Annual Report 2012

Annual Report 2012

Annual Report 2012 Nutrition to enhance the quality of life Annual Report 2012 Table of contents   2 Letter to our shareholders 38   8   8 ...

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Annual Report 2012 Nutrition to enhance the quality of life

Annual Report 2012

Table of contents

  2

Letter to our shareholders

38

  8   8 10 11

Corporate Governance and Compliance Corporate Governance Board of Directors of Nestlé S.A. Compliance Executive Board of Nestlé S.A.

39 40 41 52 54 55

14 16 20 24 28 32

Accompanying reports

Financial review 2012 Business review Leading positions in dynamic categories Overview Principal key figures (illustrative) in CHF, USD, EUR Principal risks and uncertainties Geographical data: factories Shareholder information

The Nestlé Roadmap to Good Food, Good Life Four competitive advantages Four growth drivers Four operational pillars 2012 Highlights Global Nutrition, Health and Wellness Consumer engagement Unmatched geographic presence Building for the future

Nestlé in society Creating Shared Value and meeting our commitments 2012

Creating Shared Value and meeting our commitments 2012

Nestlé – Corporate Governance Report 2012 | 2012 Financial Statements

Nestlé in society

Nestlé in society

Corporate Governance Report 2012 2012 Financial Statements

Corporate Governance Report 2012 including Compensation Report 2012

2012 Financial Statements

The brands in italics are registered trademarks of the Nestlé Group.

Key figures (consolidated)

In millions of CHF (except per share data) 2011

2012

Sales

83 642

92 186

Trading operating profit

12 538

14 012

as % of sales

15.0%

15.2%

Profit for the year attributable to shareholders of the parent (Net profit)

9 487

10 611

11.3%

11.5%

Capital expenditure

4 779

5 368

as % of sales

5.7%

5.8%

as % of sales

Equity attributable to shareholders of the parent before proposed appropriation of profit of Nestlé S.A. Market capitalisation, end December Operating cash flow (a) Free cash flow (b)

56 797

60 947

171 287

190 038

10 180

15 772

4 757

9 879

Net financial debt

14 319

18 152

Ratio of net financial debt to equity (gearing)

25.2%

29.8%

Per share Total basic earnings per share

CHF

2.97

3.33

Underlying (c)

CHF

3.08

3.37

Dividend as proposed by the Board of Directors of Nestlé S.A.

CHF

1.95

2.05

(a) 2011 comparatives have been restated following the changes in the cash flow statement described in the Consolidated Financial Statements: Note 1 – Accounting policies. (b) Operating cash flow less capital expenditure, expenditure on intangible assets, sales of property, plant and equipment, investments (net of disinvestments) in associates and other investing cash flows. As from 2012, movements with non-controlling interests are no longer deducted. 2011 comparative has been restated accordingly. (c) Profit per share for the year attributable to shareholders of the parent before impairments, restructuring costs, results on disposals and significant one-off items. The tax impact from the adjusted items is also adjusted for.

Nestlé in society: Creating Shared Value Highlights

75.7%

5.4 million

6692

11 700

100 billion

690 054

44 000

489

217

39

– 24%

18 103

Nestlé products meeting Nutritional Foundation criteria

Equivalent tonnes of salt removed by Maggi from its portfolio over the last eight years

Farmers having access to financial assistance from Nestlé worth up to USD 37.8 million

Factories generating zero waste for disposal

Children reached by the Nestlé Healthy Kids Global Programme, in 64 countries

Servings of iodine-enriched Maggi products sold worldwide

Water-saving projects in our factories, saving 6.5 million m3

Reduction in direct GHG (Greenhouse Gas) emissions since 2002

Please see the attached Nestlé in society report for more information.

Renovated products for nutrition or health considerations

Farmers working directly with Nestlé

Clean drinking water projects in the South Asia region, helping to improve access and sanitation for more than 100 000 school children

Employees completing our online human rights training tool

Group highlights

The Nestlé Model achieved in 2012

Group sales

Organic growth

CHF 92.2 billion +8.6 billion +10.2%

5.9%

Trading operating profit

Trading operating profit margin

CHF 14.0 billion +1.5 billion

15.2% +20 basis points

Earnings per share

Underlying earnings per share

CHF 3.33 +12.2%

+7.5%

constant currencies

Proposed dividend

CHF 2.05

+5.1%

Operating cash flow

Outlook

Nestlé Annual Report 2012

CHF 15.8 billion CHF +5.6 billion

+55%

Despite the many challenges 2013 will no doubt bring, we expect to deliver the Nestlé Model of organic growth between 5% and 6% as

well as an improved margin and underlying earnings per share in constant currencies.

1

Letter to our shareholders

Fellow shareholders, The 2012 environment was once again challenging, but it also brought opportunities. As such, it was a good example of what we characterise as “the new reality”. The fact that we delivered for the 17th consecutive time the Nestlé Model of organic growth between 5% and 6% together with an improvement in our trading operating profit margin in such an environment demonstrates the value of having strong alignment of our people behind our strategic priorities. This strategic alignment provides a framework for accelerated innovation, increased engagement with consumers and enhanced operational and financial performance. It enables us to build appropriate capabilities to ensure we remain fit to win in an ever more intense environment. It creates a real competitive advantage, empowering our people, and unlocking their energy and creativity, as we strive to meet and beat our objectives. It is a marriage of “global inspiration and local execution”, that means we are all on that same roadmap, but are always respectful of local cultures, tastes, habits and laws, and of the individuality of our consumers. The 2012 results demonstrate that your company has made further progress. Sales were up 10.2% to CHF 92.2 billion, with organic growth of 5.9%, incorporating real internal growth of 3.1%. The trading operating profit was up 11.8% to CHF 14.0 billion and the margin increased by 20 basis points to 15.2%. The net profit was up 11.8% to CHF 10.6 billion and earnings per share increased 12.2% to CHF 3.33 per share. Operating cash flow increased from CHF 10.2 billion to CHF 15.8 billion. In view of this performance and the company's strong financial position, the Board is proposing a dividend of CHF 2.05 per share, up from CHF 1.95 last year. The history of food has been of continual, gradual change, accompanied by an increasing understanding of the role of nutrition. At first, food was something people needed to survive, then something that brought families together, gave convenience and pleasure. More recently, it has become more consciously a way to bring health benefits. And the role of nutrition continues to evolve. In today’s era of spiraling healthcare costs, nutritional science can play a role in disease prevention and management. 2

As the role of nutrition has evolved, so has Nestlé, adjusting our offering to be in line with or anticipate the needs of our consumers, whilst staying true to our core business of food, beverage and nutrition. Today, our nutrition, health and wellness strategy has three aspects: –– All our food and beverage brands, regardless of category or eating occasion, should offer consumers not just the best taste and pleasure but also the best nutritional profile in their category, as part of a healthy diet. –– We are targeting particular nutritional needs through Nestlé Nutrition, with its Infant, Performance and Weight management divisions. –– And, through Nestlé Health Science (NHSc) and the Nestlé Institute of Health Sciences, which was inaugurated in 2012, we are pioneering science-based personalised nutritional solutions to prevent and treat medical conditions. Nutrition is Nestlé’s core. That core was enhanced in 2012 by acquisitions for both Nestlé Nutrition and NHSc. NHSc acquired a stake in Accera, whose key brand is intended for the clinical dietary management of Alzheimer’s disease. NHSc also created a joint venture with Chi-Med, Nutrition Science Partners (NSP), to research and bring to market nutritional and medicinal products derived from plants with an initial focus on gastrointestinal health. NSP will get access to one of the leading traditional Chinese medicine libraries. Nestlé Nutrition’s global leadership in infant nutrition was enhanced in November with the acquisition of the Wyeth Nutrition business from Pfizer. This business, with 85% of its sales in emerging markets, is a wonderful fit with our existing business, even after the required divestitures. In particular, it enhances our position in that category in China. China would now be Nestlé’s second biggest market, with annualised sales of around CHF 6 billion, including the Wyeth Nutrition acquisition and our 2011 partnerships, Yinlu and Hsu Fu Chi. Our investments in China, including new R&D units in Xiamen and Dongguan, demonstrate our desire to benefit from the incredible capabilities and know-how which the country has to offer. Another development there was the opening of our dairy farming institute in Heilongjiang province. The institute aims to be the country’s leading dairy training centre. Meanwhile, our work with coffee farmers in Nestlé Annual Report 2012

Peter Brabeck-Letmathe Chairman

Nestlé Annual Report 2012

Paul Bulcke Chief Executive Officer

3

Letter to our shareholders

Yunnan province over the last 20 years was recognised with a World Business and Development Award at Rio+20. China is just one market where people’s lives are changing dramatically and where there are opportunities for Nestlé to contribute. There are billions of consumers in emerging markets who share the objective of living better lives. This is creating a dynamic catalyst for growth and development, individually for people, collectively for the countries where they live, and for Nestlé. We have deep roots in emerging markets, where we have continued to expand our presence: in 2012 we opened our first factories in Angola and the Democratic Republic of Congo. As part of our Creating Shared Value strategy, we have also extended our relationships with farmers across emerging markets. –– One example is helping farmers adapt to climate change. Since 2001, we have halved our greenhouse gas emissions per tonne of product; if we can also reduce the environmental impact of our supply chain, this can help secure an enhanced supply of higher quality raw materials. –– We scaled up the Nestlé Cocoa Plan with a significant increase in the amount of cocoa sourced directly from farmers, with the intention to reach 15% in 2013. We are also working with the Fair Labor Association to help eliminate child labour on farms supplying our factories and to allow children to attend school. –– We are working with local authorities in Morocco to increase milk production and improve the quality of fresh milk. The partnership should benefit 10 000 farmers. –– We extended our commitment to Colombian coffee farmers for five years and have joined a programme to help coffee farmers in Haiti. In Vietnam, we are helping 20 000 farmers improve productivity through better farming practices and by distributing high-yield, disease resistant plantlets. In India, we opened our first coffee “demonstration” farm to help improve quality, productivity and sustainability. –– All in all we collaborate with more than 680 000 small-hold farmers, mainly in the areas of milk, cocoa and coffee. The coffee category had a very dynamic year in 2012, and Nescafé will be celebrating its 75th anniversary in 2013. Nescafé Dolce Gusto is now in 62 markets, and we are 4

making capacity investments in Germany and the United Kingdom. Nespresso continued to grow double-digit, and we have announced a CHF 300 million investment in Switzerland. The Nescafé systems are also performing well in the out-of-home market. The success of our coffee systems businesses demonstrates the importance of R&D to Nestlé. In 2012, we celebrated our 100th anniversary in India with the opening of a development centre focused on local ingredients and popularly positioned products (products designed to be affordable on a daily basis for emerging consumers). We also began work on an R&D development centre in Switzerland to manage our global clinical trials programme. R&D brings consumer benefits even in what might be imagined to be standard food products, such as Maggi cubes in Africa. These are in fact fortified with iron and iodine helping to address micronutrient deficiencies; Nestlé can use its R&D capabilities and credibility to be part of the solution to health issues ranging from malnutrition to obesity by enriching the dialogue around health and nutrition issues. With this in mind, we launched several initiatives in 2012. –– We are supporting the United Nations Education First initiative, committing to teach over six million children in 60 countries the value of good nutrition and physical activity. This is part of the Nestlé Healthy Kids Programme, which we plan to extend to 70 countries by 2016, in association with the International Association of Athletics Federations. We are also a sponsor of the “Institute for Healthy Childhood Weight”, established by the American Academy of Pediatrics. It will produce clear, accessible resources for health professionals, communities and parents, based on government policies and scientific evidence. –– Healthy aging is another key issue. The 9th Nestlé International Nutrition Symposium, attended by over 150 world-renowned scientists and healthcare professionals, addressed this. We also launched the “Elderly Care – Health Project” in China to enable elderly people to receive free heart checks and health consultations. A priority for R&D is to advance food and nutrition science. In 2012 our projects included childhood allergies, diabetes, osteoporosis, inflammatory bowel disease, healthy Nestlé Annual Report 2012



Nestlé can use its R&D capabilities and credibility to be part of the solution to health issues ranging from malnutrition to obesity by enriching the dialogue around health and nutrition issues.”

Nestlé Annual Report 2012

hydration, immune systems, healthier alternatives to salt, and the impact of dark chocolate on stress, as well as agriculture, packaging and environmental life cycle analysis of products. A strong R&D capability is at the heart of our ambition to be the trusted leader in Nutrition, Health and Wellness. As such, it is a prerequisite for a successful future, together with a willingness to invest and a focus on the longer term, regardless of shorter-term challenges. Critical to our success in the future is the development of people, the management of career paths and succession planning. Nestlé now has about 339 000 people, with thousands having joined in the last two years. They have found themselves part of a decentralised organisation which is aligned, entrepreneurial and fast moving wherever it operates, and which is linked together by firm values and principles, including a warm appreciation for the benefits of diversity. We have welcomed them into our group, expecting many to benefit from the international opportunities that we offer as their careers progress. It is fundamental that a company such as Nestlé plays a positive role in society. Indeed, we believe that we will create long-term value for our shareholders only if we connect positively with society at large. This is what we call “Creating Shared Value”. We have discussed in this letter how we use our know-how and resources not just to ensure that we run our business sustainably, but also to play a broad role in society. The accompanying Nestlé in society report details our approach and lists various commitments that we have made around nutrition, compliance and environmental sustainability amongst others. This commitment to Creating Shared Value stands front and centre as we pursue our objective of being the reference for financial performance in our industry and, as such, is a priority for your Board. The Board’s other priorities in 2012 included the Wyeth Nutrition acquisition and the related funding strategy, balance sheet management and capital allocation, the management of the Group’s pensions, the asset and liability review, as well as reviewing the direction of our Nutrition, Health and Wellness strategy. André Kudelski, will retire from our Board after twelve years. We would like to thank him for his greatly appreciated contribution. Peter Brabeck-Letmathe, Steven G. Hoch, 5

Letter to our shareholders

a member of our Nomination Committee; Titia de Lange, a member of Nestlé’s Nutrition Council; and Jean-Pierre Roth, a member of our Compensation Committee, are standing for re-election. Eva Cheng, of Chinese nationality, will be proposed for election to the Board. She is the former Corporate Executive Vice President responsible for Greater China and Southeast Asia Region of Amway Corporation, a U.S. based global consumer product company. We believe that with her extensive business experience and strong entrepreneurial background, Ms Cheng will enrich our Board’s business competencies particularly in light of our expanding footprint in Asia. There were changes to the Executive Board in 2012. James Singh retired as Chief Financial Officer and was succeeded by Wan Ling Martello, who joined the Group in 2011. The Board thanks Jim for his many years of service. Kurt Schmidt decided to leave the company, and was replaced by Luis Cantarell as Head of Nestlé Nutrition. Luis will combine this position with running Nestlé Health Science, though the two businesses will remain separate. As always, it is our pleasure to express our gratitude to all our people on behalf of the Board and our shareholders. The year under review has been another chacterised by difficulties and challenges, whether caused by natural disasters, civil unrest or the macro issues in many countries. Regardless, our people have continued to devote their energies and resourcefulness to ensuring that our company continues to perform to the highest levels and standards. Our thanks go to all of them. The environment looks to be every bit as challenging in 2013 as it was in 2012. But 2013 will again provide opportunities to leverage our competitive advantages, deliver on our growth opportunities and benefit from our drive for continuous improvement across the Group. We expect, therefore, to deliver the Nestlé Model once again in 2013: organic growth between 5% and 6% together with an improved trading operating profit margin and underlying earnings per share in constant currency, as well as improvement in our capital efficiency.



A strong R&D capability is at the heart of our ambition to be the trusted leader in Nutrition, Health and Wellness. As such, it is a prerequisite for a successful future, together with a willingness to invest and a focus on the longer term, regardless of shorter-term challenges.”

Peter Brabeck-Letmathe Chairman

6

Paul Bulcke Chief Executive Officer

Nestlé Annual Report 2012

Nutrition is at the heart of Nestlé

Nestlé Annual Report 2012

7

Corporate Governance and Compliance

Corporate Governance The prerequisite for a company to engage with society is compliance and effective governance. The Chairman and the CEO ensure the tone of good governance at Board level and below on the basis of strong principles that provide the framework of how we do business. In our Corporate Governance Report we outline how our governance ensures the effectiveness of our Board. It explains the role of our Board and its committees, Board processes and risk oversight in line with established best practices. Our Compensation Report is submitted annually to a separate advisory vote of our shareholders. The Board regularly solicits the input from investors, governance experts and proxy advisors on our governance. Resulting changes are described in the report and explained to shareholders prior to the relevant vote at the Annual General Meeting. We integrate the reporting of financial and non financial performance measures along the lines of the UN Global Compact Principles for Responsible Investment (UNPRI) and the Global Reporting Initiative (GRI), which plays a critical role in demonstrating our commitments on governance, environmental, social, ethical and sustainability issues. Good governance helps us create and maintain trust with our employees, investors, governments, NGOs, our customers, consumers and other stakeholders. In our Nestlé in society report we demonstrate how we engage with society at large. Conditioned upon strong compliance, we aim to run our business sustainably and for the long term. This gives us the legitimacy to engage with society in a way that leads to the creation of shared value. Nestlé has a highly diversified ownership structure, and we use a number of ways to communicate with our shareholders. Through shareholder surveys, investor roundtables, analyst and engagement calls, and bilateral meetings, we have established a dialogue with our investors, pursuing a holistic approach that manages both their financial and governance expectations. We are actively engaged in the development of Swiss law and governance practices. In 2012, focus was on the proper functioning of the voting chain and the development of a Swiss Code of Best Practice for the Exercise of Voting Rights by Institutional Investors. 8

Board of Directors of Nestlé S.A. at 31 December 2012

Peter Brabeck-Letmathe

Paul Bulcke

Andreas Koopmann

Helmut O. Maucher Honorary Chairman David P. Frick Secretary to the Board KPMG SA Geneva branch Independent auditors Term expires 2013 (1)

Peter Brabeck-Letmathe (2, 4) Chairman Term expires 2013 (1) Paul Bulcke (2) Chief Executive Officer Term expires 2014 (1) Andreas Koopmann (2, 3, 4) 1st Vice Chairman Chairman of Georg Fischer AG. Term expires 2014 (1)

Nestlé Annual Report 2012

(1) On the date of the Annual General Meeting. (2) Chairman’s and Corporate Governance Committee. (3) Compensation Committee. (4) Nomination Committee. (5) Audit Committee.

Rolf Hänggi

Jean-Pierre Meyers

For further information on the Board of Directors, please refer to the Corporate Governance Report 2012, enclosed.

Ann M. Veneman

Naïna Lal Kidwai

Beat Hess Titia de Lange Henri de Castries

André Kudelski

Daniel Borel

Rolf Hänggi (2, 5) 2nd Vice Chairman Former Chairman, Rüd, Blass & Cie AG. Term expires 2014 (1) Beat Hess (2) Former Group Legal Director, Royal Dutch Shell plc. Term expires 2014 (1) Daniel Borel (3) Co-founder and Board member, Logitech International S.A. Term expires 2015 (1)

Nestlé Annual Report 2012

Steven G. Hoch

Jean-Pierre Roth

Jean-Pierre Meyers (3) Vice Chairman, L’Oréal S.A. Term expires 2014 (1) André Kudelski (5) Chairman and CEO, Kudelski Group. Term expires 2013 (1) Steven G. Hoch (4) Founder and Senior Partner, Highmount Capital. Term expires 2013 (1)

Naïna Lal Kidwai (5) Country Head of HSBC Group of Companies in India. Term expires 2014 (1) Titia de Lange Associate Director, Anderson Cancer Center, The Rockefeller University. Term expires 2013 (1) Jean-Pierre Roth (3) Chairman, Geneva Cantonal Bank. Term expires 2013 (1)

Ann M. Veneman (4) Former Executive Director UNICEF and Secretary of U.S. Department of Agriculture. Term expires 2014 (1) Henri de Castries (5) Chairman and CEO, AXA. Term expires 2015 (1)

9

Corporate Governance and Compliance

We continue to pursue initiatives to improve dialogue with all our stakeholders on the basis of the clear expectations set in the purpose clause of our Articles of Association, where we have committed ourselves to aim for long-term, sustainable value creation.



Good compliance is a condition for us to engage credibly with society. Beyond compliance, we do business sustainably – preserving our business and our environment for future generations.”

Compliance We will not sacrifice our principles and values for short-term success. Compliance with laws, codes of conduct and our own principles forms the basis of how we do business and is the foundation on which we engage with society. While responsibility is assigned to the markets as per our Custodian Concept, a dedicated corporate Compliance function and a cross-functional Compliance Committee define the framework, facilitate the coordination between the relevant support functions and provide guidance and best practices in a holistic approach to Governance, Risk and Compliance (GRC). The right commitment and tone at the top foster a strong, principles-based compliance culture. The ten principles of our Corporate Business Principles provide the over-arching framework. Various corporate functions ensure their continued implementation. Our Management and Leadership Principles, our Code of Business Conduct and our Supplier Code are other cornerstones of our cross-functional Corporate Compliance Programme. Awareness campaigns and regular risk assessments help us implement and develop relevant best practices. Compliance is regularly monitored by our corporate functions, internal and external audit, and through our expanded CARE audit programme relying on an independent external audit network. In our performance evaluations compliance is linked to “how” goals were accomplished. Our anti-bribery and antitrust programmes included global training initiatives in 2012. Our integrity reporting system was rolled out globally to deal with compliance related grievances, complementing the “whistleblower procedure” introduced with our Code of Business Conduct. Fraud, employment conditions, privacy and regulatory compliance were other focus areas. We use our Nestlé Continuous Excellence (NCE) framework to foster a common understanding of compliance across the functions. This includes the verification of appropriate 10

Nestlé Annual Report 2012

Executive Board of Nestlé S.A. at 31 December 2012

For further information on the Executive Board, please refer to the Corporate Governance Report 2012, enclosed.

Standing (from left to right): Marc Caira, John J. Harris, Werner Bauer, Chris Johnson, Laurent Freixe, Doreswamy (Nandu) Nandkishore, David P. Frick, Jean-Marc Duvoisin Seated (from left to right): José Lopez, Patrice Bula, Paul Bulcke, Wan Ling Martello, Luis Cantarell

Paul Bulcke Chief Executive Officer Members, Executive Board Werner Bauer EVP, Innovation, Technology, Research and Development Luis Cantarell EVP, Nestlé Nutrition, President and CEO, Nestlé Health Science José Lopez EVP, Operations, GLOBE

Nestlé Annual Report 2012

John J. Harris EVP, Nestlé Waters Laurent Freixe EVP, Europe Chris Johnson EVP, United States of America, Canada, Latin America, Caribbean Patrice Bula EVP, Strategic Business Units, Marketing and Sales Doreswamy (Nandu) Nandkishore EVP, Asia, Oceania, Africa, Middle East

Wan Ling Martello EVP, Chief Financial Officer (includes Legal, Intellectual Property, Global Business Services) Marc Caira Deputy EVP, Nestlé Professional Jean-Marc Duvoisin Deputy EVP, Human Resources David P. Frick SVP, Corporate Governance, Compliance and Corporate Services

Yves Philippe Bloch, Corporate Secretary EVP: Executive Vice President SVP: Senior Vice President

11

Corporate Governance and Compliance

Shareholders by geography (a) Belgium 2.14%

Switzerland 35.34%

China 2.27% Japan 2.38% Luxembourg 2.38% France 3.23% Norway 3.93% Germany 4.11% United Kingdom 5.71% Others 11.94%

principles and policies, adequate internal controls, effective structures, monitoring and reporting, proper consequence management and above all the right culture and top level commitment. Our WHO Code Compliance programme covers all Nestlé operations involved in the marketing of infant nutrition products. We adhere to the decisions of all governments regarding the application of the WHO Code in their countries and voluntarily apply the WHO Code in all developing countries. Our Code Compliance Committee provides guidance in this area and a separate reporting system helps us manage complaints. Our inclusion in the FTSE4Good Index is a testimony to our commitment and has allowed us to focus our efforts in specific areas for improvement in 2012. Our human rights due diligence programme, coordinated by our Human Rights Working Group, is based on the UN Framework on Business and Human Rights and our cooperation with the Danish Institute for Human Rights. It includes risk assessments, impact evaluation, training and monitoring. Good compliance is a condition for us to credibly engage with society. Beyond compliance, we do business sustainably – preserving our business and our environment for future generations. Ultimately, to build a profitable business, we must create long-term value for society as well as for our shareholders. We must create shared value.

USA 26.57%

Distribution of Share Capital by geography (a) 100%

Others Belgium

80%

China Japan

60%

Luxembourg

40%

Norway

20%

United Kingdom

France Germany USA 0%

Switzerland 2008 2009 2010 2011 2012

Share Capital by Investor Type, long-term evolution (a) 100% Institutions 79% 80% Private

40%

Shareholders 21% 0%

1997 2001 2005 2009 2012

(a) Percentage derived from total number of registered shares. Registered shares represent 62.3% of the total share capital. Statistics are rounded, as at 31.12.2012.

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Nestlé Annual Report 2012

Our objective is to be the leader in Nutrition, Health and Wellness, trusted by all stakeholders

Nestlé Annual Report 2012

13

The Nestlé Roadmap to Good Food, Good Life

In recent years the Nestlé 4x4x4 Roadmap has helped us build both a strong alignment within our Company and a deep understanding of what we want to achieve, strategically and financially, and how to go about it. Our people are better able than ever today to pursue our ambition to be the recognised and trusted leader in Nutrition, Health and Wellness. That trust is reflected in the hundreds of millions of purchase decisions – made by consumers every day – enabling them to enhance their lives and those of their families by providing tastier and healthier food and beverage choices for all stages of life, and at any time of the day. True to our values and principles, and our commitment to environmental sustainability and compliance along every step of our value chain, we also seek to Create Shared Value in communities where we operate. We believe that this is the only way to secure long-term value creation for our shareholders. Our commitment is to provide Good Food, Good Life.

Four competitive advantages

Four growth drivers

Four operational pillars

Nestlé’s product and brand portfolio ranges from global icons to local favourites. It is supported by an unmatched research and development capability, with clear priorities, focused on driving innovation and renovation that is relevant and attractive for consumers.

Leadership in Nutrition, Health and Wellness means offering tastier and healthier choices to consumers throughout the day; it means responding to specific nutritional needs through Nestlé Nutrition; and it means pioneering ways to address critical illness through nutrition at Nestlé Health Science.

We want to be the leader in innovation and renovation, whether of products, systems or processes. Some products will be entirely new, some will have a refreshed aspect. Regardless, we take an invigorating point of view to keep our consumers excited about our brands.

Our Group has an unmatched geographic presence, due to the depth of our roots in countries all over the world, which often stretch back many generations. This has created strong relationships between our brands and their consumers, as well as an unrivalled understanding of consumers, enabling us to anticipate their needs and improve the quality of their lives. Our people, culture, values and attitude are our greatest strength. The Nestlé culture, with its natural openness to diversity, binds our people together all over the world with a shared set of behaviours and values into a single way of doing business. Our culture combines a long-term mindset with shortterm action. It encompasses a passion for quality – in products, in relationships, in everything we do. It is focused on competitiveness, calculated risk-taking and an unswerving determination to deliver our goals, while creating value for society as a whole.

Emerging consumers are consuming our Popularly Positioned Products (PPP). We bring all our nutritional know-how to these consumers, the same brand promise and quality, and we strive to add the extra plus – such as fortification against nutritional deficiencies. With premium products, consumers want an indulgent moment of pleasure, an everyday reward. Our premiumisation strategy, incorporating systems, services and products, is enhancing consumers’ lives, whilst creating additional value per consumption moment: many consumers are not looking to eat and drink more; they are looking to eat and drink better. Out-of-home consumption is a fast growing part of our industry. This covers leisure, from roadside kiosks in Asia to gourmet restaurants in the capitals of the world, and institutional catering, from schools to hospitals. Our focus here is on added-value branded food and beverage solutions and services.

We also need to have the most efficient supply chain – from farm to fork and beyond – to ensure that we have the best raw materials, the best processes and the freshest products on our customers’ shelves. Nestlé Continuous Excellence is our approach to operational efficiency, with its objectives of eliminating waste, increasing efficiency and effectiveness, and improving quality in all operations. It is not enough, however, just to make the most innovative products in the most efficient way; we also need to ensure that our products are available sustainably whenever, wherever and however consumers want to buy them. And, of course, we need to engage with our consumers in a dynamic way: both to keep them abreast of all that is new and exciting, but also to learn from them, so that we can bring their experiences to bear on our new and updated products – helping us to achieve our ambition to be a leader in innovation and renovation. You will find some of these aspects brought to life on the following pages.

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Nestlé Annual Report 2012

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

Competitive advantages

Unmatched research and development capability

Unmatched geographic presence

Unmatched product and brand portfolio

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Nestlé Annual Report 2012

Emerging markets and Popularly Positioned Products

Out-of-home consumption

Consumer engagement

Operational pillars

Nutrition, Health and Wellness

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Innovation and renovation

People, culture, values and attitude

Premiumisation

Growth drivers

15

2012 Highlights Global

Building a sustainable future and creating value for Nestlé and society

Infant Nutrition Enhanced position, enhancing life The highlight of 2012 was the acquisition of Pfizer’s Wyeth Nutrition business for USD 11.85 bn. The business fulfils the crucial criteria for an acquisition: it is both a good strategic and cultural fit, and it makes strong financial sense. The products complement Nestlé’s Start Healthy Stay Healthy focus on a child’s first 1000 days. It has good positions in China and other Asian countries with high numbers of births, and where increasing affluence is growing the market. It is a high value, high growth business which will enhance our infant nutrition division and contribute positively to the Nestlé Model in its first full year. ■ Wyeth Nutrition logo Identity Guidance to markets

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Vevey Octobre 2012 RCC/CI&D

Nestlé Annual Report 2012

Creating Shared Value Prize

Nestlé Institute of Health Sciences

Supporting education globally An organisation that aims to boost education and entrepreneurship for young people is the winner of this year’s Nestlé Prize in Creating Shared Value. The prize went to the Fundación Paraguaya de Cooperación y Desarrollo for its “agricultural self-sufficient school” project, which makes sure students receive technical and business training as well as their normal academic curriculum through microbusinesses based in the schools. These businesses include agricultural technical assistance, milk production, farming, organic gardening, hotel services, bee keeping and egg production. Money generated from the enterprises covers their operating costs. The project, set up in 2003, has already reached more than 500 students. Thirty countries in Latin America and Africa are replicating the project. ■

NIHS inauguration The Nestlé Institute of Health Sciences (NIHS) had its official opening in Switzerland in November. The NIHS performs biomedical research and uses advanced technologies to develop a better understanding of human health. The NIHS supports Nestlé Health Science by providing the scientific foundation for innovative products that combine medical nutrition with diagnostics, with an aim to delay the onset and to modify the course of chronic diseases such as diabetes, obesity, and Alzheimer’s disease. The institute is based on the university campus of the world-renowned EPFL in Lausanne and is part of Nestlé’s global Research & Development network. ■

Nestlé Annual Report 2012

17

2012 Highlights Global

18

Nestlé Cocoa Plan

Fair Labor Association

Investment with cocoa farmers The Nestlé Cocoa Plan is our 10-year, CHF 110 million investment that aims to tackle key issues facing cocoa farmers, their families and communities, and to create a better future for cocoa farming. In 2012, we trained 21 000 farmers, distributed 1.1 million high-yielding, disease-resistant plantlets and sourced 38 000 tonnes of cocoa through the plan. We are working with partners UTZ and Fairtrade to certify the cocoa produced by Nestlé Cocoa Plan co-operatives; and we have partnered with the World Cocoa Foundation in Côte d’Ivoire to build or refurbish 40 schools in 4 years. By 2013 we aim to source up to 15% of our cocoa through the Nestlé Cocoa Plan. Learn more at www.nestlecocoaplan.com. ■

Working to eliminate child labour Nestlé has partnered with the Fair Labor Association to map the cocoa supply chain in order to prevent the use of child labour in cocoa-growing areas in Côte d’Ivoire. Together with the FLA, Nestlé has developed an action plan to eliminate child labour and build on existing efforts to develop a more sustainable cocoa supply. This collaboration has led to a close cooperation with the International Cocoa Initiative to develop and implement an innovative child monitoring and remediation system in our supply chain for child labour. We are working to establish this within the certification systems of Fairtrade and UTZ so that it has a wider impact. Nestlé partnered with the FLA in 2011 in mapping the hazelnut supply chain in Turkey and developing an action plan. ■

Nestlé Annual Report 2012

Nestlé Business Services

Nestlé Waters

Enabling efficiencies and growth The role of Nestlé Business Services is to provide highly efficient support to our Group in areas such as finance & control, human resources, procurement and facilities management. The creation of NBS has enabled our people all over the world to focus on their core activities and to devote more time to their customer and consumer-facing activities. NBS is a contributor not just to efficiencies in its areas of activity, but also to driving growth in our businesses around the world. There are five Regional NBS centres, in the Philippines, Brazil, Egypt, Ghana and Ukraine. These provide services to more than 100 countries and more than 200 000 Nestlé employees. ■

Healthy family hydration Nestlé Pure Life has become the world’s leading bottled water, with more than 9.2 billion litres sold in 2012 – more than 1100 glasses per second of healthy family hydration in more than 40 countries. The development of Nestlé Pure Life demonstrates our commitment to create innovative healthy hydration solutions: such as the introduction in Pakistan of Nestlé Pure Life Protect with zinc, an essential mineral to support the immune system. And kid-friendly offers went on sale in Turkey, Egypt and Saudi Arabia. In Europe, one example of how we are helping mums to lead their families to healthier lifestyles was a campaign about how water can help improve a child’s ability to concentrate. ■

Nestlé Annual Report 2012

19

Growth drivers

Nutrition, Health and Wellness

Enhancing quality of life for everyone every day Addressing specific needs and chronic illness

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PetCare

Infant Nutrition

Project: Pet Slim Down: pets and owners get a new leash on life With an estimated 55% of dogs and cats in the USA overweight, innovative programmes like Purina’s “Project: Pet Slim Down” have been designed to include pets in families’ health and wellness activities. This on-line programme encourages pet owners to work with their veterinarian to help their pets reach their ideal weight and body condition. Pets at a healthy weight enjoy happier lives. Many pet owners have discovered that they, too, can enjoy the benefits of being more active with their pet, from walking the dog to playing fetch or constructing a simple obstacle course. See success stories at www. projectpetslimdown.com. ■

Achieving GRAS status in the USA Nestlé Lactogen with Gentle Start/Gentle Plus/Gentle Grow containing a proprietary active culture, L.Comfortis, achieved GRAS (Generally Recognised as Safe) status from the US Food and Drug Administration for use in newborns. This infant formula has been successfully rolled out in nearly 50 countries globally. In the USA it is sold as Gerber Good Start Soothe. ■

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20

Nestlé Annual Report 2012

World Diabetes Day

International Association of Athletics Federations

Promoting education and prevention Nestlé and the International Diabetes Federation have entered into a partnership to promote diabetes education and prevention and raise awareness of diabetes around the world. Nestlé is a World Diabetes Day partner from 2012 to 2014. It is helping to raise awareness for diabetes by promoting this key global campaign at country level, using the global network of both organisations as well as the Nestlé Healthy Kids Programme. Nestlé is also looking into opportunities for joint scientific research projects with IDF in 2013 and beyond. ■

Partnering for healthy kids Nestlé signed a five-year global partnership agreement with the International Association of Athletics Federations to align IAAF Kids’ Athletics with the Nestlé Healthy Kids Programme. The partnership with IAAF enhances the programme, which aims to raise the Nutrition, Health and Wellness awareness of school children around the world. Brazil, Chile, Mexico and Argentina have benefited from this partnership with activities in 2012 that included government representatives, sports groups and communitybased organisations. This programme will help expand sporting activities throughout Zone Americas, increase sports participation in schools and promote a balanced and healthy lifestyle. In 2013, it will be expanded to Jamaica, Trinidad and Tobago, USA, Colombia, Ecuador, Panama and Peru. Nestlé also supports the EPODE («Ensemble, Prévenons l’Obésité Des Enfants») International Network with the aim of reducing childhood obesity. ■

Nestlé Annual Report 2012

Gris 12/0/0/56 Bleu 70/20/0/0 Violet 5/85/5/0 Vert 50/0/100/0 Orange 0/51/93/0

HealthyKids

NestléHealthyKids 21

Growth drivers Nutrition, Health and Wellness

Dairy products Nestlé ActiCol – young at heart In a world with an aging population, Nestlé ActiCol is a strong proposition for consumers wanting to keep a healthy heart. Launched in Chile and Mexico in 2012, it is based on Nestlé’s scientific expertise and is available as liquid milk,

powdered milk and yoghurt. The product is clinically proven to help reduce cholesterol. ■

Ice cream

Light cereal snacks

Nestlé Professional

Peeling is believing… … but it is now a reality, and this playful experience can be enjoyed in the form of an innovative and unusual ice cream stick, which can be peeled just like a banana. It is not only fun, but it also supports Nestlé‘s Nutrition, Health and Wellness strategic drive by meeting the Nestlé nutritional foundation criteria for kids. This affordable playful snack has been rolled-out from Thailand to the western world, and quickly became a highly sought after success in 25 countries. ■

Nestlé Fitness in Latin America We addressed the growing consumer trend for lighter snacking with the Nestlé Fitness launch in our six key biscuit markets in 2012. The new snacking range is low in sugar and fat and is made using whole grain wheat, oats and other protein and fibre-rich grains. The regional launch of Nestlé Fitness presents a great opportunity to leverage manufacturing assets and maximise the impact of innovations from our dedicated cereal snacks R&D centre in Santiago, Chile. The range will be strengthened in 2013 with the launch of new added value snacks. ■

Oscar premium in Europe In January Nestlé Professional strengthened its position in savoury culinary flavour solutions with the acquisition of Oscar – a well-established Nordic premium fonds, bouillon and sauces business. This allowed Nestlé Professional to expand its culinary flavour business in Denmark and Finland, where the Oscar brand is very popular, and to expand beyond its traditional markets, with the products being introduced under the Maggi and Chef brands in Europe. Oscar crafts its products with renowned international chefs following the traditional culinary methods of Escoffier – industrialised home cooking, free from additives. ■

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Nestlé Annual Report 2012

Culinary nutrition

Nestlé Health Science

Maggi expanding micronutrient fortification Having fortified the vast majority of its products around the world with iodine, Maggi started to address iron deficiencies in 2009 with launches of iron-fortified bouillons and noodles in Africa, Asia and Latin America. In 2012, Maggi achieved a major step by renovating its cube seasoning in Nigeria, providing billions of fortified servings every year to the local population with the same taste and at the same affordable price. ■

NHSc – a new industry After being formed in January 2011, Nestlé Health Science has accelerated its quest to shape a new industry between traditional nutrition and pharma, building on sciencebased personalised nutritional solutions for chronic disease. There has been good progress with new disease platforms: in Brain Health, clinical trials are underway with new partner Accera to explore the role of nutrition to better manage mild-to-moderate Alzheimer’s disease; in Gastrointestinal Health, a joint venture – Nutrition Science Partners – was announced with Chi-Med, giving access to the world’s largest Traditional Chinese Medicine libraries and discovery platforms. Clinical trials behind an innovative botanically-based treatment for inflammatory bowel disease are planned as part of this relationship. It also has the potential to support the Metabolic and Brain Health platforms. Diagnostics tests have been

Nestlé Annual Report 2012

launched by Prometheus in the gastrointestinal area, which enable us to explore opportunities to combine diagnosis with nutrition. Meanwhile, the established HealthCare Nutrition business has benefited from innovations and renovations around the Aging Medical Care, Critical Care/Surgery and Paediatric Medical Care platforms, as well as from geographic expansion, as Nestlé Health Science strives to elevate the role of nutrition as an integral part of personalised healthcare. ■

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Operational pillars

Consumer engagement

Engaging with our consumers and society And living our principles through our brands

Brand building Building brands better Brand Building the Nestlé Way (BBNW) was launched in 2009 and is the one-stop source of inspiration and support for our marketing community. BBNW has created a unified and rigorous approach to marketing, connecting more than 20 000 brand builders around the world. The brand building process benefits our consumer engagement with the intention to maximise our Return on Brand Building Investment. External research shows the effectiveness of our TV advertising copy has improved, and this was confirmed by the World Advertising Research Center where Nestlé is now ranked 3rd globally for its advertising effectiveness. ■

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Cooking chocolate The Nestlé House of Brand Building P Know your Consumer Deeply P Inspire with Brand Vision and Essence P Delight with Product Experience P Innovate Bigger Bolder Better P Create Engaging Brand Experiences P Win with Shoppers P Plan and Execute Flawlessly

Leading the way in digital As undisputed leader of the French baking chocolate segment for more than 40 years, Nestlé Dessert wanted to develop its service platform in a modern way in order to drive engagement: from serving consumers to engaging with them. Nestlé Dessert created a digital platform combining website, Facebook and a mobile application to thread the branded assets (recipes, videos, utilities, shop locator, games, etc.) into the consumer’s life. The Nestlé Dessert Facebook fanpage drove a very high number of new likes, achieving a level several times higher than average for French pages – in the top three among all fanpages in the food industry. The mobile app was downloaded 600 000 times, reaching almost 10% of French iPhone owners. ■

Nestlé Annual Report 2012

Nestlé Waters

Digital communications

Contrex puts out the fire Contrex, the healthy water sold in more than 35 countries, enjoys a unique positioning as My slimming partner. The product’s mineral characteristics, its thermal spring origins and its consistent communication have all contributed to this recognition. To show that slimming can be fun, Contrex has a new approach: MaContrexpérience, a campaign in traditional and digital media. It takes women on an energypacked collective adventure. In 2012, Contrex invited fans to take part in saving “guys in distress” in a burning building and lose 2000 calories while doing a good deed and having fun. ■

Accelerating digital In 2012 we established the Digital Acceleration Team (DAT). Grounded on the three Nestlé pillars of digital excellence – listening, engaging, and inspiring – the programme serves as an internal lighthouse to drive digital innovation and integrate it fully into brand building and business operations. DAT members come from around the world to tackle transversal projects, support business units in community management, and benefit from world class training. They return to their home markets to transfer knowledge and transform local digital initiatives. The DAT workspace itself is a source of inspiration, with its open environment, multi-media lab and video studio, and 24/7 listening capabilities, intended to foster idea sharing and a more adaptive and real-time marketing approach. The model is already being reapplied in a number of our local markets. ■

Nestlé Annual Report 2012

25

Operational pillars Consumer engagement

Nutrition education

Culinary nutrition

Nestlé Waters

The “Crecer Bien” national campaign The nutrition education programme “Crecer Bien”, for children between the ages of three and eight implemented by Nestlé Perú, has been taken as the base for a national campaign to fight malnutrition with the sponsorship of the country’s First Lady and the Ministry of Education. This programme was implemented in 2008 throughout the poorest public schools of Lima, and has directly benefited 64 000 children. We united the top ten leading food and beverage companies in Peru and aim to expand this programme to 1 000 000 children in the next three years. ■

Family happiness Maggi in France increased its value market share by leveraging a Big Idea – to re-invent daily cooking to enhance family happiness. The three pillars were TV (increase awareness); in-store (differentiate the brand from competitors); digital (provide services). An app was introduced with recipes, and a QR code on packaging directed consumers to a website. A chef, a journalist and a cameraman visited homes to see what problems people were having preparing daily meals, and the videos were posted online via Facebook. With an extra 1% market share, Maggi is widening the gap on competitors with its integrated approach. ■

A very Italian water The distinctive spirit of S. Pellegrino can be appreciated on www.finedininglovers.com, a web platform with an e-zine, a blog and social networks for food enthusiasts to share with the whole world the real pleasure of the table that is so typically Italian. S. Pellegrino was recognised in 2012 by Confindustria (Italian private companies’ federation) as a major contributor to Italy’s positive reputation in the world. ■

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Nestlé Annual Report 2012

Nestlé Waters

Nespresso

Perrier: at the leading edge Perrier is recognised for its creativity, having built its reputation through campaigns that made advertising history. In 2010, Perrier created a web sensation that marked the beginning of a new era of innovation and interaction, starring the burlesque artiste Dita von Teese. Not neglecting traditional media, Perrier launched a new TV campaign in 2012 “the Drop”, which showcased brand values in terms of extreme refreshment. The long version of the commercial was designed for the web, to raise the visibility of the new ad campaign by giving internet users exclusive viewing. Perrier celebrates its 150th anniversary in 2013. ■

Innovation drives success Nespresso’s growth – doubledigit in 2012 – was driven by a strong innovation pipeline, with five unique Limited Edition coffees, two new machines and new service offerings, resulting in greater convenience for Club Members, all capitalising on its unique direct-to-consumer model. Nespresso strengthened

Nestlé Annual Report 2012

its presence through geographic expansion and boutique openings in high-visibility locations all over the world. It invested in a third production centre in Romont, Switzerland. Nespresso demonstrated its commitment to value creation in coffee producing countries through its AAA Sustainable Quality Programme and by

reaching its recycling capacity commitment one year ahead of plan. All these initiatives and achievements combine to create a secure platform for continued growth. ■

27

Competitive advantages

Unmatched geographic presence

Brands established for generations Investing for future generations

Infant nutrition Mini-Milkies – small cup format in Europe After the renovation of our baby-specific ambient dairy product range rich in calcium, magnesium and zinc to address healthy bone growth, we have launched a range of six flavours for babies under three years old in small cups. Mini-Milkies were launched

28

Start Healthy Stay Healthy in nine European countries as a competitive offer to chilled dairy, consolidating our strong leadership in the region. Mexico is the first Latin American country to roll out the product in three flavours under the brand iogolino. Building on its calcium content, the range is leveraging the relevant strong bones claim. ■

Award for Indian campaign Nestlé India’s Start Healthy Stay Healthy campaign was honoured with an Order of Merit certificate in the Best Product Launch/Re-Launch category at The Promotion Marketing Awards of Asia at a ceremony held in Kuala Lumpur, Malaysia. Nestlé India launched a campaign jointly

with the Times of India in 2012 to promote healthy nutrition in the crucial first 1000 days of a baby’s life, from conception to the 2nd birthday. ■

Nestlé Annual Report 2012

Dairy investment

Investing with coffee farmers

Chile milk inauguration In April 2012, the Chilean Ministers of Finance, Agriculture and Environment inaugurated a new milk factory, Nestlé Osorno, in the south of the country. The investment of USD 140 million was the largest in the Chilean dairy sector in the last 60 years. The new plant will generate 30 000 tonnes of value-added nutritional milk products for local consumption and export. Its facilities make this factory a leader in environmental sustainability. ■

Re-starting the Haitian coffee industry Nestlé is supporting an international development programme to help more than 10 000 smallholder coffee farmers in Haiti and regenerate the country’s coffee industry. The programme will help coffee growers use more sustainable methods to improve the quantity and quality of

Nestlé Annual Report 2012

their crops. It will focus on strengthening their business skills as well as bean collection and processing, quality control, certification, and marketing. It will also reduce their costs. The programme was set up by the Multilateral Investment Fund of the Inter-American Development Bank in collaboration with the Agence Française de Développement. ■

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Infant Nutrition

Competitive advantages Unmatched geographic presence

Gerber milky pouches In the USA, following the launch in 2010 of a large baby-specific dairy product range in cups, we launched the Graduates Grabbers range of ambient dairy in pouches to seize the growing business opportunity of pouches for

self-feeding. The launch is driving the growth of the baby – specific ambient dairy cups, where we have 100% market share. ■

Dairy nutrition

Infant Nutrition

Soluble coffee systems

Creating entrepreneurs

Positive renovation Supligen, a great tasting nutritious milk-based drink with a combination of vitamins, minerals and protein for nutrition and energy for an active lifestyle, is one of the main brands in the Caribbean. Its new slim aluminium can makes cold and on-the-go consumption easier and gives a more modern look and feel, whilst the new brand proposition better reflects the product’s sustained energy benefit. Initial consumer response has been encouraging. The new, improved product is expanding into nearly 20 territories in the Caribbean and USA. ■

Added health Two products have been spreading good nutrition throughout the world: Nestlé NAN H.A., which is available in almost every country, was the first clinically proven hypo-allergenic infant formula for infants at risk of allergies. Another product, containing active culture, Nestlé NAN with Bifidus BL is also available throughout the world, and is for infants with depressed gut flora such as those born by caesarean section or undergoing antibiotic treatment. Both products celebrated significant anniversaries in 2012, 25 and 20 years respectively of bringing nutrition solutions. ■

Nescafé Dolce Gusto expands in Germany Nestlé is investing CHF 180 million in one of its fastest growing businesses in Europe, building a Nescafé Dolce Gusto factory in Germany, the largest market for the brand worldwide. Nescafé Dolce Gusto offers nearly 30 Nescafé, Nesquik and Nestea varieties. The factory in Schwerin will create 230 jobs. Our first factory, which opened in 2006 in Tutbury in the United Kingdom, is already running at full capacity, and we have invested GBP 110 million to triple production. ■

Nescafé helps build businesses in Africa Nestlé Professional has launched a new programme to encourage entrepreneurship in Central and West Africa, the “My own business” initiative. It supports streetseller entrepreneurs creating their own businesses selling Nescafé. Vendors are supplied with a kit, which includes a coffee dispenser. They buy Nescafé products, hot water flasks, disposable cups and a branded vest and hat. They are trained in sales, management, hygiene, safety and quality. Each operator can recruit and employ further streetsellers. We have more than 1000 street-sellers in Burkina Faso, Côte d’Ivoire, Cameroon, Ghana, Nigeria and Senegal. More than 500 operators from other countries in Africa are expected to join by 2014. ■

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Nestlé Annual Report 2012

Nescafé Plan

Popularly Positioned Products

China plan given award Nestlé is a strong supporter of the United Nations Global Compact; we incorporate its 10 principles in our “Nestlé Coporate Business Principles”. On 28 November 2012, at the first Annual Conference of the UN Global Compact Network China (GCNC), the Nescafé Plan in China was named a Best Practice to Promote Societal Development. The award was made by a joint panel of GCNC, China Enterprises Federation and relevant experts, as an initiative to recognise the enterprises and projects that have contributed most to leading and practising corporate social responsibility in China. ■

Boat delivery launched in Bangladesh Bangladesh, with a population of about 160 million and about 80% in rural areas, has particular distribution challenges. During the rainy season, almost 50% of the country could be flooded for up to six months. To win with customers as well as consumers, we embarked on an alternative route to market project, using a boat in the wetland area in the south-west of the country. Currently the boat supplies five new market places with a potential of 200 new outlets. ■

Nestlé Annual Report 2012

31

Building for the future

Securing a rewarding future Enhancing capacities, capabilities and commitments

Research and development Always newer Innovation is at the heart of Nestlé. Proprietary science and technologies, married to consumer understanding, give us a competitive advantage over local players. Changing consumer trends, tastes and habits, as well as the evolution of our business, mean that our R&D network is always evolving, our capabilities always growing. 2012 has seen the embedding of the newly-acquired specialised R&D unit in Prometheus; the inauguration of the Nestlé Institute of Health Sciences and the Clinical Development Unit in Switzerland; the expansion of our Chinese R&D organisation, with units in Dongguan and Xiamen, to support our new partnerships there; the inauguration of R&D India; the refurbishment of PTC York for chocolate; and the extension of PTC Konolfingen for the manufacture of materials for clinical studies. ■

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Nestlé Annual Report 2012

Research and development Researching the future The Nestlé Research Centre near Lausanne, established 25 years ago, is at the heart of our rich research heritage. It is the world’s largest private food and nutrition research institute with over 600 people representing a diverse range of scientific disciplines. The NRC focuses on four research programmes that underpin the scientific needs of its partners in the countries and categories, the Product Technology Centres and in our other R&D Centres: (1) the first 1000 days – metabolic health, immune competence and allergy reduction; (2) healthy aging – cardiovascular health, immune defence, mobility; (3) healthy pleasure – salt and sugar reduction, healthy lipids, other health-promoting ingredients; (4) sustainable nutrition – alternative protein, fortification, sustainability, public health and health economics. The centre’s competences are: nutrition and health; food science and technology; food and consumer

Nestlé Annual Report 2012

interaction; quality and safety science; and analytical sciences. For more information visit www.research.nestle.com. ■

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Building for the future

Nestlé people

Nestlé people

Attracting, developing and keeping the best Our people provide the talent, skills and diversity that give us our competitive advantage. They are the enablers for us to achieve our goal of being the trusted leader in Nutrition, Health and Wellness. For 2013, Human Resources’ priorities include improved gender balance awareness, enhanced leadership capabilities, and managing dual careers so there are fewer barriers to moves and expatriation for Nestlé talent. Nestlé led the establishment of the International Dual Career Network in Geneva (helping partners find jobs), and this is being extended to other cities around the world. There is also a focus on performance management and effective reward and recognition by developing and implementing a Nestlé total reward system for improved attraction, retention and engagement of the best talent. ■

Winning talent The Nestlé Academy is a response to a number of issues facing Nestlé UK. There was an increasing turnover of high-potential people, with a potential impact on the pipeline for senior management positions, coupled with a manufacturing workforce, more than half of whom will retire in 15 years. Economic pressures mean that young people in the UK are looking at more flexible entry points into work and options to “earn while they learn”. The Nestlé Academy recognised these challenges and the need for a different approach to the attraction, development and retention of the brightest and best for Nestlé. The Academy is developing a culture of lifelong learning across the organisation so that all employees can achieve their potential. After only eight months, the programme has moved Nestlé UK up 44 places in The Times list of graduate employers. Our aim is to become the UK employer of choice in the food and beverage industry. ■

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Nestlé Annual Report 2012

Tradition and innovation

Infant Nutrition

Kit Kat: beyond breaks Kit Kat is a great example of how tradition can be married to innovation to drive growth. From the very beginning (in 1935), the idea of the “break” was an integral part of the brand communication, with the seminal slogan “Have a break – have a Kit Kat” coined in 1958. The brand has only ever had one communication partner. Together we have taken the brand from established markets to new markets (most recently to Brazil) and most especially into the digital age: in a world that seems to spin faster and faster, breaks are even more important today. ■

Gerber – forever young In 2013, the Gerber brand is 85 years old. Its longevity and the iconic Gerber Baby, have established the brand in the USA as the leader in early childhood nutrition amongst consumers and health care professionals. This success is due to the brand’s aim to nourish a healthier generation, with products, education, and services to ensure children start and stay healthy. Gerber always tries to remain relevant with 24/7/365 consumer services. Today, our investment in social media and mobile for increasingly tech-savvy mothers has improved our ability to attract and retain consumers: the Gerber Facebook page is ranked No1 in the category with around five million, highly engaged fans. Gerber is now creating a unique, personalised service ecosystem designed to form healthy behaviours. This will leverage a combination of digital and offline services to guide mothers through their child’s nutrition journey in the most simple, and impactful manner possible. ■

Nestlé Annual Report 2012

35

Building for the future

Nestlé in society Meeting our commitments We have published a number of commitments in the accompanying Nestlé in society report relating to our three Creating Shared Value (CSV) priority areas – nutrition, water and rural development – as well as environmental sustainability and compliance. Sharing our policies and commitments year-on-year or over the medium to longer-term should help us progress systematically. Commitments also help us assess our progress and, most importantly, share it with stakeholders. They also provide stakeholders with a means to hold us accountable for both our achievements and shortcomings. We welcome this level of transparency, which actually incentivises us to deliver the continuous improvement in our performance that matters so much to us. All of our commitments are built upon the “Nestlé Corporate Business Principles”. Those related

36

Nestlé people to CSV are continuously refined through engagement with our stakeholders and our CSV Advisory Board. ■

Developing the Nestlé way At retirement, the average Nestlé executive has 28 years of service. This loyalty comes above all from a fulfilling job in a company that adheres to publicly communicated guidelines such as our “Nestlé Corporate Business Principles” and the “Nestlé Management and Leadership Principles”, among others (more info: www.nestle.com). Career development is also an important factor. In this, Nestlé applies a 70-20-10 approach: 70% is learning at work (on the job), 20% is through mentoring and working relationships, and 10% is through formal training. Most formal training is given by Nestlé staff – we find that people who have real experience often make the best teachers. ■

Nestlé Annual Report 2012

Financial review

Nestlé Annual Report 2012

37

2012 Business review

Sales by geography Europe

Americas

Asia, Oceania and Africa

CHF 26 billion 2.4%

CHF 41 billion 5.9%

CHF 25 billion 10.3%

43%

11.0%

CHF 53 billion

57%

2.5%

Billionaire brands

Popularly Positioned Products

7%

11%

Strategic Highlights Enhancing Nutrition, Health and Wellness capabilities

Wyeth Nutrition Nestlé Institute of Health Sciences

organic growth

organic growth

organic growth

Emerging Markets

CHF 39 billion

of Group sales

organic growth

Developed Markets

organic growth

38

of Group sales

organic growth

organic growth

R&D Centres opened in China, India, Singapore and Switzerland

Nestlé Annual Report 2012

Leading positions in dynamic categories

In millions of CHF

2011

2012

RIG (%)

OG (%)

+6.0%

+8.9%

+4.9%

+6.4%

+1.2%

+5.7%

+3.7%

+6.7%

–0.2%

+1.4%

+2.8%

+4.8%

+4.0%

+7.0%

Powdered and Liquid Beverages Soluble coffee

9 217

9 946

Other

8 987

10 092

50.4%

18 204

20 038

100.0%

4 129

4 502

22.5%

6 526

7 178

520

636

8.9%

10 974

12 988

70.0%

4 456

4 573

24.6%

976

1 003

5.4%

16 406

18 564

100.0%

2 251

2 799

15.1%

Total sales

9 744

10 726

Trading operating profit

1 820

1 958

18.3%

Frozen and chilled

8 046

8 045

55.7%

Culinary and other

5 887

6 387

44.3%

13 933

14 432

100.0%

2 016

2 041

14.1%

7 102

7 524

72.1%

866

1 310

12.5%

Biscuits

1 097

1 604

15.4%

Total sales

9 065

10 438

100.0%

Trading operating profit

1 524

1 782

17.1%

Total sales

9 764

10 810

Trading operating profit

2 008

2 206

866

1 060

Total sales Trading operating profit

49.6%

Water Total sales Trading operating profit Milk products and Ice cream Milk products Ice cream Other Total sales Trading operating profit Nutrition and HealthCare

Prepared dishes and cooking aids

Total sales Trading operating profit Confectionery Chocolate Sugar confectionery

PetCare 20.4%

Associated companies Nestlé’s share of results

Nestlé Annual Report 2012

39

Overview This section should be read in connection with the 2012 Consolidated Financial Statements.

Employees by geographic area

Introduction In 2012 we delivered on our commitment: a good, broad-based performance building upon the profitable growth achieved consistently over previous years. All our businesses, both in developed and in emerging markets contributed. Our Nutrition, Health and Wellness agenda continued to bring enhanced benefits for consumers, greater brand differentiation in the market place and increased value for shareholders. With creativity and innovation, our people laid the foundations for future growth. We increased the support behind our brands. We further strengthened our global R&D network with new facilities in India and China. We developed new capabilities for Nestlé Health Science and acquired Wyeth Nutrition. We invested responsibly and sustainably, expanding our manufacturing footprint, while continuing to reduce the environmental impact of our business. Group results Nestlé’s reported sales were up CHF 8.6 billion, or 10.2%, to CHF 92.2 billion. Organic growth was 5.9%, building on the strong growth of recent years, and was composed of 3.1% real internal growth and 2.8% pricing. After years of adverse impact, foreign exchange added 1.7% to sales, and acquisitions, net of divestitures, a further 2.6%. The Group’s trading operating profit was CHF 14.0 billion, up CHF 1.5 billion or 11.8%. The trading operating profit margin was 15.2%, up 20 basis points, +10 basis points in constant currencies. The cost of goods sold fell by 30 basis points and distribution costs were down 20 basis points. Nestlé Continuous Excellence delivered efficiencies of over CHF 1.5 billion, building on savings in previous years.

40

2011

2012

Europe*

28.9%

28.4%

Americas

33.7%

33.2%

Asia, Oceania and Africa

37.4%

38.4%

Total

100.0% 100.0%

* 10 184 employees in Switzerland in 2012.

Employees by activity In thousands 2011

2012

Factories

171

180

Administration and sales

157

159

Total

328

339

Factories by geographic area Nestlé has operations in 194 countries around the world, and 468 factories in 86 countries. Six were acquired during the year and 3 divested. 2011

2012

Europe

152

153

Americas

171

171

Asia, Oceania and Africa

138

144

Total

461

468

Nestlé Annual Report 2012

Principal key figures* (illustrative) in CHF, USD, EUR In millions (except per share data)

Total CHF

Total CHF

Total USD

Total USD

Total EUR

2011

2012

2011

2012

2011

2012

Sales

83 642

92 186

94 340

98 279

67 840

76 488

Trading operating profit

12 538

14 012

14 142

14 938

10 170

11 626

9 487

10 611

10 700

11 313

7 694

8 804

56 797

60 947

60 419

66 620

46 685

50 489

171 287

190 038

182 211

207 726

140 790

157 428

2.97

3.33

3.35

3.55

2.41

2.76

Profit for the period attributable to shareholders of the parent (Net profit) Equity attributable to shareholders of the parent before proposed appropriation of profit of Nestlé S.A. Market capitalisation, end December

Total EUR

Per share Total basic earnings per share * Income statement figures translated at weighted average annual rate; Balance sheet figures at year-end rate.

Trading operating profit

Operating segments: trading operating profit In % of sales

15.2% 15.0%

14 000

14 012

13 000

15.0%

14.5%

12 000

14.0%

P In millions of CHF P In % of sales

Nestlé Annual Report 2012

15.7

Zone Americas

18.6

Zone Asia, Oceania and Africa

19.0

Nestlé Waters

12 538

2011

Zone Europe

2012

8.9

Nestlé Nutrition

19.2

Other (a)

17.2

(a) Mainly Nespresso, Nestlé Professional, Nestlé Health Science, Food and Beverages Joint Ventures and Pharma Joint Ventures managed on a worldwide basis.

41

Overview

Geographic sales as % of total sales Asia, Oceania and Africa 27%

Europe 29%

Americas 44%

Geographic sales and organic growth

We increased the marketing support behind our brands bringing total marketing costs up by 30 basis points. Consumer facing spend rose about 8% in constant currencies. Administrative costs were up by 20 basis points, following last year’s drop of 80 basis points caused by the restructuring of pension plans in 2011. Net profit was up CHF 1.1 billion to CHF 10.6 billion, and earnings per share were up 12.2% reported to CHF 3.33. Underlying earnings per share in constant currencies were up 7.5%. We increased operating cash flow by CHF 5.6 billion to CHF 15.8 billion, reflecting primarily a substantial improvement in our working capital. Business review The Nestlé group’s growth was broad-based across all categories and geographies, with 5.9% organic growth in the Americas, 2.4% in Europe and 10.3% in Asia, Oceania and Africa. In spite of the challenging trading environment in the developed world our innovation in products, systems and routes to market delivered organic growth of 2.5%. In emerging markets we grew 11.0%, achieving sales of CHF 39.3 billion. We took further steps to enhance our position as the trusted leader in Nutrition, Health and Wellness. We continued to reformulate products to make them healthier and tastier. We leveraged our research and development capabilities to deliver good nutrition and develop solutions to help people manage diet-related illnesses. We continued to build partnerships with organisations active in the fight against non-communicable diseases. We acquired Wyeth Nutrition and a number of new capabilities for Nestlé Health Science. We inaugurated the Nestlé Institute of Health Sciences, added two new R&D units in China, a new R&D centre in India and opened a global centre for clinical trials in Switzerland.

42

OG (%) 10  8  6

Asia, Oceania and Africa 10.3% CHF 24.6 billion

Americas 5.9% CHF 41.1 billion

 4  2

Sales

Europe 2.4% CHF 26.5 billion

24.0 30.0 36.0 42.0 CHF billion

Each region includes sales of the Zones, Nestlé Waters, Nestlé Nutrition, Nestlé Professional, Nestlé Health Science, Nespresso, Food and Beverages Joint Ventures and Pharma Joint Ventures managed on a worldwide basis.

Nestlé Annual Report 2012

Sales by geographic areas Differences 2012/2011 (in %) in CHF

in local currency

By principal markets USA

in CHF millions 2012

+10.1%

+4.1%

23 712

France

+1.0%

+3.3%

5 691

Brazil

–0.5%

+9.8%

5 348

+106.3%

+91.4%

5 158

Germany

–2.0%

+0.2%

3 270

Mexico

+9.6%

+9.4%

3 246

United Kingdom

+9.7%

+4.8%

2 935

Italy

–2.4%

–0.1%

2 219

Canada

+5.0%

–0.5%

2 182

Australia

+2.2%

–4.0%

2 151

+12.3%

+3.5%

2 079

Spain

–3.8%

–1.5%

1 922

Japan

+6.8%

+2.5%

1 846

Russia

+8.4%

+7.9%

1 823

Switzerland

+1.0%

+1.0%

1 518

+11.0%

(a)

27 086

Europe

+1.6%

(a)

26 529

USA + Canada

+9.6%

(a)

25 894

+28.0%

(a)

18 604

+9.2%

(a)

15 218

+13.5%

(a)

3 332

+4.5%

(a)

2 609

+10.2%

(a)

92 186

Greater China Region

Philippines

Rest of the World By continent

Asia Latin America + Caribbean Africa Oceania Total (a) Not applicable.

Nestlé Annual Report 2012

43

Overview

Zone Americas Sales of CHF 28.9 billion, 5.2% organic growth, 0.6% real internal growth; 18.6% trading operating profit margin, +20 basis points. The Zone grew in both North America and Latin America. In North America we focused on increasing the value perception of our frozen food business, with improved recipes and nutritional profiles, a new promotional strategy and communication, whilst also prioritising the higher value segments within ice cream. The result has been generally improving share trends across our categories. Frozen was helped by innovations including DiGiorno Italian Favorites and Lean Cuisine Salad Additions. Ice cream grew in the higher value areas, super-premium and snacks, reflecting our strategy to optimise the category mix. Another innovation, Häagen-Dazs Gelato, was launched successfully. The coffee and creamers businesses performed well in categories that are enjoying good growth. The Coffee-mate liquid range, including Natural Bliss, was the highlight in creamers, whilst Nescafé Clásico was the growth driver in soluble coffee. Petcare continued to grow volume and improve shares, with line extensions and launches. Friskies Tasty Treasures for cats and Beneful Fiesta for dogs were among a number of strong performers. In Latin America where we have continued to see generally positive trends, we drove innovation through regional roll-outs under our well-established brands. In Brazil, most categories grew double-digit. Highlights included the successful launches of Kit Kat and peelable ice cream, as well as the continuing good performance of Nescafé Dolce Gusto. In Mexico, coffee helped drive growth, from Popularly Positioned Products to Nescafé Dolce Gusto. The other regions contributed positively. Petcare grew double-digit across Latin America. The Zone’s trading operating profit margin increased 20 basis points due to necessary pricing actions and consistent discipline in cost savings.

44

Zone Europe Sales of CHF 15.4 billion, 1.8% organic growth, 1.1% real internal growth; 15.7% trading operating profit margin, +10 basis points. The Zone grew in both Western and Central/Eastern Europe, demonstrating that even in a challenging trading environment, there are opportunities to achieve abovemarket growth and share gains. We continued to grow in Western Europe, maintaining momentum from last year. This growth, fuelled by a strong innovation pipeline combined with a rigorous approach to efficiencies, is enabling the Zone to increase both its brand investment and margin. This should enable us to maintain our growth momentum in 2013. In Greece and Spain trading conditions were extremely tough but we were able to deliver growth. We also grew well in Great Britain where we made real progress in the fast-growing online, convenience and discounter channels. In France we gained market share in most categories. Across the Zone, Nescafé Dolce Gusto continued to be a key growth engine and Maggi also performed well in many markets. The performance of petcare, another key growth driver, was driven by the premium category, in particular Felix, Gourmet, Proplan and Purina ONE. In Central Europe and Eastern Europe we have enhanced our competitive position in coffee and petcare, with increased local manufacturing and distribution capabilities. There was continued improving momentum in Russia, with Nescafé, ice cream and chocolate all contributing good real internal growth. The other parts of the region also performed well. The Zone’s trading operating profit margin increased 10 basis points, reflecting volume growth and good cost management, and was achieved whilst increasing brand investment. This improvement built on the 230 basis points improvement in 2011.

Nestlé Annual Report 2012

Zone Americas In millions of CHF

2011

2012

USA and Canada

15 560

16 808

58.1%

Latin America and Caribbean

11 196

12 119

41.9%

Powdered and Liquid Beverages

3 309

3 603

12.5%

Milk products and Ice cream

7 828

8 313

28.7%

Prepared dishes and cooking aids

5 172

5 408

18.7%

Confectionery

3 994

4 286

14.8%

PetCare

6 453

7 317

25.3%

26 756

28 927

100.0%

Trading operating profit

4 922

5 380

18.6%

Capital expenditure

1 102

1 088

3.8%

Total sales

RIG (%)

OG (%)

+0.6%

+5.2%

RIG (%)

OG (%)

+1.1%

+1.8%

Zone Europe In millions of CHF

2011

2012

12 397

12 483

81.1%

Eastern and Central

2 846

2 902

18.9%

Powdered and Liquid Beverages

3 878

4 052

26.3%

Milk products and Ice cream

1 651

1 609

10.5%

Prepared dishes and cooking aids

4 069

3 934

25.6%

Confectionery

3 016

3 023

19.6%

PetCare

2 629

2 767

18.0%

15 243

15 385

100.0%

2 372

2 417

15.7%

871

1 019

6.6%

Western

Total sales Trading operating profit Capital expenditure

Nestlé Annual Report 2012

45

Overview

Zone Asia, Oceania and Africa Sales of CHF 18.9 billion, 8.4% organic growth, 5.9% real internal growth; 19.0% trading operating profit margin, +10 basis points. The Zone grew in the developed markets and in the emerging markets where we continued to focus on increasing distribution and rolling out Popularly Positioned Products with strong nutritional profiles. We also invested in new manufacturing facilities in different markets including China, India, the Philippines, South Africa, Angola and Vietnam. Amongst emerging markets, we achieved double-digit growth in Africa, China, the Middle East and Indonesia. There were strong contributions from powdered beverages, predominantly Milo, and culinary, mainly Maggi, as well as chocolate, ice cream and ready-to-drink beverages. Innovations included Maggi Magic Meals, Milo High Fibre and Nestlé Esquimo Mummy. Japan was the strongest performer amongst the developed markets, with Nescafé Dolce Gusto and Kit Kat both highlights. Kit Kat became the number one brand in the chocolate category. The Zone’s trading operating profit margin rose by 10 basis points.

46

Nestlé Waters Sales of CHF 7.2 billion, 6.4% organic growth, 4.9% real internal growth; 8.9% trading operating profit margin, +90 basis points. Nestlé Waters continued to perform well, further strengthening its positions in developed markets in North America and Europe and increasing the scale of its operations in emerging markets. It was helped by strong sales of premium brands, S. Pellegrino and Perrier. Nestlé Pure Life reinforced its leading position globally with strong double-digit top line, confirming healthy hydration as core to the bottled water category growth. In North America, regional brands including Poland Spring, Ice Mountain and Zephyrhills benefited from growth in the category. The “Home & Office” business also performed well. In Europe, good performances in France and Great Britain compensated for the subdued environment in Southern Europe. Emerging markets grew dynamically, with double-digit growth in Turkey, Egypt, Mexico and Thailand, amongst others. The Nestlé Waters trading operating profit margin increased due to the division’s growth and a high level of efficiencies in manufacturing, procurement and distribution.

Nestlé Annual Report 2012

Zone Asia, Oceania and Africa In millions of CHF

2011

2012

Oceania and Japan

3 465

3 550

18.8%

Other Asian markets

7 150

10 035

53.0%

Africa and Middle East

4 676

5 327

28.2%

Powdered and Liquid Beverages

5 371

6 038

31.9%

Milk products and Ice cream

5 097

6 675

35.3%

Prepared dishes and cooking aids

2 448

2 741

14.5%

Confectionery

1 693

2 732

14.5%

682

726

3.8%

15 291

18 912

100.0%

Trading operating profit

2 892

3 587

19.0%

Capital expenditure

1 142

1 556

8.2%

PetCare Total sales

RIG (%)

OG (%)

+5.9%

+8.4%

RIG (%)

OG (%)

+4.9%

+6.4%

Nestlé Waters In millions of CHF

2011

2012

Europe

2 438

2 210

30.8%

USA and Canada

3 239

3 690

51.4%

843

1 274

17.8%

6 520

7 174

100.0%

Trading operating profit

520

636

8.9%

Capital expenditure

407

407

5.7%

Other regions Total sales

Nestlé Annual Report 2012

47

Overview

Nestlé Nutrition Sales of CHF 7.9 billion, 6.7% organic growth, 3.0% real internal growth; 19.2% trading operating profit margin, –80 basis points. 2012 was a good year for infant nutrition, particularly in emerging markets, including the BRICs and Africa, with double-digit growth in both formula and cereals. It also achieved growth in developed markets, despite low birth rates, with good performances in particular in France and the US, where it gained share. Innovations included the continued global roll-out of anti-colic formula, Gerber pouches and shelf-stable infant yoghurts in the US. The acquisition of Wyeth Nutrition, completed in November, will enhance materially our position and capabilities in key emerging markets, and improve the growth profile of our nutrition business. Weight Management continued to under-perform. Performance Nutrition grew its distribution, aligned with its focus on its core consumers, and released a renovated PowerBar ProteinPlus. Nestlé Nutrition’s trading operating profit margin was impacted by Weight Management and transition and integration costs for Wyeth Nutrition.

48

Other Sales of CHF 13.9 billion, 8.7% organic growth, 6.5% real internal growth, 17.2% trading operating profit margin, +40 basis points. Nestlé Professional achieved growth in the developed markets and double-digit growth in the emerging markets, with both food and beverages contributing. The beverages business enjoyed good overall growth, driven by doubledigit growth in system solutions, where sales are now at CHF 1 billion for the first time. Nescafé Alegria is now in over 60 markets, whilst Nescafé Milano is in more than 30 and expanding. The food business also contributed solid growth, driven by innovation in sweet and savoury flavour solutions, and close customer collaboration. Nespresso again delivered a strong performance with double-digit growth. The company continued to reinforce its position in Europe and expanded its presence at an accelerated pace in Asia Pacific and the Americas. Innovations included five new Grand Cru coffees and two new machines, Maestria and U. The boutique network saw 52 new openings to pass 300 locations in 48 countries, and new services were launched for Nespresso Club Members. Nespresso sourced more than two-thirds of its green coffee through its unique AAA Sustainable Quality Programme and reached its 75% recycling capacity commitment one year ahead of plan. Nestlé Health Science continued to build its pipeline and capabilities through an investment in Accera and the creation of a joint venture with Chi-Med group, called Nutrition Science Partners. We inaugurated the Nestlé Institute of Health Sciences. The product portfolio performed well despite a challenging environment in some markets in southern Europe, affected by changes to reimbursement arrangements. Aging Medical Care and Critical Care and Surgery both benefited from product innovations and roll-outs. Our joint ventures are also included in “Other”, but they are discussed separately below.

Nestlé Annual Report 2012

Nestlé Nutrition In Millionen CHF

2011

2012

Europa

1 525

1 537

19,6%

Nord- und Südamerika

3 577

3 805

48,4%

Asien, Ozeanien und Afrika

2 131

2 516

32,0%

Gesamtumsatz

7 233

7 858

100,0%

Operatives Ergebnis

1 443

1 511

19,2%

477

426

5,4%

Investitionen in Sachanlagen

RIG (%)

OW (%)

+30%

+6,7%

Übrige (a) In Millionen CHF Gesamtumsatz Operatives Ergebnis Investitionen in Sachanlagen

2011

2012

RIG (%)

OW (%)

12 599

13 930

+6,5%

+8,7%

2 119

2 393

17,2%

537

638

4,6%

(a) Hauptsächlich Nespresso, Nestlé Professional, Nestlé Health Science und weltweit geführte Joint Ventures im Pharma-, Nahrungsmittel- und Getränkebereich.

Nestlé Jahresbericht 2012

49

Overview

Joint Ventures Nestlé has established a number of joint ventures over the years, both in food and beverages and in pharmaceutical activities, the latter with L’Oréal. The Food and Beverage Joint Ventures are Cereal Partners Worldwide (CPW), with General Mills, Beverage Partners Worldwide (BPW), with The Coca-Cola Company, and Dairy Partners of America (DPA), with Fonterra. CPW enjoyed double-digit growth in emerging markets, share gains, and further enhanced its position with new capacity coming on stream in Brazil, South Africa and Malaysia. This strong growth compensated the weak category dynamics in developed markets. Innovations, ready to go global in 2013, were focused around improving the range’s nutritional credentials, such as reduced sugar and salt, increases in calcium, and making wholegrain the main ingredient of their recipes. In January, the partners in BPW announced a restructuring of BPW to focus on markets in Europe and Canada. This was successfully completed during the year. BPW delivered solid results, achieving double-digit growth in Russia and France, and good growth in Germany and Canada. This performance was supported by the launch of new product variants in most markets, including ready-todrink teas with low calorie formulations. DPA was created in 2003 to develop a sustainable and competitive supply of milk to Fonterra and Nestlé, and to leverage both partners’ respective businesses in Latin America.

50

Galderma reinforced its position as a leader in the global dermatology market. The over-the-counter and aesthetic and corrective dermatology businesses delivered doubledigit growth, while the strong growth of strategic brands in the prescription business was partially off-set by generic competition to mature products. Galderma continued to drive innovation, with 57 patents filed in 2012. 10 years after its creation, Laboratoires innéov is the European leader in beauty nutritional supplements, with a wide range of products targeting skin and hair. 2012 saw product and channel innovation: the launch of Cellular Anti-Ageing, a new generation antioxidant with an exclusive polyphenol, born from joint research by Nestlé and L’Oréal; and a new retail channel with the launch of the first e-store of the brand in France.

Nestlé Annual Report 2012

Evolution of the Nestlé registered share in 2012 In CHF 115% 65.00

110%

60.00

105%

55.00

100%

50.00

95%

.00 40



| | | | | | | | | | | |

J F M A M J J A S O N D

P Registered share P Nestlé relative to Swiss Market Index

Dividend per share In CHF

1.85

1.95

2.05

1.60 1.40

2008 2009 2010 2011 2012

Net profit and earnings per share Net profit was up CHF 1.1 billion to CHF 10.6 billion, and earnings per share were up 12.2% reported to CHF 3.33. Underlying earnings per share in constant currencies were up 7.5%. The underlying tax rate was 27.2%, compared to 27.1% in 2011. The share of results of associates was CHF 1.1 billion, compared to CHF 0.9 billion in 2011. Cash flow We increased operating cash flow by CHF 5.6 billion to CHF 15.8 billion, reflecting primarily a substantial improvement in our working capital. Financial position Despite the strong operating cash flow, the Group’s financial net debt increased from CHF 14.3 billion to CHF 18.2 billion, with the dividend of CHF 6.2 billion, capital expenditure of CHF 5.4 billion, and the CHF 10.8 billion acquisition of Wyeth Nutrition being the main contributors. Return on invested capital The Group’s return on invested capital was 14.1% including goodwill and 30.2% excluding goodwill. Dividend The board is proposing a dividend of CHF 2.05 per share, up from CHF 1.95 in 2011. Positive 2013 outlook The environment looks to be every bit as challenging in 2013 as it was in 2012. But 2013 will again provide opportunities to leverage our competitive advantages, deliver on our growth opportunities and benefit from our drive for continuous improvement across the Group. We expect, therefore, to deliver the Nestlé Model once again in 2013: organic growth between 5% and 6% together with an improved trading operating profit margin and underlying earnings per share in constant currency, as well as improvement in our capital efficiency.

Nestlé Annual Report 2012

51

Principal risks and uncertainties

Group Risk Management The Nestlé Group Enterprise Risk Management Framework (ERM) is designed to identify, communicate, and mitigate risks in order to minimise their potential impact on the Group. A “Top-Down” assessment occurs annually and focuses on the Group’s global risk portfolio. It involves the aggregation of individual assessments by the Zones, Globally Managed Businesses and all markets. It is intended to provide a high-level mapping of Group risk and allows Group Management to make sound decisions on the future operations of the Company. Risk assessments are the responsibility of line management; this applies equally to a business, a market or a function, and any mitigating actions identified in the assessments are the responsibility of the individual line management. If Group-level intervention is required, responsibility for mitigating actions will generally be determined by the Executive Board. The results of the Group ERM are presented annually to the Executive Board and to the Audit Committee, and conclusions reported to the Board of Directors. For the first time, Nestlé used the outcome of stakeholder meetings to better understand potential gaps between internal and external perception of risks and their impact on reputation. Factors affecting results Nestlé’s reputation is based on consumers’ trust. Any major event triggered by a serious food safety or other compliance issue could have a negative effect on Nestlé’s reputation or brand image. The Group has policies, processes and controls in place to prevent such events. The success of the Nestlé group depends on its ability to anticipate consumer preferences and to offer high-quality, appealing products. The Group’s business is subject to some seasonality, and adverse weather conditions may impact the Group’s sales. The food industry as a whole is faced with the global challenge of increasing obesity. The Group makes all its products available in a range of sizes and varieties designed to meet all needs and all occasions. Nestlé is dependent on the sustainable supply of a number of raw materials, packaging materials and services/utilities. Any major event triggered by natural hazards (drought, flood, etc.), change in macro-economic 52

environment (shift in production patterns, “biofuels”, excessive trading), resulting in input price volatilities and/ or capacity constraints, could potentially impact Nestlé’s financial results. The Group has policies, processes and controls in place to mitigate against such events. The Group’s liquidities/liabilities (currency fluctuation, interest rate, derivatives, and/or hedging, pension funding obligations/retirement benefits, banking/commercial credit, cost of capital) could be impacted by any major event in the financial markets. Again, Nestlé has the appropriate risk mitigation measures in place. Nestlé is dependent on sustainable manufacturing/supply of finished goods for all product categories. A major event in one of Nestlé’s key plants, at a key supplier, contract manufacturer, co-packer, and/or warehouse facility could potentially lead to a supply disruption and impact Nestlé’s financial results. Business continuity plans are established and regularly maintained in order to mitigate against such an event. The Group depends on accurate, timely information and numerical data from key software applications, without disruption, to enable day-to-day decision making. The Group is subject to environmental regimes applying in all countries where it operates and has put controls in place to comply with legislation concerning the protection of the environment, including the use of natural resources, release of air emissions and waste water, and the generation, storage, handling, transportation, treatment and disposal of waste materials. Nestlé is subject to health and safety regimes in all countries where it operates and has procedures in place to comply with legislation concerning the protection of the health and welfare of employees and contractors. Our Group companies are party to a variety of legal proceedings arising out of the normal course of business. The relevant companies believe that there are valid defences for the claims, and such companies intend to defend any such litigation. Nestlé has factories in 86 countries and its products are sold in 194 countries around the world. Security, political instability, legal & regulatory, fiscal, macroeconomic, foreign trade, labour and/or infrastructure risks could potentially impact Nestlé’s ability to do business in a country or region. Nestlé Annual Report 2012

Events such as an infectious disease could also impact the Group’s ability to operate. Any of these events could lead to a supply disruption and impact Nestlé’s financial results. Regular monitoring and ad hoc business continuity plans are established in order to mitigate against such events. The Group’s wide geographical and product category spreads represent a natural hedge.

Nestlé Annual Report 2012

53

Geographic data: factories

Europe

Asia, Oceania and Africa

Austria

1

P L

P L

P L



L



L



L

Algeria

2

P L

P L



L



L







Belgium

1

P L





L



L



L



L

Angola

1



L

P L



L











L

L

Bulgaria

2 L

P L



L

P L



L



L

Australia

10

P L

P L

P L

P L

P L



L

Czech Republic

3



L



L

P L

P L



L



L

Bahrain

1

P L













L

Denmark

1



L



L

P L



L



L



L

Bangladesh

1

P L

P L

P L

Finland

3



L

P L

P L



L



L



L

Cameroon

1



L

P L

P L

France

29

P L

P L

P L



L

P L

P L

Côte d’Ivoire

2

P L

P L

P

Germany

19

P L

P L

P L

P L

P L



L

Democratic Republic

Greece

4

P L

P L



L





L



L

of Congo (DRC)

1 L



P L

Hungary

3

P L



L



L

P L

P L



L

Egypt

3

P L

P L

P



L

Ireland

1



L

P L



L







L

Ghana

1

P L

P L





L P L



L

Italy

L

L

L

L

L

L

P L

P L

P L

P L

P L



L

Greater China Region 27

P L

P L

P L

P L

1



L

P L







L



L

Guinea

1





P L



Poland

9

P L

P L

P L

P L



L



L

India

7

P L

P L

P

P







L

Portugal

4

P L

P L





L



L



L

Indonesia

3

P L

P L

P L

P L



L



L

Republic of Serbia

2



P L

P L

P L



L



L

Iran

2

P L

P L





L







L

Romania

1

P L





L

P L



L



L

Israel

9

P L

P L

P

P L



L



L

Russia

8

P L

P L

P L

P L

P L



L

Japan

3

P L

P L

P L

P L



L



L

Slovak Republic

1





L

P L





L



L

Jordan

1

P L







L







L

L

Netherlands

Spain

16

L

L

L

L

L

L L

L

L

L

L

L

L

L

L

12

P L

P L

P L

P L

P L



Kenya

1

P L

P L

P L



L

2

P L







L



L

P L

Lebanon

2

P L







L







L

10

P L

P L

P L

P L



L



L

Malaysia

6

P L

P L

P L

P L



L



L

Turkey

4

P L

P L

P

P L



L



L

Morocco

1

P L

P L

P L





L



L

Ukraine

4

P L



P L

P L



L



L

New Zealand

2

P L

P L

P L

P L

P L



L

12

P L

P L



P L

P L



L

Nigeria

2

P L

P L

P L

P

Pakistan

4

P L

P L

P



L







L

Papua New Guinea

1

P L

P L

P L



L

Philippines

6

P L

P L



L



L



L



L

Qatar

1

P L



L



L



L

Sweden Switzerland

United Kingdom

L

L

L

L

Americas Argentina Bolivia

7

P L

1 L

P L

P L



L

P L



L

L

L

L

P L



Republic of Korea

2

P L

P L



L



L



L



L

Brazil

24

P L

P L

P

P L

P

P L

Saudi Arabia

7

P L



L



L



L







L

Canada



L

P L L





L



L

L

11

P L

P L

P L

P L

P L

P L

Senegal

1



Chile

7

P L

P L

P L

P L



L



L

Singapore

2

P L

P L

P L



L



L

Colombia

4

P L

P L

P L

P L

P L



L

South Africa

10

P L

P L

P L

P L

P L



L

Costa Rica

1 L

P L



L



L





L

Sri Lanka

1

P L

P L

P



L





L

Cuba

3

P L

P L



L



L

Syria

1

P L

P L

P L



L

Dominican Republic

2



L

P L

P L



L



L



L

Thailand

7

P L

P L

P L



L

P L



L

Ecuador

2

P L

P L

P L

P L



L



L

Tunisia

1



L

P L







L







L

Guatemala

3

P L



P L



L



L

United Arab Emirates

2

P L

P L



L

P L



L



L

Jamaica

1

P L

P L





L



L

Uzbekistan

2

P L

P L



L



L

Mexico

13

Vietnam

5

P L

P L

P L











L

Zimbabwe

1

P L

P L

P L



L

L

L

L

P L

P L

P L

P L

P L

1



L

P L





L



Panama

1



L

P L

P L



L



L

Peru

1

P L

P L

P L

P L



L





L

Nicaragua

Trinidad and Tobago

L



L

L

L

1

P L

P L



80

P L

P L

P L

P L

P L



L

Uruguay

1

P L









L



L

Venezuela

7

P L

P L

P L



L

United States

54

L

L L

P L

L L

P L

L



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

Nestlé Annual Report 2012

Shareholder information

Stock exchange listing At 31 December 2012, Nestlé S.A. shares are listed on the SIX Swiss Exchange (ISIN code: CH0038863350). American Depositary Receipts (ADRs) (ISIN code: US6410694060) representing Nestlé S.A. shares are offered in the USA by Citibank. Registered Offices Nestlé S.A. Avenue Nestlé 55 CH-1800 Vevey (Switzerland) tel.: +41 (0)21 924 21 11 Nestlé S.A. (Share Transfer Office) Zugerstrasse 8 CH-6330 Cham (Switzerland) tel.: +41 (0)41 785 20 20

Further information For additional information, contact: Nestlé S.A. Investor Relations Avenue Nestlé 55 CH-1800 Vevey (Switzerland) tel.: +41 (0)21 924 35 09 fax: +41 (0)21 924 28 13 e-mail: [email protected]

Important dates 11 April 2013 146th Annual General Meeting, “Beaulieu Lausanne”, Lausanne (Switzerland)

As to information concerning the share register (registrations, transfers, address changes, dividends, etc.), please contact: Nestlé S.A. (Share Transfer Office) Zugerstrasse 8 CH-6330 Cham (Switzerland) tel.: +41 (0)41 785 20 20 fax: +41 (0)41 785 20 24 e-mail: [email protected]

18 April 2013 Payment of the dividend

The Nestlé Annual Report, the Corporate Governance Report and the Financial Statements are available online as a PDF in English, French and German. The consolidated income statement, balance sheet and cash flow statement are also available as Excel files.

10 April 2014 147th Annual General Meeting, “Beaulieu Lausanne”, Lausanne (Switzerland)

12 April 2013 Last trading day with entitlement to dividend 15 April 2013 Ex dividend date

18 April 2013 2013 First quarter sales figures 8 August 2013 2013 Half-yearly Results 17 October 2013 2013 Nine months sales figures 13 February 2014 2013 Full Year Results

Nestlé URL: www.nestle.com

Nestlé Annual Report 2012

55

© 2013, Nestlé S.A., Cham and Vevey (Switzerland) The Annual Report contains forward looking statements which reflect Management’s current views and estimates. The forward looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward looking statements. Potential risks and uncertainties include such factors as general economic conditions, foreign exchange fluctuations, competitive product and pricing pressures and regulatory developments. Visual concept and design Nestec Ltd., Corporate Identity & Design, with messi&schmidt, Lausanne Photography Gilles Leimdorfer/Interlinks Image Marcel Grubenmann, Philippe Prêtre/apg image Ltd, Nestlé S.A. Production Entreprise d’arts graphiques Jean Genoud SA (Switzerland) Paper This report is printed on Lessebo Smooth White, a paper produced from well-managed forests and other controlled sources certified by the Forest Stewardship Council (FSC).

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Nestlé Annual Report 2012