Beating the benchmark Peter Brabeck Chairman & Chief Executive Officer 11 January 2007 Bellevue meets management seminar January 2007
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 Bellevue meets management seminar January 2007
Agenda Ä Introduction strategy and the Nestlé Model Ä 2006 in review and 2007 previewed Ä Nutrition, Health and Wellness no longer a vision; becoming a reality Ä Conclusion 3 Bellevue meets management seminar January 2007
Nestlé's transformational strategy Strategic Transformation From traditional businesses into a Nutrition, Health and Wellness company Organisational Transformation Create an agile fleet of businesses/markets Focus on profitable growth Leverage scale Tackle under-performers 4 Bellevue meets management seminar January 2007
The Nestlé Model The delivery of 5-6% organic growth, combined with sustainable increase in EBIT margin, driving an improving Return on Invested Capital 5 Bellevue meets management seminar January 2007
2006 in review and 2007 previewed 6 Bellevue meets management seminar January 2007
2006 in review To be another year of record results, achieving the Nestlé Model, led by Food and Beverage 39% increase in cash returned to shareholders Savings programmes on track CHF 1.2 billion Focus on profitable growth - GLOBE and shared services Accelerating transformation to Nutrition, Health and Wellness Uncle Toby's, Jenny Craig, Novartis Healthcare Nutrition Addressing underperformers divestitures 7 Bellevue meets management seminar January 2007
Divestitures Disposal of Trinks in Germany (2004) Disposal of Eismann in Europe (2004) Disposal of Perrier bottle making (2006) Disposal of Japanese vending (2006) Agreement with Lactalis for the Chilled dairy activities in Europe (2005 / 2006) Disposal of Vlachas in Greece (Dairy in 2006) Disposal of Schöller Private Label business in Germany (announced Sep 2006) 8 Bellevue meets management seminar January 2007
2007 previewed - strategic Accelerating transformation to Nutrition, Health and Wellness - Integrating Novartis Healthcare Nutrition - Driving 60/40+, Branded Active Benefits - The Nutritional Compass Bigger, better bolder innovation 9 Bellevue meets management seminar January 2007
2007 previewed - organisation Reorganisation of R&D, operations & supply chain now under separate leadership New FoodServices structure in place increased focus GLOBE focus now on leveraging the benefits: - Business benefits through best practices - Decision Support as a competitive advantage - Organisational Transformation to manage complexity with efficiency Shared services to accelerate first benefits 10 Bellevue meets management seminar January 2007
2007 previewed - financial Expecting to deliver the Nestlé Model, led by F&B - Drive simplicity across the F&B businesses E.g. SKUs, structures, reporting - Leverage scale for competitive advantage E.g. GLOBE, GNBS, shared services, procurement - Tackle underperformers: Invest phase, core, non-core - Increase discipline/ execution in all we do E.g. Working capital, dynamic forecast, real time data, project tracking 11 Bellevue meets management seminar January 2007
Consistent track record to continue The Four Factors of Group Sales 1996-2005 % Growth 15% 10 years average 10% 5% 0% 1.0% 2.3% 3.4% -1.4% OG 5.7% -5% OG: Organic Growth -10% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 RIG Pricing & Other Acquisitions/Divestitures FX Impact Not restated; in 2001: including TTS effect 12 Bellevue meets management seminar January 2007
mio CHF 13'000 12'000 11'000 10'000 9'000 8'000 7'000 6'000 5'000 4'000 3'000 2'000 1'000 Consistent track record to continue EBIT (mio CHF) 14'000 0 10.2% Sustainable improvement in EBIT 10.3% 10.3% 11.1% 11.8% 11.8% 12.3% 12.5% 12.7% 13.0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2005 & 2004 restated - New NPS definition in 2001 % of Sales 13 Bellevue meets management seminar January 2007 13.5% 13.0% 12.5% 12.0% 11.5% 11.0% 10.5% 10.0% 9.5% 9.0%
Nutrition, Health and Wellness 14 Bellevue meets management seminar January 2007
Attractive food market dynamics $ 500 Manufacturing value-added in food purchased actual US$, per capita Nestlé per capita sales $ 300 Convenience Nutrition WellBeing Sustenance Pleasure and diversity Health and wellness $ 100 Per-capita income (PPP) US$ 4,000 US$ 13,000 US$ 22,000 US$ 28,000 15 Bellevue meets management seminar January 2007
Attractive market Health & wellness An opportunity for enhanced value creation 10-year TSR 08/95 = 100 ) 700 600 Health 500 400 Wellness 300 200 Food & Beverages 100 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: MA Analysis 16 Bellevue meets management seminar January 2007
Health, Nutrition & Wellness at Nestlé Drive the Nutrition, Health & Wellness orientation across Food & Beverage Strengthen our leadership position in the core nutrition business Corporate Wellness Unit Nestlé Nutrition Company 17 Bellevue meets management seminar January 2007
Nestlé Nutrition Infant Nutrition Weight Management HealthCare Nutrition Performance Nutrition 2005 Objectives 2005 Sales (CHF billion) 5.2 10% OG 2005 EBIT margin 17.6% 20% 18 Bellevue meets management seminar January 2007
Nestlé Nutrition transformed in 2006 19 Bellevue meets management seminar January 2007
Nestlé Nutrition transformed in 2006 Novartis Medical Nutrition Boost ReSource Optifast NovaSource IsoSource Vivonex Peptinex Impact Compleat 20 Bellevue meets management seminar January 2007
A Winning Combination Creates No. 2 global player in Healthcare Nutrition Strengthens our position in the U.S. and Europe Creates a stronger foothold in Rest of World Larger organization, broader product range, faster speed to market Strong and experienced management team Increased R&D capability Complementary core competencies (Nestlé nutrition science and food technology, Novartis Pharma heritage) Increased access to Key Opinion Leaders (KOLs) and medical organisations 21 Bellevue meets management seminar January 2007
A Winning Combination Broader product portfolio of strong brands supported by clinical data Full range of general and disease-specific products: Diabetes, Oncology, Critical care / Gastro-intestinal, Geriatric care Increased presence in attractive retail channels U.S. retail with Boost brand Europe and Rest of World Retail pharmacies Significant step up in scale delivering benefits across R&D, product portfolio, commercial organisation and access to distribution channels 22 Bellevue meets management seminar January 2007
Enhanced R&D Profile Nutrition science Food technology excellence (taste, texture, sensory) Consumer-centric approach Pharma heritage Health economics data Regulatory competences Clinical trial design Access to Key Opinion Leaders Pipeline Complementary competencies will result in better innovations, brought to market faster, globally 23 Bellevue meets management seminar January 2007
Nestlé acquisition criteria To be category No.1 or strong No.2 Generate value for shareholders Focused approach on value-added growth categories Strong brands in leadership positions RIG, cash flow and earnings enhancing High degree of certainty of successful integration Maintain strong credit ratings and financial flexibility Novartis MN acquisition meets these criteria 24 Bellevue meets management seminar January 2007
Conclusion 25 Bellevue meets management seminar January 2007
Nestlé has delivered in the past... Over 10-year period, Nestlé's TSR position # 2. 1 Year 3 Years 5 Years 10 Years Danone 32.4 87.1 83.3 399.2 Nestlé 12.8 50.2 36.7 260.7 Cadbury Schweppes 2.1 44.5 44.3 193.8 Procter & Gamble 13.4 36.5 80.4 187.4 Hershey -8.1 36.4 61.2 172.1 General Mills 19.9 37.5 25.6 137.4 Unilever 12.7 35.0 12.6 134.7 Heinz 37.9 36.0 44.2 94.4 Campbell 33.4 55.4 47.4 28.0 Coca Cola 23.1 2.6 14.5 8.5 Kraft 30.5 20.2 18.0 n.a. Source: Bloomberg 26 Bellevue meets management seminar January 2007
... and remains rich with opportunity Strategic transformation Brands & Innovation Ä Generating sales growth Ä Growing market shares Ä Enhancing mix Ä Improving F&B margin Organisational transformation Scale & Structure Ä Driving focus & discipline Ä Tackling underperformers Ä Improving F&B margin Ä Improving working cap/fixed asset turns Ä Increasing capital efficiencies & returns 27 Bellevue meets management seminar January 2007
Conclusion Transformation to Nutrition, Health and Wellness is accelerating Organisational transformation is freeing up our markets to focus on profitable growth Nestlé Food, Beverage & Nutrition will be the key drivers of the Nestlé Model Nestlé is opportunity-rich: innovation for growth and mix; scale for growth and efficiencies 28 Bellevue meets management seminar January 2007
Beating the benchmark Peter Brabeck Chairman & Chief Executive Officer 11 January 2007 Bellevue meets management seminar January 2007