Nestlé in Europe Creating shared value

© September 2007, Nestlé S.A.,Public Affairs

Nestlé S.A.Avenue Nestlé 551800 VeveySwitzerland

Nestlé on the web:

www.nestle.com

Corporate responsibilitywww.nestle.com/SharedValueCSR

Nestlé Water Reportwww.water.nestle.com Nestlé in the Communitywww.community.nestle.com Nestlé Research Centerwww.research.nestle.com SAI Platformwww.saiplatform.org Nestlé Nutrition Institutewww.nestlenutrition-institute.org

Writing and editingNestlé S.A., Public Affairs

DesignNestec Ltd, Corporate Identity & Design, with Esterson Associates

PhotographyNicole Bachmann,Markus Bühler-Rasom,Peter Ginter,Marcel Grubenmann,Harmen Hoogland,Marion Nitsch,Philippe Prêtre,Véronique Vial,Christian Vogt,Cédric Widmer,Nestlé

PrintingEntreprise d’arts graphiquesJean Genoud S.A.

Cert no. SQS-COC-100125

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While corporate social responsibility and sustainability represent a set of useful principles and practices, we believe that the true test of a business is whether it creates value for society over the long term

The Nestlé Concept of Corporate Social Responsibility

This report, Nestlé in Europe, provides a summary of how Nestlé strives to manage its business in a responsible and sustainable way throughout Europe. It includes overviews of our commitment to healthier nutrition and food safety; employee training and development; the environment; agriculture and trade. Since Nestlé was founded in 1867 we have sought to build a business based on sound human values and principles. To us, corporate social responsibility is not something that is imposed from outside but an inherent part of our business. At Nestlé we believe that our business can only bring long-term value to shareholders if it also brings value to society. This interdependence between business and society is for us an important aspect of competitiveness. It also demonstrates the unique capacity of business to create shared value. We believe that creating social and environmental benefit will bring competitive advantage to Nestlé – enhancing the quality of our products, strengthening local communities and producers that act as our suppliers, decreasing costs of operations and reinforcing employee satisfaction. It will also build a context for business growth e.g. through the creation of a wider market for healthy and nutritious food products. In short, Nestlé aims to strengthen and add value

to every part of the supply chain: agriculture and sourcing; manufacturing and distribution; to our products and, in particular, to our consumers. Our day-to-day work is guided by a detailed code of behaviour, the Nestlé Corporate Business Principles. Translated into more than 40 languages, these business principles are publicly available and provide a clear set of guidelines. While these principles continue to evolve and adapt to a changing world our basic foundation remains unchanged, and reflects the ideas of fairness, honesty, and a general concern for people. Our compliance with these principles is regularly audited by internal and external experts. Being the largest food and nutrition company in Europe, we recognise that our stakeholders have a genuine interest in learning about Nestlé and our company’s activities beyond our products. We have therefore developed this brief document which is complemented by a series of more detailed Fact Sheets on different issues. Last – but not least – we are as interested in listening to how we can improve our performance as we are in sharing our expertise.

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Better diets and healthier lifestyles

We create sustainable, long-term value by meeting consumer demands for healthy, nutritious, tasty, high quality food and drink products that they know and can trust. We also invest time and resources into different programmes to encourage and develop understanding of the importance of eating a balanced diet and maintaining an active lifestyle. Our active involvement in the EU Platform for Action on Diet, Physical Activity and Health is another example of our drive for greater nutrition and health for the people of Europe and beyond.

Innovating for health and wellnessDeveloping ever healthier and more nutritious food is at the core of our business strategy and our commitment to consumers. In 2006 Nestlé invested EUR 1.1 billion globally in R&D, of which 60% is dedicated to the areas of Nutrition, Health and Wellness. Under the leadership of Europe’s, and indeed the world’s largest food research centre – the Nestlé Research Center in Lausanne – the focus of our scientists is on developing new products that combine great taste with nutritional benefits to meet the increasingly personalized nutrition needs of consumers. Close to 300 Application Groups globally are based in Nestlé factories supplementing this R&D process at local level. In addition, we reformulate hundreds of products each year, by reducing sugar, fat and salt levels, improving levels of wholegrain and adding valuable micronutrients – all in an effort to make our products as healthy as possible.

Communicating with consumersNestlé believes in empowering consumers to make healthier choices through transparent product information and responsible communication. We have developed the Nestlé Nutritional Compass aimed at providing comprehensive, clear, easy-to-understand nutrition information on all of our products to guide and encourage consumers in their nutrition, health and wellness journey on a daily basis. In addition we provide energy information (calories) on front of pack. All our communication with consumers is guided by the Nestlé Consumer Communication Principles which help to ensure that we act responsibly, particularly in relation to children.

Promoting healthy lifestylesNestlé’s commitment to consumers goes beyond making quality products. As well as investing heavily in collaborative nutrition research with leading academic and health institutions, we initiate and participate in physical activity and nutrition awareness programmes across Europe. Currently more than 35 European projects ensure our support of the public policy agenda by promoting active lifestyles and improving dietary habits across all age groups. Hundreds of thousands of children have already participated in these Nestlé education programmes.

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• In 2006, Nestlé invested EUR 1.1 billion globally in R&D

• More than 90% of Nestlé products provide nutrition guidance on their labels

• Since 2000, Nestlé education programmes have reached more than 550 000 children in Europe

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Product quality and safety

Nestlé’s most important commitment to consumers is that they know – no matter what country they are in – they can trust the quality and safety of any product bearing our brand. The Nestlé corporate logo, at the very heart of our Nutritional Compass on packaging, underlines the compliance of all our products to very high quality and safety standards. We rigorously monitor standards throughout the supply chain, from “farm to fork”.

Food safety based on science and researchDedicated teams of scientists applying the latest available science and know-how are at the heart of our efforts to ensure the quality and safety of our products. Based at 14 Research and Development locations in Europe and another 12 throughout the world, they build safety and quality into the design of the products. The Nestlé Research Center also develops advanced analytical methods that enable our laboratories and factories across Europe and beyond to effectively control the quality of ingredients and finished products in their day-to-day operations. Our commitment to providing the consumer with safe products, however, goes beyond our own operations. Nestlé is actively involved with various international and European food-related authorities and organisations to develop food safety policies and tools.

Safe raw materials and sourcingTo ensure the quality of our sourced agricultural material, Nestlé provides extensive technical assistance to farmers, not at least in developing countries, promoting farming methods that minimise the risk of contamination in raw materials and helping to build effective traceability systems. Whatever their origin, raw materials used in our factories are rigorously tested along the supply chain to confirm that the quality specifications developed by our scientists are being met.

Safe manufacturing and sound quality managementOur raw materials are processed in accordance with the Nestlé Quality Management System (NQMS) which sets mandatory standards and recommended tools for quality assurance in manufacturing in line with recognised international quality standards, in addition to local legislation. The compliance of all our units with this System is regularly verified by an independent Quality Audit Group which evaluates their performance based on clearly defined criteria. Continuous training through structured programmes is provided to Nestlé employees. This is to ensure that they understand their role in ensuring compliance with quality and safety standards and have the skills and competences required to fulfil their responsibilities.

• More than 265 scientists and specialists in Nestlé’s R&D facilities focus on food safety and quality

• Nestlé provides technical assistance to more than 500 000 farmers globally and in Europe

• About 12 000 people are working for quality and food safety in Nestlé factories around Europe, supported by more than 1200 local food safety specialists

Peoplemanagement

The key difference between a good company and an excellent company is the quality and dedication of the people who work there. Nestlé places the highest priority in developing and caring for our employees. The employment practices, standards, training, development and levels of financial and job security we offer reflect this belief. This is vital for maintaining our competitiveness in an ever challenging global economy.

Developing our peoplePeople development is the driving force behind our Human Resources Policy. Continuous training programmes are offered at all levels to our 80 000 European employees. A total of EUR 23.5 million was invested in training during 2006. Our yearly career and succession counselling further supports the development of our people. We consider these activities to be one of the main reasons for our low annual employee turnover rate which is only about 1.5% for our main European markets.

Committed to equal opportunities and diversityWe draw great strength from the diversity of our workforce. Throughout Europe, we establish clear practices to offer successful employment and career opportunities irrespective of nationality, religion, gender or age. An audit programme is in place in all our markets to verify that our operations comply with our Leadership and Management Principles as well as with our progressive Corporate Business Principles in areas such as human resources, safety and health at the work place.

Responsible adaptation of business and social dialogueThe best guarantee to stay competitive is to innovate and adapt to a changing environment. In some cases this means restructuring production activities. Nestlé takes a long-term approach to the continuous adaptation of our business with the aim of avoiding adverse effects on employees. Should restructuring be needed we prefer to sell a factory, or even create a partnership with another company. Other alternatives are to offer the opportunity to transfer, find and prepare for new jobs, provide severance pay and early-retirement packages. For Nestlé it has always been important to maintain a positive relationship with our social partners. We ensure constructive and regular dialogue at all levels, and for decades management and employee representatives, together with the European regional organisation of the food workers union (IUF/EFFAT), have met several times a year for discussion.

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• In 2006, Nestlé invested EUR 23.5 million in personnel training

• In 2006, 240 managers transferred to another Nestlé Market or to Headquarters – more than one person per working day

• Local management of the regular employee consultation process is key, in addition to the social dialogue at European level

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Environment and sustainable development

Nestlé supports sustainable development and is committed to environmentally sound business practices throughout the world. To fulfil this commitment, we strive to improve our environmental performance continually by integrating environmental principles, programmes and practices in each business. These are laid down in the Nestlé Environmental Management System (NEMS). The system is completely aligned with the ISO 14001 international standard against which many of our European factories are already certified and all will be in the near future. In order to improve our environmental performance further, we seek an open dialogue with suppliers, staff, customers, consumers, and the community on our products and activities.

Responsible water useAs the leading food and beverage company, responsible use and conservation of water are a top priority for Nestlé. We have stringent criteria which include regularly monitoring the water consumption of our factories and finding ways to optimise water use, to meet water saving targets. As a result, water consumption per tonne of product has been reduced substantially over the years. In the spring of 2007, Nestlé published a report about water management, which contains many examples of how we reduce water usage throughout our supply chain.

Saving natural resources and packaging and recovering by-productsWe have successfully decoupled Nestlé’s growth of production volume from the consumption of natural resources, with overall energy consumption remaining constant. Furthermore, by-products generated from our manufacturing operations are recovered for further use, either as material for recycling, compost, or as an energy source. At the same time, the very small quantity of final waste continues to decrease.

Leading in emission reduction and natural refrigerantsNestlé has played a leadership role in reducing greenhouse gas emissions in its operations. Furthermore, we have developed and implemented sustainable alternatives to ozone depleting substances for large scale industrial refrigeration, well ahead of the requirements imposed by the Montreal Protocol. We are now extending our experience to smaller point-of-sale refrigeration units and are testing ice-cream freezers using natural refrigerants, having a negligible impact on the environment, and being also inherently safe.

• Since 2004, Nestlé has decreased its water consumption per tonne of product by 22%

• Since 2004, Nestlé has produced 52% less waste (for disposal) per tonne of product

• Since 2004, Nestlé has reduced its greenhouse gas emission per tonne of product by 13%

Agriculture and trade

Given Nestlé’s focus on food safety, nutritional value, and consumer satisfaction, we are committed to purchasing high-quality agricultural goods produced in a sustainable way. Even though we do not own any agricultural land, Nestlé’s approach has been to improve the farming methods and living standards of millions of farmers, through technical assistance, support of trade liberalisation and active participation in discussions on pressing issues such as water usage and governance.

Providing technical assistance to farmersWith the aim of improving the quality and efficiency of agricultural production, over 800 agronomists and field technicians provide free agricultural extension services to over 500 000 farmers world-wide, under the umbrella of Nestlé Agricultural Services. In addition – together with Danone and Unilever – Nestlé founded the Sustainable Agriculture Initiative (SAI) which supports the development of sustainable agricultural practices through the elaboration of good practice guidelines.

Advocating freer trade in agricultureNestlé has been speaking up in favour of reducing trade-distorting subsidies for many years. At the moment we are living with a global trading system with forms of hidden protectionism, including undue tariff barriers, cumbersome customs procedures and trade distorting subsidies. This creates an environment that is neither free nor fair. It disadvantages developing world producers, and consumers in the developed world. Small firms and farmers in the southern hemisphere need to have better access to global markets, and we will continue to press for change at an international level.

Participating in the water governance dialogueAgriculture is by far the largest single user of water and hence at the heart of concerns about overuse of scarce water resources. A large part of water overconsumption is driven by market distortions. As eating habits change, the world population grows and an increasing share of agricultural produce is being used for biofuels, the risk of a global water shortage within a couple of decades is rising. Conscious of this problem, Nestlé actively participates in the international discussion on water governance that supports more economical water usage. We also engage with agricultural suppliers on the ground to promote water conservation among farmers in Europe and beyond.

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• By reducing protection and subsidies to agriculture in the OECD countries, farmers in the developing world would benefit to the order of USD 25-50 billion

• More than 650 Nestlé agronomists provide free technical assistance to farmers globally and in Europe

• Of the total global freshwater withdrawal, Domestic counts for 10%, Industry for 20%, and Agriculture for 70%. Nestlé’s global withdrawal is 0.004%

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A selection of Nestlé brands in Europe

Nestlé is Europe’s – and the world’s – largest food company and we are well on our way to becoming the world leader in Nutrition, Health and Wellness. Our brand portfolio covers practically all food and beverage categories: milk and dairy products, nutrition (infant, healthcare, performance), ice cream, breakfast cereals, coffee and beverages, culinary products, chocolate and confectionery, bottled water and petcare

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Nestlé in Europe, 2006

EUR 22.2 billionSales

89 000Employees

168Factories

14R&D facilities

VeveyWorld headquarters, in Switzerland

Country Country office Number offactories**

Number ofR&D facilities

Austria Vienna 1 Azerbaijan Baku*Belarus Minsk Belgium Brussels 1 Bosnia & Herzegovina Sarajevo*Bulgaria Sofia 2 Croatia ZagrebCzech Republic Prague 2Denmark Copenhagen 1Estonia TallinnFinland Espoo 2 France Marne-la-Vallée 31 5Georgia & Armenia TbilisiGermany Frankfurt 24 1Great Britain Croydon 16 1Greece Maroussi 4 Hungary Budapest 4Ireland Dublin Italy Milan 22 2 Kazakhstan AlmatyKyrgyzstan Bishkek*Latvia Riga*Lithuania VilniusMacedonia Skopje*Malta LijaMoldova Chisinau* The Netherlands Diemen 4Norway Sandvika 1 Poland Warsaw 8Portugal Linda-a-Velha 6 Romania Bucharest 2Russia Moscow 9Serbia & Montenegro Belgrade 1 Slovak Republic Prievidza 1 Slovenia Ljubljana Spain Esplugas de Llobregat 15 Sweden Helsingborg 2Switzerland Vevey 7 5Tadjikistan DushanbeTurkmenistan Ashgabat*Ukraine Kyiv 2Uzbekistan Tashkent*

* Representative office** Pharmaceutical products excluded

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Nestlé in Europe Creating shared value

© September 2007, Nestlé S.A.,Public Affairs

Nestlé S.A.Avenue Nestlé 551800 VeveySwitzerland

Nestlé on the web:

www.nestle.com

Corporate responsibilitywww.nestle.com/SharedValueCSR

Nestlé Water Reportwww.water.nestle.com Nestlé in the Communitywww.community.nestle.com Nestlé Research Centerwww.research.nestle.com SAI Platformwww.saiplatform.org Nestlé Nutrition Institutewww.nestlenutrition-institute.org

Writing and editingNestlé S.A., Public Affairs

DesignNestec Ltd, Corporate Identity & Design, with Esterson Associates

PhotographyNicole Bachmann,Markus Bühler-Rasom,Peter Ginter,Marcel Grubenmann,Harmen Hoogland,Marion Nitsch,Philippe Prêtre,Véronique Vial,Christian Vogt,Cédric Widmer,Nestlé

PrintingEntreprise d’arts graphiquesJean Genoud S.A.

Cert no. SQS-COC-100125