) Galderma: including the fair value of trade receivables of CHF 434 million with a gross contractual amount of CHF 448 million and estimated cash flows of CHF 14 million not expected to be collected.

Since the valuation of the assets and liabilities of recently acquired businesses is still in process, the values are determined provisionally.

Consolidated Financial Statements of the Nestlé Group 2014 75 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 2. Acquisitions and disposals of businesses

The goodwill arising on acquisitions and the cash outflow are:

In millions of CHF 2014 2013

Aesthetic business commercial rights Other Galderma Valeant acquisitions Total Total Fair value of consideration transferred 3 907 1 240 99 5 246 382 Non-controlling interests (a) — — 2 2 3 Fair value of pre-existing interests (b) 3 923 — 47 3 970 — Subtotal 7 830 1 240 148 9 218 385 Fair value of identifiable net assets (5 254) (959) (33) (6 246) (131) Goodwill 2 576 281 115 2 972 254

(a) Non-controlling interests have been measured based on their proportionate interest in the recognised amounts of net assets of the entities acquired. (b) See Note 15 for the revaluation gain on the 50% stake already held in Galderma. For other acquisitions, the remeasurement to fair value of pre-existing interests in one of the business acquisitions resulted in a gain of CHF 43 million and has been recognised under Other operating income in the income statement (see Note 4.2).

In millions of CHF 2014 2013

Aesthetic business commercial rights Other Galderma Valeant acquisitions Total Total Fair value of consideration transferred 3 907 1 240 99 5 246 382 Cash and cash equivalents acquired (83) — (16) (99) (1) Settled in L’Oréal shares (a) (3 201) — — (3 201) — Consideration payable — — — — (3) Settled in treasury shares (b) — — — — (280) Payment of consideration payable on prior year’s acquisitions — — 40 40 223 Cash outflow on acquisitions 623 1 240 123 1 986 321

(a) The Group sold part of its shares to L’Oréal for a price of CHF 7342 million (see Note 15) in exchange for the remaining 50% stake in Galderma for an equity value of CHF 3201 million and cash of CHF 4141 million. (b) In 2013, four million Nestlé S.A. shares were given as consideration. The number of shares was based on the purchase price of the business. The fair value of the shares transferred was based on the market price at the date of acquisition of CHF 69.50 per share. For Galderma, the consideration transferred consists of payments made in L’Oréal shares and in cash to repay the loans granted by L’Oréal to Galderma. For the other acquisitions, the consideration transferred consists of payments made in cash with some consideration remaining payable.

Galderma On 8 July 2014, the Group brought its ownership in Galderma to 100% by acquiring a 50% stake from L’Oréal (see Note 15.3). Galderma is a Swiss company, specializing in innovative medical solutions in dermatology pharmaceuticals products with an extensive product portfolio available in 70 countries. With this acquisition, the Group will pursue its strategic development in Nutrition, Health and Wellness, by expanding its activities to medical skin treatments. The goodwill arising on this acquisition includes elements such as early stage pioneering research and development projects with strong growth potential. The goodwill is not expected to be deductible for tax purposes.

76 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 2. Acquisitions and disposals of businesses

Aesthetic dermatology products business commercialisation rights from Valeant Pharmaceuticals International On 10 July 2014, the Group acquired a business which exploits full rights to commercialise several key aesthetic dermatology products in USA and Canada from Valeant Pharmaceuticals International. The two markets together represent more than half of the fast-growing medical aesthetic market around the world. The acquisition of these key strategic assets will extend and reinforce the Group’s presence in the field of specialised medical skin treatments. The goodwill arising from this acquisition represents the acquisition of the strong geographic footprint in the North America business of the aesthetic dermatology products. The goodwill is expected to be deductible for tax purposes.

The cumulative impact of the acquisition of the two closely related businesses, Galderma and the Aesthetic business commercial rights from Valeant, both part of the operating segment Nestlé Skin Health (reported in Other businesses – see Note 3.1) is as follows. Firstly, sales and profit for the year 2014 included in the Consolidated Financial Statements amount respectively to CHF 1399 million and CHF 305 million. Secondly, the Group’s total sales and profit for the year 2014 would have amounted respectively to approximately CHF 92.4 billion and CHF 14.9 billion if both acquisitions had been effective 1 January 2014. These latter amounts have been determined based on the assumption that the fair value adjustments at the acquisition dates would have been the same at 1 January 2014.

Acquisition-related costs Acquisition-related costs, which mostly relate to the acquisition of Galderma and the Aesthetic business commercialisation rights from Valeant, have been recognised under Other operating expenses in the income statement (see Note 4.2) for an amount of CHF 29 million (2013: CHF 20 million – mostly related to Wyeth Nutrition).

2.3 Assets held for sale As of 31 December 2014, assets held for sale are mainly composed of businesses which management is committed to sell and for which the completion of the sale is highly probable. Accordingly, assets and liabilities of these businesses have been reclassified as disposal groups held for sale. Those disposal groups relate mainly to frozen food and water businesses in Europe, respectively part of Other businesses and Nestlé Waters operating segments. Those planned disposals were undertaken as part of the ongoing product portfolio management review. They are carried at their net book value before reclassification or at their estimated net selling price based on discussions with potential purchasers (categorised as Level 3 in accordance to IFRS 13). No individually significant impairment of disposal groups has been accounted for. As of 31 December 2013, assets held for sale were mainly composed of the Performance Nutrition business, which was part of the Nestlé Nutrition operating segment. This business has been disposed of during 2014.

2.4 Disposals of businesses Cash inflow on disposals of businesses relates to several non-significant disposals. The loss on disposal (see Note 4.2) is mainly composed of a cumulative loss in other comprehensive income of CHF 322 million (mainly related to the Performance Nutrition business, see Note 2.3) that has been recycled in the income statement, of impairment of disposal groups held for sale and of various expenses incurred or accrued to finalize the disposals.

Consolidated Financial Statements of the Nestlé Group 2014 77 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 3. Analyses by segment

3.1 Operating segments Revenue and results

In millions of CHF 2014 (b)

(c)

(a) Sales Trading operating profit Net other trading income/(expenses) of which impairment of which restructuring costs Impairment of goodwill Zone Europe 15 175 2 327 (105) (27) (81) — Zone Americas 27 277 5 117 (316) (59) (59) (1 835) Zone Asia, Oceania and Africa 18 272 3 408 (110) (11) (31) (52) Nestlé Waters 7 390 714 (34) (7) (28) (1) Nestlé Nutrition 9 614 1 997 (105) (45) (13) (4) Other businesses (d) 13 884 2 654 (35) (6) (4) (16) Unallocated items (e) — (2 198) (92) (4) (41) — Total 91 612 14 019 (797) (159) (257) (1 908)

In millions of CHF 2013 (f) (b)

(c)

(a) Sales Trading operating profit Net other trading income/(expenses) of which impairment of which restructuring costs Impairment of goodwill Zone Europe 15 567 2 331 (115) (33) (54) (2) Zone Americas 28 358 5 162 (415) (31) (91) — Zone Asia, Oceania and Africa 18 851 3 562 (37) (7) (13) — Nestlé Waters 7 257 665 (24) (11) 3 (5) Nestlé Nutrition 9 826 1 961 (78) (11) (34) (84) Other businesses (d) 12 299 2 175 (67) (43) (18) (23) Unallocated items (e) — (1 809) (109) (7) (67) — Total 92 158 14 047 (845) (143) (274) (114)

(a) Inter-segment sales are not significant. (b) Included in Trading operating profit. (c) Impairment of property, plant and equipment and intangible assets. (d) Mainly Nespresso, Nestlé Professional, Nestlé Health Science and Nestlé Skin Health (renamed following the integration of Galderma as from July 2014). (e) Refer to the Segment reporting section of Note 1 – Accounting policies for the definition of unallocated items. (f) 2013 comparatives have been restated following the transfer of responsibility for Nestea RTD businesses in geographic Zones to Nestlé Waters effective as from 1 January 2014.

Refer to Note 3.3 for the reconciliation from trading operating profit to profit before taxes, associates and joint ventures.

78 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 3. Analyses by segment

Assets and other information

In millions of CHF 2014

Segment assets of which goodwill and intangible assets Capital additions of which capital expenditure Depreciation and amortisation of segment assets Zone Europe 11 308 2 050 749 747 (473) Zone Americas 20 915 7 952 1 226 1 039 (681) Zone Asia, Oceania and Africa 15 095 4 580 803 697 (510) Nestlé Waters 6 202 1 569 327 308 (403) Nestlé Nutrition 24 448 15 352 501 363 (330) Other businesses (a) 21 345 13 295 10 399 573 (525) Unallocated items (b) 11 892 9 559 258 187 (136) Inter-segment eliminations (1 928) — — — — Total segments 109 277 54 357 14 263 3 914 (3 058) Non-segment assets 24 173 Total 133 450

In millions of CHF 2013 (c)

Segment assets of which goodwill and intangible assets Capital additions of which capital expenditure Depreciation and amortisation of segment assets Zone Europe 11 779 2 229 980 964 (517) Zone Americas 21 243 9 058 1 134 1 019 (769) Zone Asia, Oceania and Africa 14 165 4 284 1 279 1 280 (520) Nestlé Waters 6 046 1 575 405 377 (442) Nestlé Nutrition 22 517 14 089 562 430 (337) Other businesses (a) 9 564 3 709 1 091 642 (437) Unallocated items (b) 11 060 8 768 293 216 (143) Inter-segment eliminations (2 021) — — — — Total segments 94 353 43 712 5 744 4 928 (3 165) Non-segment assets 26 089 Total 120 442

(a) Mainly Nespresso, Nestlé Professional, Nestlé Health Science and Nestlé Skin Health (renamed following the integration of Galderma as from July 2014). (b) Refer to the Segment reporting section of Note 1 – Accounting policies for the definition of unallocated items. (c) 2013 comparatives have been restated following the transfer of responsibility for Nestea RTD businesses in geographic Zones to Nestlé Waters effective as from 1 January 2014.

Consolidated Financial Statements of the Nestlé Group 2014 79 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 3. Analyses by segment

3.2 Products Revenue and results

In millions of CHF 2014 (a)

(b)

Sales Trading operating profit Net other trading income/(expenses) of which impairment of which restructuring costs Impairment of goodwill Powdered and Liquid Beverages 20 302 4 685 (51) (23) (28) (16) Water 6 875 710 (34) (7) (27) (1) Milk products and Ice cream 16 743 2 701 (162) (19) (62) (1 028) Nutrition and Health Science (c) 13 046 2 723 (121) (45) (16) (4) Prepared dishes and cooking aids 13 538 1 808 (148) (39) (29) (807) Confectionery 9 769 1 344 (129) (4) (42) (52) PetCare 11 339 2 246 (60) (18) (12) — Unallocated items (d) — (2 198) (92) (4) (41) — Total 91 612 14 019 (797) (159) (257) (1 908)

In millions of CHF 2013 (a)

(b)

Sales Trading operating profit Net other trading income/(expenses) of which impairment of which restructuring costs Impairment of goodwill Powdered and Liquid Beverages 20 495 4 649 (95) (21) (27) — Water 6 773 678 (21) (9) 3 (5) Milk products and Ice cream 17 357 2 632 (177) (14) (44) — Nutrition and Health Science (c) 11 840 2 228 (120) (44) (38) (107) Prepared dishes and cooking aids 14 171 1 876 (120) (28) (61) — Confectionery 10 283 1 630 (86) (19) (23) — PetCare 11 239 2 163 (117) (1) (17) — Unallocated items (d) — (1 809) (109) (7) (67) (2) Total 92 158 14 047 (845) (143) (274) (114)

(a) Included in Trading operating profit. (b) Impairment of property, plant and equipment and intangible assets. (c) Renamed following the integration of Galderma as from July 2014. (d) Refer to the Segment reporting section of Note 1 – Accounting policies for the definition of unallocated items.

Refer to Note 3.3 for the reconciliation from trading operating profit to profit before taxes, associates and joint ventures.

80 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 3. Analyses by segment

Assets and liabilities

In millions of CHF 2014

Assets of which goodwill and intangible assets Liabilities Powdered and Liquid Beverages 11 599 648 4 790 Water 5 928 1 532 1 764 Milk products and Ice cream 14 387 4 874 3 818 Nutrition and Health Science (a) 32 245 21 578 4 325 Prepared dishes and cooking aids 13 220 6 099 2 934 Confectionery 7 860 1 964 2 561 PetCare 14 344 9 182 2 004 Unallocated items (b) and intra-group eliminations 1 179 2 176 (2 668) Total 100 762 48 053 19 528

In millions of CHF 2013

Assets of which goodwill and intangible assets Liabilities Powdered and Liquid Beverages 11 044 477 4 607 Water 6 209 1 621 1 747 Milk products and Ice cream 14 805 5 220 3 773 Nutrition and Health Science (a) 28 699 18 648 3 838 Prepared dishes and cooking aids 13 289 6 373 2 761 Confectionery 8 190 2 071 2 611 PetCare 14 064 9 185 1 819 Unallocated items (b) and intra-group eliminations 1 081 2 146 (2 821) Total 97 381 45 741 18 335

(a) Renamed following the integration of Galderma as from July 2014. (b) Refer to the Segment reporting section of Note 1 – Accounting policies for the definition of unallocated items.

Consolidated Financial Statements of the Nestlé Group 2014 81 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 3. Analyses by segment

3.3 Reconciliation from trading operating profit to profit before taxes, associates and joint ventures

In millions of CHF 2014 2013 Trading operating profit 14 019 14 047 Impairment of goodwill (1 908) (114) Net other operating income/(expenses) excluding impairment of goodwill (1 206) (865) Operating profit 10 905 13 068 Net financial income/(expense) (637) (631) Profit before taxes, associates and joint ventures 10 268 12 437

3.4 Customers There is no single customer amounting to 10% or more of Group’s revenues.

3.5 Geography (top ten countries and Switzerland)

In millions of CHF 2014 2013

Non-current Non-current Sales assets (a) Sales assets (a) USA 23 489 15 028 23 334 15 161 Greater China Region 6 638 6 020 6 618 5 414 France 5 507 1 708 5 578 1 683 Brazil 5 117 1 186 5 116 1 057 Germany 3 340 1 556 3 321 1 598 United Kingdom 2 987 1 232 2 824 1 111 Mexico 2 960 796 3 179 697 Philippines 2 489 958 2 410 877 Italy 2 108 823 2 098 849 Canada 1 962 578 2 064 552 Switzerland (b) 1 566 4 616 1 512 2 846 Rest of the world and unallocated items 33 449 48 277 34 104 38 762 Total 91 612 82 778 92 158 70 607

(a) Relate to property, plant and equipment, intangible assets and goodwill. (b) Country of domicile of Nestlé S.A.

The analysis of sales by geographic area is stated by customer location.

82 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 4. Net other trading and operating income/(expenses)

4.1 Net other trading income/(expenses)

In millions of CHF Notes 2014 2013 Profit on disposal of property, plant and equipment 50 24 Miscellaneous trading income 60 96 Other trading income 110 120

Loss on disposal of property, plant and equipment (14) (9) Restructuring costs (257) (274) Impairment of property, plant and equipment and intangible assets 8/9 (159) (143) Litigations and onerous contracts (a) (411) (380) Miscellaneous trading expenses (66) (159) Other trading expenses (907) (965)

Total net other trading income/(expenses) (797) (845)

(a) Mainly relates to numerous separate legal cases (for example labour, civil and tax litigations), liabilities linked to product withdrawals as well as several separate onerous contracts.

4.2 Net other operating income/(expenses)

In millions of CHF Notes 2014 2013 Profit on disposal of businesses 83 33 Miscellaneous operating income (a) 71 583 Other operating income 154 616

Loss on disposal of businesses 2 (592) (1 221) Impairment of goodwill 9 (1 908) (114) Miscellaneous operating expenses (b) (768) (260) Other operating expenses (3 268) (1 595)

Total net other operating income/(expenses) (3 114) (979)

(a) In 2013, mainly relates to the disposal of Givaudan shares, which were categorised as available-for-sale. (b) Mainly includes the effect of hyperinflation in Venezuela (see Note 23).

Consolidated Financial Statements of the Nestlé Group 2014 83 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 5. Net financial income/(expense)

In millions of CHF Notes 2014 2013 Interest income 89 199 Interest expense (521) (580) Net financing cost (432) (381)

Interest income on defined benefit plans 10 46 20 Interest expense on defined benefit plans 10 (240) (268) Net interest income/(expense) on defined benefit plans (194) (248)

Other (11) (2) Net financial income/(expense) (637) (631)

6. Inventories

In millions of CHF 2014 2013 Raw materials, work in progress and sundry supplies 3 797 3 499 Finished goods 5 643 5 138 Allowance for write-down to net realisable value (268) (255) 9 172 8 382

Inventories amounting to CHF 240 million (2013: CHF 252 million) are pledged as security for financial liabilities.

7. Trade and other receivables

7.1 By type

In millions of CHF 2014 2013 Trade receivables 10 283 9 367 Other receivables 3 176 2 839 13 459 12 206

The five major customers represent 11% (2013: 11%) of trade and other receivables, none of them individually exceeding 6% (2013: 6%).

84 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 7. Trade and other receivables

7.2 Past due and impaired receivables

In millions of CHF 2014 2013 Not past due 11 801 10 175 Past due 1–30 days 851 1 054 Past due 31–60 days 254 284 Past due 61–90 days 108 116 Past due 91–120 days 60 103 Past due more than 120 days 737 851 Allowance for doubtful receivables (352) (377) 13 459 12 206

7.3 Allowance for doubtful receivables

In millions of CHF 2014 2013 At 1 January 377 374 Currency retranslations (5) (13) Allowance made during the year 80 95 Amounts used and reversal of unused amounts (99) (74) Modification of the scope of consolidation (1) (5) At 31 December 352 377

Based on the historic trend and expected performance of the customers, the Group believes that the above allowance for doubtful receivables sufficiently covers the risk of default.

Consolidated Financial Statements of the Nestlé Group 2014 85 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 8. Property, plant and equipment

In millions of CHF

Tools, Machinery furniture Land and and and other buildings equipment equipment Vehicles Total Gross value At 1 January 2013 15 460 27 966 7 932 957 52 315 Currency retranslations (655) (1 398) (222) (27) (2 302) Capital expenditure (a) 1 330 2 453 1 066 79 4 928 Disposals (82) (339) (774) (104) (1 299) Reclassified as held for sale (40) (139) (26) (3) (208) Modification of the scope of consolidation (25) (110) (159) (22) (316) At 31 December 2013 15 988 28 433 7 817 880 53 118 Currency retranslations 359 590 174 31 1 154 Capital expenditure (a) 1 151 1 985 720 58 3 914 Disposals (219) (723) (495) (63) (1 500) Reclassified as held for sale (266) (286) (161) (78) (791) Modification of the scope of consolidation 220 4 (13) — 211 At 31 December 2014 17 233 30 003 8 042 828 56 106

Accumulated depreciation and impairments At 1 January 2013 (5 136) (14 735) (5 360) (508) (25 739) Currency retranslations 187 602 190 17 996 Depreciation (428) (1 360) (970) (106) (2 864) Impairments (15) (74) (20) — (109) Disposals 57 269 739 83 1 148 Reclassified as held for sale 19 96 17 1 133 Modification of the scope of consolidation 16 104 81 11 212 At 31 December 2013 (5 300) (15 098) (5 323) (502) (26 223) Currency retranslations (94) (410) (64) (11) (579) Depreciation (434) (1 424) (826) (98) (2 782) Impairments (15) (113) (8) — (136) Disposals 163 642 473 60 1 338 Reclassified as held for sale 117 212 112 53 494 Modification of the scope of consolidation 57 113 31 2 203 At 31 December 2014 (5 506) (16 078) (5 605) (496) (27 685)

Net at 31 December 2013 10 688 13 335 2 494 378 26 895 Net at 31 December 2014 11 727 13 925 2 437 332 28 421

(a) Including borrowing costs.

At 31 December 2014, property, plant and equipment include CHF 1189 million of assets under construction (2013: CHF 1510 million). Net property, plant and equipment held under finance leases amount to CHF 171 million (2013: CHF 201 million). Net property, plant and equipment of CHF 251 million are pledged as security for financial liabilities (2013: CHF 236 million). Fire risks, reasonably estimated, are insured in accordance with domestic requirements.

86 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 8. Property, plant and equipment

Impairment Impairment of property, plant and equipment arises mainly from the plans to optimise ­industrial manufacturing capacities by closing or selling inefficient production facilities.

Commitments for expenditure At 31 December 2014, the Group was committed to expenditure amounting to CHF 520 million (2013: CHF 724 million).

Consolidated Financial Statements of the Nestlé Group 2014 87 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 9. Goodwill and intangible assets

In millions of CHF

Goodwill Brands and intellectual property rights Operating rights and others Management information systems Total intangible assets of which internally generated Gross value At 1 January 2013 34 387 11 709 1 090 3 833 16 632 3 538 of which indefinite useful life — 11 583 23 — 11 606 — Currency retranslations (1 182) (119) (26) (124) (269) (118) Expenditure — 71 116 215 402 183 Disposals — (1) (52) (11) (64) — Reclassified as held for sale (271) (23) — (14) (37) (13) Acquisition of businesses 254 91 34 — 125 — Disposal of businesses (558) (300) (79) (60) (439) — At 31 December 2013 32 630 11 428 1 083 3 839 16 350 3 590 of which indefinite useful life — 11 305 35 — 11 340 — Currency retranslations 2 693 552 100 74 726 61 Expenditure — 14 226 269 509 253 Disposals — — (36) (8) (44) — Reclassified as held for sale (357) (30) (44) (57) (131) (51) Acquisition of businesses 2 972 5 287 1 052 41 6 380 — Disposal of businesses (399) (6) (3) (2) (11) — At 31 December 2014 37 539 17 245 2 378 4 156 23 779 3 853 of which indefinite useful life(a) — 16 103 37 — 16 140 —

Accumulated amortisation and impairments At 1 January 2013 (1 699) (45) (296) (3 273) (3 614) (3 038) Currency retranslations 25 1 3 116 120 111 Amortisation — (10) (76) (215) (301) (197) Impairments (114) (31) — (3) (34) — Disposals — 1 48 8 57 — Reclassified as held for sale 177 — — 12 12 12 Disposal of businesses 20 7 49 27 83 — At 31 December 2013 (1 591) (77) (272) (3 328) (3 677) (3 112) Currency retranslations (123) (22) (10) (54) (86) (39) Amortisation — (49) (88) (139) (276) (124) Impairments (1 908) (18) (2) (3) (23) — Disposals — — 36 8 44 — Reclassified as held for sale 304 — 4 30 34 26 Disposal of businesses 336 — 3 2 5 — At 31 December 2014 (2 982) (166) (329) (3 484) (3 979) (3 249) of which indefinite useful life — (19) — — (19) —

Net at 31 December 2013 31 039 11 351 811 511 12 673 478 Net at 31 December 2014 34 557 17 079 2 049 672 19 800 604

(a) Annual impairment tests are performed in connection with goodwill impairment tests. Depending on the items tested, the level at which the test is applied is the goodwill CGU or lower.

Internally generated intangible assets consist mainly of management information systems.

88 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 9. Goodwill and intangible assets

9.1 Impairment charge during the year The 2014 impairment charge mainly relates to the Direct Store Delivery system (DSD) cash generating unit (CGU) for Frozen Pizza and Ice Cream in the USA.

The DSD CGU distributes ice cream (mainly the Dreyer’s business acquired in 2003) and pizza (the Kraft Food’s frozen pizza business acquired in 2010). Goodwill and intangible assets, with an indefinite useful life, from these two acquisitions was allocated to the DSD CGU. An annual impairment test was conducted in the second half of the year. The challenging environment, as well as market trends, impacted by consumer preferences and category dynamics, led to lower than anticipated sales demand and margins. These cumulative factors resulted in a downward revision of projected cash flows and a recoverable amount of the CGU lower than its carrying amount. Consequently, a goodwill impairment charge amounting to CHF 1835 million has been recognised (2013: nil). There was no impairment of the carrying amounts of other assets of the CGU. The goodwill is included in the Zone Americas reportable segment disclosed in Note 3.1. The recoverable amount of the CGU has been determined based on a value-in-use calculation (see Note 9.2). A discount rate of 7.7% (2013: 8.0%) was used in this calculation. The impairment loss has been included in the heading Other operating expenses of the income statement. After impairment of CHF 1835 million, the carrying amount of the DSD CGU includes, apart from goodwill and intangible assets with indefinite useful life, other net operating assets amounting to CHF 1173 million.

Consolidated Financial Statements of the Nestlé Group 2014 89 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 9. Goodwill and intangible assets

9.2 Annual impairment tests Impairment reviews have been conducted for more than 200 items of goodwill and intangible assets with indefinite useful lives, allocated to more than 50 Cash Generating Units (CGU). The following five CGUs have been considered as significant either with regard to the total goodwill or to the total intangible assets with indefinite useful life for which detailed results are presented hereafter: Wyeth Nutrition (WN), PetCare Zone Americas, Nestlé Skin Health, Direct Store Delivery system (DSD) for Frozen Pizza and Ice Cream – USA and Infant Nutrition excluding WN.

In millions of CHF 2014 2013

Goodwill Intangible assets with indefinite useful life Total Goodwill Intangible assets with indefinite useful life Total Wyeth Nutrition (WN) 4 951 4 509 9 460 4 250 4 509 8 759 PetCare Zone Americas 7 584 172 7 756 6 833 155 6 988 Nestlé Skin Health 3 037 4 098 7 135 — — — DSD for Frozen Pizza and Ice Cream – USA (a) 2 518 1 772 4 290 4 045 1 593 5 638 Infant Nutrition excluding WN 3 660 1 316 4 976 3 384 1 184 4 568 Subtotal 21 750 11 867 33 617 18 512 7 441 25 953 as % of total carrying amount 63% 74% 66% 60% 66% 61%

Other CGUs 12 807 4 254 17 061 12 527 3 899 16 426 Total 34 557 16 121 50 678 31 039 11 340 42 379

(a) After impairment (see Note 9.1).

For each CGU, except for DSD for Frozen Pizza and Ice Cream – USA (see Note 9.1), the recoverable amount is higher than its carrying amount. The recoverable amount has been determined based upon a value-in-use calculation. Cash flows have been projected over the next 5 years, except for Nestlé Skin Health for which a 10 year period has been used due to the product development cycle. They have been extrapolated using a steady or declining terminal growth rate and discounted at a pre-tax weighted average rate.

90 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 9. Goodwill and intangible assets

The following table summarises the key assumptions for each significant CGU:

Period of Annual Annual Terminal Pre-tax cash flow sales margin growth discount projections growth evolution rate rate Wyeth Nutrition (WN) 5 years 5% to 15% Improvement 3.9% 7.4% PetCare Zone Americas 5 years 4% to 6% Stable 2.0% 7.6% Nestlé Skin Health 10 years 10% to 24% Improvement 2.4% 6.9% DSD for Frozen Pizza and Ice Cream – USA 5 years –2% to 1% Improvement 1.5% 7.7% Infant Nutrition excluding WN 5 years –1% to 7% Improvement 3.3% 11.3%

– The pre-tax discount rates have been computed based on external sources of information. – The cash flows for the first five years were based upon financial plans approved by Group Management which are consistent with the Group’s approved strategy for this period. They are based on past performance and current initiatives. – The terminal growth rates have been determined to reflect the long term view of the nominal evolution of the business.

Management believe that no reasonably possible change in any of the above key assumptions would cause the CGU’s recoverable amount to fall below the carrying value of the CGUs except for the CGU DSD for Frozen Pizza and Ice Cream – USA, for which any negative change would lead to further impairment.

9.3 Commitments for expenditure of intangible assets At 31 December 2014, the Group was committed to expenditure amounting to CHF 44 million (2013: CHF 9 million).

Consolidated Financial Statements of the Nestlé Group 2014 91 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 10. Employee benefits

Salaries and welfare expenses The Group’s total salaries and welfare expenses amount to CHF 15 978 million (2013: CHF 15 526 million). They are allocated to the appropriate headings of expenses by function.

Pensions and retirement benefits Apart from legally required social security arrangements, the majority of Group employees are eligible for benefits in case of retirement, death in service, disability and in case of resignation. Those benefits are granted under defined contribution plans, as well as defined benefit plans based on pensionable remuneration and length of service. All pension plans comply with local tax and legal restrictions in their respective country, including funding obligations. The Group manages its pension plans by geographic area and the major plans, classified as defined benefit plans under IAS 19, are located in Europe (Switzerland, UK and Germany) and in the Americas (USA). In accordance with applicable legal frameworks, these plans have Boards of Trustees or General Assemblies which are generally independent from the Group and are responsible for the management and governance of the plans. In Switzerland, Nestlé’s pension plan is a cash balance plan where contributions are expressed as a percentage of the pensionable salary. The pension plan guarantees the amount accrued on the members’ savings accounts, as well as a minimum interest on those savings accounts. At retirement date, the savings accounts are converted into pensions. However, members may opt to receive a part of the pension as a lump sum. Increases of pensions in payment are granted on a discretionary basis by the Board of Trustees, subject to the financial situation of the plan. To be noted that there is also a defined benefit plan that has been closed to new entrants in 2013 and whose members below age 55 have been transferred to the cash balance plan. This heritage plan is a hybrid between a cash balance plan and a plan based on a final pensionable salary. In the United Kingdom, Nestlé’s pension plan is a career average plan with salary ­revaluation. Members accrue a pension defined on the average of their salaries during their career at Nestlé since 2010. The salaries are automatically revalued according to inflation subject to caps. Pensions earned before 2010 are also revalued according to inflation subject to a cap and similarly, pensions in payment are mandatorily adjusted, as well. At retirement, there is a lump sum option. Members have the option to switch between the defined benefit sections and a defined contribution section. Nestlé’s pension plan in Germany is a cash balance plan, where members benefit from a guarantee on their savings accounts. Contributions to the plan are expressed as a percentage of the pensionable salary. Increases to pensions in payment are granted in accor­dance with legal requirements. There is also a heritage plan, based on final pensionable salary, that has been closed to new entrants in 2006. In the USA, Nestlé’s primary pension plan is non-contributory for the employees. The plan is a pension equity design, under which members earn pension credits each year based on a schedule related to the sum of their age and service with Nestlé. A member’s benefit is the sum of the annual pension credits earned multiplied by an average earning payable as a lump sum. However, in lieu of the lump sum, members have the option of converting the benefit to a monthly pension annuity. The plan does not provide for automatic pension increases.

Post-employment medical benefits and other employee benefits Group companies, principally in the Americas, maintain medical benefit plans, classified as defined benefit plans under IAS 19, which cover eligible retired employees. The obligations for other employee benefits consist mainly of end of service indemnities, which do not have the character of pensions.

92 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 10. Employee benefits

Risks related to defined benefit plans The main risks to which the Group is exposed in relation to operating defined benefit plans are: – mortality risk: the assumptions adopted by the Group make allowance for future improvements in life expectancy. However, if life expectancy improves at a faster rate than assumed, this would result in greater payments from the plans and consequently increases in the plans’ liabilities. In order to minimise this risk, mortality assumptions are reviewed on a regular basis. – market and liquidity risks: these are the risks that the investments do not meet the expected returns over the medium to long term. This also encompasses the mismatch between assets and liabilities. In order to minimise the risks, the structure of the portfolios is reviewed and asset-liability matching analyses are performed on a regular basis.

Plan amendments and restructuring events Plans within the Group are regularly reviewed as to whether they are aligned with market practice in the local context. Should a review indicate that a plan needs to be changed, prior agreement with the local Board of Trustees or the General Assembly, the regulator and, if applicable, the members, is sought before implementing plan changes. During the year, the main plan amendment concerned the US medical plan, where a revision of the cost sharing arrangement took place. Other minor plan amendments have taken place in Zone AOA. Amendments have been recognised as past service costs, essentially impacting Zone AMS and Nestlé Nutrition.

Asset-liability management and funding arrangement Plan trustees or General Assemblies are responsible for determining the mix of asset classes and target allocations of the Nestlé’s plans with the support of investment advisors. Period­ical reviews of the asset mix are made by mandating external consultants to perform asset liability matching analyses. Such analyses aim at comparing dynamically the fair value of assets and the liabilities in order to determine the most adequate strategic asset allocation. The overall investment policy and strategy for the Group’s funded defined benefit plans is guided by the objective of achieving an investment return which, together with the contributions­ paid, is sufficient to maintain reasonable control over the various funding risks of the plans. As those risks evolve with the development of capital markets and asset management activities, the Group addresses the assessment and control process of the major investment pension risks. In order to protect the Group’s defined benefit plans funding ratio and to mitigate the financial risks, protective measures on the investment strategies are in force. To the extent possible, the risks are shared equally amongst the different stakeholders.

Consolidated Financial Statements of the Nestlé Group 2014 93 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 10. Employee benefits

10.1 Reconciliation of assets and liabilities recognised in the balance sheet

In millions of CHF 2014 2013

Defined benefit retirement plans Post-employment medical benefits and other benefits Total Defined benefit retirement plans Post-employment medical benefits and other benefits Total Present value of funded obligations 27 971 56 28 027 23 770 78 23 848 Fair value of plan assets (24 122) (27) (24 149) (21 551) (50) (21 601) Excess of liabilities/(assets) over funded obligations 3 849 29 3 878 2 219 28 2 247

Present value of unfunded obligations 767 1 933 2 700 693 1 690 2 383 Unrecognised assets and minimum funding requirements 34 — 34 106 — 106 Net defined benefit liabilities/(assets) 4 650 1 962 6 612 3 018 1 718 4 736

Liabilities from non-current deferred compensation and other 992 927 Liabilities from cash-settled share-based transactions (a) 94 79 Net liabilities 7 698 5 742

Reflected in the balance sheet as follows: Employee benefit assets (383) (537) Employee benefit liabilities 8 081 6 279 Net liabilities 7 698 5 742

(a) The intrinsic value of liabilities from cash-settled share-based transactions that are vested amounts to CHF 57 million (2013: CHF 29 million).

10.2 Funding situation by geographic area of defined benefit plans

In millions of CHF 2014 2013

Total Europe Americas Asia, Oceania and Africa Americas Asia, Oceania and Africa Total Europe Present value of funded obligations 20 731 5 295 2 001 28 027 17 757 4 250 1 841 23 848 Fair value of plan assets (16 860) (5 396) (1 893) (24 149) (15 334) (4 530) (1 737) (21 601) Excess of liabilities/(assets) over funded obligations 3 871 (101) 108 3 878 2 423 (280) 104 2 247 Present value of unfunded obligations 402 2 017 281 2 700 342 1 757 284 2 383

94 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 10. Employee benefits

10.3 Movement in the present value of defined benefit obligations

In millions of CHF 2014 2013

Defined benefit retirement plans Post-employment medical benefits and other benefits Total Defined benefit retirement plans Post-employment medical benefits and other benefits Total At 1 January 24 463 1 768 26 231 25 618 2 108 27 726 of which funded defined benefit plans 23 770 78 23 848 24 911 77 24 988 of which unfunded defined benefit plans 693 1 690 2 383 707 2 031 2 738 Currency retranslations 642 88 730 (629) (123) (752) Service cost 700 (25) 675 343 (80) 263 of which current service cost 739 56 795 831 65 896 of which past service cost (39) (81) (120) (488) (145) (633) Interest expense 941 100 1 041 865 100 965 Actuarial (gains)/losses 3 139 152 3 291 (580) (166) (746) Benefits paid on funded defined benefit plans (1 164) (4) (1 168) (1 082) (5) (1 087) Benefits paid on unfunded defined benefit plans (87) (118) (205) (72) (139) (211) Modification of the scope of consolidation 154 28 182 — — — Transfer from/(to) defined contribution plans (50) — (50) — 73 73 At 31 December 28 738 1 989 30 727 24 463 1 768 26 231 of which funded defined benefit plans 27 971 56 28 027 23 770 78 23 848 of which unfunded defined benefit plans 767 1 933 2 700 693 1 690 2 383

10.4 Movement in fair value of defined benefit plan assets

In millions of CHF 2014 2013

Defined benefit retirement plans Post-employment medical benefits and other benefits Total Defined benefit retirement plans Post-employment medical benefits and other benefits Total At 1 January (21 551) (50) (21 601) (20 542) (50) (20 592) Currency retranslations (634) 9 (625) 540 (1) 539 Interest income (851) (1) (852) (717) (2) (719) Actual return on plan assets, excluding interest income (1 467) (1) (1 468) (952) 2 (950) Employees’ contributions (144) — (144) (135) — (135) Employer contributions (639) (2) (641) (879) (4) (883) Benefits paid on funded defined benefit plans 1 164 4 1 168 1 082 5 1 087 Administration expenses 24 — 24 19 — 19 Modification of the scope of consolidation (74) 14 (60) — — — Transfer (from)/to defined contribution plans 50 — 50 33 — 33 At 31 December (24 122) (27) (24 149) (21 551) (50) (21 601)

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The major categories of plan assets as a percentage of total plan assets of the Group’s defined benefit plans are as follows:

2014 2013 Equities 32% 36% of which US equities 13% 14% of which European equities 10% 12% of which other equities 9% 10% Debts 38% 33% of which government debts 26% 23% of which corporate debts 12% 10% Real estate 9% 8% Alternative investments 18% 19% of which hedge funds 10% 11% of which private equities 6% 6% of which commodities 2% 2% Cash/Deposits 3% 4%

Equity, debts and commodities represent 72% (2013: 71%) of the plan assets. Almost all of them are quoted in an active market. Real estate, hedge funds and private equities represent 25% (2013: 25%) of the plan assets. Almost all of them are not quoted in an active market. The plan assets of funded defined benefit plans include property occupied by affiliated companies with a fair value of CHF 11 million (2013: CHF 9 million). Furthermore, funded defined benefit plans are invested in Nestlé S.A. (or related) shares to the extent of CHF 47 million (2013: CHF 44 million). The Group’s investment management principles allow such investment only when the position in Nestlé S.A. (or related) shares is passive, i.e. in line with the weighting in the underlying benchmark. The Group expects to contribute CHF 698 million to its funded defined benefit plans in 2015.

10.5 Movement in unrecognised assets and minimum funding requirements

In millions of CHF 2014 2013

Defined benefit retirement plans Post-employment medical benefits and other benefits Total Defined benefit retirement plans Post-employment medical benefits and other benefits Total At 1 January 106 — 106 42 — 42 Currency retranslations 1 — 1 (2) — (2) Limitation of interest income 5 — 5 2 — 2 Changes due to asset ceiling (78) — (78) 64 — 64 At 31 December 34 — 34 106 — 106

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10.6 Expenses recognised in the income statement

In millions of CHF 2014 2013

Defined benefit retirement plans Post-employment medical benefits and other benefits Total Defined benefit retirement plans Post-employment medical benefits and other benefits Total Service cost 700 (25) 675 343 (80) 263 Employees’ contributions (144) — (144) (135) — (135) Net interest (income)/expense 95 99 194 150 98 248 Administration expenses 24 — 24 19 — 19 Defined benefit expenses 675 74 749 377 18 395 Defined contribution expenses 275 260 Total 1 024 655

The expenses for defined benefit and defined contribution plans are allocated to the ­appropriate headings of expenses by function.

10.7 Remeasurement of defined benefit plans reported in other comprehensive income

In millions of CHF 2014 2013

Defined benefit retirement plans Post-employment medical benefits and other benefits Total Defined benefit retirement plans Post-employment medical benefits and other benefits Total Actual return on plan assets, excluding interest income 1 467 1 1 468 952 (2) 950 Experience adjustments on plan liabilities (109) 10 (99) (187) (65) (252) Change in demographic assumptions on plan liabilities 44 (35) 9 (649) (20) (669) Change in financial assumptions on plan liabilities (3 074) (127) (3 201) 1 416 251 1 667 Transfer from/(to) unrecognised assets and other 78 — 78 (64) — (64) Remeasurement of defined benefit plans (1 594) (151) (1 745) 1 468 164 1 632

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10.8 Principal financial actuarial assumptions The principal financial actuarial assumptions are presented by geographic area. Each item is a weighted average in relation to the relevant underlying component.

2014 2013

Europe Americas Asia, Oceania and Africa Total Europe Americas Asia, Oceania and Africa Total Discount rates 2.2% 5.1% 4.4% 3.1% 3.4% 5.8% 4.7% 4.1% Expected rates of salary increases 2.8% 2.9% 4.7% 3.0% 2.9% 2.9% 5.0% 3.2% Expected rates of pension adjustments 1.4% 0.6% 1.8% 1.3% 1.8% 0.6% 1.8% 1.5% Medical cost trend rates 5.7% 5.8% 5.9% 6.0%

10.9 Mortality tables and life expectancies by geographic area for Group’s major defined benefit pension plans

2014 2013 2014 2013

Life expectancy at age 65 Life expectancy at age 65 for a male member for a female member Country Mortality table currently aged 65 (in years) currently aged 65 (in years) Europe Switzerland LPP 2010 20.8 20.7 23.1 23.1 United Kingdom S1NA CMI 2013 21.8 21.7 23.2 23.1 Germany Heubeck-Richttafeln 2005 G modifiziert 20.1 21.3 23.6 22.8 Americas USA RP-2014 21.1 19.3 23.1 21.1

Life expectancy is reflected in the defined benefit obligations by using mortality tables of the country in which the plan is located. When those tables no longer reflect recent experience, they are adjusted by appropriate loadings.

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10.10 Sensitivity analyses on present value of defined benefit obligations by geographic area The table below gives the present value of the defined benefit obligations when major assumptions are changed.

In millions of CHF 2014 2013

Europe Americas Asia, Oceania and Africa Total Europe Americas Asia, Oceania and Africa Total As reported 21 133 7 312 2 282 30 727 18 099 6 007 2 125 26 231 Discount rates Increase of 50 basis points 19 482 6 910 2 196 28 588 16 797 5 672 2 028 24 497 Decrease of 50 basis points 22 923 7 748 2 380 33 051 19 563 6 370 2 231 28 164 Expected rates of salary increases Increase of 50 basis points 21 319 7 386 2 321 31 026 18 288 6 062 2 162 26 512 Decrease of 50 basis points 20 960 7 243 2 248 30 451 17 921 5 956 2 091 25 968 Expected rates of pension adjustments Increase of 50 basis points 22 395 7 566 2 337 32 298 19 088 6 212 2 180 27 480 Decrease of 50 basis points 19 950 7 268 2 264 29 482 17 182 5 968 2 097 25 247 Medical cost trend rates Increase of 50 basis points 21 133 7 355 2 285 30 773 18 099 6 056 2 127 26 282 Decrease of 50 basis points 21 132 7 275 2 279 30 686 18 099 5 967 2 122 26 188 Mortality assumption Setting forward the tables by 1 year 20 434 7 174 2 251 29 859 17 547 5 829 2 096 25 472 Setting back the tables by 1 year 21 827 7 451 2 311 31 589 18 649 6 186 2 152 26 987

All sensitivities are calculated using the same actuarial method as for the disclosed present value of the defined benefit obligations at year-end.

10.11 Weighted average duration of defined benefit obligations by geographic area

Expressed in years 2014 2013

Europe Americas Asia, Oceania and Africa Total Europe Americas Asia, Oceania and Africa Total At 31 December 16.6 12.1 9.8 15.0 15.8 12.3 10.0 14.5

Consolidated Financial Statements of the Nestlé Group 2014 99 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 11. Equity compensation plans

Certain Group employees are eligible to receive long-term incentives in the form of equity compensation plans. Equity compensation plans are settled either by remittance of Nestlé S.A. shares ­(accounted for as equity-settled share-based payment transactions) or by the payment of an equivalent amount in cash (accounted for as cash-settled share-based payment transactions).

In millions of CHF 2014 2013 Equity-settled share-based payment costs (156) (155) Cash-settled share-based payment costs (49) (53) Total share-based payment costs (205) (208) of which RSUP (137) (193) of which PSUP (66) (10)

The share-based payment costs are allocated to the appropriate headings of expenses by function in the income statement.

Restricted Stock Unit Plan (RSUP) Members of Group Management are awarded Restricted Stock Units (RSU) that entitle participants to receive freely disposable Nestlé S.A. shares (accounted for as equity-settled share-based payment transactions) or an equivalent amount in cash (accounted for as cash-settled share-based payment transactions) at the end of a three-year restriction period. In 2014, the grant has been limited to members of the US affiliated companies.

Number of RSU in millions of units 2014 2013 Outstanding at 1 January 9.9 10.0 Granted 0.5 3.3 Settled (3.4) (3.3) Forfeited (0.1) (0.1) Outstanding at 31 December 6.9 9.9 of which vested at 31 December 0.7 0.4 of which cash-settled at 31 December 2.0 1.9

The fair value of equity-settled RSU is determined on the basis of the market price of Nestlé S.A. shares at grant date, discounted at a risk-free interest rate and adjusted for the dividends that participants are not entitled to receive during the restricted period of three years. There were no equity-settled RSU granted in 2014 (the weighted average fair value of the equity-settled RSU granted in 2013 was CHF 58.58). For cash-settled outstanding RSU, the liability is re-measured at each reporting date based on subsequent changes in the market price of Nestlé S.A. shares. The average fair value of the cash-settled RSU outstanding at 31 December 2014 is CHF 70.74 (2013: CHF 63.36).

Performance Share Unit Plan (PSUP) Members of the Executive Board and, as from 2014, members of Group Management are awarded Performance Share Units (PSU) that entitle participants to receive freely disposable Nestlé S.A. shares (accounted for as equity-settled share-based payment transactions) or an equivalent amount in cash (accounted for as cash-settled share-based payment transactions) at the end of a three-year restriction period.

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Upon vesting, the number of shares delivered ranges from 0% to 200% of the initial grant and is determined by the degree by which the performance measures of the PSUP have been met. These measures are the relative Total Shareholder Return of the Nestlé S.A. share in relation to the STOXX Europe 600 Food & Beverage Net Return Index (as from 2014 the STOXX Global 1800 Food & Beverage Net Return Index); and the growth of the underlying earnings per share in constant currencies. Each of the two measures has equal weighting in determining the vesting level of the initial PSU award.

Number of PSU in millions of units 2014 2013 Outstanding at 1 January 0.4 0.3 Granted 2.8 0.2 Settled (0.2) (0.1) Forfeited — — Outstanding at 31 December 3.0 0.4 of which vested at 31 December — — of which cash-settled at 31 December 0.1 —

The fair value of the equity-settled PSU is determined using a valuation model which reflects the probability of overachievement or underachievement on the Total Shareholder Return measure, which is a market condition, and based on five-year historical data. The other inputs incorporated into the valuation model comprise the market price of Nestlé S.A. shares at grant date, discounted at a risk-free interest rate and adjusted for the dividends that participants are not entitled to receive during the restricted period of three years. The weighted average fair value of the equity-settled PSU granted in 2014 is CHF 63.70 (2013: 64.44). For cash-settled outstanding PSU, the liability is re-measured at each reporting date based on subsequent changes in the market price of Nestlé S.A. shares. The average fair value of the cash-settled PSU outstanding at 31 December 2014 is CHF 74.28 (2013: nil).

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12.1 Provisions

In millions of CHF Restructuring Environmental Litigation Other Total At 1 January 2013 479 18 2 333 449 3 279 Currency retranslations — (1) (78) (16) (95) Provisions made during the year (a) 244 1 455 162 862 Amounts used (167) (2) (205) (85) (459) Reversal of unused amounts (35) (1) (258) (63) (357) Modification of the scope of consolidation — — (1) 8 7 At 31 December 2013 521 15 2 246 455 3 237 of which expected to be settled within 12 months 523 Currency retranslations (4) 1 67 1 65 Provisions made during the year (a) 251 6 488 175 920 Amounts used (173) (1) (92) (86) (352) Reversal of unused amounts (54) — (94) (30) (178) Reclassified as held for sale — — (4) — (4) Modification of the scope of consolidation 1 — 59 108 168 At 31 December 2014 542 21 2 670 623 3 856 of which expected to be settled within 12 months 695

(a) Including discounting of provisions.

Restructuring Restructuring provisions arise from a number of projects across the Group. These include plans to optimise production, sales and administration structures, mainly in Europe. Restructuring provisions are expected to result in future cash outflows when implementing the plans (usually over the following two to three years).

Litigation Litigation provisions have been set up to cover tax, legal and administrative proceedings that arise in the ordinary course of the business. These provisions cover numerous separate cases whose detailed disclosure could be detrimental to the Group interests. The Group does not believe that any of these litigation proceedings will have a material adverse impact on its financial position. The timing of outflows is uncertain as it depends upon the outcome of the proceedings. In that instance, these provisions are not discounted because their present value would not represent meaningful information. Group Management does not believe it is possible to make assumptions on the evolution of the cases beyond the balance sheet date.

Other Other provisions are mainly constituted by onerous contracts and various damage claims having occurred during the year but not covered by insurance companies. Onerous contracts result from unfavourable leases, breach of contracts or supply agreements above market prices in which the unavoidable costs of meeting the obligations under the contracts exceed the economic benefits expected to be received or for which no benefits are expected to be received.

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12.2 Contingencies The Group is exposed to contingent liabilities amounting to a maximum potential payment of CHF 2012 million (2013: CHF 1669 million) representing potential litigations of CHF 1914 mil­lion (2013: CHF 1658 million) and other items of CHF 98 million (2013: CHF 11 million). Potential litigations relate mainly to labour, civil and tax litigations in Latin America. Contingent assets for litigation claims in favour of the Group amount to a maximum potential recoverable amount of CHF 176 million (2013: CHF 51 million).

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13.1 Financial assets and liabilities 13.1a By class and by category

In millions of CHF 2014 2013

(a) (a)

Classes Loans, receivables and liabilities at amortised cost At fair value to income statement for sale Available Total categories Loans, receivables and liabilities at amortised cost At fair value to income statement for sale Available Total categories Cash at bank and in hand 3 528 — — 3 528 4 524 — — 4 524 Commercial paper — — 2 000 2 000 — — 98 98 Time deposits — — 2 678 2 678 — — 2 009 2 009 Bonds and debt funds — 338 3 187 3 525 — 304 2 569 2 873 Equity and equity funds — 394 199 593 — 356 161 517 Other financial assets 1 028 44 978 2 050 639 38 905 1 582 Liquid assets (b) and non-current financial assets 4 556 776 9 042 14 374 5 163 698 5 742 11 603 Trade and other receivables 13 459 — — 13 459 12 206 — — 12 206 Derivative assets (c) — 400 — 400 — 230 — 230 Total financial assets 18 015 1 176 9 042 28 233 17 369 928 5 742 24 039

Trade and other payables (19 279) — — (19 279) (17 459) — — (17 459) Financial debt (21 206) — — (21 206) (21 743) — — (21 743) Derivative liabilities (c) — (757) — (757) — (381) — (381) Total financial liabilities (40 485) (757) — (41 242) (39 202) (381) — (39 583)

Net financial position (22 470) 419 9 042 (13 009) (21 833) 547 5 742 (15 544) of which at fair value — 419 9 042 9 461 — 547 5 742 6 289

(a) Carrying amount of these instruments is a reasonable approximation of their fair value. For bonds included in financial debt, see Note 13.1c. (b) Liquid assets are composed of cash and cash equivalents and short-term investments. (c) Include derivatives held in hedge relationships and those that are undesignated (categorised as held-for-trading), see Note 13.1d.

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13.1b Fair value hierarchy of financial instruments

In millions of CHF 2014 2013 Derivative assets 29 47 Bonds and debt funds 824 746 Equity and equity funds 280 249 Other financial assets 25 24 Derivative liabilities (116) (44) Prices quoted in active markets (Level 1) 1 042 1 022

Commercial paper 2 000 98 Time deposits 2 678 2 009 Derivative assets 371 183 Bonds and debt funds 2 671 2 091 Equity and equity funds 279 245 Other financial assets 852 804 Derivative liabilities (641) (337) Valuation techniques based on observable market data (Level 2) 8 210 5 093

Valuation techniques based on unobservable input (Level 3) 209 174

Total financial instruments at fair value 9 461 6 289

There have been no significant transfers between the different hierarchy levels in 2014.

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13.1c Bonds

In millions of CHF

Issuer value Face in millions Coupon Effective interest rate of Year issue/ maturity Comments 2014 2013 Nestlé Holdings, Inc., USA USD 550 2.13% 2.13% 2010–2014 — 489 AUD 275 5.50% 5.69% 2011–2016 (a) 232 229 USD 200 2.00% 2.06% 2011–2016 198 178 NOK 1 000 3.38% 3.59% 2011–2016 (a) 137 150 AUD 200 4.00% 4.11% 2012–2017 (b) 161 158 NOK 1 000 2.25% 2.31% 2012–2017 (b) 133 146 NOK 3 000 2.50% 2.66% 2012–2017 (b) 398 437 USD 900 1.38% 1.46% 2012–2017 889 799 GBP 250 1.63% 1.71% 2013–2017 (a) 385 364 CHF 250 2.63% 2.66% 2007–2018 (a) 271 270 USD 500 1.25% 1.32% 2012–2018 494 444 AUD 175 3.75% 3.84% 2013–2018 (a) 145 138 AUD 200 3.88% 4.08% 2013–2018 (b) 161 157 AUD 400 4.13% 4.33% 2013–2018 (c) 326 315 USD 400 1.38% 1.50% 2013–2018 394 354 USD 500 2.00% 2.17% 2013–2019 491 441 USD 500 2.25% 2.41% 2013–2019 492 441 USD 400 2.00% 2.06% 2014–2019 395 — USD 650 2.13% 2.27% 2014–2020 639 — AUD 250 4.25% 4.43% 2014–2020 (a) 215 — AUD 175 3.63% 3.77% 2014–2020 (a) 148 — NOK 1 000 2.75% 2.85% 2014–2020 (a) 139 — Nestlé Finance International Ltd, Luxembourg CHF 425 2.00% 2.03% 2009–2014 — 425 CHF 275 2.13% 2.13% 2009–2014 (d) — 275 AUD 450 5.75% 5.81% 2010–2014 (a) — 371 NOK 1 250 2.50% 2.73% 2010–2014 (a) — 183 CHF 350 2.13% 2.20% 2009–2015 (d) 350 350 EUR 500 0.75% 0.83% 2012–2016 601 612 AUD 125 4.63% 4.86% 2012–2017 (b) 101 98 EUR 500 1.50% 1.61% 2012–2019 599 610 EUR 500 1.25% 1.30% 2013–2020 600 611 EUR 500 2.13% 2.20% 2013–2021 598 610 EUR 500 0.75% 0.90% 2014–2021 595 — EUR 850 1.75% 1.89% 2012–2022 1 012 1 030 GBP 400 2.25% 2.34% 2012–2023 (e) 622 539 Other bonds 336 316 Total carrying amount (*) 12 257 11 540 of which due within one year 409 1 752 of which due after one year 11 848 9 788

Fair value (*) of bonds, based on prices quoted in active markets 12 651 11 566

(*) Carrying amount and fair value of bonds exclude accrued interest.

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Several bonds are hedged by currency and/or interest derivatives. The fair value of these derivatives is shown under derivative assets for CHF 87 million (2013: CHF 101 million) and under derivative liabilities for CHF 359 million (2013: CHF 152 million).

(a) Subject to an interest rate and/or currency swap that creates a liability at floating rates in the currency of the issuer. (b) Subject to an interest rate and currency swap that creates a liability at fixed rates in the currency of the issuer. (c) This bond is composed of: – AUD 300 million subject to an interest rate and currency swap that creates a liability at fixed rates in the currency of the issuer; and – AUD 100 million subject to an interest rate and/or currency swap that creates a liability at floating rates in the currency of the issuer. (d) Subject to currency swaps that hedge the CHF face value and coupon exposure. (e) Subject to an interest rate swap.

13.1d Derivative assets and liabilities By type

In millions of CHF 2014 2013

Contractual or notional amounts value Fair assets value Fair liabilities Contractual or notional amounts value Fair assets value Fair liabilities Fair value hedges Currency forwards, futures and swaps 3 967 122 14 4 198 14 27 Interest rate forwards, futures and swaps 616 9 — 588 — 48 Interest rate and currency swaps 2 892 77 359 3 009 99 104 Cash flow hedges Currency forwards, futures, swaps and options 6 556 152 82 4 397 62 39 Interest rate forwards, futures and swaps 1 534 — 122 1 379 — 103 Commodity futures and options 1 600 31 159 1 142 46 46 Undesignated derivatives Currency forwards, futures, swaps and options 1 212 8 13 677 7 3 Interest rate forwards, futures, swaps and options 100 — 6 96 — 9 Commodity futures and options 7 1 2 47 2 2 18 484 400 757 15 533 230 381

Conditional offsets (a) Derivative assets and liabilities (84) (84) (48) (48) Use of cash collateral received or deposited (5) (358) — (90) Balances after conditional offsets 311 315 182 243

(a) Represent amounts that would be offset in case of default, insolvency or bankruptcy of counterparties.

Some derivatives, while complying with the Group’s financial risk management policies of managing the risks of the volatility of the financial markets, do not qualify for hedge ­accounting and are therefore classified as undesignated derivatives.

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Impact on the income statement of fair value hedges

In millions of CHF 2014 2013 on hedged items (107) 476 on hedging instruments 107 (497)

Ineffective portion of gains/(losses) of cash flow hedges and net investment hedges is not significant.

13.2 Financial risks In the course of its business, the Group is exposed to a number of financial risks: credit risk, liquidity risk, market risk (including foreign currency risk and interest rate risk, commodity price risk and equity price risk). This note presents the Group’s objectives, policies and processes for managing its financial risk and capital. Financial risk management is an integral part of the way the Group is managed. The Board of Directors determines the financial control principles as well as the principles of financial planning. The Chief Executive Officer organises, manages and monitors all financial risks, including asset and liability matters. The Asset and Liability Management Committee (ALMC), under the supervision of the Chief Financial Officer, is the governing body for the establishment and subsequent execution of the Nestlé Group’s Financial Asset and Liability Management Policy. It ensures implementation of strategies and achievement of objectives of the Group’s financial asset and liabilities management, which are executed by the Centre Treasury, the Regional Treasury Centres and, in specific local circumstances, by the affiliated companies. The activities of the Centre Treasury and of the Regional Treasury Centres are supervised by an independent Middle Office, which verifies the compliance of the strategies proposed and/or operations executed within the approved guidelines and limits set by the ALMC. Approved Treasury Management Guidelines define and classify risks as well as determine, by category of transaction, specific approval, execution and monitoring procedures. In accordance with the aforementioned policies, the Group only enters into derivative transactions relating to assets, liabilities or anticipated future transactions.

13.2a Credit risk Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises on liquid assets, non-current financial assets, derivative assets, trade and other receivables. The Group aims to minimise its financial credit risk through the application of risk manage­ment policies. Credit limits are set based on a counterparty value and a probability of default. The methodology used to set the list of counterparty limits includes Enterprise Value (EV), counterparty Credit Ratings (CR) and Credit Default Swaps (CDS). Evolution of counterparties is monitored daily, taking into consideration EV, CR and CDS evolution. As a result of this daily review, changes on credit limits and risk allocation are carried out. The Group avoids the concentration of credit risk on its liquid assets by spreading them over several institutions and sectors. Trade receivables are subject to credit limits, control and approval procedures in all the affiliated companies. Due to its large geographic base and number of customers, the Group is not exposed to material concentrations of credit risk on its trade receivables (see Note 7). Nevertheless global commercial counterparties are constantly monitored following the same methodology used for financial counterparties.

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The maximum exposure to credit risk resulting from financial activities, without considering netting agreements and without taking into account any collateral held or other credit enhancements, is equal to the carrying amount of the Group’s financial assets.

Credit rating of financial assets This includes liquid assets, non-current financial assets and derivative assets.

In millions of CHF 2014 2013 Investment grade A– and above 11 895 8 751 Investment grade BBB+, BBB and BBB– 1 432 1 474 Non-investment grade (BB+ and below) 273 368 Not rated (a) 1 174 1 240 14 774 11 833

(a) Mainly equity securities and other investments for which no credit rating is available.

The source of the credit ratings is Standard & Poor’s; if not available, the Group uses other credit rating equivalents. The Group deals mainly with financial institutions located in Switzerland, the European Union and North America.

13.2b Liquidity risk Liquidity risk management Liquidity risk is the risk that a company may encounter difficulties in meeting its obligations associated with financial liabilities that are settled by delivering cash or other financial assets. Such risk may result from inadequate market depth or disruption or refinancing problems. The Group’s objective is to manage this risk by limiting exposures in financial instruments that may be affected by liquidity problems and by maintaining sufficient back-up facilities. The Group does not expect any refinancing issues and has successfully completed a EUR 6.0 billion 12-months revolving credit facility replacing an older facility of EUR 5.0 billion. Additionally, the Group successfully extended the EUR 5.0 billion revolving credit facility to October 2019, which originally matured in 2018. The facility currently serves primarily as a backstop to its short-term debt. In total, the Group’s revolving credit facilities amount to EUR 11.0 billion.

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Contractual maturities of financial liabilities and derivatives (including interest)

In millions of CHF

In the first year In the first In the second year In the third year to the fifth year After the fifth Contractual amount Carrying amount Financial assets 27 833 2014

Trade and other payables (17 437) (357) (60) (1 474) (19 328) (19 279) Commercial paper (a) (5 573) — — — (5 573) (5 569) Bonds (a) (672) (1 419) (6 403) (5 042) (13 536) (12 257) Other financial debt (2 963) (203) (326) (115) (3 607) (3 380) Total financial debt (9 208) (1 622) (6 729) (5 157) (22 716) (21 206) Financial liabilities (26 645) (1 979) (6 789) (6 631) (42 044) (40 485)

Non-currency derivative assets 39 5 3 (6) 41 41 Non-currency derivative liabilities (215) (29) (42) (7) (293) (289) Gross amount receivable from currency derivatives 11 589 458 2 204 495 14 746 14 553 Gross amount payable from currency derivatives (11 370) (489) (2 435) (550) (14 844) (14 662) Net derivatives 43 (55) (270) (68) (350) (357)

Net financial position (13 009) of which derivatives under cash flow hedges(b) (105) (29) (42) (7) (183) (180)

Financial assets 23 809 2013

Trade and other payables (16 072) (176) (55) (1 216) (17 519) (17 459) Commercial paper (a) (7 243) — — — (7 243) (7 241) Bonds (a) (2 002) (622) (5 377) (4 867) (12 868) (11 540) Other financial debt (2 529) (227) (330) (106) (3 192) (2 962) Total financial debt (11 774) (849) (5 707) (4 973) (23 303) (21 743) Financial liabilities (27 846) (1 025) (5 762) (6 189) (40 822) (39 202)

Non-currency derivative assets 48 — — — 48 48 Non-currency derivative liabilities (85) (45) (44) (45) (219) (208) Gross amount receivable from currency derivatives 10 096 77 2 402 — 12 575 12 544 Gross amount payable from currency derivatives (10 040) (22) (2 500) — (12 562) (12 535) Net derivatives 19 10 (142) (45) (158) (151)

Net financial position (15 544) of which derivatives under cash flow hedges(b) (20) (40) (28) 8 (80) (80)

(a) Commercial paper of CHF 3571 million (2013: CHF 6483 million) and bonds of CHF 76 million (2013: CHF 551 million) have maturities of less than three months. (b) The periods when the cash flow hedges affect the income statement do not differ significantly from the maturities disclosed above.

110 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 13. Financial instruments

13.2c Market risk The Group is exposed to risk from movements in foreign currency exchange rates, interest rates and market prices that affect its assets, liabilities and anticipated future transactions.

Foreign currency risk The Group is exposed to foreign currency risk from transactions and translation. Transactional exposures arise from transactions in foreign currency. They are managed within a prudent and systematic hedging policy in accordance with the Group’s specific business needs through the use of currency forwards, futures, swaps and options. Exchange differences recorded in the income statement represented a loss of CHF 47 million in 2014 (2013: loss of CHF 173 million). They are allocated to the appropriate headings of expenses by function. Translation exposure arises from the consolidation of the financial statements of foreign operations in Swiss francs, which is, in principle, not hedged.

Interest rate risk The Group is exposed primarily to fluctuation in USD and EUR interest rates. Interest rate risk on financial debt is managed based on duration and interest management targets set by the ALMC through the use of fixed rate debt and interest rate swaps. Taking into account the impact of interest derivatives, the proportion of financial debt subject to fixed interest rates for a period longer than one year represents 54% (2013: 46%).

Price risk Commodity price risk Commodity price risk arises from transactions on the world commodity markets for securing the supplies of green coffee, cocoa beans and other commodities necessary for the manu­facture of some of the Group’s products. The Group’s objective is to minimise the impact of commodity price fluctuations and this exposure is hedged in accordance with the Nestlé Group policy on commodity price risk management. The regional Commodity Purchasing Competence Centres are responsible for managing commodity price risk on the basis of internal directives and centrally determined limits. They ensure that the Group benefits from hedges generally through the use of exchange-traded commodity derivatives. The commodity price risk exposure of anticipated future purchases is managed using a combination of derivatives (mainly futures and options) and executory contracts. As a result of the short product business cycle of the Group, the majority of the anticipated future raw material transactions outstanding at the balance sheet date are expected to occur in the next year.

Equity price risk The Group is exposed to equity price risk on investments. To manage the price risk arising from these investments, the Group diversifies its portfolios in accordance with the Guidelines set by the Board of Directors.

Consolidated Financial Statements of the Nestlé Group 2014 111 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 13. Financial instruments

13.2d Value at Risk (VaR) Description of the method The VaR is a single measure to assess market risk. The VaR estimates the size of losses given current positions and possible changes in financial markets. The Group uses simulation to calculate VaR based on the historic data for a 250-day period. The VaR calculation is based on 95% confidence level and, accordingly, does not take into account losses that might occur beyond this level of confidence. The VaR is calculated on the basis of unhedged exposures outstanding at the close of business and does not necessarily reflect intra-day exposures.

Objective of the method The Group uses the described VaR analysis to estimate the potential one-day loss in the fair value of its financial and commodity instruments. The Group cannot predict the actual future movements in market rates and prices, therefore the below VaR numbers neither represent actual losses nor consider the effects of favourable movements in underlying variables. Accordingly, these VaR numbers may only be considered indicative of future movements to the extent the historic market patterns repeat in the future.

VaR figures The VaR computation includes the Group’s financial assets and liabilities that are subject to foreign currency, interest rate and price risk. The estimated potential one-day loss from the Group’s foreign currency, interest rate and equity price risk sensitive instruments, as calculated using the above described historic VaR model, is as follows:

In millions of CHF 2014 2013 Foreign currency 3 1 Interest rate — — Equity price — 7 Foreign currency, interest rate and security price combined 4 7

The estimated potential one-day loss from the Group’s commodity price risk sensitive instruments, as calculated using the above described historic VaR model, is not significant.

13.2e Capital risk management The Group’s capital management is driven by the impact on shareholders of the level of total capital employed. It is the Group’s policy to maintain a sound capital base to support the continued development of its business. The Board of Directors seeks to maintain a prudent balance between different components of the Group’s capital. The ALMC monitors the capital structure and the net financial debt by currency. Net financial debt is defined as current and non-current financial liabilities less cash and cash equivalent and short-term investments. The operating cash flow-to-net financial debt ratio highlights the ability of a business to repay its debts. As at 31 December 2014, the ratio was 119.3% (2013: 102.1%). The Group’s subsidiaries have complied with local statutory capital requirements as appropriate.

112 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 14. Taxes

14.1 Taxes recognised in the income statement

In millions of CHF 2014 2013 Components of taxes Current taxes (a) (3 148) (2 970) Deferred taxes 132 (846) Taxes reclassified to other comprehensive income (357) 558 Taxes reclassified to equity 6 2 Total taxes (3 367) (3 256)

Reconciliation of taxes Expected tax expense at weighted average applicable tax rate (2 245) (2 812) Tax effect of non-deductible or non-taxable items (527) (8) Prior years' taxes 92 243 Transfers to unrecognised deferred tax assets (136) (59) Transfers from unrecognised deferred tax assets 12 6 Changes in tax rates 9 (15) Withholding taxes levied on transfers of income (357) (381) Other (215) (230) Total taxes (3 367) (3 256)

(a) Current taxes related to prior years represent a tax income of CHF 133 million (2013: tax income of CHF 172 million).

The expected tax expense at weighted average applicable tax rate is the result from applying the domestic statutory tax rates to profits before taxes of each entity in the country it operates. For the Group, the weighted average applicable tax rate varies from one year to the other depending on the relative weight of the profit of each individual entity in the Group’s profit as well as the changes in the statutory tax rates.

14.2 Taxes recognised in other comprehensive income

In millions of CHF 2014 2013 Tax effects relating to Currency retranslations 39 317 Fair value adjustments on available-for-sale financial instruments (48) 64 Fair value adjustments on cash flow hedges 14 (91) Remeasurement of defined benefit plans 352 (848) 357 (558)

Consolidated Financial Statements of the Nestlé Group 2014 113 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 14. Taxes

14.3 Reconciliation of deferred taxes by type of temporary differences recognised on the balance sheet

In millions of CHF

plant Property, and equipment Goodwill and intangible assets benefits Employee Inventories, receivables, and payables provisions Unused tax losses and unused tax credits Other Total At 1 January 2013 (1 508) (1 549) 2 396 855 450 15 659 Currency retranslations 53 31 (68) (47) (47) (79) (157) Deferred tax (expense)/income (80) (94) (871) 52 38 109 (846) Reclassified as held for sale — — — — (10) (3) (13) Modification of the scope of consolidation 36 — (1) (3) (1) (74) (43) At 31 December 2013 (1 499) (1 612) 1 456 857 430 (32) (400) Currency retranslations (96) (142) 81 29 (17) (81) (226) Deferred tax (expense)/income (63) 39 257 96 (82) (115) 132 Reclassified as held for sale 12 13 — — (4) (3) 18 Modification of the scope of consolidation (14) (811) 32 93 58 (15) (657) At 31 December 2014 (1 660) (2 513) 1 826 1 075 385 (246) (1 133)

In millions of CHF 2014 2013 Reflected in the balance sheet as follows: Deferred tax assets 2 058 2 243 Deferred tax liabilities (3 191) (2 643) Net assets/(liabilities) (1 133) (400)

14.4 Unrecognised deferred taxes The deductible temporary differences as well as the unused tax losses and tax credits for which no deferred tax assets are recognised expire as follows:

In millions of CHF 2014 2013 Within one year 35 18 Between one and five years 331 365 More than five years 2 375 1 642 2 741 2 025

At 31 December 2014, the unrecognised deferred tax assets amount to CHF 629 million (2013: CHF 512 million). In addition, the Group has not recognised deferred tax liabilities in respect of unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries. At 31 December 2014, these earnings amount to CHF 20.0 billion (2013: CHF 17.1 bil­lion). They could be subject to withholding and other taxes on remittance.

114 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 15. Associates and joint ventures

In millions of CHF 2014 2013

Other Joint Other Joint L'Oréal associates ventures Total L'Oréal associates ventures Total At 1 January 9 525 1 156 1 634 12 315 8 785 1 068 1 733 11 586 Currency retranslations (160) (2) 13 (149) 137 (3) (45) 89 Investments — 154 200 354 — 113 69 182 Divestments (a) (2 585) — (167) (2 752) — (7) (147) (154) Share of results 934 (63) (43) 828 1 083 (9) 190 1 264 Impairment — (211) — (211) — — — — Share of other comprehensive income (13) — (57) (70) 115 — (28) 87 Dividends and interest received (543) (58) (115) (716) (506) (12) (139) (657) Other (b) 33 25 (1 008) (950) (89) 6 1 (82) At 31 December 7 191 1 001 457 8 649 9 525 1 156 1 634 12 315

(a) Relate to the 48.5 million of L’Oréal shares sold to L’Oréal (see Note 15.1). (b) Relate mainly to the derecognition of the joint venture Galderma when the Group brought its ownership from 50% to 100% (see Note 15.3).

Income from associates and joint ventures

In millions of CHF 2014 2013 Share of results 828 1 264 Impairment (a) (211) — Profit on partial disposal of L’Oréal shares(b) 4 569 — Revaluation gain on the 50% shareholding already held in Galderma (c) 2 817 — 8 003 1 264

(a) A number of small associated companies have been impaired based on recent financial information and developments in their business environments, none of which are individually significant. (b) Includes a cumulative gain of CHF 436 million recognised by L’Oréal in its other comprehensive reserves and a cumulative loss of CHF 625 million recognised by the Group in its currency translation reserve that have been recycled to the income statement. (c) Includes a cumulative currency translation loss of CHF 56 million that has been recycled to the income statement.

15.1 L’Oréal The Group holds 129 881 021 shares in L’Oréal, the world leader in cosmetics, representing a 23.4% participation in its equity after elimination of its treasury shares (2013: 178 381 021 shares representing a 29.7% participation). On 8 July 2014, the Group sold 48 500 000 shares to L’Oréal for CHF 7342 million for cancellation. As a result, the participation in its equity after elimination of its treasury shares was reduced from 29.7% to 23.5%. At 31 December 2014, the market value of the shares held amounts to CHF 21.8 billion (2013: CHF 27.9 billion).

Consolidated Financial Statements of the Nestlé Group 2014 115 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 15. Associates and joint ventures

Summarised financial information

In billions of CHF 2014 2013 Total current assets 10.6 11.4 Total non-current assets 28.0 26.9 Total assets 38.6 38.3

Total current liabilities 11.2 8.1 Total non-current liabilities 3.1 2.5 Total liabilities 14.3 10.6

Total equity 24.3 27.7

Total sales 27.4 28.2

Profit from continuing operations 3.4 3.5 Profit from discontinued operations(a) 2.6 0.1 Other comprehensive income (0.1) 0.4 Total comprehensive income 5.9 4.0

(a) Relate mainly to the profit on disposal of Galderma.

Reconciliation of the share of results

In billions of CHF 2014 2013 Share held by the Group in the profit from continuing operations of L’Oréal 0.9 1.1 Share held by the Group in the profit from discontinued operations of L’Oréal(a) 0.6 — Elimination of the profit on disposal of Galderma (0.6) — Share of results of L’Oréal 0.9 1.1

(a) Relate mainly to the profit on disposal of Galderma.

Reconciliation of the carrying amount

In billions of CHF 2014 2013 Share held by the Group in the equity of L'Oréal 5.7 8.2 Goodwill and other adjustments 1.5 1.3 Carrying amount of L'Oréal 7.2 9.5

116 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 15. Associates and joint ventures

15.2 Other associates The Group holds a number of other associates that are individually not material.

15.3 Joint ventures The Group holds 50% of a number of joint ventures operating in the food and beverages and in pharmaceutical activities. These joint ventures are individually not material for the Group, the main ones being Galderma (until July 2014) and Cereal Partners Worldwide. In July 2014, the Group brought its ownership in Galderma to 100% by acquiring the remaining 50% stake from L’Oréal. As from this date, Galderma is an affiliated company that is fully consolidated (see Note 2).

16. Earnings per share

2014 2013 Basic earnings per share (in CHF) 4.54 3.14 Net profit (in millions of CHF) 14 456 10 015 Weighted average number of shares outstanding (in millions of units) 3 188 3 191

Diluted earnings per share (in CHF) 4.52 3.13 Net profit, net of effects of dilutive potential ordinary shares (in millions of CHF) 14 456 10 015 Weighted average number of shares outstanding, net of effects of dilutive potential ordinary shares (in millions of units) 3 196 3 200

Reconciliation of weighted average number of shares outstanding (in millions of units) Weighted average number of shares outstanding used to calculate basic earnings per share 3 188 3 191 Adjustment for share-based payment schemes, where dilutive 8 9 Weighted average number of shares outstanding used to calculate diluted earnings per share 3 196 3 200

17. Cash flow statement

17.1 Operating profit

In millions of CHF 2014 2013 Profit for the year 14 904 10 445 Income from associates and joint ventures (8 003) (1 264) Taxes 3 367 3 256 Financial income (135) (219) Financial expense 772 850 10 905 13 068

Consolidated Financial Statements of the Nestlé Group 2014 117 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 17. Cash flow statement

17.2 Non-cash items of income and expense

In millions of CHF 2014 2013 Depreciation of property, plant and equipment 2 782 2 864 Impairment of property, plant and equipment 136 109 Impairment of goodwill 1 908 114 Amortisation of intangible assets 276 301 Impairment of intangible assets 23 34 Net result on disposal of businesses 509 1 188 Net result on disposal of assets 5 67 Non-cash items in financial assets and liabilities (34) (577) Equity compensation plans 156 154 Other 562 98 6 323 4 352

17.3 Decrease/(increase) in working capital

In millions of CHF 2014 2013 Inventories (534) (157) Trade and other receivables (892) (257) Prepayments and accrued income 268 (48) Trade and other payables 912 1 585 Accruals and deferred income 132 237 (114) 1 360

17.4 Variation of other operating assets and liabilities

In millions of CHF 2014 2013 Variation of employee benefits assets and liabilities (324) (887) Variation of provisions 324 84 Other 85 229 85 (574)

17.5 Net cash flows from treasury activities

In millions of CHF 2014 2013 Interest paid (518) (505) Interest and dividends received 73 105 Net cash flows from derivatives used to hedge foreign operations 75 29 Net cash flows from trading derivatives 14 20 (356) (351)

118 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 17. Cash flow statement

17.6 Reconciliation of free cash flow and net financial debt

In millions of CHF 2014 2013 Operating cash flow 14 700 14 992 Capital expenditure (3 914) (4 928) Expenditure on intangible assets (509) (402) Investments (net of divestments) in associates and joint ventures 3 958 (28) Inflows from other investing activities 294 1 273 Outflows from other investing activities (392) (421) Free cash flow 14 137 10 486

Acquisition of businesses (1 986) (321) Financial liabilities and short-term investments acquired in business combinations (229) (1) Disposal of businesses 321 421 Financial liabilities and short-term investments transferred on disposal of businesses 9 11 Acquisition (net of disposal) of non-controlling interests (49) (337) Dividend paid to shareholders of the parent (6 863) (6 552) Purchase of treasury shares (1 721) (481) Sale of treasury shares 104 60 Reclassification of financial investments from non-current financial assets to net financial debt 72 366 Outflows from non-current treasury investments (137) (244) Dividends paid to non-controlling interests (356) (328) Cash inflows from hedging derivatives on net debt 155 41 Currency retranslations and exchange differences (998) 399 Other movements (94) (90) (Increase)/decrease of net financial debt 2 365 3 430

Net financial debt at beginning of year (14 690) (18 120) Net financial debt at end of year (12 325) (14 690)

17.7 Cash and cash equivalents at end of year

In millions of CHF 2014 2013 Cash at bank and in hand 3 528 4 524 Time deposits (a) 2 513 1 829 Commercial paper (a) 1 407 62 7 448 6 415

(a) With maturity of three months or less as from the initial recognition.

Consolidated Financial Statements of the Nestlé Group 2014 119 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 18. Equity

18.1 Share capital issued The ordinary share capital of Nestlé S.A. authorised, issued and fully paid is composed of 3 224 800 000 registered shares with a nominal value of CHF 0.10 each. Each share confers the right to one vote. No shareholder may be registered with the right to vote for shares which it holds, directly or indirectly, in excess of 5% of the share capital. Shareholders have the right to receive dividends.

18.2 Conditional share capital The conditional capital of Nestlé S.A. amounts to CHF 10 million as in the preceding year. It confers the right to increase the ordinary share capital, through the exercise of conversion or option rights in connection with debentures and other financial market instruments, by a maximum of CHF 10 million by the issue of a maximum of 100 000 000 registered shares with a nominal value of CHF 0.10 each. Thus the Board of Directors has at its disposal a flexible instrument enabling it, if necessary, to finance the activities of the Company through convertible debentures.

18.3 Treasury shares

Number of shares in millions of units 2014 2013 Purpose of holding Trading 18.1 18.2 Share Buy-Back Programme 23.7 — Long-Term Incentive Plans 14.6 17.0 56.4 35.2

At 31 December 2014, the treasury shares held by the Group represent 1.7% of the share capital (2013: 1.1%). Their market value amounts to CHF 4113 million (2013: CHF 2300 million).

18.4 Number of shares outstanding

Number of shares in millions of units

Shares Treasury Outstanding issued shares shares At 1 January 2013 3 224.8 (36.2) 3 188.6 Purchase of treasury shares — (7.7) (7.7) Treasury shares delivered in respect of options exercised — 1.3 1.3 Treasury shares delivered in respect of equity compensation plans — 3.3 3.3 Treasury shares delivered in respect of the acquisition of a business — 4.1 4.1 At 31 December 2013 3 224.8 (35.2) 3 189.6 Purchase of treasury shares — (26.5) (26.5) Sale of treasury shares — 0.1 0.1 Treasury shares delivered in respect of options exercised — 1.9 1.9 Treasury shares delivered in respect of equity compensation plans — 3.3 3.3 At 31 December 2014 3 224.8 (56.4) 3 168.4

120 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 18. Equity

18.5 Translation reserve The translation reserve comprises the cumulative gains and losses arising from translating the financial statements of foreign operations that use functional currencies other than Swiss francs. It also includes the changes in the fair value of hedging instruments used for net investments in foreign operations.

18.6 Retained earnings and other reserves Retained earnings represent the cumulative profits as well as remeasurement of defined benefit plans attributable to shareholders of the parent. Other reserves comprise the fair value reserve and the hedging reserve attributable to shareholders of the parent. The fair value reserve includes the gains and losses on remeasuring available-for-sale financial instruments. At 31 December 2014, the reserve is CHF 250 million positive (2013: CHF 50 mil­lion positive). The hedging reserve consists of the effective portion of the gains and losses on hedging instruments related to hedged transactions that have not yet occurred. At 31 December 2014, the reserve is CHF 108 million negative (2013: CHF 42 million negative).

18.7 Non-controlling interests The non-controlling interests comprise the portion of equity of subsidiaries that are not owned, directly or indirectly, by Nestlé S.A. These non-controlling interests are individually not material for the Group.

Consolidated Financial Statements of the Nestlé Group 2014 121 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 18. Equity

18.8 Other comprehensive income

In millions of CHF

Translation Translation reserve Retained earnings and other reserves attributable Total to shareholders of the parent Non-controlling interests Total Currency retranslations 3 556 — 3 556 107 3 663 2014 Fair value adjustments on available-for-sale financial instruments — 186 186 1 187 Fair value adjustments on cash flow hedges — (56) (56) — (56) Remeasurement of defined benefit plans — (1 745) (1 745) — (1 745) Taxes — 357 357 — 357 Share of other comprehensive income of associates and joint ventures — (506) (506) — (506) Other comprehensive income for the year 3 556 (1 764) 1 792 108 1 900

Currency retranslations (2 887) — (2 887) (59) (2 946) 2013 Fair value adjustments on available-for-sale financial instruments — (523) (523) — (523) Fair value adjustments on cash flow hedges — 246 246 — 246 Remeasurement of defined benefit plans — 1 632 1 632 — 1 632 Taxes — (558) (558) — (558) Share of other comprehensive income of associates and joint ventures — 87 87 — 87 Other comprehensive income for the year (2 887) 884 (2 003) (59) (2 062)

18.9 Dividend The dividend related to 2013 was paid on 17 April 2014 in accordance with the decision taken at the Annual General Meeting on 10 April 2014. Shareholders approved the proposed dividend of CHF 2.15 per share, resulting in a total dividend of CHF 6863 million. Dividend payable is not accounted for until it has been ratified at the Annual General Meeting. At the meeting on 16 April 2015, a dividend of CHF 2.20 per share will be proposed, resulting in a total dividend of CHF 7039 million. For further details, refer to the Financial Statements of Nestlé S.A. The Financial Statements for the year ended 31 December 2014 do not reflect this proposed distribution, which will be treated as an appropriation of profit in the year ending 31 December 2015.

122 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 19. Lease commitments

19.1 Operating leases

In millions of CHF 2014 2013 Minimum lease payments (Future value) Within one year 633 621 In the second year 530 499 In the third to the fifth year 1 044 1 042 After the fifth year 584 619 2 791 2 781

Lease commitments relate mainly to buildings, industrial equipment, vehicles and IT equipment. The operating lease charge for the year 2014 amounts to CHF 692 million (2013: CHF 734 million).

19.2 Finance leases

In millions of CHF 2014 2013

Present Future Present Future Minimum lease payments value value value value Within one year 46 48 44 49 In the second year 44 50 42 49 In the third to the fifth year 91 116 101 133 After the fifth year 54 92 55 84 235 306 242 315

The difference between the future value of the minimum lease payments and their present value represents the discount on the lease obligations.

Consolidated Financial Statements of the Nestlé Group 2014 123 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 20. Transactions with related parties

20.1 Compensation of the Board of Directors and the Executive Board

Board of Directors Members of the Board of Directors receive an annual compensation that varies with the Board and the Committee responsibilities as follows: – Board members: CHF 280 000; – members of the Chairman’s and Corporate Governance Committee: additional CHF 200 000 (Chair CHF 300 000); – members of the Compensation Committee: additional CHF 70 000 (Chair CHF 150 000); – members of the Nomination Committee: additional CHF 40 000 (Chair CHF 100 000); and – members of the Audit Committee: additional CHF 100 000 (Chair CHF 150 000). The Chairman and the CEO Committee fees are included in their total compensation. Half of the compensation is paid through the granting of Nestlé S.A. shares at the ex-dividend closing price. These shares are subject to a three-year blocking period. With the exception of the Chairman and the CEO, members of the Board of Directors also receive an annual expense allowance of CHF 15 000 each. This allowance covers travel and hotel accommodation in Switzerland, as well as sundry out-of-pocket expenses. For Board members from outside Europe, the Company reimburses additionally their airline tickets. When the Board meets outside of Switzerland, all expenses are borne and paid directly by the Company. The Chairman is entitled to a cash compensation, as well as Nestlé S.A. shares which are blocked for three years.

Executive Board The total annual remuneration of the members of the Executive Board comprises a salary, a bonus (based on the individual’s performance and the achievement of the Group’s objectives), equity compensation and other benefits. Members of the Executive Board can choose to receive part or all of their bonus in Nestlé S.A. shares at the average closing price of the last ten trading days of January of the year of the payment of the bonus. These shares are subject to a three-year blocking period.

In millions of CHF 2014 2013 Board of Directors (a) Chairman's compensation 7 8 Other Board members Remuneration – cash 3 3 Shares 2 2

Executive Board (a) Remuneration – cash 15 16 Bonus – cash 7 5 Bonus – shares 9 9 Equity compensation plans (b) 11 10 Pension 6 6

(a) For the detailed disclosures regarding the remunerations of the Board of Directors and the Executive Board that are required by Swiss law, refer to the Compensation report of Nestlé S.A. with the audited sections highlighted with a blue bar. (b) Equity compensation plans are equity-settled share-based payment transactions whose cost is recognised over the vesting period as required by IFRS 2.

124 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 20. Transactions with related parties

20.2 Transactions with associates and joint ventures There are no significant transactions between the Group companies and associates. The main transactions with joint ventures are loans granted by the Group whose outstanding balances as at 31 December 2014 amount to CHF 247 million (2013: CHF 945 mil­lion) and dividends and interest received which represent an amount of CHF 115 million (2013: CHF 139 million).

20.3 Other transactions Nestlé Capital Advisers SA (NCA), one of the Group’s subsidiaries, is an unregulated investment and actuarial adviser, based in Switzerland. Further to actuarial advice, NCA renders investment consulting services to some of the Group’s pension funds, either directly or indirectly via the Robusta mutual fund umbrella, but NCA never executes trading and investment transactions. The fees received by NCA in 2014 for those activities amounted to CHF 15 million (2013: CHF 15 million). Nestlé Capital Management Ltd (NCM), a 100% subsidiary of NCA, is an asset manager authorised and regulated by the Financial Conduct Authority, in the United Kingdom. NCM manages some of the assets of the Group’s pension funds. In this function, NCM executes trading and investment transactions on behalf of these pension funds directly or for the Robusta mutual funds pension investment vehicles. The fees received by NCM in 2014 for those activities amounted to CHF 21 million (2013: CHF 22 million). The assets under direct management represented an amount of CHF 11.4 billion at 31 December 2014 (2013: CHF 11.8 bil­lion). In addition, Robusta Asset Management Ltd (RAML), a 100% subsidiary of NCA, is in charge of selecting and monitoring investment managers for the Robusta mutual funds pension investment vehicles. RAML has delegated most of its activities to third-parties, including NCA and hence no fee income is generated by RAML. Any remaining expenses are covered by means of fees deducted from its assets under management. The assets under supervision of RAML amounted to CHF 10.4 billion at 31 December 2014 (2013: CHF 10.0 billion). Of this amount CHF 7.4 billion (2013: CHF 6.8 billion) of assets are under direct manage­ment of NCM.

Furthermore, throughout 2014, no director of the Group had a personal interest in any transaction of significance for the business of the Group.

21. Guarantees

At 31 December 2014, the Group has given guarantees to third parties for an amount of CHF 603 million (2013: CHF 772 million). The most significant balance relates to the Nestlé UK pension fund.

22. Group risk management

The Nestlé Group Enterprise Risk Management (ERM) is a process applied across the enterprise, designed to identify potential events that may affect the Company, to manage risk to be within its risk appetite, and to provide reasonable assurance regarding the achievement of objectives. Risk management is an integral element of the Governance, Risk management and Compliance (GRC) model.

Consolidated Financial Statements of the Nestlé Group 2014 125 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 22. Group risk management

GRC is an integrated, holistic approach ensuring that the organisation acts in accordance with its risk appetite, internal policies and guidelines, and external regulations. GRC is thereby promoting a proactive risk management and the effectiveness of internal controls. ERM enables Nestlé’s management to raise risk awareness, to anticipate risks early and to make sound business decisions throughout the Group by understanding relative business impact of different types of risks, root causes and correlations among interdependent risks or major impact of the Company on its social and physical environment. A global financial risk appetite is defined by the Executive Board and reviewed and validated on an annual basis by the Board of Directors. The complexity of the Nestlé Group requires a two-tiered (centralised and decentralised) approach to the evaluation of risk. To allow for this complexity, the ERM has been developed using both “Top-Down” and “Bottom-Up” assessments. Implementation of this Framework has allowed the Group to achieve the following objectives: – identification and quantification of tangible risks (financial, operational, physical, human assets, etc.) and intangible risks (reputation, brand image, intellectual property, etc.) in a transparent manner; – development of a common language for communicating and consolidating risk; and – prioritisation and identification of where to focus management resources and activity. The “Top-Down” assessment occurs annually and focuses on the Group’s global risk portfolio. It is performed with all members of the Executive Board and addresses the most relevant risks related to the strategic development of the Nestlé Group. An annual Compliance Risk Assessment is also performed by the functions represented in the Group Compliance Committee. The individual assessments of Zones, Globally Managed Businesses,­ and all markets are consolidated, presented and discussed with the Executive Board. It is intended to provide a high-level mapping of Group risk and allow Group Management to make sound decisions on the future operations of the Company. Risk assessments are the responsibility of line management; this applies equally to a business, a market or a function, and any mitigating actions identified in the assessments are the responsibility of the individual line management. If a Group-level intervention is required, responsibility for mitigating actions will generally be determined by the Executive Board. The “Bottom-Up” process includes assessments performed at an individual component level (business unit, function, department or project). The reason for performing these component level risk assessments is to highlight localised issues where risks can be mitigated quickly and efficiently. The timing of these assessments varies and is linked in the business units to the Market & Business strategy (MBS) update. Line management of the individual component unit is responsible for the implementation of any required mitigating actions. In 2014, a total of 42 risk assessments were performed and updated. Overall Group ERM reporting combines the output of the “Top-Down” assessment and the compilations of the individual “Bottom-Up” assessments. The results of the Group ERM are presented to the Executive Board, Audit Committee and Board of Directors annually. In the case of an individual risk assessment identifying a risk which requires action at Group level, an ad hoc presentation is made to the Executive Board. Financial risks management is described in more detail in Note 13.

126 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 23. Group exposure in Venezuela

Venezuela is a hyperinflationary economy where the government has established multiple foreign exchange rate systems, and strict exchange controls have been in place for many years. These systems have different exchange rates and are available for a relatively limited amount of currency. All of the Group’s foreign currency denominated transactions and balances of operations in Venezuela are translated into the local functional currency (VEF) at the rate they are expected to be settled, using the most appropriate official rate available. For consolidation purposes only, the Group converts its Venezuelan operations using the Group’s best estimate of the rate which would have been applicable to capital and dividend repatriations if they could have been made at the balance sheet date. This rate is reviewed periodically depending on the economic and regulatory developments in the country. The Group applies hyperinflation accounting in Venezuela. As a result, the Group recognised during the period a re-measurement loss of CHF 606 million in the income statement, within Other operating expenses. As at 31 December 2014, the remaining carrying amount of cash and cash equivalent exposed to a loss through income statement due to decline of purchasing power amounts to CHF 51 million. The Group will continue to monitor the situation closely in Venezuela and adjust its accounting treatment accordingly.

24. Events after the balance sheet date

On 15 January 2015, the Swiss National Bank announced that it was removing the ceiling on the exchange rate of 1.20 Swiss francs per Euro. This resulted in a significant strengthening of the Swiss francs against all major currencies in which the Group operates. The Group has assessed the impact, particularly on counterparty risk, currency exposures, pensions and intangible assets, including goodwill. The event had no material impact and therefore the Consolidated Financial Statements have not been adjusted for the year ended 31 December 2014. The Group’s approach to management of foreign currency risk is described in Note 13.2c. At 18 February 2015, the date of approval for issue of the Consolidated Financial Statements by the Board of Directors, the Group has no other subsequent events which either warrant a modification of the value of its assets and liabilities or any additional disclosure.

25. Group companies

The list of companies appears in the section Companies of the Nestlé Group.

Consolidated Financial Statements of the Nestlé Group 2014 127 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Report of the Statutory Auditor on the Consolidated Financial Statements to the General Meeting of Nestlé S.A.

As statutory auditor, we have audited the consolidated financial statements (income statement, statement of comprehensive income, balance sheet, cash flow statement, statement of changes in equity and notes on pages 58 to 127) of Nestlé S.A. for the year ended 31 December 2014.

Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards as well as International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements for the year ended 31 December 2014 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law.

128 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Report of the Statutory auditor on the Consolidated Financial Statements

Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved.

KPMG SA

Scott Cormack Fabien Lussu Licensed Audit Expert Licensed Audit Expert Auditor in charge

Geneva, 18 February 2015

Consolidated Financial Statements of the Nestlé Group 2014 129 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Financial information – 5 year review

In millions of CHF (except for data per share and employees) 2014 2013 2012 (g) 2011 2010 Results Results Sales (a) 91 612 92 158 89 721 83 642 93 015 Sales (a) Trading operating profit(a) 14 019 14 047 13 464 12 538 14 832 Trading operating profit(a) as % of sales (a) 15.3% 15.2% 15.0% 15.0% 15.9% as % of sales (a) Sales — — — — 109 722 Sales EBIT * — — — — 16 194 EBIT * as % of sales — — — — 14.8% as % of sales Taxes 3 3 6 7 3 2 5 6 3 2 5 9 3 1 1 2 3 6 9 3 Taxes Profit for the year attributable to shareholders of the parent(Net profit) 14 456 10 015 10 228 9 4 8 7 34 233 (h) Profit for the year attributable to shareholders of the parent(Net profit) as % of sales (a) 15.8% 10.9% 11.4% 11.3% 36.8% (h) as % of sales (a) Total amount of dividend 7 0 3 9 (f) 6 8 6 3 6 5 5 2 6 2 1 3 5 9 3 9 Total amount of dividend Depreciation of property, plant and equipment 2 7 8 2 2 8 6 4 2 6 5 5 2 4 2 2 2 5 5 2 Depreciation of property, plant and equipment

Balance sheet and Cash flow statement Balance sheet and Cash flow statement Current assets 33 961 30 066 34 020 33 324 38 997 Current assets Non-current assets 99 489 90 376 91 857 80 767 72 644 Non-current assets Total assets 133 450 120 442 125 877 114 091 111 641 Total assets Current liabilities 32 895 32 917 38 597 35 232 30 146 Current liabilities Non-current liabilities 28 671 23 386 24 616 20 585 18 897 Non-current liabilities Equity attributable to shareholders of the parent 70 130 62 575 61 007 56 797 61 867 Equity attributable to shareholders of the parent Non-controlling interests 1 7 5 4 1 5 6 4 1 6 5 7 1 4 7 7 7 3 1 Non-controlling interests Net financial debt 12 325 14 690 18 120 14 319 3 8 5 4 Net financial debt Ratio of net financial debt to equity (gearing) 17.6% 23.5% 29.7% 25.2% 6.2% (h) Ratio of net financial debt to equity (gearing) Operating cash flow(b) 14 700 14 992 15 668 10 180 13 608 Operating cash flow(b) as % of net financial debt 119.3% 102.1% 86.5% 71.1% 353.2% (h) as % of net financial debt Free cash flow(c) 14 137 10 486 9 9 0 5 4 7 5 7 7 7 6 1 Free cash flow(c) Capital expenditure 3 9 1 4 4 9 2 8 5 2 7 3 4 7 7 9 4 5 7 6 Capital expenditure as % of sales (a) 4.3% 5.3% 5.9% 5.7% 4.9% as % of sales (a)

Data per share Data per share Weighted average number of shares outstanding (in millions of units) 3 188 3 191 3 186 3 196 3 371 Weighted average number of shares outstanding (in millions of units) Basic earnings per share 4.54 3.14 3.21 2.97 10.16 (h) Basic earnings per share Underlying earnings per share (d) 3.44 3.50 3.25 3.08 3.32 (h) Underlying earnings per share (d) Dividend 2.20 (f) 2.15 2.05 1.95 1.85 Dividend Pay-out ratio based on Total basic earnings per share 48.5% (f) 68.5% 63.9% 65.7% 18.2% Pay-out ratio based on Total basic earnings per share Stock prices (high) 73.30 70.00 62.30 55.45 56.90 Stock prices (high) Stock prices (low) 63.85 59.20 52.50 43.50 48.18 Stock prices (low) Yield (e) 3.0/3.4 (f) 3.1/3.6 3.3/3.9 3.5/4.5 3.3/3.8 Yield (e)

Market capitalisation 231 136 208 279 190 038 171 287 178 316 Market capitalisation

Number of employees (in thousands) 339 333 333 328 281 Number of employees (in thousands)

* Earnings Before Interest, Taxes, restructuring and impairments. (a) 2010 restated following the changes of presentation made to the Income Statement as of 1 January 2011 (refer to Note 1 – Accounting Policies of the 2011 Consolidated Financial Statements). (b) 2011 restated following the changes in the cash flow statement described in Note 1 – Accounting policies (refer to Note 1 – Accounting Policies of the 2012 Consolidated Financial Statements). (c) Refer to Note 17.6 for definition. As from 2012, movements with non-controlling interests are no longer deducted. 2011 comparatives have been restated accordingly.

130 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Financial information – 5 year review Financial information – 5 year review

In millions of CHF (except for data per share and employees) 2014 2013 2012 (g) 2011 2010 Results Results Sales (a) 91 612 92 158 89 721 83 642 93 015 Sales (a) Trading operating profit(a) 14 019 14 047 13 464 12 538 14 832 Trading operating profit(a) as % of sales (a) 15.3% 15.2% 15.0% 15.0% 15.9% as % of sales (a) Sales — — — — 109 722 Sales EBIT * — — — — 16 194 EBIT * as % of sales — — — — 14.8% as % of sales Taxes 3 3 6 7 3 2 5 6 3 2 5 9 3 1 1 2 3 6 9 3 Taxes Profit for the year attributable to shareholders of the parent(Net profit) 14 456 10 015 10 228 9 4 8 7 34 233 (h) Profit for the year attributable to shareholders of the parent(Net profit) as % of sales (a) 15.8% 10.9% 11.4% 11.3% 36.8% (h) as % of sales (a) Total amount of dividend 7 0 3 9 (f) 6 8 6 3 6 5 5 2 6 2 1 3 5 9 3 9 Total amount of dividend Depreciation of property, plant and equipment 2 7 8 2 2 8 6 4 2 6 5 5 2 4 2 2 2 5 5 2 Depreciation of property, plant and equipment

Balance sheet and Cash flow statement Balance sheet and Cash flow statement Current assets 33 961 30 066 34 020 33 324 38 997 Current assets Non-current assets 99 489 90 376 91 857 80 767 72 644 Non-current assets Total assets 133 450 120 442 125 877 114 091 111 641 Total assets Current liabilities 32 895 32 917 38 597 35 232 30 146 Current liabilities Non-current liabilities 28 671 23 386 24 616 20 585 18 897 Non-current liabilities Equity attributable to shareholders of the parent 70 130 62 575 61 007 56 797 61 867 Equity attributable to shareholders of the parent Non-controlling interests 1 7 5 4 1 5 6 4 1 6 5 7 1 4 7 7 7 3 1 Non-controlling interests Net financial debt 12 325 14 690 18 120 14 319 3 8 5 4 Net financial debt Ratio of net financial debt to equity (gearing) 17.6% 23.5% 29.7% 25.2% 6.2% (h) Ratio of net financial debt to equity (gearing) Operating cash flow(b) 14 700 14 992 15 668 10 180 13 608 Operating cash flow(b) as % of net financial debt 119.3% 102.1% 86.5% 71.1% 353.2% (h) as % of net financial debt Free cash flow(c) 14 137 10 486 9 9 0 5 4 7 5 7 7 7 6 1 Free cash flow(c) Capital expenditure 3 9 1 4 4 9 2 8 5 2 7 3 4 7 7 9 4 5 7 6 Capital expenditure as % of sales (a) 4.3% 5.3% 5.9% 5.7% 4.9% as % of sales (a)

Data per share Data per share Weighted average number of shares outstanding (in millions of units) 3 188 3 191 3 186 3 196 3 371 Weighted average number of shares outstanding (in millions of units) Basic earnings per share 4.54 3.14 3.21 2.97 10.16 (h) Basic earnings per share Underlying earnings per share (d) 3.44 3.50 3.25 3.08 3.32 (h) Underlying earnings per share (d) Dividend 2.20 (f) 2.15 2.05 1.95 1.85 Dividend Pay-out ratio based on Total basic earnings per share 48.5% (f) 68.5% 63.9% 65.7% 18.2% Pay-out ratio based on Total basic earnings per share Stock prices (high) 73.30 70.00 62.30 55.45 56.90 Stock prices (high) Stock prices (low) 63.85 59.20 52.50 43.50 48.18 Stock prices (low) Yield (e) 3.0/3.4 (f) 3.1/3.6 3.3/3.9 3.5/4.5 3.3/3.8 Yield (e)

Market capitalisation 231 136 208 279 190 038 171 287 178 316 Market capitalisation

Number of employees (in thousands) 339 333 333 328 281 Number of employees (in thousands)

* Earnings Before Interest, Taxes, restructuring and impairments. (d) Profit per share for the year attributable to shareholders of the parent before impairments, restructuring costs, results on disposals and significant one-off items. The tax (a) 2010 restated following the changes of presentation made to the Income Statement as of 1 January 2011 (refer to Note 1 – Accounting Policies of the 2011 Consolidated impact from the adjusted items is also adjusted for. Financial Statements). (e) Calculated on the basis of the dividend for the year concerned, which is paid in the following year, and on high/low stock prices. (b) 2011 restated following the changes in the cash flow statement described in Note 1 – Accounting policies (refer to Note 1 – Accounting Policies of the 2012 Consolidated (f) As proposed by the Board of Directors of Nestlé S.A. Financial Statements). (g) 2012 restated following the implementation of IFRS 11 and IAS 19 revised, and adjusted following the final valuation of the Wyeth Nutrition acquisition (refer to Note 1 (c) Refer to Note 17.6 for definition. As from 2012, movements with non-controlling interests are no longer deducted. 2011 comparatives have been restated accordingly. – Accounting Policies and Note 2 – Acquisitions and disposals of businesses of the 2012 Consolidated Financial Statements). (h) Impacted by the profit on disposal of 52% of Alcon outstanding capital.

Consolidated Financial Statements of the Nestlé Group 2014 131 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group Principal affiliated companies

In the context of the SIX Swiss Exchange Directive on Information relating to Corporate Governance, the disclosure criteria are as follows: – operating companies are disclosed if their sales exceed CHF 10 million or equivalent; – financial companies are disclosed if either their equity exceed CHF 10 million or equivalent and/or the total balance sheet is higher than CHF 50 million or equivalent. All companies listed below are fully consolidated except for: 1) Joint ventures accounted for using the equity method; 2) Joint operations accounted for in proportion to the Nestlé contractual specified share (usually 50%); 3) Associates accounted for using the equity method. Countries within the continents are listed according to the alphabetical order of the country names. Percentage of capital shareholding corresponds to voting powers unless stated otherwise. ∆ Companies listed on the stock exchange. ◊ Sub-holding, financial and property companies.

% capital Companies City shareholdings Currency Capital

Europe Austria C.P.A. Cereal Partners Handelsgesellschaft M.B.H. & Co. OHG 1) Wien 50% EUR 145 346 Galderma Austria GmbH Linz 100% EUR 35 000 Nespresso Österreich GmbH & Co. OHG Wien 100% EUR 35 000 Nestlé Österreich GmbH Wien 100% EUR 7 270 000

Azerbaijan Nestlé Azerbaijan Llc Baku 100% USD 200 000

Belgium Centre de Coordination Nestlé S.A. ◊ Bruxelles 100% EUR 3 298 971 818 Davigel Belgilux S.A. Bruxelles 100% EUR 1 487 361 Nespresso Belgique S.A. Bruxelles 100% EUR 550 000 Nestlé Belgilux S.A. Bruxelles 100% EUR 64 924 438 Nestlé Catering Services N.V. Bruxelles 100% EUR 14 035 500 Nestlé Waters Benelux S.A. Etalle 100% EUR 5 601 257

Bosnia and Herzegovina Nestlé Adriatic BH d.o.o. Sarajevo 100% BAM 2 000

Bulgaria Nestlé Bulgaria A.D. Sofia 100% BGN 10 234 933

Croatia Nestlé Adriatic d.o.o. Zagreb 100% HRK 14 685 500

Czech Republic Cereal Partners Czech Republic 1) Praha 50% CZK 23 100 000 Nestlé Cesko s.r.o. Praha 100% CZK 300 000 000

132 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Denmark Glycom A/S 3) Copenhagen 35.7% DKK 1 292 655 Nestlé Danmark A/S Copenhagen 100% DKK 44 000 000 Oscar A/S Rønnede 100% DKK 12 000 000

Finland Puljonki Oy Juuka 100% EUR 85 000 Suomen Nestlé Oy Helsinki 100% EUR 10 000 000

France Centres de Recherche et Développement Nestlé S.A.S. Beauvais 100% EUR 3 138 230 Cereal Partners France SNC 1) Noisiel 50% EUR 3 000 000 Davigel S.A.S. Martin Eglise 100% EUR 7 681 250 Galderma International S.A.S. Courbevoie 100% EUR 940 020 Galderma Q-Med S.A.S. Nanterre 100% EUR 3 769 870 Galderma Research and Development SNC Biot 100% EUR 70 518 259 Herta S.A.S. Noisiel 100% EUR 12 908 610 Houdebine S.A.S. Noyal Pontivy 100% EUR 726 000 L’Oréal S.A. ∆ 3) Paris 23.1% EUR 112 246 078 Listed on the Paris stock exchange, market capitalisation EUR 78.0 billion, quotation code (ISIN) FR0000120321 Laboratoires Galderma S.A.S. Alby-sur-Chéran 100% EUR 14 015 454 Laboratoires Innéov SNC 1) Nanterre 50% EUR 970 000 Lactalis Nestlé Produits Frais S.A.S. 3) Laval 40% EUR 69 208 832 Nespresso France S.A.S. Paris 100% EUR 1 360 000 Nestlé Clinical Nutrition France S.A.S. Noisiel 100% EUR 57 943 072 Nestlé Entreprises S.A.S. ◊ Noisiel 100% EUR 739 559 392 Nestlé France M.G. S.A.S. Noisiel 100% EUR 50 000 Nestlé France S.A.S. Noisiel 100% EUR 130 925 520 Nestlé Grand Froid S.A. Noisiel 100% EUR 3 120 000 Nestlé Purina PetCare France S.A.S. Noisiel 100% EUR 21 091 872 Nestlé Waters S.A.S. ◊ Issy-les-Moulineaux 100% EUR 254 893 080 Nestlé Waters France S.A.S. ◊ Issy-les-Moulineaux 100% EUR 44 856 149 Nestlé Waters Management & Technology S.A.S. Issy-les-Moulineaux 100% EUR 38 113 Nestlé Waters Marketing & Distribution S.A.S. Issy-les-Moulineaux 100% EUR 26 740 940 Nestlé Waters Services S.A.S. Issy-les-Moulineaux 100% EUR 1 356 796 Nestlé Waters Supply Centre S.A.S. Issy-les-Moulineaux 100% EUR 2 577 000 Nestlé Waters Supply Est S.A.S. Issy-les-Moulineaux 100% EUR 17 539 660 Nestlé Waters Supply Sud S.A.S. Issy-les-Moulineaux 100% EUR 7 309 106 Société de Bouchages Emballages Conditionnement Moderne S.A.S. 3) Lavardac 50% EUR 10 200 000 Société des Produits Alimentaires de Caudry S.A.S. Noisiel 100% EUR 1 440 000 Société Française des Eaux Régionales S.A.S. ◊ Issy-les-Moulineaux 100% EUR 1 490 098 Société Immobilière de Noisiel S.A. ◊ Noisiel 100% EUR 22 753 550 Société Industrielle de Transformation de Produits Agricoles S.A.S. Noisiel 100% EUR 9 718 000

Consolidated Financial Statements of the Nestlé Group 2014 133 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Germany Alois Dallmayr Kaffee OHG 3) München 25% EUR 10 250 000 C.P.D. Cereal Partners Deutschland GmbH & Co. OHG 1) Frankfurt am Main 50% EUR 511 292 Erlenbacher Backwaren GmbH Darmstadt 100% EUR 2 582 024 Galderma Laboratorium GmbH Düsseldorf 100% EUR 800 000 Nestlé Deutschland AG Frankfurt am Main 100% EUR 214 266 628 Nestlé Product Technology Centre Lebensmittelforschung GmbH Singen 100% EUR 52 000 Nestlé Schöller Produktions GmbH Nürnberg 100% EUR 30 000 Nestlé Unternehmungen Deutschland GmbH ◊ Frankfurt am Main 100% EUR 60 000 000 Nestlé Waters Deutschland GmbH Mainz 100% EUR 10 566 000 Trinks GmbH 3) Goslar 25% EUR 2 360 000 Trinks Süd GmbH 3) München 25% EUR 260 000

Greece C.P.W. Hellas Breakfast Cereals S.A. 1) Maroussi 50% EUR 201 070 Nespresso Hellas S.A. Maroussi 100% EUR 500 000 Nestlé Hellas S.A. Maroussi 100% EUR 39 119 726

Hungary Cereal Partners Hungária Kft. 1) Budapest 50% HUF 22 000 000 Kékkúti Ásvànyvíz Zrt. Budapest 100% HUF 238 326 000 Nestlé Hungária Kft. Budapest 100% HUF 6 000 000 000

Italy Fastlog S.p.A. Assago 100% EUR 154 935 Galderma Italia S.p.A. Milano 100% EUR 612 000 Nespresso Italiana S.p.A. Assago 100% EUR 250 000 Nestlé ltaliana S.p.A. Assago 100% EUR 25 582 492 Sanpellegrino S.p.A. San Pellegrino Terme 100% EUR 58 742 145

Kazakhstan Nestlé Food Kazakhstan LLP Almaty 100% KZT 91 900

Lithuania UAB “Nestlé Baltics” Vilnius 100% LTL 110 000

Luxemburg Compagnie Financière du Haut-Rhin S.A. ◊ Luxembourg 100% EUR 105 200 000 Nespresso Luxembourg Sàrl Luxembourg 100% EUR 12 525 Nestlé Finance International Ltd ◊ Luxembourg 100% EUR 440 000 Nestlé Treasury International S.A. ◊ Luxembourg 100% EUR 1 000 000 NTC-Europe S.A. ◊ Luxembourg 100% EUR 3 565 000

Macedonia Nestlé Adriatik Makedonija d.o.o.e.l. Skopje-Karpos 100% MKD 31 065 780

134 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Malta Nestlé Malta Ltd Lija 100% EUR 116 470

Netherlands East Springs International N.V. ◊ Amsterdam 100% EUR 25 370 000 Galderma BeNeLux B.V. Rotterdam 100% EUR 18 002 Nespresso Nederland B.V. Amsterdam 100% EUR 680 670 Nestlé Nederland B.V. Amstelveen 100% EUR 11 346 000

Norway A/S Nestlé Norge Oslo 100% NOK 81 250 000

Poland Cereal Partners Poland Torun-Pacific Sp. Z o.o. 1) Torun 50% PLN 14 572 838 Galderma Polska Z o.o. Warszawa 100% PLN 93 000 Nestlé Polska S.A. Warszawa 100% PLN 50 000 000 Nestlé Waters Polska S.A. Warszawa 100% PLN 196 100 000

Portugal Cereal Associados Portugal A.E.I.E. 1) Oeiras 50% EUR 99 760 Nestlé Portugal S.A. Oeiras 100% EUR 30 000 000 Prolacto-Lacticinios de São Miguel S.A. Ponta Delgada 100% EUR 700 000

Republic of Ireland Nestlé (lreland) Ltd Dublin 100% EUR 41 964 052 Wyeth Nutritionals Ireland Limited Askeaton 100% USD 885 599 990

Republic of Serbia Nestlé Adriatic S d.o.o., Beograd-Surcin Beograd-Surcin 100% RSD 10 422 773 314

Romania Nestlé Romania S.R.L. Bucharest 100% RON 132 906 800

Russia Cereal Partners Rus, LLC 1) Moscow 50% RUB 28 730 860 LLC Nestlé Watercoolers Service Moscow 100% RUB 20 372 926 Nestlé Kuban LLC Timashevsk 100% RUB 11 041 793 Nestlé Rossiya LLC Moscow 100% RUB 840 153 854 ooo Galderma LLC Moscow 100% RUB 25 000 000

Slovak Republic Nestlé Slovensko s.r.o. Prievidza 100% EUR 13 277 568

Consolidated Financial Statements of the Nestlé Group 2014 135 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Spain Cereal Partners España A.E.I.E. 1) Esplugues de Llobregat (Barcelona) 50% EUR 120 202 Davigel España S.A. Sant Just Desvern (Barcelona) 100% EUR 984 000 Helados y Postres S.A. Vitoria (Alava) 100% EUR 103 900 300 Innéov España S.A. 1) Madrid 50% EUR 120 000 Laboratorios Galderma, S.A. Madrid 100% EUR 432 480 Nestlé España S.A. Esplugues de Llobregat (Barcelona) 100% EUR 100 000 000 Nestlé Purina PetCare España S.A. Castellbisbal (Barcelona) 100% EUR 12 000 000 Productos del Café S.A. Reus (Tarragona) 100% EUR 6 600 000

Sweden Galderma Holding AB ◊ Uppsala 100% SEK 50 000 Galderma Nordic AB Uppsala 100% SEK 31 502 698 Nestlé Sverige AB Helsingborg 100% SEK 20 000 000 Q-Med AB Uppsala 100% SEK 24 845 500

Switzerland Beverage Partners Worldwide (Europe) AG ◊ 1) Zürich 50% CHF 1 000 000 CPW Operations Sàrl 1) Prilly 50% CHF 20 000 CPW S.A. 1) Prilly 50% CHF 10 000 000 Eckes-Granini (Suisse) S.A. 2) Henniez 49% CHF 2 000 000 Entreprises Maggi S.A. ◊ Cham 100% CHF 100 000 Galderma Pharma S.A. ◊ Lausanne 100% CHF 48 900 000 Galderma S.A. Cham 100% CHF 178 100 Galderma Schweiz AG Egerkingen 100% CHF 100 000 Intercona Re AG ◊ Châtel-St-Denis 100% CHF 35 000 000 Nestec S.A. Vevey 100% CHF 5 000 000 Nestlé Finance S.A. ◊ Cham 100% CHF 30 000 000 Nestlé Health Science S.A. Vevey 100% CHF 100 000 Nestlé Institute of Health Sciences S.A. Ecublens 100% CHF 100 000 Nestlé International Travel Retail S.A. Vevey 100% CHF 3 514 000 Nestlé Nespresso S.A. Lausanne 100% CHF 2 000 000 Nestlé Operational Services Worldwide S.A. Bussigny-près-Lausanne 100% CHF 100 000 Nestlé Waters (Suisse) S.A. Henniez 100% CHF 5 000 000 Nestrade S.A. La Tour-de-Peilz 100% CHF 6 500 000 Nutrition-Wellness Venture AG ◊ Vevey 100% CHF 100 000 Société des Produits Nestlé S.A. Vevey 100% CHF 54 750 000 Sofinol S.A. Manno 100% CHF 3 000 000 Spirig Phama AG Egerkingen 100% CHF 600 000

Turkey Cereal Partners Gida Ticaret Limited Sirketi 1) Istanbul 50% TRY 25 020 000 Erikli Dagitim ve Pazarlama A.S. Bursa 100% TRY 3 849 975 Erikli Su ve Mesrubat Sanayi ve Ticaret A.S. Bursa 100% TRY 12 700 000 Nestlé Türkiye Gida Sanayi A.S. Istanbul 99.9% TRY 35 000 000 Nestlé Waters Gida ve Mesrubat Sanayi Ticaret A.S. Bursa 100% TRY 8 000 000

136 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Ukraine LLC Nestlé Ukraine Kyiv 100% USD 150 000 LLC Technocom Kharkiv 100% UAH 119 658 066 PJSC " Confectionery Factory ” Lviv 97% UAH 88 111 060 PRJSC Volynholding Torchyn 100% UAH 100 000

United Kingdom Cereal Partners UK 1) Herts 50% GBP — Galderma (UK) Ltd Watford 100% GBP 1 500 000 Nespresso UK Ltd Gatwick 100% GBP 275 000 Nestec York Ltd Gatwick 100% GBP 500 000 Nestlé Holdings (UK) PLC ◊ Gatwick 100% GBP 77 940 000 Nestlé Purina PetCare (UK) Ltd Gatwick 100% GBP 44 000 000 Nestlé UK Ltd Gatwick 100% GBP 129 972 342 Nestlé Waters UK Ltd Gatwick 100% GBP 640 Nestlé Waters (UK) Holdings Ltd ◊ Gatwick 100% GBP 6 500 002 Vitaflo (International) Ltd Liverpool 100% GBP 625 379

Consolidated Financial Statements of the Nestlé Group 2014 137 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Africa Algeria Nestlé Algérie SpA Alger 70% DZD 7 000 000 Nestlé Waters Algérie SpA Blida 60% DZD 377 606 250

Angola Nestlé Angola Lda Luanda 100% AOA 24 000 000

Burkina Faso Nestlé S.A. Ouagadougou 100% XOF 50 000 000

Cameroon Nestlé Cameroun S.A. Douala 100% XAF 4 323 960 000

Chad Nestlé Chad S.A. N'Djamena 100% XAF 50 000 000

Côte d'Ivoire Centre de Recherche et de Développement Nestlé Abidjan S.A. Abidjan 100% XOF 10 000 000 Nestlé Côte d’Ivoire S.A. ∆ Abidjan 86.5% XOF 5 517 600 000 Listed on the Abidjan stock exchange, market capitalisation XOF 60.7 billion, quotation code (ISIN) CI0009240728

Democratic Republic of the Congo Nestlé Congo S.A.R.L Kinshasa 100% USD 33 200 000

Egypt Nestlé Egypt S.A.E. Giza 100% EGP 80 722 000 Nestlé Waters Distribution Company Cairo 64% EGP 15 200 000 Nestlé Waters Egypt S.A.E. Cairo 63.7% EGP 81 500 000

Gabon Nestlé Gabon, S.A. Libreville 90% XAF 344 000 000

Ghana Nestlé Central and West Africa Ltd Accra 100% GHS 46 000 Nestlé Ghana Ltd Accra 76% GHS 20 100 000

Guinea Nestlé Guinée S.A. Conakry 99% GNF 3 424 000 000

Kenya Nestlé Equatorial African Region Limited Nairobi 100% KES 132 000 000 Nestlé Kenya Ltd Nairobi 100% KES 226 100 400

Mali Nestlé S.A.U. Bamako 100% XOF 10 000 000

138 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Mauritius Nestlé SEA Trading Ltd Port Louis 100% USD 2 Nestlé’s Products (Mauritius) Ltd Port Louis 100% BSD 71 500

Morocco Nestlé Maghreb S.A. Casablanca 100% MAD 300 000 Nestlé Maroc S.A. El Jadida 94.5% MAD 156 933 000

Mozambique Nestlé Mocambique Lda Maputo 100% MZN 4 000

Niger Nestlé S.A. Niamey 99.6% XOF 50 000 000

Nigeria Nestlé Nigeria Plc ∆ Ilupeju 63.5% NGN 396 328 126 Listed on the Nigerian Stock Exchange, market capitalisation NGN 802.0 billion, quotation code (ISIN) NGNESTLE0006

Senegal Nestlé Sénégal S.A. Dakar 100% XOF 1 620 000 000

South Africa Galderma Laboratories South Africa (Pty) Ltd Bryanston 100% ZAR 375 000 Nestlé (South Africa) (Pty) Ltd Johannesburg 100% ZAR 553 400 000

Togo Nestlé S.A.U. Lome 100% XOF 50 000 000

Tunisia Nestlé Tunisie Distribution S.A. Tunis 99.5% TND 100 000 Nestlé Tunisie S.A. Tunis 99.5% TND 8 438 280

Zambia Nestlé Zambia Trading Ltd Lusaka 100% ZMW 2 317 500

Zimbabwe Nestlé Zimbabwe (Private) Ltd Harare 100% USD 2 100 000

Consolidated Financial Statements of the Nestlé Group 2014 139 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Americas Argentina Dairy Partners Americas Manufacturing Argentina S.A. Buenos Aires 100% ARS 73 562 144 Eco de Los Andes S.A. Buenos Aires 50.9% ARS 92 524 285 Galderma Argentina S.A. Buenos Aires 100% ARS 9 900 000 Nestlé Argentina S.A. Buenos Aires 100% ARS 150 720 000

Bermuda Centram Holdings Ltd ◊ Hamilton 100% USD 12 000 DPA Manufacturing Holdings Ltd ◊ Hamilton 100% USD 23 639 630

Bolivia Industrias Alimentícias Fagal S.R.L. Santa Cruz 100% BOB 133 100 000 Nestlé Bolivia S.A. Santa Cruz 100% BOB 191 900

Brazil Garoto S.A. Vila Velha 100% BRL 161 450 000 CPW Brasil Ltda 1) Caçapava 50% BRL 7 885 520 Dairy Partners Americas Brasil Ltda 3) São Paulo 49% BRL 27 606 368 Dairy Partners Americas Manufacturing Brasil Ltda São Paulo 100% BRL 39 468 974 Dairy Partners Americas Nordeste – Produtos Alimentícios Ltda 3) Garanhuns 49% BRL 100 000 Galderma Brasil Ltda São Paulo 100% BRL 39 741 602 Innéov Brasil Nutricosméticos Ltda 1) Duque de Caxias 50% BRL 201 160 Nestlé Brasil Ltda São Paulo 100% BRL 452 985 643 Nestlé Nordeste Alimentos e Bebidas Ltda Feira de Santana 100% BRL 12 713 641 Nestlé Sudeste Alimentos e Bebidas Ltda São Paulo 100% BRL 109 317 818 Nestlé Sul - Alimentos e Bebidas Ltda Carazinho 100% BRL 73 049 736 Nestlé Waters Brasil – Bebidas e Alimentos Ltda São Paulo 100% BRL 87 248 341 Q-Med Brasil Comerci e Importaçaõ de Productos Medicos Ltda Rio de Janeiro 100% BRL 22 798 971

Canada G. Production Canada Inc. Baie D'Urfé (Québec) 100% CAD 100 Galderma Canada Inc. New Brunswick 100% CAD 100 Nestlé Canada Inc. Toronto (Ontario) 100% CAD 47 165 540 Nestlé Capital Canada Ltd ◊ Toronto (Ontario) 100% CAD 1 010 Nestlé Globe Inc. Toronto (Ontario) 100% CAD 106 000 100

Cayman Islands International Limited ◊ Grand Cayman 60% SGD 7 950 000

Chile Aguas CCU – Nestlé Chile S.A. 3) Santiago de Chile 49.8% CLP 49 799 375 321 Cereales CPW Chile Ltda 1) Santiago de Chile 50% CLP 3 026 156 114 Comercializadora de Productos Nestlé S.A. Santiago de Chile 99.7% CLP 1 000 000 Nestlé Chile S.A. Santiago de Chile 99.7% CLP 11 832 926 000

140 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Colombia Comestibles La Rosa S.A. Bogotá 100% COP 126 397 400 Dairy Partners Americas Manufacturing Colombia Ltda Bogotá 100% COP 200 000 000 Galderma de Colombia S.A. Bogotá 100% COP 2 250 000 000 Nestlé de Colombia S.A. Bogotá 100% COP 1 291 305 400 Nestlé Purina PetCare de Colombia S.A. Bogotá 100% COP 17 030 000 000

Costa Rica Compañía Nestlé Costa Rica S.A. Barreal de Heredia 100% CRC 18 000 000 Gerber Ingredients, S.A. San José 100% CRC 10 000

Cuba Coralac S.A. La Habana 60% USD 6 350 000 Los Portales S.A. La Habana 50% USD 24 110 000

Dominican Republic Nestlé Dominicana S.A. Santo Domingo 97.4% DOP 48 500 000 Silsa Dominicana S.A. Santo Domingo 97.4% USD 50 000

Ecuador Ecuajugos S.A. Quito 100% USD 521 583 Industrial Surindu S.A. Quito 100% USD 3 000 000 Nestlé Ecuador S.A. Quito 100% USD 1 776 760

El Salvador Nestlé El Salvador, S.A. de C.V. San Salvador 100% USD 4 457 200

Guatemala Malher Export S.A. Guatemala 100% GTQ 5 000 Malher S.A. Guatemala 100% GTQ 100 000 000 Nestlé Guatemala S.A. Mixco 100% GTQ 23 460 600 SERESA, Contratación de Servicios Empresariales, S.A. Guatemala 100% GTQ 5 000

Honduras Nestlé Hondureña S.A. Tegucigalpa 100% PAB 200 000

Jamaica Nestlé Jamaica Ltd Kingston 100% JMD 49 200 000

Consolidated Financial Statements of the Nestlé Group 2014 141 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Mexico CPW México, S. de R.L. de C.V. 1) México, D.F. 50% MXN 43 138 000 Galderma México, S.A. de C.V. México, D.F. 100% MXN 2 385 000 Manantiales La Asunción, S.A.P.I. de C.V. México, D.F. (a) 40% MXN 1 035 827 492 Marcas Nestlé, S.A. de C.V. México, D.F. 100% MXN 500 050 000 Nescalín, S.A. de C.V. ◊ México, D.F. 100% MXN 445 826 740 Nespresso México, S.A. de C.V. México, D.F. 100% MXN 10 050 000 Nestlé México, S.A. de C.V. México, D.F. 100% MXN 607 532 730 Nestlé Servicios Corporativos, S.A. de C.V. México, D.F. 100% MXN 170 100 000 Nestlé Servicios Industriales, S.A. de C.V. México, D.F. 100% MXN 1 050 000 Productos Gerber, S.A. de C.V. Queretaro 100% MXN 5 252 440 México, S.A. de C.V. México, D.F. 100% MXN 9 257 112 Waters Partners Services México, S.A.P.I. de C.V. México, D.F. (a) 40% MXN 620 000

Nicaragua Compañía Centroaméricana de Productos Lácteos, S.A. Managua 92.6% NIO 10 294 900 Nestlé Nicaragua, S.A. Managua 100% USD 150 000

Panama Food Products (Holdings), S.A. ◊ Panamá City 100% PAB 286 000 Garma Enterprises, S.A. ◊ Panamá City 100% PAB 0 Lacteos de Centroamérica, S.A. Panamá City 100% USD 1 500 000 Nestlé Centroamérica, S.A. Panamá City 100% USD 1 000 000 Nestlé Panamá, S.A. Panamá City 100% PAB 17 500 000 Unilac, Inc. ◊ Panamá City 100% USD 750 000

Paraguay Nestlé Paraguay S.A. Asunción 100% PYG 100 000 000

Peru Nestlé Marcas Perú, S.A.C. Lima 100% PEN 1 000 Nestlé Perú, S.A. Lima 99.6% PEN 120 683 387

Puerto Rico Nestlé Puerto Rico, Inc. San Juan 100% USD 500 000 Payco Foods Corporation Bayamon 100% USD 890 000

Trinidad and Tobago Nestlé Caribbean, Inc. Valsayn 100% USD 100 000 Nestlé Trinidad and Tobago Ltd Valsayn 100% TTD 35 540 000

(a) Voting powers amount to 51%

142 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

United States Beverage Partners Worldwide (North America) 1) Wilmington (Delaware) 50% USD — Brand Direct Health, LLC Wilmington (Delaware) 100% USD — Checkerboard Holding Company, Inc. ◊ Wilmington (Delaware) 100% USD 1 001 Dreyer’s Grand Ice Cream Holdings, Inc. ◊ Wilmington (Delaware) 100% USD 10 Galderma Laboratories, Inc. Fort Worth () 100% USD 981 Gerber Life Insurance Company ◊ New York 100% USD 148 500 000 Fremont (Michigan) 100% USD 1 000 Malher, Inc. Stafford (Texas) 100% USD 1 000 Nespresso USA, Inc. Wilmington (Delaware) 100% USD 1 000 Nestlé Capital Corporation ◊ Wilmington (Delaware) 100% USD 1 000 000 Nestlé Dreyer's Ice Cream Company Wilmington (Delaware) 100% USD 1 Nestlé HealthCare Nutrition, Inc. Wilmington (Delaware) 100% USD 50 000 Nestlé Health Science-, Inc. Wilmington (Delaware) 100% USD 1 Nestlé Health Science US Holdings, Inc. ◊ Wilmington (Delaware) 100% USD 1 Nestlé Holdings, Inc. ◊ Wilmington (Delaware) 100% USD 100 000 Nestlé Insurance Holdings, Inc. ◊ Wilmington (Delaware) 100% USD 10 Nestlé Nutrition R&D Centers, Inc. Wilmington (Delaware) 100% USD 10 000 Nestlé Prepared Foods Company Philadelphia (Pennsylvania) 100% USD 476 760 Nestlé Purina PetCare Company St. Louis (Missouri) 100% USD 1 000 Nestlé Purina PetCare Global Resources, Inc. Wilmington (Delaware) 100% USD 1 000 Nestlé R&D Center, Inc. Wilmington (Delaware) 100% USD 10 000 Nestlé Transportation Company Wilmington (Delaware) 100% USD 100 Nestlé USA, Inc. Wilmington (Delaware) 100% USD 1 000 Nestlé Waters North America Holdings, Inc. ◊ Wilmington (Delaware) 100% USD 10 000 000 Nestlé Waters North America, Inc. Wilmington (Delaware) 100% USD 10 700 000 NiMCo US, Inc. ◊ Wilmington (Delaware) 100% USD 1 Prometheus Laboratories Inc. Los Angeles (California) 100% USD 100 Red Maple Insurance Company ◊ Williston (Vermont) 100% USD 1 200 000 Austin (Texas) 100% USD 10 The Stouffer Corporation ◊ Cleveland (Ohio) 100% USD 0 Tradewinds Beverage Company Cincinnati (Ohio) 100% USD 0 TSC Holdings, Inc. ◊ Wilmington (Delaware) 100% USD 100 000 Vitality Foodservice, Inc. Dover (Delaware) 100% USD 1 240 Waggin' Train LLC Wilmington (Delaware) 100% USD — Zuke's LLC Wilmington (Delaware) 100% USD 0

Uruguay Nestlé del Uruguay S.A. Montevideo 100% UYU 9 495 189

Venezuela Laboratorios Galderma Venezuela, S.A. Caracas 100% VEF 5 000 Nestlé Cadipro, S.A. Caracas 100% VEF 50 633 501 Nestlé Venezuela, S.A. Caracas 100% VEF 516 590

Consolidated Financial Statements of the Nestlé Group 2014 143 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Asia Bahrain Nestlé Bahrain Trading WLL Manama 49% BHD 200 000

Bangladesh Nestlé Bangladesh Limited Dhaka 100% BDT 100 000 000

Greater China Region Anhui Co., Ltd. Chuzhou 60% CNY 303 990 000 Beverage Partners Worldwide (Pacific) Limited Hong Kong 50% HKD 352 000 000 Chengdu Hsu Chi Foods Co., Limited Chengdu 60% CNY 40 000 000 CPW Tianjin Limited 1) Tianjin 50% CNY 305 000 000 Dongguan Andegu Plastic Packaging Material Limited Dongguan 60% HKD 10 000 000 Dongguan Hsu Chi Food Co., Limited Dongguan 60% HKD 700 000 000 Galderma Hong Kong Limited Hong Kong 100% HKD 10 000 Galderma Trading (Shanghai) Co. Ltd Shanghai 100% EUR 400 000 Guangzhou Refrigerated Foods Limited Guangzhou 95.5% CNY 390 000 000 Henan Hsu Fu Chi Foods Co., Limited Zhumadian 60% CNY 210 000 000 Hsu Fu Chi International Holdings Limited ◊ Wanchai 60% USD 100 000 Hubei Yinlu Foods Co., Limited Hanchuan 60% CNY 353 000 000 Nestlé (China) Limited Beijing 100% CNY 250 000 000 Nestlé Dongguan Limited Dongguan 100% CNY 536 000 000 Nestlé Hong Kong Limited Hong Kong 100% HKD 250 000 000 Nestlé Hulunbeir Limited Hulunbeir 100% CNY 158 000 000 Nestlé Nespresso Beijing Limited Beijing 100% CNY 7 000 000 Nestlé Purina PetCare Tianjin Limited Tianjin 100% CNY 40 000 000 Nestlé Qingdao Limited Laixi 100% CNY 930 000 000 Nestlé R&D (China) Limited Beijing 100% CNY 40 000 000 Nestlé Shanghai Limited Shanghai 95% CNY 200 000 000 Nestlé Shuangcheng Limited Shuangcheng 97% CNY 435 000 000 Nestlé Sources Shanghai Limited Shanghai 100% CNY 211 000 000 Nestlé Sources Tianjin Limited Tianjin 95% CNY 204 000 000 Nestlé Taiwan Limited Taipei 100% TWD 100 000 000 Nestlé Tianjin Limited Tianjin 100% CNY 785 000 000 Q-Med International Trading (Shanghai) Limited Shanghai 100% USD 600 000 Shandong Yinlu Foods Co. Limited Jinan 60% CNY 146 880 000 Shanghai Nestlé Product Services Limited Shanghai 100% CNY 83 000 000 Shanghai Totole First Food Limited Shanghai 80% CNY 72 000 000 Shanghai Totole Food Limited Shanghai 80% USD 7 800 000 Sichuan Haoji Food Co. Limited Puge 80% CNY 80 000 000 Suzhou Hexing Food Co., Ltd Suzhou 80% CNY 40 000 000 Wyeth (Hong Kong) Holding Company Limited ◊ Hong Kong 100% HKD 100 010 Wyeth (Shanghai) Trading Company Limited (China) Shanghai 100% USD 1 000 000 Wyeth Nutritional (China) Co., Limited Suzhou 100% CNY 900 000 000 Xiamen Yinlu Foods Group Co., Limited Xiamen 60% CNY 496 590 000 Yunnan Dashan Drinks Co., Limited Kunming 100% CNY 35 000 000

144 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

India Galderma India Private Ltd Mumbai 100% INR 24 156 000 Nestlé R&D Centre India Private Ltd New Delhi 100% INR 2 101 380 000 Nestlé India Ltd ∆ New Delhi 62.8% INR 964 157 160 Listed on the Mumbai stock exchange, market capitalisation INR 616.0 billion, quotation code (ISIN) INE239A01016

Indonesia P. T. Nestlé Indofood Citarasa Indonesia 1) Jakarta 50% IDR 200 000 000 000 P. T. Nestlé Indonesia Jakarta 90.2% IDR 152 753 440 000 P. T. Wyeth Nutrition Indonesia Jakarta 90% IDR 2 000 000 000

Iran Anahita Polour Industrial Mineral Water Company Tehran 100% IRR 35 300 000 000 Nestlé Iran (Private Joint Stock Company) Tehran 89.7% IRR 358 538 000 000

Israel Nespresso Israel Ltd Tel-Aviv 100% ILS 1 000 Investments Ltd ∆ Shoam 63.7% ILS 110 644 444 Listed on the Tel-Aviv stock exchange, market capitalisation ILS 7.7 billion, quotation code (ISIN) IL0003040149

Japan Galderma K.K. Tokyo 100% JPY 10 000 000 Nestlé Japan Ltd Kobe 100% JPY 10 000 000 000 Nestlé Nespresso K.K. Kobe 100% JPY 10 000 000

Jordan Ghadeer Mineral Water Co. WLL Amman 75% JOD 1 785 000 Nestlé Jordan Trading Company Ltd Amman 77.8% JOD 410 000

Kuwait Nestlé Kuwait General Trading Company WLL Safat 49% KWD 300 000

Lebanon Société des Eaux Minérales Libanaises S.A.L. Hazmieh 100% LBP 1 610 000 000 Société pour l’Exportation des Produits Nestlé S.A. Baabda 100% CHF 1 750 000 SOHAT Distribution S.A.L. Hazmieh 100% LBP 160 000 000

Malaysia Cereal Partners (Malaysia) Sdn. Bhd. 1) Petaling Jaya 50% MYR 2 500 000 Nestlé (Malaysia) Bhd. ◊ ∆ Petaling Jaya 72.6% MYR 234 500 000 Listed on the Kuala Lumpur stock exchange, market capitalisation MYR 16.1 billion, quotation code (ISIN) MYL4707OO005 Nestlé Asean (Malaysia) Sdn. Bhd. Petaling Jaya 72.6% MYR 42 000 000 Nestlé Manufacturing (Malaysia) Sdn. Bhd. Petaling Jaya 72.6% MYR 132 500 000 Nestlé Products Sdn. Bhd. Petaling Jaya 72.6% MYR 25 000 000 Purina PetCare (Malaysia) Sdn. Bhd. Petaling Jaya 100% MYR 1 100 000 Wyeth Nutrition (Malaysia) Sdn. Bhd. Petaling Jaya 100% MYR 61 969 505

Consolidated Financial Statements of the Nestlé Group 2014 145 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Oman Nestlé Oman Trading LLC Muscat 49% OMR 300 000

Pakistan Nestlé Pakistan Ltd ∆ Lahore 59% PKR 453 495 840 Listed on the Karachi and the Lahore stock exchanges, market capitalisation PKR 412.7 billion, quotation code (ISIN) PK0025101012

Palestinian Territories Nestlé Trading Private Limited Company Bethlehem 97.5% JOD 200 000

Philippines CPW Philippines, Inc. 1) Makati City 50% PHP 7 500 000 Galderma Philippines, Inc. Manila 100% PHP 12 500 000 Nestlé Business Services AOA, Inc. Bulacan 100% PHP 70 000 000 Nestlé Philippines, Inc. Cabuyao 100% PHP 2 300 927 400 Penpro, Inc. ◊ Makati City (b) 88.5% PHP 630 000 000 Wyeth Philippines, Inc. Manila 100% PHP 610 418 100

Qatar Al Manhal Water Factory Co. Ltd WLL Doha 51% QAR 5 500 000 Nestlé Qatar Trading LLC Doha 49% QAR 1 680 000

Republic of Korea Galderma Korea Ltd Seoul 100% KRW 500 000 000 LOTTE-Nestlé (Korea) Co., Ltd 1) Seoul 50% KRW 52 783 120 000 Nestlé Korea Yuhan Chaegim Hoesa Seoul 100% KRW 10 100 000 000 Pulmuone Waters Co., Ltd Gyeonggi-Do 51% KRW 6 778 760 000

Saudi Arabia Al Anhar Water Factory Co. Ltd Jeddah 64% SAR 7 500 000 Al Manhal Water Factory Co. Ltd Riyadh 64% SAR 7 000 000 Nestlé Saudi Arabia LLC Jeddah 75% SAR 27 000 000 Nestlé Water Factory Co. Ltd Riyadh 64% SAR 15 000 000 Pure Water Factory Co. Ltd Madinah 64% SAR 5 000 000 Saudi Food Industries Co. Ltd 3) Jeddah 51% SAR 51 000 000 SHAS Company for Water Services Ltd Riyadh 64% SAR 13 500 000 Springs Water Factory Co. Ltd Dammam 64% SAR 5 000 000

Singapore Galderma Singapore Private Ltd Singapore 100% SGD 1 387 000 Nestlé R&D Center (Pte) Ltd Singapore 100% SGD 20 000 000 Nestlé Singapore (Pte) Ltd Singapore 100% SGD 1 000 000 Nestlé TC Asia Pacific Pte Ltd ◊ Singapore 100% JPY 10 000 000 000 SGD 2 Wyeth Nutritionals (Singapore) Pte Ltd Singapore 100% SGD 2 159 971 715

(b) Voting powers amount to 40%

146 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Sri Lanka Nestlé Lanka PLC ∆ Colombo 90.8% LKR 537 254 630 Listed on the Colombo stock exchange, market capitalisation LKR 113.1 billion, quotation code (ISIN) LK0128N00005

Syria Nestlé Syria S.A. Damascus 100% SYP 800 000 000

Thailand Galderma (Thailand) Ltd Bangkok 100% THB 100 000 000 Nestlé (Thai) Ltd Bangkok 100% THB 880 000 000 Perrier (Thailand) Ltd Bangkok 100% THB 235 000 000 Quality Coffee Products Ltd Bangkok 50% THB 500 000 000

United Arab Emirates CP Middle East FZCO 1) Dubai 50% AED 600 000 Nestlé Dubai Manufacturing LLC Dubai 49% AED 300 000 Nestlé Middle East FZE Dubai 100% AED 3 000 000 Nestlé Treasury Centre-Middle East & Africa Ltd ◊ Dubai 100% USD 2 997 343 684 Nestlé UAE LLC Dubai 49% AED 2 000 000 Nestlé Waters Factory H&O LLC Dubai 48% AED 22 300 000

Uzbekistan Uzbek-Swiss JV Nestlé Uzbekistan LLC Namangan 99.8% USD 38 715 463

Vietnam La Vie Limited Liability Company Long An 65% USD 2 663 400 Nestlé Vietnam Ltd Bien Hoa 100% USD 155 266 000

Consolidated Financial Statements of the Nestlé Group 2014 147 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

% capital Companies City shareholdings Currency Capital

Oceania Australia Cereal Partners Australia Pty Ltd 1) Sydney 50% AUD 107 800 000 Galderma Australia Pty Ltd Belrose 100% AUD 2 500 300 Nestlé Australia Ltd Sydney 100% AUD 274 000 000

Fiji Nestlé (Fiji) Ltd Lami 100% FJD 3 000 000

French Polynesia Nestlé Polynésie S.A.S. Papeete 100% XPF 5 000 000

New Caledonia Nestlé Nouvelle-Calédonie S.A.S. Nouméa 100% XPF 250 000 000

New Zealand CPW New Zealand 1) Auckland 50% NZD — Nestlé New Zealand Limited Auckland 100% NZD 300 000

Papua New Guinea Nestlé (PNG) Ltd Lae 100% PGK 11 850 000

148 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

Technical assistance, research and development units

Technical Assistance TA Research centres R Research & Development centres R&D Product Technology centres PTC

City of operations

Switzerland Nestec S.A. Vevey TA

Technical, scientific, commercial and business assistance company whose units, specialised in all areas of the business, supply permanent know-how and assistance to operating companies in the Group within the framework of licence and equivalent contracts. It is also responsible for all scientific research and technological development, which it undertakes itself or through affiliated companies. The units involved are:

Clinical Development Unit Lausanne R CPW R&D Centre 1) Orbe R&D Nestlé Institute of Health Sciences Ecublens R Nestlé Product Technology Centre Konolfingen PTC Nestlé Product Technology Centre Orbe PTC Nestlé R&D Centre Broc R&D Nestlé R&D Centre Orbe R&D Nestlé Research Centre Lausanne R Nestlé System Technology Centre Orbe PTC

Australia CPW R&D Centre 1) Rutherglen R&D

Chile Nestlé R&D Centre Santiago de Chile R&D

Côte d'Ivoire Nestlé R&D Centre Abidjan R&D

France Galderma R&D Centre Biot R&D Nestlé Product Technology Centre Beauvais PTC Nestlé Product Technology Centre Lisieux PTC Nestlé Product Technology Centre Vittel PTC Nestlé R&D Centre Aubigny R&D Nestlé R&D Centre Tours R&D

Germany Nestlé Product Technology Centre Singen PTC

Consolidated Financial Statements of the Nestlé Group 2014 149 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Companies of the Nestlé Group

City of operations

Greater China Region Nestlé R&D Centre Beijing R&D Nestlé R&D Centre Shanghai R&D

India Nestlé R&D Centre Gurgaon R&D

Israel Nestlé R&D Centre Sderot R&D

Italy Nestlé R&D Centre Sansepolcro R&D

Mexico Nestlé R&D Centre Queretaro R&D

Republic of Ireland Nestlé R&D Centre Askeaton R&D

Singapore Nestlé R&D Centre Singapore R&D

Sweden Galderma R&D Centre Uppsala R&D

United Kingdom Nestlé Product Technology Centre York PTC

United States Galderma R&D Centre Cranbury (New Jersey) R&D Nestlé Product Technology Centre Fremont (Michigan) PTC Nestlé Product Technology Centre Marysville (Ohio) PTC Nestlé Product Technology Centre St. Louis (Missouri) PTC Nestlé R&D Centre Bakersfield (California) R&D Nestlé R&D Centre Minneapolis (Minnesota) R&D Nestlé R&D Centre San Diego (California) R&D Nestlé R&D Centre Solon (Ohio) R&D Nestlé R&D Centre St. Joseph (Missouri) R&D Nestlé R&D Centre King of Prussia (Pennsylvania) R&D

150 Consolidated Financial Statements of the Nestlé Group 2014 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 148th Financial Statements of Nestlé S.A. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 153 Income statement for the year ended 31 December 2014

154 Balance sheet as at 31 December 2014

155 Notes to the annual accounts 155 1. Accounting policies 157 2. Income from Group companies  3 . Financial income 4. Profit on disposal of assets 5. Investment write-downs 6. Administration and other expenses 7. Financial expense 158 8. Taxes 9. Liquid assets 10. Receivables 11. Financial assets 12. Participations in Group companies 159 13. Loans to Group companies 14. Own shares 15. Intangible assets 160 16. Tangible fixed assets 17. Short-term payables 18. Long-term payables 19. Provisions 20. Share capital 161 21. Changes in equity 22. Reserve for own shares 162 23. Contingencies 2 4 . Risk assessment 163 25. Additional information

165 Proposed appropriation of profit

166 Report of the Statutory Auditor

152 148th Financial Statements of Nestlé S.A. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Income statement for the year ended 31 December 2014

In millions of CHF Notes 2014 2013 Income Income from Group companies 2 6 616 8 089 Financial income 3 305 208 Profit on disposal of assets 4 7 449 1 247 Other income 100 128 Total income 14 470 9 672

Expenses Investment write-downs 5 (2 200) (1 376) Administration and other expenses 6 (260) (249) Financial expense 7 (53) (52) Total expenses before taxes (2 513) (1 677)

Profit before taxes 11 957 7 995

Taxes 8 (457) (537) Profit for the year 21 11 500 7 458

148th Financial Statements of Nestlé S.A. 153 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Balance sheet as at 31 December 2014 before appropriations

In millions of CHF Notes 2014 2013 Assets

Current assets Liquid assets 9 2 221 2 709 Receivables 10 1 007 1 026 Prepayments and accrued income 11 7 Total current assets 3 239 3 742

Non-current assets Financial assets 11 47 867 41 620 Intangible assets 15 — 367 Tangible fixed assets 16 1 — Total non-current assets 47 868 41 987

Total assets 51 107 45 729

Liabilities and equity

Liabilities Short-term payables 17 4 199 4 045 Accruals and deferred income 6 11 Long-term payables 18 162 154 Provisions 19 1 335 751 Total liabilities 5 702 4 961

Equity Share capital 20/21 322 322 Legal reserves 21 5 364 3 818 Special reserve 21 27 683 29 165 Profit brought forward 21 536 5 Profit for the year 21 11 500 7 458 Total equity 45 405 40 768

Total liabilities and equity 51 107 45 729

154 148th Financial Statements of Nestlé S.A. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Notes to the annual accounts

1. Accounting policies Income statement Not currently transferable income is recognised only upon General receipt. Nestlé S.A. (the Company) is the ultimate holding company In accordance with Swiss law and the Company’s of the Nestlé Group which comprises subsidiaries, associated Articles of Association, dividends are treated as an companies and joint ventures throughout the world. The appropriation of profit in the year in which they are ratified accounts are prepared in accordance with accounting at the Annual General Meeting rather than as an principles required by Swiss law. They are prepared under appropriation of profit in the year to which they relate. the historical cost convention and on an accrual basis. Taxes Foreign currency translation This caption includes taxes on profit, capital and Transactions in foreign currencies are recorded at the rate of withholding taxes on transfers from Group companies. exchange at the date of the transaction or, if hedged forward, at the rate of exchange under the related forward contract. Financial assets Non-monetary assets and liabilities are carried at historical The carrying value of participations and loans comprises the rates. Monetary assets and liabilities in foreign currencies cost of investment, excluding the incidental costs of are translated at year-end rates. Any resulting exchange acquisition, less any write-downs. differences are included in the respective income statement Participations located in countries where the political, captions depending upon the nature of the underlying economic or monetary situation might be considered to transactions. The aggregate unrealised exchange difference carry a greater than normal level of risk are carried at is calculated by reference to original transaction date a nominal value of one franc. exchange rates and includes hedging transactions. Where Participations and loans are written down on this gives rise to a net loss, it is charged to the income a conservative basis, taking into account the profitability of statement whilst a net gain is deferred. the company concerned. Marketable securities are valued at the lower of cost and Hedging market value. The Company uses forward foreign exchange contracts, Own shares held to cover option rights in favour of options, financial futures and currency swaps to hedge members of the Group’s Management are carried at foreign currency flows and positions. Unrealised foreign exercise price if lower than cost. Own shares held for exchange differences on hedging instruments are matched trading purposes are carried at the lower of cost and market and accounted for with those on the underlying asset or value as are own shares earmarked to cover other Long- liability. Long-term loans, in foreign currencies, used to Term Incentive Plans. Own shares repurchased for the finance investments in participations are generally not Share Buy-Back Programme are carried at the lower of cost hedged. and market value. All gains and losses on own shares are The Company also uses interest rate swaps to manage recorded in the income statement. interest rate risk. The swaps are accounted for at fair value at each balance sheet date and changes in the market value are recorded in the income statement.

148th Financial Statements of Nestlé S.A. 155 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 1. Accounting policies

Intangible assets Accruals and deferred income Trademarks and other industrial property rights are written Accruals and deferred income comprise expenses relating off on acquisition or exceptionally over a longer period, not to the current year which will not be paid until after the exceeding their useful lives. balance sheet date and income received in advance, relating to the following year. The negative fair values of Tangible fixed assets forward exchange contracts and interest rate swaps are also The Company owns land and buildings which have been included in this caption. depreciated in the past. Office furniture and equipment are fully depreciated on acquisition.

Provisions Provisions include present obligations as well as contingencies. A provision for uninsured risks is constituted to cover general risks not insured with third parties, such as consequential loss. Provisions for Swiss taxes are made on the basis of the Company’s taxable capital, reserves and profit for the year. A general provision is maintained to cover possible foreign tax liabilities.

Employee benefits In Switzerland, Nestlé’s pension plan is a cash balance plan where contributions are expressed as a percentage of the pensionable salary. The pension plan guarantees the amount accrued on the members’ savings accounts, as well as a minimum interest on those savings accounts. At retirement date, the savings accounts are converted into pensions. However, members may opt to receive a part of the pension as a lump sum. Increases of pensions in payment are granted on a discretionary basis by the Board of Trustees, subject to the financial situation of the plan. To be noted that there is also a defined benefit plan that has been closed to new entrants in 2013 and whose members below age 55 have been transferred to the cash balance plan. This heritage plan is a hybrid between a cash balance plan and a plan based on a final pensionable salary.

Prepayments and accrued income Prepayments and accrued income are comprised of payments made in advance relating to the following year, and income relating to the current year which will not be received until after the balance sheet date (such as interest receivable on loans or deposits). The fair values of forward exchange contracts and interest rate swaps are also included in this caption.

156 148th Financial Statements of Nestlé S.A. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 2. Income from Group companies

This represents dividends of the current and prior years and other net income from Group companies.

3. Financial income

In millions of CHF 2014 2013 Net result on loans to Group companies 197 113 Other financial income 108 95 305 208

4. Profit on disposal of assets

This represents mainly the net gains realised on the sale of financial assets, trademarks and other industrial property rights previously written down. In 2014, the net gain of CHF 7181 million on the sale of L’Oréal shares is included.

5. Investment write-downs

In millions of CHF 2014 2013 Participations and loans 1 700 939 Trademarks and other industrial property rights 500 437 2 200 1 376

6. Administration and other expenses

In millions of CHF 2014 2013 Salaries and welfare expenses 106 114 Other expenses 154 135 260 249

7. Financial expense

In millions of CHF 2014 2013 Net result on loans from Group companies 52 52 Other financial expenses 1 — 53 52

148th Financial Statements of Nestlé S.A. 157 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 8. Taxes

This includes withholding taxes on income from foreign sources, as well as Swiss taxes for which adequate provisions have been established.

9. Liquid assets

In millions of CHF 2014 2013 Cash and cash equivalents 2 221 2 709 Marketable securities — — 2 221 2 709

Cash and cash equivalents include deposits with maturities of less than three months. Marketable securities consist of commercial paper with maturities from three to six months.

10. Receivables

In millions of CHF 2014 2013 Amounts owed by Group companies (current accounts) 955 963 Other receivables 52 63 1 007 1 026

11. Financial assets

In millions of CHF Notes 2014 2013 Participations in Group companies 12 31 390 30 297 Loans to Group companies 13 13 947 10 391 Own shares 14 2 487 932 Other investments 43 — 47 867 41 620

12. Participations in Group companies

In millions of CHF 2014 2013 At 1 January 30 297 28 617 Net increase/(decrease) 1 643 1 971 Write-downs (550) (291) At 31 December 31 390 30 297

158 148th Financial Statements of Nestlé S.A. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 12. Participations in Group companies

The carrying value of participations continues to represent a conservative valuation having regard to both the income received by the Company and the net assets of the Group companies concerned. A list of the most important companies held, either directly by Nestlé S.A. or indirectly through other Group companies, with the percentage of the capital controlled is given in the Consolidated Financial Statements of the Nestlé Group.

13. Loans to Group companies

In millions of CHF 2014 2013 At 1 January 10 391 11 574 New loans 5 932 1 638 Repayments and write-downs (2 996) (2 625) Realised exchange differences 12 (70) Unrealised exchange differences 608 (126) At 31 December 13 947 10 391

Loans granted to Group companies are usually long-term to finance investments in participations.

14. Own shares

In millions of CHF 2014 2013 Number Amount Number Amount Share Buy-Back Programme 23 742 030 1 645 — — Management Stock Option Plan 4 838 725 247 6 768 355 335 Restricted Stock Unit Plan 5 098 060 311 8 259 480 481 Performance Share Unit Plan 3 016 551 184 403 945 23 Future Long-Term Incentive Plans 1 642 952 100 1 603 644 93 38 338 318 2 487 17 035 424 932

During the year 23 742 030 shares were purchased as part of the Share Buy-Back Programme for CHF 1645 million.

The Company held 4 838 725 shares to cover management option rights and 9 757 563 shares to cover the other incentive plans. The Management Stock Option Plan is valued at strike price if lower than acquisition cost, while the shares held for the other plans are valued at acquisition cost. During the year 5 241 243 shares were delivered as part of the Nestlé Group remuneration plans for a total value of CHF 280 million.

15. Intangible assets

In 2013 this amount represents the balance of the trademarks and other industrial property rights capitalised in relation with the acquisition of Kraft Foods’ frozen pizza business.

148th Financial Statements of Nestlé S.A. 159 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 16. Tangible fixed assets

These are principally the land and buildings at Cham. The “En Bergère” head office building in Vevey is held by a service company, which is wholly owned by Nestlé S.A. The fire insurance value of buildings, furniture and office equipment at 31 December 2014 amounted to CHF 9.5 million (2013: CHF 9.5 million).

17. Short-term payables

In millions of CHF 2014 2013 Amounts owed to Group companies 4 010 3 992 Other payables 189 53 4 199 4 045

18. Long-term payables

Amounts owed to Group companies represent a long-term loan issued in 1989.

19. Provisions

In millions of CHF 2014 2013

Swiss and Uninsured Exchange foreign risks risks taxes Other Total Total At 1 January 475 — 169 107 751 711 Provisions made in the period — 550 163 56 769 188 Amounts used — — (79) (37) (116) (128) Unused amounts reversed — — (64) (5) (69) (20) At 31 December 475 550 189 121 1 335 751

20. Share capital

In millions of CHF 2014 2013 Number of registered shares of nominal value CHF 0.10 each 3 224 800 000 3 224 800 000 In millions of CHF 322 322

According to article 5 of the Company’s Articles of Association, no person or entity shall be registered with voting rights for more than 5% of the share capital as recorded in the commercial register. This limitation on registration also applies to persons who hold some or all of their shares through nominees pursuant to this article. In addition, article 11 provides that no person may exercise, directly or indirectly, voting rights, with respect to own shares or shares represented by proxy, in excess of 5% of the share capital as recorded in the commercial register. At 31 December 2014, the share register showed 151 489 registered shareholders. If unprocessed applications for registration, the indirect holders of shares under American Depositary Receipts and the beneficial owners of shareholders registered as nominees

160 148th Financial Statements of Nestlé S.A. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 20. Share capital

are also taken into account, the total number of shareholders probably exceeds 250 000. The Company was not aware of any shareholder holding, directly or indirectly, 5% or more of the share capital. Group companies were holding together 1.7% of the Nestlé S.A. share capital as at 31 December 2014.

Conditional share capital According to the Articles of Association, the share capital may be increased in an amount not to exceed CHF 10 000 000 (ten million Swiss francs) by issuing up to 100 000 000 registered shares with a nominal value of CHF 0.10 each, which shall be fully paid up, through the exercise of conversion rights and/or option rights granted in connection with the issuance by Nestlé S.A. or one of its subsidiaries of newly or already issued convertible debentures, debentures with option rights or other financial market instruments. Concerning the share capital in general, refer also to the Corporate Governance Report.

21. Changes in equity

In millions of CHF

Reserve Share General for own Special Retained capital reserve (a) shares (a)(b) reserve earnings Total At 1 January 2014 322 1 913 1 905 29 165 7 463 40 768 Profit for the year — — — — 11 500 11 500 Dividend for 2013 — — — — (6 863) (6 863) Movement of own shares — — 1 546 (1 546) — — Dividend on own shares held on the payment date of 2013 dividend — — — 64 (64) — At 31 December 2014 322 1 913 3 451 27 683 12 036 45 405

(a) The general reserve and the reserve for own shares constitute the legal reserves. (b) Refer to Note 22.

22. Reserve for own shares

At 31 December 2013, the reserve for own shares amounting to CHF 1905 million represented the cost of 17 035 424 shares earmarked to cover the Nestlé Group remuneration plans and 18 188 445 shares held for trading purposes. During the year, an additional 23 742 030 shares have been acquired at a cost of CHF 1645 million under the Share Buy-Back Programme. A total of 5 241 243 shares have been delivered to the beneficiaries of the Nestlé Group remuneration plans. In addition, 2 802 107 shares have been acquired at a cost of CHF 190 million, to cover Nestlé Group remuneration plans. 150 000 shares have been sold for a total amount of CHF 10 million. Another Group company holds 18 038 445 Nestlé S.A. shares. The total of own shares of 56 376 763 held by Group companies at 31 December 2014 represents 1.7% of the Nestlé S.A. share capital (35 223 869 own shares held at 31 December 2013, representing 1.1% of the Nestlé S.A. share capital).

148th Financial Statements of Nestlé S.A. 161 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 23. Contingencies

At 31 December 2014, the total of the guarantees mainly for credit facilities granted to Group companies and commercial paper programmes, together with the buy-back agreements relating to notes issued, amounted to CHF 19 177 million (2013: CHF 20 272 million).

24. Risk assessment

Nestlé Management considers that the risks for Nestlé S.A. are the same as the ones identified at Group level, as the holding is an ultimate aggregation of all the entities of the Group. Therefore, we refer to the Nestlé Group Enterprise Risk Management Framework (ERM) described in Note 22 of the Consolidated Financial Statements.

162 148th Financial Statements of Nestlé S.A. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 25. Additional information requested by the Swiss Code of Obligations on remuneration

Shares and stock options ownership of the non-executive members of the Board of Directors and closely related parties as at 31 December 2014

Number of Number of shares held (a) options held (b) Peter Brabeck-Letmathe, Chairman 3 059 108 1 137 600 Andreas Koopmann, 1st Vice Chairman 88 144 — Rolf Hänggi, 2nd Vice Chairman 87 627 — Beat Hess 28 508 — Daniel Borel 234 363 — Steven G. Hoch 199 153 — Naïna Lal Kidwai 21 687 — Titia de Lange 12 165 — Jean-Pierre Roth 12 352 — Ann M. Veneman 10 396 — Henri de Castries 9 161 — Eva Cheng 4 974 — Total as at 31 December 2014 3 767 638 1 137 600

Total as at 31 December 2013 4 922 269 1 707 600

(a) Including shares subject to a three-year blocking period. (b) The ratio is one option for one Nestlé S.A. share.

148th Financial Statements of Nestlé S.A. 163 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d 25. Additional information requested by the Swiss Code of Obligations on remuneration

Shares and stock options ownership of the members of the Executive Board and closely related parties as at 31 December 2014

Number of Number of shares options held (a) held (b) Paul Bulcke 637 173 1 392 000 Luis Cantarell 118 510 260 500 José Lopez 80 791 120 100 Laurent Freixe 55 761 108 700 Chris Johnson 30 298 125 400 Patrice Bula 87 051 101 800 Doreswamy (Nandu) Nandkishore 62 381 170 200 Wan Ling Martello 43 937 121 100 Stefan Catsicas — — Marco Settembri 9 120 — Peter R. Vogt 26 201 — Martial Rolland 23 632 — Heiko Schipper 4 240 — David P. Frick 48 828 — Total as at 31 December 2014 1 227 923 2 399 800

Total as at 31 December 2013 1 043 026 3 165 550

(a) Including shares subject to a three-year blocking period. (b) The ratio is one option for one Nestlé S.A. share.

For the detailed disclosures regarding the remunerations of the Board of Directors and the Executive Board that are required by Swiss law, refer to the Compensation report of Nestlé S.A. with the audited sections highlighted with a blue bar.

164 148th Financial Statements of Nestlé S.A. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Proposed appropriation of profit

In CHF 2014 2013 Retained earnings Balance brought forward 536 179 231 4 757 545 Profit for the year 11 500 096 775 7 457 959 285 12 036 276 006 7 462 716 830

We propose the following appropriations: Dividend for 2014, CHF 2.20 per share on 3 199 349 195 shares (a) (2013: CHF 2.15 on 3 221 645 395 shares) (b) 7 038 568 229 6 926 537 599 7 038 568 229 6 926 537 599

Balance to be carried forward 4 997 707 777 536 179 231

(a) Depending on the number of shares issued as of the last trading day with entitlement to receive the dividend (17 April 2015). No dividend is paid on own shares held by the Nestlé Group. The respective amount will be attributed to the special reserve. (b) The amount of CHF 63 565 399, representing the dividend on 29 565 302 own shares held at the date of the dividend payment, has been transferred to the special reserve.

Provided that the proposal of the Board of Directors is approved by the Annual General Meeting, the gross dividend will amount to CHF 2.20 per share, representing a net amount of CHF 1.43 per share after payment of the Swiss withholding tax of 35%. The last trading day with entitlement to receive the dividend is 17 April 2015. The shares will be traded ex-dividend as of 20 April 2015. The net dividend will be payable as from 22 April 2015.

The Board of Directors

Cham and Vevey, 18 February 2015

148th Financial Statements of Nestlé S.A. 165 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Report of the Statutory Auditor to the General Meeting of Nestlé S.A.

As statutory auditor, we have audited the financial statements (income statement, balance sheet and notes to the annual accounts on pages 153 to 165) of Nestlé S.A. for the year ended 31 December 2014.

Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the Company’s Articles of Association. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements for the year ended 31 December 2014 comply with Swiss law and the Company’s Articles of Association.

166 148th Financial Statements of Nestlé S.A. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Report of the Statutory auditor

Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the Company’s Articles of Association. We recommend that the financial statements submitted to you be approved.

KPMG SA

Scott Cormack Fabien Lussu Licensed Audit Expert Licensed Audit Expert Auditor in charge

Geneva, 18 February 2015

148th Financial Statements of Nestlé S.A. 167 WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d Notes

168 148th Financial Statements of Nestlé S.A. WorldReginfo - 68ed554f-28d9-4324-8391-2c1c9224160d