2006 full year conference call

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Allison McGee
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1 2006 full year conference call Name of chairman

2 Disclaimer This presentation contains forward looking statements which reflect Management s current views and estimates. The forward looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward looking statements. Potential risks and uncertainties include such factors as general economic conditions, foreign exchange fluctuations, competitive product and pricing pressures and regulatory developments. 2 Name of chairman

3 2006 Highlights Ä Ä Ä Ä Successful delivery of the Nestlé Model Food and Beverage the driver of growth and profitability Performance improves across all key metrics Nutrition, health and wellness transformation Uncle Tobys, Jenny Craig, Novartis Medical Nutrition 60/40+, Nutritional Compass Various divestitures Organisational transformation Increased discipline in operations drives efficiencies GLOBE at 80%; GNBS accelerating Improved demand generation Strategic brands drive growth "Billionaire" brands over 70% of F&B sales, with new members Nespresso, Dog Chow, Poland Spring, Nestlé Pure Life 3 Name of chairman

4 2006 Highlights all metrics improve Improvements FY 06 v 05 FY06 total Sales total Organic growth + 8.1% + 6.2% + CHF 7.3 bio CHF 98.5 bio EBIT + 12% + CHF 1.4 bio CHF 13.3 bio EBIT margin + 50bps 13.5% Net profit Net profit margin % + 40bps + CHF 1.1 bio CHF 9.2 bio 9.3% Working capital (% of sales) bps - CHF 1.0 bio 6.7% Operating cash flow +14.4% + CHF 1.5 bio CHF 11.7 bio + 70 bps ROIC - before goodwill - after goodwill + 40 bps + 30 bps 21.2% 11.7% 4 Name of chairman

5 Food and Beverages Delivering the Nestlé Model CHF 91.8 bio 5.9% CHF 11.2 bio 12.2% 4.2% 2006 Strong + 7.8% on-going growth % +40bp 2005* CHF 85.1 bio 3.8% 6.0% CHF 10.0 bio 11.8% Sales * Restated to be on comparable basis RIG OG EBIT EBIT margin 5 Name of chairman

6 Continued strong growth Group and Food & Beverages Total Group CHF 98.5 bio Food & Beverage CHF 91.8 bio +8.1% total +6.2% OG +4.7% +1.5% RIG Pricing +4.2% +1.7% +5.9% OG +7.8% total +1.6% Exchange Rates +1.6% +0.3% Acq./Div. +0.3% + CHF 7.3 bio + CHF 6.7 bio 6 Name of chairman

7 Product Groups Organic Growth Organic growth % Pharmaceutical Waters Powdered & Liquid Beverages Nutrition Chocolate, Confectionery, Biscuits PetCare Prepared Dishes and Cooking Aids Dairy including Ice Cream Sales CHF 7 Name of chairman

8 F&B "Billionaire Brands" represent about 70% of F&B sales Growth % BABs AV market growth 8 Name of chairman

9 Organic growth by region Organic growth % Zone AOA Zone EUR Total AOA Zone AMS Sales CHF Total Americas Total Europe 9 Name of chairman

10 2006 Full Year Results 50 bps margin improvement DISCIPLINE IN EXECUTION / EFFICIENCIES / SCALE GLOBE + Operation Excellence + Mix - Input costs + TTS Spend up 6.3% + Growth CHF 2 billion + 30 Spend up 15.7% CHF 0.2 bio - 10 EBIT up 12% CHF 1.4bio F&B +40bps 13.5% GNBS + Growth 13.0% EBIT 2005 COGS Distribution Marketing Administration R&D EBIT Name of chairman

11 EBIT Primary reporting -40 bps bps bps bps -80 bps bps bps Zone EUR Zone AMS Zone AOA Nestlé Waters Nestlé Nutrition Other F&B Total F&B EBIT 2005 EBIT EBIT figures have been restated for Pension adjustment, IFRIC 4 and MIO restatement 11 Name of chairman

12 Strong second half EBIT performance Ä Strong 2 nd half RIG Europe AOA Ä Mix Mexico, Dreyer's, Latin American PetCare Europe margin gap narrowed versus 2005 Jenny Craig mix effect on Nestlé Nutrition Ä Savings through discipline Operation EXCELLENCE GLOBE, GNBS 12 Name of chairman

13 Increased earnings per share, proposed dividend and payout ratio Dividend per share Earning per share (Full) Payout Ratio % % % % 43.5% 35.9% Name of chairman

14 Improved management of working capital 7.8 Working capital total (in % NPS) bp or CHF 1 bio improvement Working capital total includes Trade receivables, Inventories, Trade payables, Other receivables, Prepayments, Accruals, Current tax payables and Other short term payables. Calculation is based on year-end figures. 14 Name of chairman

15 Strong cash flow generation CHF billion OCF +1.5 bio FCF +0.5 bio Free cash flow Operating cash flow 15 Name of chairman

16 Significant improvement in cash flow Profitable growth & innovation drive CapEx 14 + CHF 1.5 bio CHF 0.5 bio CHF 0.8 bio Operating cash flow (CHF bio) Capex (CHF bio) Free cash flow (CHF bio) 16 Name of chairman

Increased Capex into profitable growth categories,

Compliance/ Replacement and efficiencies Capacity

efficiencies 35% 45% 40% 35% 20% 25% New products/

17 Increased Capex into profitable growth categories, enhancing ROIC Capacity increase Restructuring/ Compliance/ Replacement and efficiencies Capacity increase Restructuring/ Compliance/ Replacement and efficiencies 35% 45% 40% 35% 20% 25% New products/ packaging New products/ packaging Name of chairman

18 Seeds for future growth GUM's 18 Name of chairman

19 Return on invested capital improves + 40 bps 21.2% 18.9% 19.9% 19.9% 20.8% 11.7% + 30bps 11.4% 11.0% 11.0% 10.8% including goodwill excluding goodwill 19 Name of chairman

20 Share buy-backs are just one part of the financial strategy Ä Financial strategy maximise cash flow Prioritise business-driven growth investment - Capital expenditure for growth and innovation - Acquisitions nutrition, health & wellness Dividend increase in line with earnings Share buy-backs Ä 2007 no share buy-back likely in short term Payment of proposed 15.6% increased dividend Increased capital expenditure for profitable growth Acquisition of Novartis Medical Nutrition + bolt-ons 20 Name of chairman

21 2006 Summarised Ä Ä A quality set of results, with all key metrics improving Organic growth above target Ä Nestlé generated an additional - CHF 7.3 billion of sales - CHF 1.4 billion of EBIT - CHF 1.1 billion of net profit - CHF 1.5 billion of operating cash flow Ä Food and Beverage was the main driver of performance Ä Well placed for further improvement in Name of chairman

22 What we said & What we did "Group EBIT margin improvement to be above level achieved in Food & Bev to be key driver of growth and EBIT margin" "Zone Europe to reduce EBIT margin gap versus 2005" "We are focused on improving capital efficiency: working capital management and ROIC" "Improving profitability is the priority for Dreyer's" BUT We had hoped for an improvement in Nutrition once we lapped the Chinese product exchange. And Confectionery did not accelerate as much as we would have liked 22 Name of chairman

23 Raw material, packaging & energy Nestlé's weighted market-price index 150 Price Indices (Jan 1998 = 100) Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Monthly RMPE in CHF 23 Name of chairman

24 Agricultural commodities Nestlé's weighted market price index Cost increases expected mainly across Milk products, Green coffee and Grains 100 Price Indices (Jan 1998 = 100) Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 Main Agricultural Commodities 24 Name of chairman

25 Questions & Answers Name of chairman

26 We plan to deliver the Nestlé Model annually over the next 10 years 5-6% organic growth Sustainable improvement in EBIT Improving trend in Return on Invested Capital 26 Name of chairman

27 Background slides Name of chairman

28 EBIT Secondary segment EBIT 2005 EBIT bps bps bps -10 bps +60 bps +100 bps Powdered & liquid Beverages (ex Water) Dairy (incl. Ice Cream) Prep. Dishes & Cook. Aids Choc., Conf. & Biscuits PetCare Pharma. products 2005 EBIT figures have been restated for Pension adjustment, IFRIC 4 and MIO restatement 28 Name of chairman

29 P&L: EBIT to Net profit As % of sales FY 2005 FY 2006 Diff. basis points (rounded) EBIT Net other income/expenses (1.0) (0.5) +50 Financial income Financial expense (1.3) (1.2) +10 Profit before taxes Taxes (3.0) (3.4) -40 Share of results of Associates Net profit/loss on disc. operations (0.0) Profit for the period Attrib. to the shareholders of the parent (Net profit) Net profit (CHF million) % 29 Name of chairman

30 Restatement of Results 2005 figures are on a "like-for-like" basis restated for: Ä Pension: adoption of IAS 19.93A recognising actuarial gains and losses outside the income statement Ä First application of IFRIC 4 on embedded leases Ä Globally managed Nutrition activities are now disclosed separately from the Zones, and pharmaceuticals activities separately from Food and Beverages figures have been restated, including the ones resulting from the decision to transfer the fresh cheese activities in Italy to Nestlé Nutrition. 30 Name of chairman

31 2006 full year conference call Name of chairman

2007 full year conference call

2007 full year conference call 2007 full year conference call - 21 February 2008 Disclaimer 2 2007 full year conference call - 21 February 2008 This presentation contains forward looking statements which