2006 full year roadshow
2006 full year roadshow - February 2007 Name of chairman Disclaimer
This presentation contains forward looking statements which reflect Management’s current views and estimates. The forward looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward looking statements. Potential risks and uncertainties include such factors as general economic conditions, foreign exchange fluctuations, competitive product and pricing pressures and regulatory developments.
2 2006 full year roadshow - February 2007 Name of chairman Agenda
Paul Polman – 2006 update
€ 2006 Financial highlights € Strategic and operational transformation as drivers of 2006 performance
Peter Brabeck – longer term perspective
€ Strategic and operational transformation as drivers of longer term performance € The demographic opportunity € Popularly positioned products
3 2006 full year roadshow - February 2007 Name of chairman Paul Polman
2006 full year roadshow - February 2007 Name of chairman 2006 Highlights – all metrics improve
FY06 total Improvements FY 06 v 05
Sales – total + 8.1% + CHF 7.3 bio CHF 98.5 bio Organic growth + 6.2%
EBIT + 12% + CHF 1.4 bio CHF 13.3 bio EBIT margin + 50bps 13.5%
Net profit + 13.8% + CHF 1.1 bio CHF 9.2 bio Net profit margin + 40bps 9.3%
Working capital + 100 bps - CHF 1.0 bio 6.7% (% of sales)
Operating cash flow +14.4% + CHF 1.5 bio CHF 11.7 bio + 70 bps ROIC - before goodwill + 40 bps 21.2% - after goodwill + 30 bps 11.7%
5 2006 full year roadshow - February 2007 Name of chairman Food and Beverages Delivering the Nestlé Model
CHF 91.8 bio 5.9% CHF 11.2 bio 12.2% 4.2%
2006
Strong + 7.8% on-going + 11.2% +40bp growth
CHF 85.1 bio 6.0% CHF 10.0 bio 11.8% 3.8% 2005*
Sales RIG OG EBIT EBIT margin * Restated to be on comparable basis 6 2006 full year roadshow - February 2007 Name of chairman 2006 Highlights
€ Successful delivery of the Nestlé Model Food and Beverage the driver of growth and profitability Performance improves across all key metrics € Strategic brands drive growth "Billionaire" brands over 70% of F&B sales, with new members Nespresso, Dog Chow, Poland Spring, Nestlé Pure Life € Nutrition, health and wellness transformation Uncle Tobys, Jenny Craig, Novartis Medical Nutrition 60/40+, BABs, Nutritional Compass Divestitures of commoditised low value business € Organisational transformation Leverage GLOBE, accelerate shared services Profit responsibility pushed down the company Stand-alone Nestlé Nutrition and FoodServices
7 2006 full year roadshow - February 2007 Name of chairman "Billionaire Brands" deliver robust growth
Growth %
BABs
AV market growth
8 2006 full year roadshow - February 2007 Name of chairman Nestlé Waters High growth and margin improvement
Performance Highlights
Sales CHF: 9.6 bio • North America share gains driven by OG: 8.2% Poland Spring, Deer Park, Ozarka and Nestlé Pure Life Mkt share*: € • Nestlé Aquarel growth driver Europe • Panna and S.Pellegrino most successful international brands EBIT +60 bps • Efficiency projects, HOD and growth contribute to improved EBIT margin 8.7% 8.1%
0.7 bio 0.8 bio
2005 2006
* Billionaire Brands 9 2006 full year roadshow - February 2007 Name of chairman Nestlé Waters Growth drivers in 2007
€ North America CHF 100bio € Middle East & Turkey market € Mexico € Innovation & renovation in Europe and North America € Water +
10 2006 full year roadshow - February 2007 Name of chairman Powdered & Liquid Beverages Dynamic growth; strong innovation
Performance Highlights
Sales CHF: 16.3 bio • Mixes & premium drive strong Nescafé performance OG: 7.9% • Succesful launch of Nescafé Dolce Gusto Mkt share*: € • Nespresso grows 40% to over CHF 1 bio 35 boutiques opened in ’06 EBIT -30 bps • MILO: continuous good growth • Ready to drink near double digit growth in 22.4% Americas Nesquik, Juicy Juice 22.7%
3.4 bio 3.6 bio
2005 2006
* Billionaire Brands 11 2006 full year roadshow - February 2007 Name of chairman Powdered & Liquid Beverages Growth drivers in 2007
€ BRIC CHF 60bio € Dolce Gusto Market* € Nespresso – boutique openings € Nescafé 3-1; Cappuccino € Nesquik / Nescafé RTD € MILO - continued growth
*Coffee
12 2006 full year roadshow - February 2007 Name of chairman Nutrition: transition year to global business Move into Weight Management
Performance Highlights
Sales CHF: 6 bio • Growth up by 200 bps in H2 OG: 6.1% • Innovation in infant formula Mkt share: & cereals key drivers
• NAN HA & NAN probiotic roll-out at 85% EBIT -80 bps • Leader in 3 out of BRIC
• Successful Nestlé Nutrition set-up 16.9% 17.7% • Phasing of start-up costs • Jenny Craig 30% growth but EBIT impact
0.9 bio 1.0 bio
2005 2006
13 2006 full year roadshow - February 2007 Name of chairman Nutrition Growth drivers for 2007
€ Further roll-out of NAN HA & NAN probiotic to 95% € Innovation across Infant Formula Boost ReSource Optifast € PowerBar relaunch € Jenny Craig € Medical Nutrition integration NovaSource IsoSource Vivonex
CHF 100bio Peptinex Impact Compleat Market
14 2006 full year roadshow - February 2007 Name of chairman Dairy: Milk products build on success Ice cream improves
Performance Highlights
Sales CHF: 19.5 bio Milk products OG: 5.1% • Americas & AOA grew 8%+ on shelf stable Mkt share* (MP):€ • Key drivers: Nido, Ninho, Bear Brand, Focus on segmentation / value-add Mkt share* (IC): € • CoffeMate grew double digit - good consumer understanding and interaction EBIT +100 bps Ice cream 10.3% • Dreyer’s “Quality of sales” strategy improved margin 9.3% • Eskimo pie to strengthen impulse position • Successful product launches in Western 1.7 bio 2.0 bio Europe building on low fat and Dibs innovation • Balanced top and bottom line growth for ‘07
2005 2006
* Billionaire Brands 15 2006 full year roadshow - February 2007 Name of chairman Dairy and Ice cream Growth drivers 2007 Dairy € BRIC opportunity € Children 1-5 – Nido € Adult nutrition – Nesvita € CoffeeMate Ice cream € Super premium in Europe € Continued roll-out of LTF & extensions € Innovation in Impulse CHF 70bio Market*
*CHF 30 bio Core Shelf Stable; CHF 40 bio Ice cream 16 2006 full year roadshow - February 2007 Name of chairman Prepared dishes and cooking aids AOA and Americas deliver high growth
Performance Highlights
Sales CHF: 17.6 bio • Good growth in Frozen in North America OG: 4.8% and France (Davigel) Mkt share*: • Stouffer’s and Lean Cuisine star in US, € Panini launch exceeds $100mio
• Hot Pockets US growth poor but good EBIT +10 bps margin • Double digit growth in Culinary from Maggi 13.2% and local brands in AOA 13.1% • Buitoni performs well in Chilled in US and frozen pizza performs well in Europe
2.2 bio 2.3 bio
2005 2006
* Billionaire Brands 17 2006 full year roadshow - February 2007 Name of chairman Prepared dishes and cooking aids Growth drivers in 2007
€ Stouffer's, Lean Cuisine € Buitoni Chilled Culinary US € Maggi AOA € Wagner Germany € Hot Pockets acceleration
18 2006 full year roadshow - February 2007 Name of chairman Chocolate, confectionery and biscuits Success in many markets undone by two
Performance Highlights
Sales CHF: 11.4 bio • Kit Kat* grew 7% - trend to lighter snacks OG: 2.6% • Latin America, AOA & Eastern Europe strong Mkt share: • Western Europe focused on margins • UK “Magnificent 7” brands achieve share gains EBIT -10 bps • US market declined in '06 • Strong growth in Japan 11.6% 11.5% • Acquisition of Uncle Tobys and move into “Healthy snacking” • Nestlé #1 player in branded dark chocolate, 1.3 bio 1.3 bio high in antioxidants
2005 2006
* Billionaire Brands 19 2006 full year roadshow - February 2007 Name of chairman Chocolate, confectionery and biscuits Growth drivers in 2007
€ BRIC opportunity CHF 80bio € KitKat Market € Key local brands € Improvement in the UK
20 2006 full year roadshow - February 2007 Name of chairman PetCare Good growth and margin improvement
Performance Highlights
Sales CHF: 11.4 bio • Innovation in strategic premium and super premium brands drives profitable growth OG: 7.1 • Beneful sales up 44%: “Healthy” lines, Mkt share: € expansion in Europe & launch of prepared meals EBIT +60 bps • North America: Successful launch of “natural” and “fully organic” lines: ONE 15.1% Naturals, Dog & Cat Chow Naturals and Pro Plan Selects 14.5% • Europe: successful focus on super premium and premium products
• High growth on Gourmet, ProPlan, ONE, 1.5 bio 1.7 bio Darling and Beneful driven by innovation and growth in speciality and grocery channels
2005 2006
* Billionaire Brands 21 2006 full year roadshow - February 2007 Name of chairman PetCare Growth drivers in 2007
€ Premium and super premium brands CHF 50bio € European roll-outs of successful Market US initiatives € ONE into new markets € Hyper premium wet cat, Perle, Diamante € Continued development of ProPlan
22 2006 full year roadshow - February 2007 Name of chairman Improving performance of Nestlé F&B Finance Focus areas
€ Drive simplicity to capture scale
€ Tackle underperformers
€ Improve capital efficiency
€ All with discipline in execution
23 2006 full year roadshow - February 2007 Name of chairman Driving Simplicity, scale and Tackling underperformers
Simplicity 2006 2007
SKU optimisation -7% -10%
Legal Structures 20% of project target -10%
Scale
GLOBE 80% leverage Shared Services 30% 50% Operational Excellence CHF 1.2 bio CHF 1.2 bio
Underperformers
Reduce Value Destroyers sales over ongoing CHF 2 bio
Capital efficiency
Working capital -100bps further improvement
24 2006 full year roadshow - February 2007 Name of chairman Drive simplicity across the business SKU optimisation - Russia
Actions Results
140
• Cross-functional team 130 131 • Action plan against each 120 underperforming SKU 118 x e
d 110
• Defined responsibilities & timing n I • Hurdles rates for new SKUs 100 • Tracking results • Enabled by GLOBE 90 85 80 Current Portfolio New Portfolio (excluding natural Market growth)
EBIT Margin NPS/Sales # SKUs
Focus on core SKUs drives financial performance
25 2006 full year roadshow - February 2007 Name of chairman Shared Services Achieve critical mass and sustainability
2006 2007 2008 GNBS (Shared Services) implementation
Approx. Cumulative % F&B Sales supported by Nestlé Business Services; Financial and Employee Services approx. (insourced and outsourced) 80%
50%+
30%
Capturing our potential
26 2006 full year roadshow - February 2007 Name of chairman Tackle underperformers to strengthen core UK Confectionery
Total UK Confectionery SKUs Market share EBIT margin 40% -0.6%
Magnificent Seven
Media spend Share Gain
10% 0.5%
27 2006 full year roadshow - February 2007 Name of chairman Increase discipline/execution in all we do Working capital - Group
Key Actions...... driving results
• Establish common KPIs Cash Conversion Cycle* • Set reduction target s y
a 50 47
• Track monthly & benchmark D 40 • Share best practices & tools on 40
website 30
• Improve demand planning 20 • Optimise SKUs 10 • Enabled by GLOBE 0 2005 2006
*Cash conversion cycle = (AVG trade receivables/sales) x 365 + (AVG inventory/ COGS) x 365 - (AVG trade payables/ COGS) x 365
Focus and transparency drive results
*SCORE = Supply Chain Optimisation Review End-to-End 28 2006 full year roadshow - February 2007 Name of chairman Improving performance of Nestlé F&B Finance Focus areas
€ Drive simplicity to capture scale
€ Tackle underperformers
€ Improve capital efficiency
€ All with discipline in execution
Growth & efficiencies were the foundation of 2006 performance Raw material costs mean more to do in 2007
29 2006 full year roadshow - February 2007 Name of chairman Peter Brabeck-Letmathe
2006 full year roadshow - February 2007 Name of chairman Management changes aligned with strategic & organisational transformation
Strategic Organisational Transformation Transformation
To Nutrition, Health To flexible agile organisation, and Wellness leveraging scale
Drives longer term Drives shorter term structural operational performance performance
31 2006 full year roadshow - February 2007 Name of chairman Management changes aligned with strategic & organisational transformation
Strategic Organisational Transformation Transformation
To Nutrition, Health To flexible agile organisation, and Wellness leveraging scale
Werner Bauer José Lopez Chief Technology Officer Head of Operations Organisation
R&D, Innovation Sourcing, Manufacturing & Supply Chain, Acceleration Teams, Quality Management, Innovation Partnership Safety, Health & Environment, Management, Engineering & Operations Performance... Packaging & design...
32 2006 full year roadshow - February 2007 Name of chairman Demographics Focusing on the low and high ends Consumption of food manufacturing value-added $240 billion opportunity actual US$, per capita
Growth scenario Convenience (2005-15) + US$ 170bn Pleasure and 5.9% p.a. Sustenance diversity Nestlé per capita Growth scenario (2005-15) sales + US$ 70bn 6.9% p.a. PPP Per-capita income (PPP)
US$ 1,500 5,000 13,000 22,000 28,000 Sources: UNIDO (value-added), WIDER and World Bank; Nestlé F&C; analysis EIR
33 2006 full year roadshow - February 2007 Name of chairman Moving up the income bracket
An additional 1.5 billion people
7,000 People, mn > 28'000 + 355 849 + 199 494 286 6,000 235 443 22'000-28'000 295 175 + 133 522 PPP$ 5,000 389 940 + 885 1825 710 + 230 13'000-22'000 4,000 PPP$
+ 448 3,000 2153 2601 5'000-13'000 2354 PPP$
2,000 1500-5000 PPP$
1,000 1970 1653 1429 < 1500 PPP$ 0 1995 2005 2015
Sources: UN WIDER and World Bank (also for outlook on economic growth 2005-2015); analysis EIR
34 2006 full year roadshow - February 2007 Name of chairman Nutrition: High-value, high-growth CHF 100 billion market Market Nestlé Product category Estimated size Growth (%) presence (CHF bio) 1. Products for specific needs – Infant Nutrition 21 4-5 Yes – HealthCare Nutrition 12 6-7 Yes – Performance Nutrition 11 5-6 Yes – Weight Management * 54 8-10 Yes Dietary supplements 21 4 Limited Food & beverages 871 2-3 Yes (value-added)
* including non-foods such as fitness clubs 35 2006 full year roadshow - February 2007 Name of chairman Nestlé Nutrition
Infant Weight Nutrition Management
HealthCare Performance Nutrition Nutrition
36 2006 full year roadshow - February 2007 Name of chairman Jenny Craig Strong brand in weight management
• Established brand – launched in 1983 by founder Jenny Craig – key player in weight management • One-to-one solutions – products & services – 600+ branded centres – 2600 consultants • Regional presence – US, Canada & Puerto Rico – Australia & New Zealand
37 2006 full year roadshow - February 2007 Name of chairman Nestlé Nutrition + Novartis Medical Nutrition A Winning Combination
1. Creates No. 2 global player in Healthcare Nutrition
2. Increased R&D capability
3. Broader product portfolio of strong brands supported by clinical data
4. Increased presence in attractive retail channels
Significant step up in scale delivering benefits across R&D, product portfolio, commercial organisation and access to distribution channels
38 2006 full year roadshow - February 2007 Name of chairman The Food Service market: CHF 400 billion
Estimated Global Sales CHF 400 billion market (CHF bio. 2004)
6.5 • Big and growing opportunity CHF 2 trillion global consumer spend 4.0 5-7% growth in major operator segments 3.7 • Relevant market CHF 400 bio 3.7 80% in Food, 20% in Beverages 1.9 • Consumer trends drive growth 50% of US consumer F&B spend is out of home Total = 19.8 • Customer consolidation €3% of OOH Common menus and processes drive Global manufacturer relevant customised solutions Manufacturer Market
39 2006 full year roadshow - February 2007 Name of chairman Popularly Positioned Products:
winning the emerging consumer
A $70 billion opportunity
40 2006 full year roadshow - February 2007 Name of chairman USD 1,500 – USD 5,000 Popularly Positioned Products
Providing basic energy and nutrition needs and addressing significant micronutrient deficiencies Build brand loyalty early and enhance it as incomes rise
In many countries, the opportunity is over 50% of households
41 2006 full year roadshow - February 2007 Name of chairman Nestlé BEAR BRAND in the Philippines since 1976
The only affordable milk brand to address Filipino mothers’ no. 1 € health concern to strengthen the child’s resistance against illness through Vitamin C and Zinc fortification. € Affordable at Php 6.5 per serving, or 0.15 CHF Widely available in traditional neighborhood stores € 85% coverage - about 475,000 stores Proprietary manufacturing technology for lower capital € requirements € An active milk solid sourcing strategy for most cost effective € ingredients • A low cost, highly efficient operation to enable an affordable price € while still being margin enhancing
A consistent BEAR BRAND strategy over 30 years has enabled € penetration to 9.5 million Filipino households among lower socio economic classes
42 2006 full year roadshow - February 2007 Name of chairman Maggi Bouillon Central West Africa
Addresses micronutrient deficiencies with Iodine € fortification and offers a tastier alternative to salt
€ Individual cubes to meet daily affordability level
€ Local neighborhood women for direct marketing
65 million bouillon cubes sold per day with € 45% penetration of rural areas
43 2006 full year roadshow - February 2007 Name of chairman New factory in Feira de Santana
"Nestlé’s initiative is a concrete example of how to generate jobs and income to make this country a fairer place, a place where people have the right to work, study and buy affordable products.”
President of Brazil, Luiz Inácio Lula da Silva
44 2006 full year roadshow - February 2007 Name of chairman Group EBIT Margin over last 10 years Acceleration fuelled thanks to F&B improvements
14'000 EBIT (in mio CHF) EBIT (in % Sales)
12'000 13.5%
10'000 12.9% 12.6% 12.5% 12.3% 8'000
11.8% 11.8% 6'000
11.1% 4'000
10.2% 10.3% 10.3% 2'000
0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Figures correspond to published figures - not restated for accounting changes
45 2006 full year roadshow - February 2007 Name of chairman Consistent Top-Line Organic Growth for the past 10 Years
% Growth
15% 10 years average
10%
2.5% Acquisitions
5% 2.2% OG 3.6% 5.8%
0% -1.5% Divestitures -1.4% Forex
-5% OG: Organic Growth
-10% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
RIG Pricing & Other Acquisitions Divestitures FX Impact
46 2006 full year roadshow - February 2007 Name of chairman Production volume doubled in 10 years Environmental impacts down: waste water
200
150 x
e 100 d n I
50
0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Year
Production volume Greenhouse gases Waste water generation Energy consumption Water consumption
47 2006 full year roadshow - February 2007 Name of chairman Nestlé highly rated in sustainability indices
AAA rating (1st out of 47) from
Climate Leadership Index : 75
48 2006 full year roadshow - February 2007 Name of chairman We plan to deliver the Nestlé Model annually over the next 10 years
5-6% organic growth Sustainable improvement in EBIT Improving trend in Return on Invested Capital
49 2006 full year roadshow - February 2007 Name of chairman 2006 full year roadshow
2006 full year roadshow - February 2007 Name of chairman