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Annual Report2010
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Letter to our shareholders
Board o Directors o Nestl S.A.
Executive Board o Nestl S.A.
Creating value or society
UN Global Compact Communication on Progress
The Nestl Roadmap to Good Food, Good Life
Competitive advantages
Growth driversOperational pillars
Financial review
Principal key fgures (illustrative)
Overview
Management responsibilities: Food and Beverages
Leading positions in dynamic categories
Geographic data: people, actories and sales
Corporate Governance and Compliance
Creating Shared Value Key Perormance Indicators
Shareholder inormation
Table of contents 2
6
7
8
10
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27
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40
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44
46
48
Our objective is to be therecognised leader in Nutrition,Health and Wellness and theindustry reerence or fnancialperormance
The brands in italics are registered trademarks
o the Nestl Group.
Creating Shared Value
and Rural Development
Summary Report 2010
Corporate Governance
Report 2010;
2010 Financial
Statements
Accompanying reports
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Key gures(consolidated)
In millions o CHF (except per share data)
Sales
EBIT (Group) Earnings Beore Interest, Taxes, restructuring and impairments
as % o sales
EBIT (Continuing operations) Earnings Beore Interest, Taxes, restructuring and impairments
as % o sales (Continuing operations)
Prot or the year attributable to shareholders o the parent Net prot (a)
as % o sales
as % o average equity attributable to shareholders o the parent
Capital expenditure
as % o sales
Equity attributable to shareholders o the parent beore proposed appropriation o prot o Nestl S.A.
Market capitalisation, end December
Operating cash fow
Free cash fow (b)
Net nancial debt
Ratio o net nancial debt to equity (gearing)
Per share
Total basic earnings per share (a) CHF
Underlying (c) CHF
Equity attributable to shareholders o the parent beore proposed appropriation o prot o Nestl S.A. CHF
Dividend as proposed by the Board o Directors o Nestl S.A. CHF
(a) 2010 gure is not comparable as it includes a one-o gain on the disposal o the remaining interest in Alcon.
(b) Operating cash fow less capital expenditure, disposal o tangible assets, purchase and disposal o intangible assets, movement
with associates as well as with non-controlling interests.
(c) Prot per share or the year attributable to shareholders o the parent beore impairments, restructuring costs, results
on disposals and signicant one-o items. The tax impact rom the adjusted items is also adjusted or.
(d) ROIC calculation was amended in 2009 ollowing changes in segment reporting. 2008 gures have been restated accordingly.
201
109 72
16 19
14.8%
14 03
13.4%
34 23
31.2%
61.8%
4 57
4.2%
61 86
178 31
13 60
7 76
3 85
6.2%
10.1
3.3
18.3
1.8
2009
107 618
15 699
14.6%
13 222
13.1%
10 428
9.7%
20.9%
4 641
4.3%
48 915
174 294
17 934
12 369
18 085
37.0%
2.92
3.09
13.69
1.60
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EBIT (Group)
In millions o CHF
16 000
15 000
14 000
Net proft (a)
In millions o CHF
30 000
20 000
10 000
Dividend per share
In CHF
1.80
1.20
0.60
Capital expenditure
In millions o CHF
5 000
4 250
3 500
EBIT margin
In %
14
12
10
Continuing operationsGroup
Earnings per share
In CHF
9.00
6.00
3.00
Underlying(c)
Total (a)
Total cash returned to shareholders
In billions o CHF
15
10
5
Share Buy-Back
Dividend
Return on invested capital (d)
In %
32
24
16
Including goodwill
Excluding goodwill
13 3022006
15 0242007
15 6762008
15 6992009
16 1942010
13.5
2006
14.0
2007
14.3
2008
13.114.6
2009 2
9 197
2006
10 649
2007
18 039
2008
10 428
2009
34 233
2010
2.41
2.39
2006
2.80
2.78
2007
2.82
4.87
2008
3.09
2.92
2009
1
2
1.04
2006
+15.6%
+17.3%+14.8%
+14.3%
+15.6%
1.22
2007
1.40
2008
1.60
2009
1.85
2010
2.7
3.5
2006
4.4
4.0
2007
8.7
4.6
2008
7.0
5.0
2009 2
4 200
2006
4 971
2007
4 869
2008
4 641
2009
4 576
2010
11.7
21.2
2006
12.2
22.2
2007
14.7
34.8
2008
15.6
35.1
2009 2
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Highlights 2010Strong operating performance.
Broad-based: all operating
segments contribute
CHF 109.7 billion Group sales
CHF 104.6 billion continuing
operations sales
Net prot o CHF 34.2 billion,7.4% increase in underlying
earnings per share,
10.3% in constant currencies
Return on invested capital,
excluding goodwill, o 36.1%
CHF 16.2 billion Group EBIT
CHF 14.0 billion continuing
operations EBIT,
+30 basis points EBIT margin
improvement
CHF 13.6 billion in operatingcash fow
Return on invested capital,
including goodwill, o 15.5%
The Nestl Model achieved in 2010
Nestls commitment
to shareholder value creation
2011: a year already characterised
by high raw material costs
and volatile currencies
CHF 15.5 billion o cash returned
to shareholders through
CHF 5.4 billion dividend and
CHF 10.1 billion share buy-back
In excess o CHF 10 billion to be
returned to shareholders in 2011
through dividend and share buy-back
CHF 6.1 billion or a CHF 1.85
dividend per share (proposed) o
an increase o 15.6%
We are starting 2011 with continued
momentum, well placed to ace
uncertainties ahead, including volatileraw material prices. We are thereore
condent o achieving the Nestl
in 2011: organic growth betwee
5% and 6% and an EBIT marginimprovement in constant curren
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2 Nestl Annual Report 202
Letter to ourshareholders
Fellow shareholders,
The atershocks o the 2008 fnancial
meltdown echoed through 2009, with
recessions in many economies, and
continued through 2010 and into 2011,
with concerns over what may be still to
come. This unpredictable and volatile
macro-environment, particularly in the
developed world, has weighed heavilyon consumer confdence. On the other
hand, the emerging world has rallied
quickly, demonstrating that many
economies in Asia, Arica and Latin
America are more robust, and less
dependent on the developed world
than was perhaps thought. One might
say that many emerging economies are
indeed emerging, and doing so on their
own terms, with their own priorities,
rather than simply having a me too
ambition to mimic the developed
world. This must be a good thing, both
or those economies and or global
trade and development.
This environment has required
specifc, individual country-by-country
approaches rom your Company, so
that we could identiy opportunities or
growth in areas characterised by low
levels o consumer demand and also
capitalise on buoyant demand in other
markets. These approaches shared a
common strategic purpose, described
in the Nestl Roadmap, whichidentifes our operational and strategic
priorities. Our priorities were to ensure
that we put consumers frst; that we
oered outstanding value propositions
through our products and services,
appropriate to our dierent consumer
segments; that we achieved a high
level o dierentiation o our brands
rom those o our competition; and
that we continued to increase
investment in innovation, in consumer
communication, in operations and indistribution. And that we did this whilst
driving improved operational efciency
across the business, simultaneous
to achieving ever higher standards o
process and product quality.
This commitment lies at the heart
o our perormance in 2010, a year that
saw Nestls stock market valuation
make it preeminent amongst its
consumer goods peers and one o
the leading companies in Europe.
Nestls organic sales growth was
6.2%, including real internal growth
(RIG) o 4.6% and pricing o 1.6%. The
strength o the Swiss ranc relative to
many other currencies had a 3.6%
negative impact on reported sales,
whilst divestitures, net o acquisitionsresulted in a all o 0.6%. Overall, sale
rose by 2.0% to CHF 109.7 billion. The
Groups EBIT rose to CHF 16.2 billion
and the EBIT margin rose by 20 basis
points to 14.8%. Our continuing
operations had organic growth o 6.0
and RIG o 4.4%. Despite a higher lev
o investment in marketing and R&D,
the EBIT rose to CHF 14.0 billion
and the EBIT margin by 30 basis
points to 13.4%.
The Groups underlying earnings
per share rose 7.4% to CHF 3.32,
and by 10.3% in constant currencies.
The reported net proft was
CHF 34.2 billion, reecting the proft
on disposal o our remaining holding
in Alcon, as well as the underlying
improvement in our perormance.
The operating cash ow was
CHF 13.6 billion. The Groups return
on invested capital decreased by
10 basis points to 15.5% including
goodwill, but increased 100 basis
points to 36.1% excluding goodwill.In view o this perormance, and
your Companys robust fnancial
position, your Board is recommendin
a dividend per share o CHF 1.85,
an increase o 15.6% rom last year.
This will be paid in 2011, and is in
addition to the current CHF 10 billion
share buy-back, split equally between
2010 and 2011.
The 2010 results, achieved in
an exceedingly challenging
environment, were not the reectiono a single-minded ocus on achieving
short-term perormance, but were
achieved whilst investing or the utur
and laying oundations to shape the
uture direction o the Company:
in January we announced the
acquisition o the leading USA player
in rozen pizza. This deal complement
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Nestl Annual Report 2010
The 2010 results, achievedin an exceedingly challengingenvironment, were not thereection o a single-mindedocus on achievingshort-term perormance,but were achieved whilstinvesting or the uture
and laying oundationsto shape the uturedirection o the Company.
our existing leadership in rozen meals,
rozen snacks and ice cream in the US
market, enhances our distribution
capabilities there and complements the
know-how that we have developed in
our pizza operations in Europe. On an
annualised basis, we now have sales o
over CHF 8 billion in mainstream retail
rozen ood and ice cream in North
America, and clear leadership;
in August we closed the sale oAlcon. This transaction, together with
the earlier divestments o our Alcon
shares, brought the total realised by
Nestl to USD 41 billion rom an
investment in 1977 o USD 280 million.
Your Board thanks the past and present
Alcon management teams or their
great work over three decades in
building such a successul busin
which has enabled the creation
signifcant value or our shareho
Our desire to ensure that our
shareholders benefted rom tha
creation is reected in our comm
to buy back and cancel approxim
CHF 40 billion o our shares betw
2005 and 2011;
in September we announced
creation o both Nestl HealthScience S.A. and the Nestl Inst
o Health Sciences. Nestl is the
worlds leading Nutrition, Health
Wellness company: one respon
o leadership is to be a pioneer.
creation o these two organisati
will enable us to pioneer a new
between ood and pharmaceuti
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4 Nestl Annual Report 20
They will develop the innovative area
o personalised health science nutrition
to prevent and treat health conditions
such as diabetes, obesity,
cardiovascular and Alzheimers
diseases. Nestl Health Science will
incorporate the Nestl HealthCare
Nutrition business, with CHF 1.7 billion
o sales, including the 2010 acquisition
o Vitao, ocused on inheritedmetabolic disorders;
we also strengthened our position
through acquisitions in dierent
categories in both developed and
emerging markets. These included,
amongst others, Water in China,
Culinary in Ukraine, Conectionery in
Turkey and PetCare in North America.
Acquisitions play a role in helping
to accelerate the Groups strategic
priorities and to enhance its growth
profle, but our key driver o proftable
growth is the organic development
o our categories and geographic
positions. We have made or announced
major capital investments in the
developed world and in emerging
countries such as India, China,
Indonesia, the Philippines, the Middle
East, Russia, Brazil, Mexico, Chile,
Angola, the Democratic Republic o
Congo, Ghana, Kenya and Mozambique.
In total, or 2010 and 2011 we have
spent or committed CHF 4.3 billion to
capital investment in emerging countries.We oresee investment in the emerging
world continuing to run at signifcant
levels as we build on our position as
the largest ood and beverage
company in emerging markets. Equally,
we will continue to invest in North
America, Western Europe and the
developed economies o Oceania and
Japan: we see many opportunities or
growth in the developed world and are
investing to ensure that we are well
placed to beneft rom them. Capitalinvestment, expanding our capacity,
is only one part o the story: we are
supporting this with investment in
capabilities, both personal and
technical, in R&D, in distribution
and, o course, in our brands.
The strength o our balance sheet
means that we do not have to make
either/or decisions when we are
investing in our own business,
acquiring another company or driving
our perormance, but that we can
judge each opportunity on its own
merits. This means that we will make
appropriate investments and
acquisitions in both developed and
emerging markets, provided the
fnancials stand up; and that we willdrive short-term perormance and,
at the same time, invest in the
longer-term development o our
brands and market positions.
We are also using our fnancial
resources and technical expertise to
invest in countries and communities
that are themselves contributing to our
development. As an example, we are
seeking to improve the security o
supply o key ingredients, such as milk,
green coee and cocoa. In 2010, we
announced our intention to invest
CHF 500 million in a wide-ranging plan
to address responsible arming,
sourcing and consumption across the
coee supply chain. As part o this
plan, we intend to deliver over two
hundred million high-yielding plants to
armers over the next ten years. We are
also investing over CHF 100 million
in an initiative in cocoa with similar
objectives around the sustainability
o the cocoa industry.
These cocoa and coee initiativesare just two examples o us using our
fnancial resources to und investment
that will improve the quantity and
quality o local ingredients that we are
able to buy; this in turn will contribute
to increased economic prosperity
in those countries; equally, we are
expecting to make urther such
investments as our business continues
to grow, both locally and around the
world. The benefts to our Company
will be an improved security o supplyo higher-quality raw materials and
a reduced impact rom the volatility
o raw material prices.
These investments highlight the
ounding philosophy o how we go
about our business: we believe that
companies are only sustainable and
successul over the long term i they
Our commitment to CreatingShared Value and ourprinciple-based approachto running our businessstand ront-and-centre aswe pursue our objectiveo being the reerence or
fnancial perormance inour industry because wewant to achieve this whilstalso being trusted byall stakeholders.
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Nestl Annual Report 2010
Peter Brabeck-Letmathe
Chairman o the Board
Paul Bulcke
Chie Executive Ofcer
and was replaced as Head o Nestl
Nutrition and on the Executive Board
by Doreswamy (Nandu) Nandkishore.
Nandu, o Indian nationality, has been
with Nestl since 1989 and was
previously the Market Head o Nestl
Philippines and then the Head o Inant
Nutrition globally. The Board thanks
Richard or his contribution over his
fve years at Nestl and particularlyor his contribution to the successul
acquisition and integration o the
three businesses which enabled Nestl
Nutrition to double in size under
his leadership.
One new director will be proposed
to shareholders at the 2011 Annual
General Meeting. Ms. Ann Veneman,
is a US citizen and ormer Executive
Director o the United Nations
Childrens Fund (UNICEF). She also
served as Secretary o the United
States Department o Agriculture
(USDA) and is a member o the Nestl
Creating Shared Value Advisory
Board, with extensive experience
in areas such as childrens health
and education.
The events o the last ew years have
been unprecedented in many ways,
and have created considerable
uncertainty or many people in many
countries around the world. Despite
this, our people, over 280 000 o them,
have continued to show a wonderullevel o commitment to their jobs and
o enthusiasm or their Company.
We would like to thank them on behal
o the Board and o all our ellow
shareholders or their eorts in 2010.
We would also like to welcome all
those who have joined Nestl in 2010
and to wish them every success,
in the knowledge that they have the
ull support o their colleagues.
We are starting 2011 with
continued momentum, well plac
to ace uncertainties ahead, incl
volatile raw material prices. We
thereore confdent o achieving
the Nestl Model in 2011: organ
growth between 5% and 6%
and an EBIT margin improvemen
in constant currencies.
create value not just or their
shareholders but also or the societies
in which they operate. We call this
Creating Shared Value. We talk about
this in more detail in this report, as well
as our progress in relation to the United
Nations Global Compact.
Our commitment to Creating Shared
Value and our principle-based
approach to running our businessstand ront-and-centre as we pursue
our objective o being the reerence or
fnancial perormance in our industry
because we want to achieve this whilst
also being trusted by all stakeholders.
The Nestl Model has the objective o
every year achieving a high level o
organic growth and improving the EBIT
margin. In the last ten years we have
averaged an annual 6.3% organic
growth and an annual 30 basis point
improvement in the reported EBIT
margin. The beneft o our EBIT
growing aster than our organic sales
is reected in the improving trend in
our cash-ow perormance, which is
in turn reected in the increased
dividend paid to our shareholders, up
236% per share over that same 10-year
time rame. And, in the last six years,
your Company has been paying a
dividend and carrying out a signifcant
share buy-back, which together total
CHF 60 billion over that time.
Comparability, transparency andthe ability to be benchmarked are
entry points to being the reerence or
fnancial perormance: your Board
committed in 2010 to change our
sales recognition policy with eect
rom 2011 to acilitate comparisons
o perormance with our peers
by bringing into line those o our key
reported fnancial perormance
indicators that were not already directly
comparable. We believe this will not
only acilitate external-benchmarkingo our perormance, but that it will
also bring even closer alignment
between internal targets and those
value drivers that are o most
importance to our shareholders.
There was one change to the
Executive Board in 2010. Richard
Laube decided to leave the Company
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6 Nestl Annual Report 20
Board o Directorso Nestl S.A.at 31 December 2010
Peter
Brabeck-Letmathe (3, 5)
Chairman
Term expires 2013 (1, 2)
Jean-Ren
Fourtou (3, 4)
Chairman o
the Supervisory
Board, Vivendi.
Term expires 2012 (1,2)
Paul Bulcke (3)
Chie Executive Of
Term expires 2011 (
Rolf Hnggi (3, 6)
2nd Vice Chairman
Former Chairman,
Rd, Blass & Cie AG
Bankers.
Term expires 2011 (
Jean-Pierre
Meyers (4)
Vice Chairman,
LOral S.A.
Term expires 2011 (1,2)
Nana Lal Kidwai (6)
Group General
Manager and Country
Head o HSBC Group
Companies in India.
Term expires 2011 (1,2)
Titia de LangeAssociate Director,
Anderson Cancer
Center, The
Rockeeller University.
Term expires 2013 (1,2)
Beat Hess (6)
Group Legal Directo
Royal Dutch Shell p
Term expires 2011 (
Jean-Pierre RothChairman Geneva
Cantonal Bank.
Term expires 2013 (
Carolina
Mller-Mhl (5)
President,
Mller-Mhl Group.Term expires 2012 (1,2)
Daniel Borel (4)
Co-ounder and Boa
member, Logitech
International S.A.
Term expires 2012 (
Andr Kudelski (6)
Chairman and CEO,
Kudelski Group.
Term expires 2013 (
Steven G. Hoch (5)
Founder and
Senior Partner,
Highmount Capital.Term expires 2013 (
Andreas
Koopmann (3, 4, 5)
1st Vice Chairman
Chairman o Alstom
(Suisse) S.A.
Term expires 2011 (1,2)Helmut O. MaucherHonorary Chairman
(1) On the date o the Annual General Meeting.
(2) As Nestls Articles o Association provide
or three-year terms, all members o the
Board are being re-elected over the course
o the ollowing three years.
(3) Chairmans and Corporate Governance
Committee.
(4) Compensation Committee.
(5) Nomination Committee.
(6) Audit Committee.
For urther inormation on the Board o
Directors please reer to the Corporate
Governance Report 2010, enclosed.
David P. FrickSecretary to the Board
KPMG SA Geneva branchIndependent auditors.
Term expires 2011 (1)
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Nestl Annual Report 2010
Executive Boardo Nestl S.A.at 31 December 2010
Paul Bulcke
Chie Executive Ofcer
Members Executive Board
Werner Bauer
EVP, Innovation, Technology, Research
and Development
Frits van Dijk
EVP, Asia, Oceania, Arica, Middle East
Luis Cantarell
EVP, United States o America, Canada,
Latin America, Caribbean
Jos Lopez
EVP, Operations, GLOBE
John J. Harris
EVP, Nestl Waters
James Singh
EVP, Finance and Control,
Global Nestl Business Services,
Legal, Intellectual Property, Tax
Laurent Freixe
EVP, Europe
Executive Board
(rom let to right):
Werner Bauer,
Luis Cantarell,
David P. Frick,
James Singh,
Laurent Freixe,
John J. Harris,
Paul Bulcke,
Frits van Dijk,
Petraea Heynike,
Marc Caira,
Jos Lopez,
Doreswamy (Nandu)
Nandkishore,
Jean-Marc Duvoisin
Petraea Heynike
EVP, Strategic Business Units, Marketi
and Sales
Marc Caira
Deputy EVP, Nestl Proessional
Jean-Marc Duvoisin
Deputy EVP, Human Resources
Doreswamy (Nandu) Nandkishore
Deputy EVP, Nestl Nutrition
David P. Frick
SVP, Corporate Governance, Complian
and Corporate Services
Yves Philippe Bloch
Corporate Secretary
EVP: Executive Vice President
SVP: Senior Vice President
For urther inormation on the Executiv
please reer to the Corporate Governan
Report 2010, enclosed.
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8 Nestl Annual Report 20
Creating valueor society
Compliance with applicable laws
and international conventions such
as the Universal Declaration of
Human Rights and strong support
for the UN Global Compact, as
well as our internal standards and
regulations, is the foundation of
our business. Beyond compliance,
our business is based on
sustainability, ensuring our
activities protect the environment
for future generations. Yet we
believe we need to go further,
creating shared value for both the
Company and society in areas
where shareholders and societys
interests intersect. Three such
areas nutrition, water and rural
development are the focus
for this strategy.
Rural development: We strive
to increase armers incomes through
increasing productivity, growing high
value crops, using land more efcient
and gaining outside arming employme
and income. We urther contribute
to rural development by providing
technical and fnancial assistance and
access to markets, and by investing
in actories and rural areas that createinrastructure and employment.
Performance
Nutrition: While nutritional status has
improved worldwide over the past
fty years, malnutrition and obesity
still require solutions. To ensure both
taste preerence and nutritional
superiority in our products, we
assessed CHF 36.4 billion o our
product portolio and renovated
6502 products or nutrition or health
considerations. To provide lower-
income consumers with greater
access to aordable ood products,
Through TheNescaf Plan, Juan Lopez Cruz (left), a coffee farmer from Puebla, Mexico
receives high-yield coffee plantlets from Nestl agronomist Juan Sanchez.
Creating Shared Value goals
Nutrition: Using science-based
solutions, we contribute to the health
and wellbeing o consumers, including
those with specifc nutritional needs,
by oering products with higher
nutritional value at aordable prices
that appeal to consumers. We also
aim to generate greater awareness,
knowledge and understandingamong consumers through clear,
responsible communication.
Water: Our long-term success
depends on the water resources that
supply our business operations and
support the livelihoods o suppliers
and consumers, which is why water
is a key ocus area o Creating Shared
Value. We work with stakeholders,
ranging rom agricultural suppliers
to consumers, to manage water
consumption in our operations
and supply chain, and contribute
to sustainable community water
management schemes.
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Nestl Annual Report 2010
we oer 4860 Popularly Positioned
Products at an aordable cost and
appropriate serving size through a
range o locally adapted distribution
methods. Annually, 90 billion servings
o Maggibouillon cubes are ortifed
with key micronutrients to address
defciencies in certain markets.
In 2008, Nestls CEO and
those rom eight major ood and
beverage companies made fve
global commitments to the World
Health Organizations Director
General, to tackle obesity and the
non-communicable diseasesassociated with it through diet and
physical activity. These commitments
led to the International Food and
Beverage Alliance (IFBA), which
Nestl has co-chaired since its
ormation, and in November 2009,
IFBAs frst annual report (see
www.iballiance.org) to the Director
General outlined its members
progress to date.
Water: Water has been identifed as
the most important actor or Nestls
long-term success, as it aects the
supply o raw materials, our operations
and the consumption o many o our
products. To become the most efcient
water user in our industry:
Water Resource Reviews are
conducted at actories and in
commodity-growing areas;
we help armers to become b
stewards o water;
we support water resource
awareness and education progr
we take a leading role in the g
dialogue on the issue.
We have also reduced our tot
water withdrawal by 32% to
144 million m3 since 2000.
Rural development: We will a
continue to support 144 926 arm
through capacity-building traini
programmes, access to fnancia
assistance, arm assessment too
investment in biogas generationamongst others. Full details o o
perormance are given in a
comprehensive separate report
also in more detail on line.
Our people: We continue to o
our workorce comprehensive t
development and career progre
opportunities, and our global nu
health and wellness training
programme has now reached
145 922 employees since 2007.
remained a key ocus, our main
indicator improved by 18% to 4.
recordable injuries per million h
worked, and relations between
employees, management and tr
unions are generally strong.
In Peru, schoolchildren learn about healthy eating in a fun way by participating in
Crecer Bien programme.
Nestl Prize in
Creating Shared Value
In May 2010, the frst Nestl Prize
in Creating Shared Value was
presented to International
Development Enterprises (IDE)
Cambodia, which employs
ranchised Farm Business Advisors.
Since 2005, IDE has increased
the productivity among
4500 smallholder armers in rural
Cambodia, boosting their income
and increasing their standard o
living, and the CHF 500 000 prizewill help IDE to reach an additional
20 000 armers.
Healthy Kids Programme
We believe that education helps
children to understand the value
o nutrition and healthy liestyles.
Building on Nestl-sponsored
education programmes, we will
have implemented our Healthy
Kids Global Programme through
partnerships in all countries
where we have operations by
the end o 2011.
TheNescaf Plan
In August 2010, we launched
The Nescaf Plan, bringing all our
Creating Shared Value coee
arming and production practices
together. This global initiative will
help us to optimise our coee supply
chain and reach our coee arming,
production and consumptiontargets. Under the Plan, we will,
among other things, invest
CHF 500 million in coee projects
by 2020, distribute 220 million
high-yield coee plantlets, train
30 000 armers and support
social projects in coee-growing
communities.
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10 Nestl Annual Report 20
UN GlobalCompact Communicationon Progress
Commitment and systems
The Nestl Corporate Business
Principles (NCBP) endorsed by the
Chairman and CEO, and available
online orm the basis o our culture
and reect our values o airness,
honesty and respect or people and
the environment. A revised version
o the NCBP was developed during
2010, and translated into ftylanguages. A comprehensive
communication and training toolkit
has been provided to all markets
where local plans have been launched
to ensure each employee lives
up to the Principles. Follow-up
training is planned in 2011 to ensure
deeper understanding o each
Principle. Compliance is monitored
through external audits under our
CARE programme, and the Nestl
Group Audit unction. In 2010,
392 sites underwent CARE audits
and no critical non-compliances
were identifed.
To help maintain our reputation,
our Code o Business Conduct outlines
minimum standards o behaviour in
key areas, our new Employee Relations
Policy outlines international standards
and sets a tone o open dialogue on
labour matters, and the Nestl Supplier
Code commits suppliers to comply
with our core integrity standards.
Human rights and labour practice
Since November 2008, Nestl has
worked with the Danish Institute or
Human Rights (DIHR), to review our
human rights policy and assess our
labour practices and human rights
compliance. In July 2010, we signed a
two-year partnership through which th
DIHR will assist us in integrating huma
rights into our corporate systems,undertaking in-depth assessments wi
stakeholder consultations at a country
level, and other monitoring and
capacity-building activities.
Nestl recognises the corporate
responsibility to respect human rights
as outlined in the UN Framework on
Human Rights and Business propose
by John Ruggie, Special Representati
o the UN Secretary General on
Business and Human Rights. During
2010, labour rights and human rights
issues have been discussed by our CE
Paul Bulcke with Proessor Ruggie, an
other international stakeholders.
In cocoa-growing areas, child
labour is a challenge, so Nestl and
others in the International Cocoa
Initiative (ICI) continue to tackle
child labour and improve access to
education. In Cte dIvoire, the
Cocoa Plan has a strong child labour
component, and a new project with t
ICI will support twenty communities
Staff from all departments at Nestls Bugalagrande factory in Colombia attend
an editorial meeting for the bimonthly employee magazine.
Since joining the UN Global
Compact (UNGC) in 2001, we
have embraced its 10 principles,
integrated them into the Nestl
Corporate Business Principles
and continuously supported them.
Our annual Communication on
Progress illustrates our dedication
and efforts in the issue areas of
human rights, labour practices, the
environment and anti-corruption.
Our full Communication on
Progress is available online.
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Nestl Annual Report 2010
that supply cocoa or our conectionery
business.
In Colombia, Nestl is a ounding
participant o Guas Colombia
(Guidelines or Colombia), which brings
together companies, government,
NGOs and trade unions. We also have
a ormal dialogue with Alliance Sud,
a group o Swiss NGOs examining the
impact o our activities and ourrelationships with trade unions and
local communities on national
development and human rights.
In 2010, all operating companies
implemented action plans and are
tracking progress on our Gender
Balance initiative, while a network o
Gender Balance Champions regularly
shares best practice. Nestl also
published Corporate Guidelines or a
Flexible Work Environment, and paired
130 senior executives with mentors
in the second stage o our Corporate
Mentoring Programme.
In addition, several high-impact
training and capability workshops
are being rolled out as part o Nestl
Continuous Excellence (NCE) which
empowers people with the right
knowledge, skills and competencies
to drive business results and
personal development.
Environmental sustainability
Our aim is to continuously improveour perormance and produce tastier,
nutritious ood and beverages that are
better or the environment. We assess
the environmental impact o our value
chains including procurement,
logistics, manuacturing, marketing
and consumer engagement using
a lie cycle approach.
Through an ongoing commitment
to operational environmental efciency
and a move towards cleaner energy
we have kept our direct greenhouse gasemissions stable at 4 million tonnes
CO2eqand increased energy
consumption by only 4% to 88.6 PJ,
despite an increase in production
volume o 6.2%. We continue to ocus
on packaging optimisation and two
additional actories in the UK achieved
zero waste to landfll in 2010. Nestl
is also a ounding signatory o th
Global Compacts CEO Water M
and has provided a Communicat
Progress on water since 2009.
We are committed to use onl
oil rom sustainable sources by 2
became the frst company to co
eliminating tropical rainorest
deorestation in our supply chain. T
our membership o The Forest T
are working with our suppliers t
a series o principles to achieve
In recognition o our improve
environmental perormance, Ne
was ranked second in the consu
goods sector in the Carbon Disc
Projects (CDP) Carbon Disclosu
Leadership Index 2010, and con
to the CDPs Water Disclosure P
Anti-corruption
The Code o Business Conduct a
the NCBP condemn any orm o
corruption and bribery, and our
Supplier Code o Conduct requi
our partners to embrace our
zero-tolerance approach.
Having perormed a thoroug
corruption risk assessment, we
developed an anti-corruption tra
tool to provide employees with guidance on avoiding inappropr
behaviour, supplementing existi
training eorts in this area. Our
o Business Conduct introduced
whistle-blower procedures in 20
and we are complementing our
local hotlines with a Group-wide
integrity reporting system.
At a Nestl feld school in Nobertkr
Cte dIvoire, armers learn about
responsible labour practices and th
importance o education or childre
UNGC Principles
Human rights
1. Businesses should support
and respect the protection o
internationally proclaimed human
rights; and
2. make sure that they are not
complicit in human rights abuses.
Labour
3. Businesses should uphold the
reedom o association and the
eective recognition o the right
to collective bargaining;
4. the elimination o all orms
o orced and compulsory labour;
5. the eective abolition o child
labour; and
6. the elimination o discrimination
in respect o employment and
occupation.
Environment
7. Businesses should support a
precautionary approach to
environmental challenges;
8. undertake initiatives to promote
greater environmental responsibility;
and
9. encourage the development and
diusion o environmentally riendly
technologies.
Anti-corruption10. Businesses should work against
corruption in all its orms, including
extortion and bribery.
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12 Nestl Annual Report 20
The NestlRoadmap toGood Food,Good Lie
Our objective is to be recognised
as the world leader in Nutrition,
Health and Wellness, trusted by all
our stakeholders, and to be the
reference for nancial performance
in our industry. This objective
demands from our people a blend
of long-term inspiration, to build
for the future, and short-term
entrepreneurial actions, to deliver
the necessary performance today.
The 4x4x4 Roadmap combines
four competitive advantages, four
growth drivers and four operational
pillars with the aim of aligning
the priorities of the more than
280 000 people who are working
at Nestl, and thereby accelerate
the achievement of our objective.
Our competitive advantages are:
Our unmatched product and brand
portolio, with strong market positions.
Over 20 Nestl brands have annual
sales o over CHF 1 billion. Whether
global or regional, our brands are
always relevant to consumers locally.
Our unmatched R&D is the unseen
impetus behind the growth o our
brands. It is science-based, consumer-centric and ocused on dierentiation
rom our competitors. It goes
beyond ood to cover new products,
packaging, technology and
manuacturing, quality and saety.
Our unmatched geographic
presence has been established over
many years and is a reection o both
the breadth o our presence, with our
brands available more or less
everywhere, and the duration or which
we have been present in countries the
world over.
Our people, culture, values, and
attitude enable us to be decentralised
and entrepreneurial. It combines
devolved responsibilities with a
cohesive strategic direction. We are
patient and not averse to taking
reasonable risks. Our speed and ocus
enable us to remain competitive in spite
o any challenges in the marketplace.
Our growth drivers are:
Nutrition, Health and Wellness.Each o our product categories, rom
Chocolate to Baby Food, has a specifc
strategy to ensure that it can be the
nutrition leader in its space.
Emerging markets and Popularly
Positioned Products. We have tailored
not just our products, but also our
business models and marketing mix
to ensure that we are best able to
realise the growing opportunity to
provide nutritious, aordable, branded
ood to lower income consumersaround the world.
Out-o-home consumption is
growing aster than in-home. We are
the largest branded manuacturer, with
a business built on branded ingredients
but increasingly achieving new
standards in customer solutions,
systems and service.
Premiumisation. Incomes are
increasing; so is leisure time. These
are just two trends that point to
accelerated growth in premium ood
and drinks, each a moment o
aordable luxury, a moment o
pleasure. Each o our product
categories has its own specifc
premium strategy, encompassing
brands such as Nespresso, S.PellegrinPerrier, Hagen-Dazs and Cailler.
Our operational pillars are:
Innovation & renovation. Innovation
is about big steps and changing the
rules o the game, or even changing
the game. It is hard to copy. Its rewar
can be measured by proftable growt
or years to come and sustainable
competitive advantages. Renovation
is more incremental, and lies behind
the still-growing success o brands
such as Nescaf and KitKat, both
over 70 years old.
Operational efciency seeks to
ensure that we have the highest quali
the lowest cost and best customer
service. The aim is to improve our
sustainability by being better, aster,
more efcient, less wasteul and,
as a result, higher perorming.
Whenever, wherever, however
is the expression o our aim to have
our products always at an arms reach
o our consumers. We have createdspecifc business models, distribution
strategies and product solutions
to meet this objective.
Consumer communication is abou
building trust, exciting consumers,
and learning rom them to help drive
our R&D. It is about citizenship and
responsibility and being aligned with
the expectations o our consumers.
On the ollowing pages we are
touching in detail on one o each o thcompetitive advantages, the growth
drivers, and the operational pillars.
All, however, are o equal importance
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Comp
l
i
ance
-Susta
inab
ility Creatin
gSha
re
dVal
ue
Nestlcultureandvalu
es
Competitive
advantages
Operational
pillars
Our objective is to be therecognised leader in Nutrition,
Health and Wellness, andthe industry reerence or
fnancial perormance
Unmatched
product
and brand
portfolio
Nutrition
Health an
Wellness
Innovation
& renovation
Unmatched
geographic
presence
Out-of-home
consumption
Whenever,
wherever,
however
Unmatched
research and
development
capability
Emergin
markets a
Popularly
Positione
Product
Operational
efciency
People,
culture, values
and attitude
PremiumisationConsumer
communication
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Nestls unmatched global presence
is the result o the desire, soon ater
the Company was ounded, to expand
beyond domestic borders. The result
today, is that Nestl brands have been
present in many markets, including
emerging markets, or many
generations, even over 100 years.
With this presence come expertise,talent, experience, local knowledge
and traditions that make Nestl an
integrated part o those communities
where it is present.
Nestls sales are broadly spread
across the world. Our presence in
emerging markets, with about
CHF 39 billion o sales, about 36%
o the total, is an unrivalled platorm
to leverage our scale or a continued
high level o proftable growth.
In 2020, by when there will likely be
an additional one billion consumers
in emerging markets, we expect
to be achieving about 45% o Group
sales in those countries.
In total, our emerging markets
achieved organic growth o 11.5%
in 2010. There are 13 emerging markets
in which Nestls annual sales
exceed CHF 1 billion, and we have 5
with over CHF 2 billion in sales.
Our products are ideal or emergingmarkets, especially those that are
shel-stable and easily portioned,
with the potential to be locally
manuactured: Ambient dairy, Inant
nutrition, Culinary, Powdered
beverages, Soluble coee, Chocolate,
Ready-to-drink beverages and Water.
Ice cream and PetCare are growing
rapidly in the emerging world rom
smaller bases, whilst Frozen and
Chilled meals do not yet have anymeaningul presence.
This emerging market business is
supported by local manuacturing,
with 47% o our actories in emerging
markets, local R&D and product
technology centres, long-term
relationships with suppliers and
armers, and, o course, home-grown,
local talent working at Nestl.
About 80% o the worlds population
is living in emerging markets, and is
ideally placed both to contribute
better uture and to beneft rom
Nestls presence in the devel
world is also broad-based. We ar
one o the biggest ood compani
North America and we have lead
positions in our key categories in
European countries and in Austra
and Japan. We believe that thereopportunities or proftable grow
and improved market shares
everywhere in the developed wo
These opportunities include
particular channels, market segm
and consumer groups. They exist
at the premium end, but also amo
lower income consumers, just as
they do in emerging markets. The
opportunities are realised throug
a strong pipeline o innovation,
through increasing distribution,
through product superiority or b
taste and nutrition. Also, develop
markets are oten the launch pad
or innovations that will end up w
global reach.
Nestl has a decentralised stru
It is our people on the ground in e
country, who are closest to our
consumers, who are best able to
our progress locally. They all hav
their own challenges, but they arbound together by their alignmen
to our 4x4x4 Roadmap, and they
the same objective: to grow our
business or the beneft o our
consumers all over the world, o
our business partners, our people
and our shareholders.
Unmatched product
and brand portfolio
Unmatched research and
development capability
Unmatched geographic presence
People, culture, values and attitude
Competitive
advantages
KitKatcelebrated
its 75th anniversary
in 2010 but remains
young and in touch
with trends, having
over 2.5 million
Facebook ans.
It is sold in over
70 countries and
enjoys good growth
in the developed
world and emerging
markets, such as
the Middle East,
India and Russia.
Japan is its second
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Nestl Annual Report 2010
Comilfo, the
premium brand
launched in Russia,has added three
new products to its
range. The unique
boat-shaped
chocolate cups with
a cream flling, a layer
o caramelised waer
and a nut on top,combine to delight
consumers with
a multi-sensorial
experience.
Purina ONE
SmartBlend
combines natures
ingredients (such as
meat, fsh, poultry,
wheat, corn, rice,
omega-6 atty acids)
into concentrated,
nutrient-rich morselswith enticing taste
and texture: to
combine essential
amino acids, energ
throughout the day
high levels o
antioxidants and a
natural source o a
that works
harmoniously withthe pets body.
Nestl Fruit
Selection
Yogurt + Jelly is
a breakthrough
innovation in the
category in the
Philippines. Priced
at PHP 20, it has a
layer o jelly over ruit
yogurt, a frst in the
market. It has helped
to increase yogurt
consumption,
addressing the main
barriers o taste
and price.
Maggiis the leader
in the Central West
Arican Region. Toreinorce its position
as the best partner or
tasty and balanced
cooking, Maggihas
launched an
aordable range o
powder seasoningsTrobon and MixPy,
ortifed in iodine, that
enhance the taste
o everyday cooking.
Buitoni, the US
leader in chilled flled
pasta and sauces,
entered the biggest
segment o the rozen
ood market with a
super premium range
o meal solutions
which are composed
o flled pasta plus
sauce in a pouch.
This is providing
consumers with
an authentic and
extraordinary Italian
meal experience.
Nestls unmatched
depth and breadth in
emerging markets
brings benefts in all
aspects o the value
chain: we have close
customer relationships,
whilst our brands are
an integral part o
millions o peoples
lives on a daily basis.
Equally, we can
attract the best local
talent and have
well-established R&D,
manuacturing and
distribution
capabilities. We are
enhancing these
capabilities in 2011
with investments
running into billions
o Swiss Francs.
Nescaf Caf Vit
captures the intense
and unique taste oauthentic Vietnamese
coee: strong, black
with an intense and
bitter taste consumed
over ice. The Nescaf
Caf Vitproduct is
the result o a R&D
breakthrough whicled to a patented
process or
co-extracting roast
and ground coee
and soya.
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Nestls Food and Beverages business
has the scale to touch consumers all
over the world; the intimacy to provide
the ood and beverages they want;
the diversity to do so at a great many
eating occasions and to provide
balance; the ubiquity to provide
it whenever and wherever consumers
want it; the presence to be therethroughout consumers lives; and
the know-how to advance nutritional
science and to bring nutrition, health
and wellness arguments to all ood
and beverage categories. These are
the pillars on which we make our claim
o leadership in Nutrition, Health
and Wellness: unmatched scale,
intimacy, diversity, ubiquity, presence
and know-how.
We use these pillars to build our
nutrition, health and wellness agenda
across our categories or the beneft o
the millions o consumers everywhere
who consume our products every day.
That agenda is encapsulated in the
expression Good Food, Good Lie.
This means that we aim to provide the
best tasting products in our categories
ater all, eating and drinking is frst
and oremost about enjoyment and
pleasure but that we also want to
bring improved nutrition to ourcategories: we do this by ensuring that
our product launches taste better and
are nutritionally superior to those o our
competitors in each category. We call
this 60/40+, with the 60/40 being our
targeted consumer preerence and
the + representing nutritional
advantage. Nutritional advantage
might be achieved by the reduction or
exclusion o certain ingredients or
by the addition o some, either or
ortifcation or or particular consumer
benefts through our Branded Active
Benefts. Further, we are committed to
providing clear nutritional inormation
and advice on-pack and through
channels such as dedicated websites
and helplines. And by doing so, we aim
to contribute to the pleasure, balance
and understanding that are critical
to a healthy diet.
There are consumers who have
addressing their needs through N
Nutrition, with its specifc produc
and services tailored to the need
those consumer groups. Our bigg
area o ocus is inants. We believ
that breast is best, and it is our
commitment to use our nutritiona
expertise to build healthier gener
one inant at a time. We are doingby pursuing a mission to build
awareness among parents o the
extreme importance o appropria
nutrition rom the very beginning
a childs lie through our Start He
Stay Healthyapproach to inant
nutrition, and by providing the pr
to help parents achieve that aim.
One responsibility o leadershi
to be a pioneer: we aim to develo
innovative area o personalised h
science nutrition to prevent and t
health conditions such as diabete
obesity, cardiovascular disease a
Alzheimers disease. In Septembe
we announced two initiatives: the
creation o Nestl Health Science
incorporating the existing global
CHF 1.7 billion Nestl HealthCare
Nutrition business; and the creati
o the Nestl Institute o Health
Sciences, which will conduct res
in relevant areas o biomedical scto translate this knowledge into
nutritional strategies to improve h
and longevity. We believe that
personalised health science nutri
will create value or Nestl, and
or society, by preventing, improv
and treating acute and chronic
medical conditions.
Nutrition, Health and Wellness
Emerging markets and
Popularly Positioned Products
Out-of-home consumption
Premiumisation
Growth
drivers
Acquired in 2010,DiGiorno is the leader
in rozen pizzas in the
USA. Made with high
quality cereals, meats,
vegetables and
cheeses, DiGiorno
pizzas deliver on key
elements o a balanced
Mediterranean diet,
such as carbohydrates,
ats and proteins
while adding variety
and pleasure to
peoples diet with
their resh baked
taste. Encouraging
consumers to create
balanced meals right
portions, addition
o salads strongly
delivers on the
Good Food
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Nestl Annual Report 2010
Nestl Coee-Mate,
a billionaire brand,
has a strong positionin the USA and is
growing in emerging
markets, particularly
where Nescaf has a
strong presence. The
US market has
beneted rom recent
launches o the CaCollection favours,
such as White
Chocolate Caramel
Latte, as well as
seasonal editions.
Jenny Craig is a
clinically proven
weight management
programme with a
holistic approach to
weight loss and
weight maintenance
ocusing on ood,
body and mind.It oers the choice
o either in-person
support at a Centre
or at home support
by telephone throu
a dedicated person
consultant. In 2010
Jenny Craig was
launched in the UK
and France.
Nestl Golden
Morn is the leading
cereal brand in
Nigeria. It is an
aordable and
nutritious instant
porridge suitable or
the entire amily.
Made rom locally
sourced maize and
soya, Golden Morn
is a good source
o protein, calcium
and dietary bre.
Nestl Pure Lie,
the biggest selling
water in the USA andgrowing dynamically
in emerging markets,
is the worlds biggest
water brand. It
benets rom a
multi-year, on-going
light-weighting
programme or its
bottle. With its greattaste, Nestl Pure Life
makes healthy
hydration pleasurable
and aordable or
the whole amily.
Eskimo ice cream
is sold in Thailand,
and was developed
as a wide range o
products with the
right nutrition prole
or children,
combining pleasure
and un. Its marketing
communication
incorporates
education about the
right eating habits
and the benets o
physical activity.
Nestl brands touch
consumers in all
walks o lie,
throughout their lives.
From starting healthy
to staying healthy,
to pleasurable
indulgence. But also
or specic needs
as we get older.
This ability to touch
consumers
throughout their lives
and at all eating
occasions is
unmatched in our
industry and lies at
the heart o our
commitment to
delivering Good
Food, Good Lie
and to building
our leadership in
Nutrition, Health
and Wellness.
Vitafo was acquired
in 2010. Its products
are developed orspecic medical
purposes, such as
inborn errors o
metabolism (IEM)
and disease related
malnutrition (DRM)
The business, whic
has an internationapresence, will be
incorporated in Nes
Health Science S.A
rom 2011.
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Innovation & renovation is the process
through which we keep our brands
consumer-relevant and competitor-
dierentiated. It is driven by insights
rom our consumers and by our
own initiatives, nutritional and
scientifc developments and R&D
break-throughs.
Nestls R&D touches all aspectso the ood and beverage industry.
For example, our R&D capabilities in
beverage systems have been translated
into leadership in coee systems, with
about 30% o the market, and are being
extended across other opportunities.
Nespresso, with sales o
CHF 3.2 billion in 2010, is the leader
in super-premium portioned coee.
It has built its position on unsurpassed
coee quality, continuous innovation,
a unique route to market and a holistic
approach to sustainability. Its
leadership has been achieved with
the support o passionate consumers
with, or example, about 10 million
members in the Nespresso club.
Nescaf Dolce Gusto, with sales
o about CHF 450 million in its ourth
year, is becoming the system o
choice or consumers who want coee
shop quality drinks at home, made
in seconds. Launched across Europeand in the Americas, it oers a wide
range o drinks, with a particular ocus
on cappuccino coees, but also
chocolate, as well as Nesquik.
SPECIAL.T by Nestl, launched
in France and Switzerland in
September 2010 is Nestls frst entry
into the super-premium tea market.
It oers tea lovers the best tea in a
system that combines sophistication
and simplicity, with 25 varieties
sourced rom Asia and South Arica.
Nestl Proessional, our out-o-home
business, with sales o CHF 6.1 billion
in 2010, is the global leader in branded
hot beverage solutions. It has a series
o beverage systems, ranging rom
machines backed by personalised
service, aimed at high-end restaurants
and bars, to those which have been
designed or low-cost operators in
emerging markets. Recent launches
system and the super-premium
Viaggibarista system.
Research & development and
innovation & renovation also play
role at Nestl Nutrition, as we see
drive competitive dierentiation a
address consumer needs. Just on
example is Inant cereals, the frs
product made by Henri Nestl ansuch, the very heart o Nestl. W
the worldwide leader with brands
as Cerelac, Nestum, Mucilon, Ger
and Nestl, and have about 65%
market share in our top 20 marke
A signifcant driver o growth h
been science-led innovation. An
example is upgrading the entire I
cereal portolio in the area o Imm
Protection through the addition o
Bifdus BL, a proprietary Branded
Active Beneft developed in the N
Research Center. This, together w
Immunonutrients, such as Iron, Z
and Vitamins A&C, helps strengt
babies natural deences. The pro
has been launched in more than
100 markets in 2009 and 2010, an
been a great success, demonstra
by double-digit organic growth in
or the Inant cereals division.
In common with Nestl Nutriti
other categories, Inant cerealbenefts rom a multi-stage pipeli
o innovation which ensures that
the category and its consumers w
beneft rom innovations or years
come, enhancing the goodness o
cereals and providing big nutriti
or small tummies.
Innovation & renovation
Operational efciency
Whenever, wherever, however
Consumer communication
Operational
pillars
India is one o the
growing astest and
largest markets or
Nestl Inant Cereals.
As category leader,
Cerelac drives
innovation. The entire
portolio in India
now includes
Nutriprotect and
Growth Nutrients
or Healthy Growth
and development
o the baby. With
Cerelac Nutriprotect
(immunonutrients)
the baby will be
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Nestl Annual Report 2010
SPECIAL.T by Nestl
is a pioneering
single-serve capsulesolution that invites
consumers to
discover the worlds
best teas: rom black,
green, blue and white
teas to favoured teas,
organic herbal
inusions and red
rooibos. The tea
leaves are protectedby hermetically
sealed capsules, and
the machine selects
the perect brewing
time and temperature
or each variety.
Nestl 8 Cereals:
Spain was a pioneer
market to launch
the range o Nestl
Inant Cereals with
Bidus BL. Nestl 8
Cereals contains
Immunonutrients
such as Iron, Zinc,
Vitamin A and
Vitamin C to help
support the babies
natural deenses.
Nescaf Dolce
Gusto: the new
Piccolo machine is
very small and
well-priced, but is
built to the same
standard as the
bigger machines. This
makes Piccolo a very
convenient way o
enjoying Nescaf
Dolce Gusto, and
incredible value or
money, whilst its
unique and quirky
design refects all
the personality
o our brand.
Nespresso allows
consumers to enjoy
the perect coeeevery time. Nespresso
starts with the highest
quality o coee and
combines that with its
cutting-edge machine
design. Designed to
t into urban living
spaces, the CitiZ
range satises
consumers demandsor style, convenience
and quality. TheCitiZ&Milkhas a
built-in resh
milk-rother or
cappuccino
and latte lovers.
The Viaggibarista
system oers, at the
touch o a button,
a menu o hot or
over-ice espresso,
cappuccino, and
chocolate-based
beverages to Nestl
Proessionalcustomers.
Breakthrough
proprietary
technologies,
specically developed
with Nescaf, Cailler,
and Nestl, will
enable the Viaggi
beverage programme
to oer, cup ater
cup, perect
consistency,
delivered througha dedicated
commercial and
service platorm.
Nestls beverage
R&D capabilities
cover all aspects romarm to cup, including
raw materials, favour
extraction, systems
and packaging.
The personalised
consumer experience
is at the heart o
the Nespresso oer,
with more than
200 boutiques such
as the one in Sydney
(top right), whilst
Nescaf Dolce Gustoprovides a un and
exciting experience
or consumers who
want ca-quality
coee at home.
These systems
enjoyed double-digit
growth in 2010 and
will continue to do
so in 2011.
Cerelac is a category
icon in the Middle
East, it includesBidus BL, a
proprietary Branded
Active Benet
developed in the
Nestl Research
Center, and theinherent goodness
o Cereals.
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Financial review
Sales Group
CHF 109.7 billion
EBIT Group
CHF 16.2 billion
Sales continuing operations
CHF 104.6 billion
EBIT continuing operations
CHF 14.0 billion
Operating cash fow Group
CHF 13.6 billion
Underlying earnings per share
in constant currencies
+10.3%
Organic growth Group
6.2%
EBIT margin Group
+20 bpsto 14.8%
Organic growth continuing operations
6.0%
EBIT margin continuing operations
+30 bpsto 13.4%
Free cash fow Group
CHF 7.8 billion
Proposed dividend per share
+15.6%to CHF 1.85
Real internal growth Group
4.6%
Real internal growth continuing
operations
4.4%
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Nestl Annual Report 2010
In millions of CHF (except per share data)
Sales
EBIT (Group) Earnings Beore Interest, Taxes, restructuring and impairments
EBIT (Continuing operations) Earnings Beore Interest, Taxes, restructuring and impairments
Proft or the year attributable to shareholders o the parent Net proft (a)
Equity attributable to shareholders o the parent beore proposed appropriation o proft o Nestl S.A.
Market capitalisation, end December
Per share
Total basic earnings per share (a) CHF
Equity attributable to shareholders o the parent beore proposed appropriation o proft o Nestl S.A. CHF
In millions of USD (except per share data)
Sales
EBIT (Group) Earnings Beore Interest, Taxes, restructuring and impairments
EBIT (Continuing operations) Earnings Beore Interest, Taxes, restructuring and impairments
Proft or the year attributable to shareholders o the parent Net proft (a)
Equity attributable to shareholders o the parent beore proposed appropriation o proft o Nestl S.A.
Market capitalisation, end December
Per share
Total basic earnings per share (a) USD
Equity attributable to shareholders o the parent beore proposed appropriation o proft o Nestl S.A. USD
In millions of EUR (except per share data)
Sales
EBIT (Group) Earnings Beore Interest, Taxes, restructuring and impairments
EBIT (Continuing operations) Earnings Beore Interest, Taxes, restructuring and impairments
Proft or the year attributable to shareholders o the parent Net proft (a)
Equity attributable to shareholders o the parent beore proposed appropriation o proft o Nestl S.A.
Market capitalisation, end December
Per share
Total basic earnings per share (a) EUR
Equity attributable to shareholders o the parent beore proposed appropriation o proft o Nestl S.A. EUR
(a) 2010 igure is not comparable as it includes a one-o gain on the disposal o the remaining interest in Alcon.
Principal keyfgures(illustrative)Income statement fgures translated
at weighted average annual rate;
Balance sheet fgures at year-end rate.
2009
107 618
15 699
13 222
10 428
48 915
174 294
2.92
13.69
2009
99 361
14 495
12 207
9 628
47 449
169 070
2.70
13.28
2009
71 259
10 395
8 755
6 905
32 922
117 308
1.93
9.22
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28 Nestl Annual Report 20
Overview
This section should be read
in connection with the
2010 Consolidated Financial
Statements.
Ater the decline in economic growth
in 2009 and the related increases
in unemployment, the economic
environment in 2010 remained
uncertain, with continued concerns
over consumer confdence, as well as
increasing raw material ination and
currency volatility as the year evolved.
Nestl experienced its strongest
growth o 2009 in the fnal quartero the year, and thereore entered 2010
with strong momentum. This impetus
remained consistent throughout the
year, even in the fnal quarter o 2010
when we were lapping that strong
fnal quarter o 2009. We, thereore,
also entered 2011 with strong
momentum in our business: this will
help us to manage the challenges
that we ace and to take ull advantage
o our opportunities to drive
better perormance and enhance
shareholder value.
It was not only our business
momentum that remained consistent
throughout 2010; so did our ocus
on our strategic priorities, outlined
in the previous chapter. This alignment
around the world has created a
ramework within which we are driving
our business, and within which we
are able to adjust the dierent levers
in response to changing dynamics
and competitive environments around
the world.Nutrition has a critical role to play
or consumers in emerging markets,
many o whom would lose their
incomes i they were unable to work;
and it is a priority or developed
market consumers too, who have
an increasingly sophisticated
understanding o the relationship
between diet and health. Our drive to
address the needs o those low income
consumers with appropriate nutritional
enhancements to Popularly PositionedProducts (PPPs) is dierent rom our
approach in developed markets with,
or example, the launch o theJenny
Craig Weight Management system
in Europe. Out-o-home consumption
is a big part o peoples lives in both
developed and emerging markets,
but our approach might dier in New
York rom New Delhi. PPPs are growin
in the developed markets, whilst
premium products are growing in the
emerging, and each opportunity need
its own approach: or example, we
cannot use a PPP business model or
premium in emerging markets, or vice
versa. Equally, our route-to-market
strategies will be very dierent in
dierent markets.It is this exibility in terms o how
we manage our business, as well as
our agility in being able to respond
quickly to changing market dynamics
that have held us in good stead in 201
and will continue to do so in 2011.
Another constant in 2010 was our
mix o shorter-term perormance and
longer-term thinking. This resulted in
Nestl delivering improved top and
bottom-line perormances in 2010,
whilst investing in brands and R&D,
capabilities, distribution, structures
and capacities to ensure long-term
proftable growth and value creation.
Our delivery o shorter-term
perormance with longer-term thinkin
will remain our motivation in 2011.
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Nestl Annual Report 2010
Nestl bil lionaire brands achieved 7.1% organic growth in 2010
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30 Nestl Annual Report 20
Sales (Group)
In billions o CHF
110
100
90
In billions o CHFP Europe (a)
P Americas (a)
P Asia, Oceania and Arica (a)
(a) Each region includes sales o the Zones, Nestl
Waters, Nestl Nutrition, Nestl Proessional,
Nespresso and Food and Beverages joint ventures.
0 10 20 30 40 CHF bio
Food and Beverages sales
and organic growth (OG) by continent
OG (%)
10.0
7.5
5.0
2.5
2010 sales
The Group achieved organic growth
o 6.2%, including real internal growth
(RIG) o 4.6%. Foreign exchange
impacted sales by 3.6%, whilst
divestitures, net o acquisitions,
reduced sales by 0.6%. Overall,
Group sales increased by 2.0% to
CHF 109.7 billion.
Continuing operations organicgrowth was 6.0%, with real internal
growth o 4.4%. The oreign exchange
impact was 3.8%, and acquisitions,
net o divestitures, added 1.8%.
Overall, continuing operations sales
increased by 4.0%.
Organic growth or the Food and
Beverages operations was 5.7% in the
Americas, 3.7% in Europe and 10.2% in
Asia, Oceania and Arica. We achieved
11.5% organic growth in emerging
markets, as well as growth in the
developed world. This perormance
reects market share gains in each o
the regions and across our categories.
It has been driven by continued
investment in our growth pillars,
aligned with our strategic roadmap.
These include increasing distribution o
Popularly Positioned Products (PPPs)
and the continuing roll-out o premium
products in both emerging and
developed countries; our ocus across
all our categories on Nutrition, Health
and Wellness; expanding our reachin the out-o-home market; building
our innovation pipeline; and increasing
our consumer marketing and
brand investment.
Proftability
The Groups EBIT margin increased
by 20 basis points to 14.8% o sales.
The EBIT margin is not comparable
to that o 2009 ollowing the disposal
o the remaining interest in Alcon
in August 2010.
The continuing operations EBIT
margin increased by 30 basis points
to 13.4%, both reported and inconstant currencies. This improveme
was delivered at the same time as we
increased our investment in our brand
our marketing expenses increased by
100 basis points, with consumer acin
marketing spend up 13.2% in constan
currencies. The improvement in EBIT
margin was driven by our sales growt
and business mix, as well as by the
achievement o operating efciencies
o over CHF 1.5 billion through Nestl
Continuous Excellence, which
benefted the cost o goods sold,
distribution and administrative costs.
This reects our continued drive or
operational excellence rom arm to
ork. We achieved signifcant cost
savings at the same time as increased
levels o saety, quality, service and
environmental perormance. These
actions contributed signifcantly to ou
2010 perormance; and at the same
time laid oundations or urther
perormance improvement in 2011.
The continuing operations cost ogoods sold reduced by 40 basis point
Savings and the leverage rom our
growth more than compensated the
cost pressures during the year, which
increased in the second hal.
109.92008
107.62009
109.72010
107.62007
98.52006
Sales34.7
46.822.2
OG3.7%
5.7%10.2%
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Nestl Annual Report 2010
EBIT (Group)
In billions o CHF
16
15
14
EBIT margin (Group)In %
14.5
14.0
13.5
EBIT (continuing operations)In billions o CHF
14
13
12
EBIT margin (continuing operations)
In %
13.5
13.0
12.5
The continuing operations
distribution costs reduced by 20 basis
points. This is another area o ocus
o efciencies, particularly in our more
distribution-intensive businesses
such as Nestl Waters and Ice cream.
These savings are pursued both
in our drive to urther improve our
environmental perormance
and as part o our ongoing driveor continuous improvement in
operating perormance.
The continuing operations
administrative costs ell by 70 basis
points. There was a rigorous control
o fxed costs, enabling leverage
rom growth.
Business review
Zone Americas had sales o
CHF 34.3 billion, 5.9% organic g
3.0% RIG and an EBIT margin o
down 30 basis points. In North
America, we saw a continued st
perormance rom the Purina Pe
business, with share gains over
year and all segments showing
double digit in Snacks. Innovatioincluded Purina ONE Shreds and
Feast Gravy Lovers. Chocolate a
a good year, helped by a strong
perormance rom our seasonal
business, the launch o Wonka i
the Chocolate category, as well
innovations such as Butterfnger
Snackerz. Frozen prepared meal
particularly Lean Cuisine, contin
suer rom weak consumer dem
or the category. There was grow
however, or Stouers in the am
value segments. There was a po
perormance rom the rozen piz
business in its frst year in our
ownership, including market sha
gains. Ice cream perormed wel
in a tough market, also achieving
gains; a particular highlight was
snacks business which grew do
digit, with strong perormances
brands such as Skinny Cow and
Drumstickcones. Other success
included Hagen-Dazs and our n
Cups business. The Cups oer aserve snacking occasion and als
provide the opportunity or new
consumers to try our brands. So
coee also had a good year, wit
Nesca Clsico continuing to be
the key growth driver. In Latin A
growth was double digit or the
Brazil, where Nestl will be cele
its 90th anniversary in 2011, had
strong year, with good perorma
across its categories, and partic
in milk. In Mexico, soluble coechocolate and powdered bevera
were among highlights. Across
region, all our categories grew,
o them double digit, including t
three, dairy, chocolate and solub
coee. There was also a very go
perormance rom ready-to-drin
beverages, in part due to the lau
15.72008
15.72009
16.22010
14.3
2008
14.6
2009
13.2
2009
13.1
2009
14.8
2010
14.0
2010
13.4
2010
15.02007
14.0
2007
13.32006
13.5
2006
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32 Nestl Annual Report 20
in Brazil into PET o brands such as
Nescau andAlpina. The Zones EBIT
margin ell by 30 basis points, reecting
increased brand investment, not ully
compensated by efciency gains.
Zone Europe had sales o
CHF 21.6 billion, 2.5% organic growth,
1.7% RIG and an EBIT margin o 12.6%,
up 20 basis points. In Western Europe,
we grew in all major markets, in theace o difcult economic conditions
and despite the tough competitive
environment. France and Great Britain
had a particularly positive year, but
there were resilient perormances in
Germany, Iberian region and Italy, as
well as Switzerland. This reects
market share gains in many countries.
In Greece, the only market where we
didnt see growth, we did make market
share gains. In Eastern Europe, Russia
continued to deliver a lower level o
growth than we would normally
expect, reecting the impact on our
more impulsive-driven categories,
particularly Chocolate, o the tough
economic environment there. That
said, there were more dynamic
perormances rom soluble coee
and ambient culinary.
Amongst the Zones categories,
soluble coee, PetCare, rozen ood,
especially Wagnerand Buitonipizza,
and chocolate, especially KitKat, stand
out. The Zones big three regionalinnovation platorms, Maggi Juicy
Chicken, Nescaf Dolce Gusto and
Nescaf Green Blend, all perormed
well in 2010 and were key contributors
to growth. The Zones EBIT margin
increased by 20 basis points as
efciency gains and the leverage rom
the good level o growth more than
compensated the increased brand
support and investment in innovation
and product launches that drove the
market share gains.Zone Asia, Oceania and Arica had
sales o CHF 17.4 billion, 8.7% organic
growth, 7.0% RIG and an EBIT margin
o 16.9%, up 20 basis points.
The emerging markets achieved
double-digit growth, with strong
perormances across the Zone: rom
Arica, rom Asia, including India
and China, Indonesia and Thailand, an
rom the Middle East. The developed
markets also achieved growth,
meaning that we grew our business
in the developed markets o each o
our three Zones.
There were strong perormances b
most categories in Zone AOA. Ambie
culinary, primarily Maggi, ambient da
and ready-to-drink beverages, brandssuch as Milo and Nescaf, all grew
double digit. Other categories, such a
powdered beverages and chocolate,
enjoyed high single-digit growth.
Particularly notable was the
perormance o Nescaf in Japan,
where we sold about 500 000 coee
systems in the year, either Nescaf
barista or Nescaf Dolce Gusto, and
we also enjoyed success there with th
relaunch o our super-premium varian
o pure soluble Nescaf.
Innovation highlights included the
roll-out in Arica and South Asia o a
new avour enhancer by Maggi, and
PPPs across the Zone, including or
conectionery in China, India and
Indonesia. The Zones EBIT margin
increased by 20 basis points, again
reecting the benefts o growth and
increased efciencies.
Operating segments: Food and Beverages
EBIT margin
In %
Zone Europe
Zone Americas
Zone Asia, Oceania and Arica
Nestl Waters
Nestl Nutrition
Other Food and Beverages (a)
(a) Mainly Nestl Proessional, Nespresso and
Food and Beverages joint ventures managed on
a worldwide basis.
Operating segments: Food and Beverages
sales and organic growth (OG)
OG (%)
10.0
7.5
5.0
2.5
0 10 20 30 CHF bio
In billions o CHFP Zone EuropeP Zone AmericasP Zone Asia, Oceania and AricaP Nestl WatersP Nestl NutritionP Other Food and Beverages (a)
12.6
16.5
16.9
7.4
18.1
16.4
Sales21.634.3
17.49.1
10.311.0
OG2.5%5.9%
8.7%4.4%6.7%9.8%
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Nestl Annual Report 2010
Products: EBIT margin
In %
Powdered and liquid beverages
Water (a)
Milk products and Ice cream
Nutrition (a)
Prepared dishes and cooking aids
Conectionery
PetCare
Pharmaceutical products (b)
(a) The fgures between Operating segments and
Products are slightly dierent due to the act that
some water and nutrition products are also sold by
Operating segments other than Nestl Waters and
Nestl Nutrition.
(b) Including Alcon discontinued operations.
In billions o CHFP Powdered and liquid
beveragesP Water (a)
P Milk products and
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