2011 hy results_confcall_transcript

NESTLÉ S.A.
2011 HALF-YEAR RESULTS ROADSHOW TRANSCRIPT

Conference Date: 10 August 2011

Chairperson: Mr James Singh
Chief Financial Officer
Nestlé S.A.

Mr Roddy Child-Villiers
Head of Investor Relations
Nestlé S.A.

Disclaimer
This transcript might not reflect absolutely all exact words of the audio version.
This transcript 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.

Nestlé S.A. Half Year Results 2011 Presentation Speech

Slide: Logo

Good morning everyone, and welcome to our results presentation. For those of you in
London, I am sorry that we changed our plans at the last minute and are not with you today,
but we thought the most important thing was to be sure that we were in touch this morning
even if only by webcast, rather than to risk the event being disrupted either due to transport
or other issues.

As usual, we will take you through our performance and key events of the year before
opening things up for discussion.

Slide: safe harbour

As ever, I will start by taking the “safe harbour” statement as read.

Slide: Performance highlights

Nestlé continues to make progress in an environment characterised by volatility and subdued
consumer confidence, particularly in the developed world.

And, at the same time as delivering in the short term, we have again demonstrated our
commitment to building the business over the long term, in line with the strategies that we
have previously discussed:
- Our consumer facing marketing spend is up in constant currencies;
- we have continued to build the innovation pipeline, while launching many new products and
systems;
- we are on our way to a record year for capital investment, with a lot going into emerging
markets;
- and we have been able to announce some exciting partnerships and acquisitions, again
often in emerging markets.
- Nestlé Health Science has become operational and new and exciting pillars of growth have
been established including the soon to be inaugurated, Nestlé Institute of Health Sciences.

We have increased or held market shares in over 70% of measured cells; maintained real
internal growth momentum and are seeing increasing pricing.

2011 has certainly been an extraordinary year for our company, with activities in every corner
of the world. We have people managing our operations and making progress in those
countries that have been making the headlines, whether Egypt, the Côte’D’Ivoire, and the
Middle East or, for rather different reasons, the Eurozone and North America. Equally, we
have been confronted by record prices for raw materials, extreme volatility in currencies, and
a seemingly unending increase in the strength of the Swiss franc.

Many of you came to our seminar in June, or listened to the webcast. You heard that we
have processes in place that enable us to manage through turbulent times, and that we have
further increased our procurement capabilities since the last period of high input cost
pressure.

The result is that we can report today, a performance that demonstrates our ability to deliver
on our key objectives even in the toughest of times.

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As I go through the different business areas, there are some that have had a strong start to
the year and some less so, but of importance is that we have delivered at the Group level.
Accordingly, we are well set to achieve the Nestlé Model again in 2011, being an
improvement in the margin in constant currencies, and organic growth at the top end of our 5
to 6% range.

Finally, we have unprecedented opportunities to invest in future growth particularly in
emerging markets, both organically with cap-ex, and through bolt-ons. With that in mind, and
with an eye on the uncertain economic environment, we will retain financial flexibility to drive
our strategic priorities with confidence.

Now, let’s have a look at the headline performance.

Slide: 2011: solid half year performance

Organic growth for the half was 7.5%, a meaningful acceleration from the first quarter with an
outstanding second quarter of 8.5%. In line with what we said at the time, growth from
pricing is up from 1.5% at Q1 to 3.8% in Q2, giving 2.7% for the first half. The real internal
growth continues to be strong at 4.8% in the first half.

The trading operating profit is up by 20 basis points to 15.1%, and by 40 basis points in
constant currencies. Trading operating profit before other net trading operating expenses and
income (EBIT as previously reported) is flat in constant currencies and down 20 basis points
as reported; please note that as this margin level last year we had a +60BPS improvement.

The consumer facing marketing spend is up by 6.2% in constant currencies. As a reminder,
this was up 14% in constant currencies in the first half of 2010, so this is a further increase
on top of a big increase last year.

The net profit was CHF 4.7 billion, and the margin was 11.5%. In constant currencies, the
net profit margin was virtually unchanged compared to the first half 2010, which included
Alcon.

The underlying earnings per share for the group are up 5.2% in constant currencies.

Slide: Operating profit margin improvement

On this next slide, we have created our usual margin bridge for the trading operating profit.

 The benefits from Nestlé Continuous Excellence and other actions by the
organisation, helped to address the significant impact of escalating input costs on
cost of goods sold. In particular, the positive evolution of pricing has also contributed,
as well as growth leverage and the benefits from restructuring in prior periods.
 On input costs, I reiterate our June guidance that we expect an impact at the upper
end of a CHF 2.5 to 3 billion range.
 Distribution costs were up ten basis points. Efficiencies played a part again, but also
mix in mitigating the effects of increasing energy costs.
 Marketing was down 20 basis points. This follows a meaningful increase in the first
half of 2010. As I said, our consumer facing marketing spend increased in constant
currencies even after we achieved efficiencies through a more global alignment of
campaign messaging, as well as through our use of the media mix.

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 Administrative costs were down 150 basis points. There are a number of factors at
play here: first, we are rolling out Nestlé Continuous Excellence beyond our
operations and, as part of this, we have targeted for Admin costs to grow much
slower than organic growth - this creates leverage from growth. We were already
achieving significant savings in the second half of last year and consequently would
not expect the second half evolution to be as dramatic.
 R&D costs increased by 10 basis points.
 Next are the net other trading income and expenses. These improved by 40 basis
points due to lower restructuring costs, as well as a lower level of costs for litigation
and other expenses. You can expect the full year restructuring costs to be 30 to 40
basis points.

This then gives you the trading operating profit improvement of 20 basis points reported, or
40 basis points in constant currencies.

Slide: strengthening Swiss franc

I have already mentioned the phrase “constant currencies” several times, so let’s have a look
at the currency situation.

Half year on half year, we have a 17% decline in the US dollar against the Swiss franc and a
12% decline in the Euro. All the other currencies are also weaker against the Swiss franc.

The impact of the strong Swiss franc is clearly significant on translation of our financials for
reporting purposes:
13.8% on sales,
20 basis points on the trading operating profit margin,
15% on underlying earnings per share,
between CHF 600 and CHF 700 million on operating cash flows
and CHF5 billion on the balance sheet.

But, importantly, there is no meaningful impact on our underlying operating performance
which, as you have seen, has remained strong in the first half.

Slide: key elements of sales

Let’s now look at our sales performance, starting with our traditional sales evolution chart.

 I’ve already discussed foreign exchange.
 Divestures, net of acquisitions, was - 6.6%, due to the August 2010 sale of Alcon,
which had an impact of over 8%.
 But the sale of Alcon and the exchange rates shouldn’t over-shadow a very strong
operating performance, reflected in organic growth of 7.5%.
 RIG for the half was 4.8%. This maintains our momentum from Q1 and is a truly
differentiating level of performance.
 There was also a step-up in pricing in Q2 to 3.8% giving 2.7% for the first half. I
believe this half year number will gradually increase during the rest of the year.

I’d like now to pass over to Roddy to do our usual run through the business segments.

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Slide: All regions contribute good growth

Thanks, Jim. Good morning everyone.

I’ll start with the total Group sales by region. In each region, the numbers include the relevant
zone and the globally managed businesses, which are Nutrition, Waters, Professional,
Nespresso and our joint ventures.

We show this to give you a good read-across with our peers. It is once again a picture of
broad based growth, strong relative to the various markets.

 Europe has accelerated from 3.9% organic growth in Q1 to 5.8% for the half, with RIG
up 120 basis points to 4.6%, and pricing up 70 to 1.2%. And this is growth on growth,
coming on top of 3.6% organic growth in the first half of 2010.
 The Americas achieved 5.7% organic growth, with RIG of 2.2%. Pricing has
accelerated, but RIG was lapping a tough second quarter in 2010.
 Asia, Oceania and Africa achieved 13.3% organic growth, The RIG remained double-
digit. Pricing was up to 3.2%.

Slide: All regions contribute good growth

A key reason for our broad-based growth is that we have been able to deliver growth both
where you would expect strong growth and where you might not:

 Where you might expect strong growth: The emerging markets, and the BRIC
countries, both growing at 13.3%.
 And where you might not: The developed markets growing at 4.4%, and Portugal,
Italy, Greece and Spain growing as a group at 3.9%.

Let’s now look at the operating segments and, first, here is the currency impact by reporting
area.

Slide: FX impact on all businesses

Normally this slide would be in the appendix, but I think it merits being shown up front this
time. The currency impact on sales will most likely remain double-digit, but it could lessen a
bit due to the relative comparison versus 2010, as you can see on the two graphs.

Slide: strong broad based operating performance

As Jim said, the currency impact should not take away from our strong operating
performance. On this slide you can see how broad-based our RIG has been, and our
organic growth, which ranges from over 4% in Zone Europe to over 11% in Zone AOA. There
was increased pricing in the second quarter in all reporting areas. The RIG evolution remains
robust, and I will go through this in more detail, starting with the Americas.

Slide Zone Americas

The RIG in Zone Americas improved marginally from Q1, but there has been a strong
acceleration in pricing, up 360 basis points in the second quarter from the Q1 level.

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With weak consumer sentiment in the USA, the North American business continued to
experience tough trading conditions, as demonstrated by moderate growth, but a reasonable
market share performance.

 The Frozen aisle continues to be under pressure generally. The Lean Cuisine and
Hot Pockets segments are slightly down, whilst the Stouffer’s regular meals segment
is flat. We have success in Frozen with launches under the Market Creations and
Farmers’ Harvest banners, as well as range extensions in Lean Cuisine, such as
spring rolls and dips.
 The Frozen Pizza category is growing. Our Pizza Plus launch, being pizza packed
with another product such as Nestlé Toll House cookies or chicken Wyngz, is
performing well. Overall in frozen, DiGiorno, Stouffer’s and Lean Cuisine have
gained share.
 The PetCare business is flat, but showing increased market shares. New products,
such as Purina One Beyond, Fancy Feast Delights and Friskies Tasty Treasures are
performing well.
 Confectionery is lapping the tough comps caused by last year’s Wonka launch, but
shares are stable in a market that is up by a high single-digit percentage. This year
we have launched the successful ice cream brand, Skinny Cow, into confectionery.
The early take-up is promising.
 In chilled, Toll House is performing well.
 The ice cream business is continuing to face pressure from private label in premium
take-home, and has seen volume impacted by pricing. Our strongest performance is
in the snacks segment, and then super-premium. Innovation has included launches of
shakes and smoothies, as well as Haagen Dazs cones and the Skinny Cow “More to
Love” pack.
 Nescafé and CoffeeMate had a positive first half. The Nescafé Dolce Gusto launch is
building momentum with, importantly, high capsule consumption per machine. The
Café Collection and Natural Bliss variants of CoffeeMate have been well received.

Latin America has had a strong first half, both for RIG and pricing, and continues to deliver
double-digit organic growth.

 Mexico and most of the regions are growing double-digit, whilst Nestlé Brazil is
celebrating its 90th anniversary with high single-digit growth. The big three categories
in Brazil, (Dairy, Chocolate and Biscuits), all accelerated in the second quarter, partly
due to Easter.
 Looking now at the Latin America categories, the big five, being Ambient dairy,
Chocolate, Soluble coffee, Ambient culinary and PetCare, are all growing double-digit.
The rest are all positive, ranging from mid-single-digit to over 20%. PPPs are growing
in the teens, with particularly strong performances in dairy, powdered beverages and
soluble coffee.

The Zone’s trading operating margin fell 10 basis points. This reflects a significant increase
in raw material costs, as well as some relative weakness in volumes in North America, all
mitigated by Nestlé Continuous Excellence. The Zone did, however, increase its brand
investment in the first half and is continuing to invest to build its brands over the longer term.

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Slide Zone Europe

Next is Zone Europe. The Zone had a strong second quarter as the uneven quarterly trading
pattern created by Easter rebalanced itself. RIG accelerated from 1.9% at the first quarter to
2.7% for the half.

Pricing also picked up by 100 basis points to 1.4%, to give organic growth of 4.1%. This first
half performance is a good reflection of the underlying growth in the Zone.

Perhaps most impressive in Western Europe is the continued positive growth in Portugal,
Spain, Greece and Italy, despite the tough economic environments in those countries. As a
group, these countries achieved about 4% organic growth. Maggi Juicy Roasting is
performing well in these markets, as are Nescafé and ice cream.

PPPs grew in the high single-digits in Europe. Their growth was about 20% in Spain, for
example, demonstrating the benefit of our strategy of rolling PPPs into the developed world.
It also confirms our belief that is possible to generate growth with the right innovation even in
the most difficult markets.

Germany saw a meaningful acceleration in Q2, where 80% of cells are holding or growing
share. Most categories are performing well.

Growth in the GB region was flat but shares were up overall. The Confectionery business
had a strong Easter and has gained share. In soluble coffee, there was a good performance
from Nescafé Dolce Gusto and the mixes variants. Dolce Gusto is now the market leader in
the UK, both in machine and capsule sales. Maggi Juicy Roasting has had a successful
launch even despite Maggi not being a particularly well-established brand in Britain: this
demonstrates the strength of the Juicy Roasting concept.

France continued to perform well, with mid-single-digit growth and share gains in all
categories. Ice cream, soluble coffee and frozen food were particularly strong.

In Eastern Europe we are continuing to see subdued sales growth in Russia, particularly in
the big Chocolate category, but we are enjoying good growth in a number of other countries,
including the Ukraine and the Baltic region.

Looking at the categories for the Zone as a whole, all the big categories were positive, a
performance reflected both in our strong market share performance by country, and in the
achievement of above-category growth for the zone as a whole.

As you would expect, the category story is one of continued momentum from Q1, with strong
performances from Ambient culinary, Frozen pizza, Chilled culinary, Soluble coffee and
PetCare. Equally, the key innovations continue to perform well.

 Nescafé Dolce Gusto has gained over 400 share basis points in the machine market,
further expanding its sales base. Its growth continues above 50%.
 The other Nescafé launches, Green Blend and Crema also continued to perform well.
 Maggi Juicy Chicken has evolved into Maggi Juicy Roasting, and the range has
expanded into other meat and fish dishes, as well as into new geographic markets. It
is one of our fastest growing innovations.

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Innovation is a core aspect of our strategy and we are accelerating our efforts here, and they
are making a real difference in driving growth and creating value for our consumers.

The Zone has delivered a strong trading operating margin performance in a particularly
difficult operating environment, characterised by weak consumer sentiment in some markets
and by an exceedingly tough competitive environment.

A key driver of this operating performance was a strong delivery of savings through Nestlé
Continuous Excellence, in addition to the benefits from previous restructuring of facilities, of
businesses and of employee post-retirement programmes.

Slide: Zone AOA

Next is Zone AOA . The Zone had a very strong first half, especially when one thinks of the
news headlines from the region that dominated the first few months of the year. This
performance is broad-based, as we have seen good growth in Africa, the Middle East and in
a number of Asian markets.

 In Japan, we were the first Food and Beverage company to get back to full supply to
the retailers, a great effort by our people, and we are now seeing our performance at
normal levels, and we are gaining share in soluble coffee, chocolate and ready-to-
drink.
 The Greater China Region is accelerating, with over 20% growth. Our milk business is
now back to previous levels, and building strong momentum. Our ice cream business
is also growing well, following its relaunch last year, including a strong PPP portfolio,
and growth is over 30%. The ambient culinary business had a strong second quarter
after a slow start to the year and is growing in the teens. Nescafé is also performing
well, both in its soluble and ready-to-drink variants.
 The Central West Africa Region is another highlight, even though it includes Cote
d’Ivoire where we are re-establishing supply chain networks. Growth in the region is
being led by Ambient dairy and powdered beverages.
 The South Asia region, which includes India, is growing over 20%. All the region’s
categories are growing double-digit, with Ambient culinary and chocolate both up
30%. These growth rates explain our increased investment in the region.
 PPPs were accretive to the Zone at 18% organic growth.

The Zone’s trading operating profit was up 50 basis points. The increased raw material
prices have been offset by savings, growth leverage and pricing. The worst of the raw
material pressure for the Zone is in H2, but there is also a greater benefit to come from the
Zone’s pricing actions.

Slide: Nestlé Nutrition

Next is Nestlé Nutrition. Nutrition has had a strong first half growth performance, driven by
the Infant Nutrition business, which is achieving double-digit organic growth and has gained
60 basis points of share on a global basis.

The Infant Nutrition performance is well balanced across all divisions, baby food, infant
cereals and infant formula, and all regions, including some markets where we have seemed

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to be having a tough time more recently. For example, France is achieving double-digit
growth, and we are growing share in every category and channel there.

 The emerging markets are growing dynamically, whether in Europe, Asia, Africa or
Latin America. Infant cereals continue to perform very well.
 The North American business is also performing well, relative to its market. Our
formula market share in the USA is now 17%, up from below 15% three years ago.
 The Infant Nutrition performance is built on a number of pillars which have come
together over the last couple of years, including successful innovation in formula and
cereals, improved communication where rules allow, expanded distribution, rigorous
60/40 testing, increased competitive intensity, and closer working relationships to
leverage the scale of other Nestlé businesses in the markets.
 I’m also pleased to say that our BabyNes launch has got off to a good start in
Switzerland.

The French and British launches of Jenny Craig and the business in Oceania are doing fine,
but we have some issues in the US, our biggest market. It is clear that the weak economy
has played a role in impacting the business. We are making some changes, including to our
marketing strategy, and we should start to see an improvement in the coming months,
particularly in rebuilding new client leads, which are key to the longer-term growth of the
business.

Nestlé Nutrition’s operating margin is down 90 basis points versus a tough comparison last
year. This partly reflects the raw material environment, in particular the contrast with a low
cost H1 2010, but also the performance of Jenny Craig. We expect to see an improvement
in the Zone’s operating margin in H2 as pricing taken already this year works its way into the
numbers.

Slide: Nestlé Waters

Nestlé Waters is next. The organic growth of 5.8% reflects continued strong performances in
many markets, with appropriate brand support. It is also notable that the pricing has turned
positive in the second quarter, after over a year of reducing price.

Highlights included double-digit growth and share gains in France and Belgium, strong
performances globally from Perrier (up 14%) and S. Pellegrino (up 9%), as well as Vittel,
Acqua Panna and Nestlé Pure Life, and double-digit growth in the emerging markets, both in
Asia and in Latin America.

The North American market has been challenging. Pricing taken earlier in the year has
impacted volumes as others have been slow to follow. We have maintained shares in North
America on a year-to-date basis, but have slipped in recent months.

In Europe there was positive growth in many markets, including France, Germany, Italy and
the UK.

The trading operating margin fell 140 basis points. This was due to increased oil-related and
PET costs, not offset by a good delivery of efficiencies and gradual price realisation.

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Slide: Other

Nestlé Professional is continuing to build positive momentum, notwithstanding the fact that
economic conditions remain subdued. Growth was double-digit in emerging markets, as
much as 20% in China. There was positive growth too in North America, where beverages
are performing well, and in Europe. The 2010 launches of premium and super-premium
Nescafé machines have been well-received by customers, and sales momentum is
increasing.

Nespresso has continued to grow at a high rate, slightly above the Q1 level. This is an
investment year for Nespresso, and the first half has seen a very high level of marketing
spend, supporting the successful launch of the Pixie machine in 50 markets simultaneously.
This was the first machine launch by Nespresso to be done globally. They have also opened
new boutiques, including in St Petersburg and Stockholm. A further development at
Nespresso is the launch of new machines for the out-of-home channel.

Nestlé Health Science achieved double-digit RIG. The company, only created on the 1st
January, is now fully operational and has already been active in M&A, as you will have seen,
building future growth platforms in strategic areas.

The decline in the trading operating profit for the whole segment is down mainly due to the
investments at Nespresso and Nestlé Health Science.

Slide: Product Groups overview

Next is the product group review. I have already touched on most key messages, so I will go
through this quickly, only making a comment if I have any additional value to add.

On this slide you can see that all are delivering positive growth. Let’s now go through them
individually.

Slide: Powdered and Liquid Beverages

First is Powdered & Liquid Beverages.

Soluble coffee has had a strong first half, both in terms of growth, which was double-digit,
and in terms of operating margin. The performance was good in all three zones and in Nestlé
Professional.

 The markets have been very focused on their key innovations, aligned with our
growth drivers, with good execution and appropriate brand support.
 For example, in Europe, these include Nescafé Dolce Gusto and Nescafé Senzazione,
both examples of premiumisation; Nescafé Green Blend, an example of Nutrition,
Health and Wellness, and Nescafé 3-in-1 , an example of a PPP that we are rolling
out in Western Europe.
 We are seeing growth well into double-digits in all of these products, as we are
globally in PPPs and with our foaming mixes, such as Cappuccinos.
 Pricing is increasing as the year goes on.

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Powdered beverages also has had strong growth in the first half, particularly Milo.

 Milo is performing well in Asia and is building its presence in parts of Latin America,
such as Colombia and Chile.
 Nesquik also achieved positive growth, and highlights included Russia and Italy.
 The Powdered category has experienced significant cost pressure, sugar and cocoa
in particular. Accordingly, we are also seeing pricing increasing period on period.
Marketing spend was up for the category.

Liquid beverages performed well, with high single-digit organic growth and improved
margins. I would highlight excellent progress by Nescafé and Milo in a number of markets.

The trading operating margin is down due to innovation and launch costs, both at Nespresso
and in other segments of the product group.

Slide: Dairy including Ice cream

The Milk business has again delivered double-digit top-line growth in all zones, and has
accelerated from Q1 both in RIG and price. It has also been able to leverage this growth into
an improved operating margin performance.

 The business is heavily weighted to emerging markets, and has continued to perform
at a high level, driven by aligned global product priorities, aligned communication
themes and a focus also on increased leverage of our marketing spend. It has
achieved market share gains in many countries. Among our growth drivers, Nutrition,
Health and Wellness, for example in growing up milks, and PPPs, which are also
nutritionally enhanced, are key drivers.

I have already touched on Coffee-Mate in my Zone America comments.

The Ice Cream business has had a good start to the year in all three zones.

 Particular successes include China, France, Germany, Switzerland, Egypt, Latin
America, Indochina, amongst others. The growth drivers and innovation are key
contributors here, whether out-of-home - our impulse business; the PPPs, including
our peelable ice creams which are now in 11 countries and doing well in all of them,
and also now available in new variants; Nutrition, Health and Wellness, such as slow
churn; or Premiumisation, such as Haagen Dazs and Nescafé Frappé Latte in Spain..

Slide: Prepared dishes and cooking aids

Next is Prepared dishes and cooking aids

 The Frozen Food business in Europe continues to be driven by the strong
performance of Pizza, both under the Buitoni and Wagner brands. I’ve already
discussed frozen in North America.
 Culinary chilled, particularly Herta, continues to perform well in Europe, especially in
France and Germany, even if part of its business, exported from Switzerland, is
suffering due to the Franc/Euro exchange rate.
 The Ambient Culinary, business, primarily Maggi, has had a strong first half, both in
emerging markets and in Europe. The recent acquisitions in Eastern Europe and

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Latin America are performing well, and we have new capacity coming on-stream in
India and China. Out biggest markets are all increasing market shares.
 The product group’s margin increased 30 basis points. There were good
performances in most businesses which compensated the integration costs for the
pizza business, and high input costs such as cheese, whey and meat in US Frozen.
There were also lower restructuring charges than in 2010.

Slide: Confectionery

Next is confectionery. I will start by reminding you that we had over 8% organic growth in the
first half last year, so 4.2% in the first half of 2011 demonstrates good momentum over a
tough comparative.

 The business is performing well, with over 70% of cells gaining share, including key
markets such as the UK. We had a successful Easter season around the world,
demonstrated by a strong pick-up in growth in the second quarter in each Zone.
 Both China and India are growing over 20%. The growth would be even higher but for
capacity constraints that we are addressing in both countries.
 I’ve already discussed the US.
 Pricing has increased during the year, driven by increases in milk and sugar costs.
This pricing is a contributing factor to the improved margin performance but, equally,
there are higher contributions from some of the faster growing markets, as well as
benefits from the European restructuring in recent years.

Slide: PetCare

Next is PetCare.

Overall we have seen a building of momentum from the Q1 growth numbers, with growth in
Q2 at twice the level of Q1.

 Europe has continued to grow at a good level, driven by the success of innovations
for cats such as Purina ONE Actilea, the expansion of the Felix brand into Central
and Eastern Europe, and the launches of Felix Sensations and Gourmet à la Carte.
For dogs, we have enhanced our leadership in older pets with the successful launch
of Pro Plan Senior 7 Plus. We have also launched Beneful Little Enjoyers, taking
Beneful into the small dog market for the first time in Europe.
 I’ve already discussed the strong competitive performance by the North American
business, which achieved share gains in most segments. Growth was double-digit in
Latin America and in the emerging markets as a whole.
 Globally Purina outpaced the growth in its category by 184 basis points.
 The trading operating profit was impacted by commodity prices. This is not just
because of the 2011 impact, but also because we were very successful in 2010 with
our commodity hedges. You might remember that the H1 2010 margin was up 190
basis points. Effectively, therefore, it made for a difficult comparative. We will see an
improved margin performance in the second half, helped by a more normal
comparative and by the benefit of pricing taken in April.

That concludes my run-through the business performance. I’ll now hand back to Jim.

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Slide: P&L (continued)

Thanks, Roddy.

On the next slide is the rest of the P&L. I have shown both the 2010 comparison against the
Continuing operations, and the Group performance. The reduction in net financing cost and
lower tax expenses contribute to a 60 basis points improvement in net profit for the
continuing operations.

The comparison with the 2010 Group numbers, including Alcon, shows a marginal decline of
10 basis points in net profit as reported: the Group’s underlying EPS are up 5.2% in constant
currencies.

Slide: Cash flow and net debt

Turning to cash flow and net debt.

The operating cash flow is CHF 1.7 billion. This is a good performance, albeit lower than in
the first half of 2010 recognising the impacts of the sale of Alcon, currency weakness and
working capital:

 First Alcon: Alcon’s cash flow was about CHF1.4 billion in the first half of 2010
 Second, currencies: You may assume a conversion impact on our cash flow broadly
similar to the impact on our sales. On top of this, we made an investment in 2010 to
protect foreign currency assets; this was already reflected in the full year 2010 cash
flow. These impacts created a negative comparison from H1 2010 to H1 2011 of
about CHF 1 billion.
 Third, working capital, which increased by about CHF1.2 billion, but improved slightly
as a percentage of sales. We made a tactical decision to increase inventories in order
to manage capacity constraints in some of our fast growing emerging markets, and
the disruption in our supply chain caused by external events. As a whole, working
capital has improved as a percentage of sales.

Turning now to our Net Debt position. Our half year net debt was CHF 14.5 billion,
compared to CHF 29.6 billion in the first half of 2010. The big impacts include the sale of
Alcon, the dividend payment in 2011, the share buyback, the medium to longer-term
investments and treasury shares:

 The 2010 dividend payment, which was up 15.6% per share in Swiss francs, resulted
in a pay out of CHF 5.9 billion.
 We bought about CHF4 billion of shares in the first half, and continued in July to
nearly complete our CHF 10 billion share buyback programme.
 We have increased our medium-to-long term investments from CHF 2 billion to about
CHF 4 billion. These investments are blue-chip. We have them because we needed
to manage the proceeds from Alcon beyond those which we used either to restructure
our debt or for the share buy-back.
 The benefit of the treasury shares and the mid-to-long term investments, beyond their
inherent investment characteristics, is that they enable us to maintain an appropriate
degree of financial flexibility.

12


With CHF 14.5 billion of net debt, we are approaching the level that we had at the end of
2009, which we told you was an appropriate level for the Group at this time. If our medium-
to-long-term investments are included, then net debt would be CHF10.5 billion

Slide: Use of cash

Now let’s have a look at our priorities for our use of cash.

 As you know, our clear priority is to invest in our business, either internally or
externally. We have stepped up our level of capital investment. You can assume it
will be about CHF 5 billion in 2011. We have also stepped up our M&A activity,
though we remain focused on bolt-ons. I will come back to both these areas on the
next slides.
 After investment in our business, the next priority is to return cash to our shareholders
through our dividend. The priority for us is the actual Swiss franc amount of the
dividend, not necessarily a ratio. We would expect, all things being equal, to continue
to enhance the dividend we pay to our shareholders.
 Buying our own shares, whether as part of a buyback or to hold as treasury shares, is
optional. We see this as a tool for managing excess cash, assuming that the share
price is at an appropriate level. Therefore our announcements of share buy-backs
have been part of a disciplined approach to managing our balance sheet whilst
retaining financial flexibility.
 On completion of the current programme, Nestlé will have returned CHF39 billion to
shareholders since 2005 through share buybacks at an average price of about
CHF48 per share. At the same time we have paid over CHF31 billion in dividends.
 In the first half of 2011, we have committed about CHF10 billion to the dividend and
share buyback. This had to be paid in Swiss francs from cash flows generated in
significantly weaker currencies. We have also committed about CHF 10 billion in total
to capital investment and acquisitions.
 - Given the current economic environment and the consequent need for financial
flexibility;
- given the fact that we use foreign currency cash flows to buy our shares in Swiss
francs;
- and importantly, given the fact that there are potential alternative uses for our cash,
such as investments in capabilities and bolt-ons, that provide greater long term
strategic value for our shareholders, we believe that today is not the right time to be
launching a new share buyback. However, buybacks will stay under Board review on
an on-going basis as an option to address excess cash built up by our company.

Slide: Capital investment

On the slide you can see some of the capital investments that we have announced recently.
It is not exhaustive, however, and projects include:

 Confectionery and Culinary in India and China, PetCare in Hungary; powdered
beverages, cereals and milk in Indonesia; cereals in Malaysia and Turkey; Infant
formula in Germany, Milk in Brazil, Culinary in Nigeria and South Africa; and so on.

13


Slide M&A

On this next slide, you can see some of the recently announced and/or completed
acquisitions. These include:

 Our two proposed acquisitions in China, now under consideration by the authorities,
as well as three deals for Nestlé Health Science, culinary in Eastern Europe,
beverages in USA, dermatology in Sweden, amongst others.

Slide: roadmap

By now you know our strategic roadmap well.

Our performance in the first half has been coherent with our strategic priorities. I would just
like to touch briefly on brands and on innovation – which are key areas of investment for us.

Slide: The billionaire brands

First, a quick look at our billionaire brands. As you’ve heard during Roddy’s presentation,
these brands have contributed greatly to our first half performance. In total they achieved
over 8% organic growth, compared to 7.5% for the group as a whole. Their growth is also
reflected in strong market share performances.

 All the brands in Beverages, Nutrition, Waters and Confectionery are achieving
positive organic growth.

 In Frozen, Lean Cuisine has returned to positive growth in a declining frozen food
category; Stouffer’s is marginally in negative territory but it has gained share over last
year.

 PetCare continues to be a generally good picture despite the slower growth of the
category as a whole; Friskies, ONE and Purina positive, and growth of more than
10% for Dog Chow.

 In Ice cream, the Dreyer’s brand, which is heavily present in the US premium take-
home segment, has been under pressure from private label, but is only marginally
down, less than 1%.

 One of the reasons for the strong performance of the billionaire brand is our
continued high level of innovation.

Slide: innovation as a growth driver

 Innovation is a value added growth driver for all our categories. The great benefit is
that, as we enhance value for consumers at each consumption moment, we also
enhance value for our shareholders. Making this more tangible, here are a few of the
innovations from last year that have contributed to our strong first half performance.

1. Nescafé with a clear segmentation strategy for its innovation:
- super-premium with Dolce Gusto
- premium and Nutrition, Health and Wellness, with Nescafé Green Blend
- and PPPS, such as Nescafé 3-in-1 launching successfully in Europe.

14


- We are seeing strong growth in all these segments, from well over 50% for Dolce
Gusto to about 15% for our premium range.

2. In Ice cream, we also have a range of PPPS. The peelable PPP ice cream has been
one of our most successful launches in this category.

Innovation in 2011

 On this slide we have captured just some of the innovations launched in the first half.

1. In Ice cream, we have launched a new shake concept in developed markets, as well
as Haagen Dazs smoothies in the US.

2. The Dairy business has extended Coffee-Mate out of the non-dairy creamer market
into dairy creamers. It also has a raft of launches and extensions in the emerging
markets, including value-added liquid milks such as Nido Protectus.

3. In prepared dishes and cooking aids, the Maggi Juicy Chicken range, the leader in its
segment, has evolved into Juicy Roasting, now for beef, pork or fish, for example,
and its international roll-out continues.

4. In the US Frozen category we have responded to the tough environment with new
lines and extensions such as Lean Cuisine snacks.

5. In PetCare, where I mentioned our improving market share performance on a global
basis, there is a strong roll-call of innovations, a few of which are listed on this slide.

6. In Chocolate, we are building on the Wonka extension into chocolate and now
extending Skinny Cow into the category. We launched Aero biscuit in the UK, we took
KitKat into Brazil and launched a KitKat Black in Japan, with a special type of wafer.

These were just some examples of recent launches and extensions, and our pipeline has
much more to come. The future will not just bring new products, but also new routes to
market, new technologies, new system capabilities, as well as a range of innovations in
Nutrition and Nestlé Health Science.

Slide: 2011; another set of challenges

Next, a slide that I showed at the full year conference call.

Slide: 2011; another set of challenges

We said then that we understood the challenges that we faced in 2011, and that we would be
taking a holistic approach to managing them. I think these first half numbers demonstrate
that we have done that. We have compensated input cost pressures, not just through
savings in those areas that have been directly impacted, but also through savings in
administrative costs for example.

We also talked about a rich pipeline of innovation and about growth momentum. We are
seeing the benefit of both in our continued strong level of real internal growth. This is growth
on top of growth, year after year. But we also have momentum in extending Nestlé
Continuous Excellence, and with our growth drivers, such as Nutrition, Health and Wellness,

15


the PPPs, Premiumisation and our out-of home activities. Our growth momentum is
contributing a positive mix effect due to the faster growth of our emerging markets, which are
benefiting from increased capacity investment.

We also said then that we would deliver the Nestlé Model again in 2011. We are confirming
this guidance, with organic growth at the top end of our 5 to 6% range.

We continue to run the business with a mix of long-term inspiration and short-term delivery.
And we believe that in today’s environment, these qualities will really help us outperform.

Slide: conclusion

So, to conclude: It has been a challenging first half, but we need to separate the foreign
exchange impact on the reported numbers, from the underlying solid operational
performance.

The foreign exchange movements on our numbers are a big impact on translation, no
question. But they have only a small impact on our underlying operations. We are
fundamentally a conglomeration of local-currency or regional-currency businesses that are
leveraging our global scale to compete successfully.

And I believe we have demonstrated our operational strength in the first half by delivering a
strong performance in all the KPIs – organic growth is strong, the operating margin is up and
our underlying earnings per share are improved in constant currencies. And we have
continued to invest for the future.

The real differentiating highlight of the first half of 2011, is that Nestlé has not only delivered
where you would expect us to deliver, but we have also delivered against the odds, as our
businesses have demonstrated their ability to perform in the toughest of times: whether it is
Central West Africa achieving double-digit growth despite the unrest in the region; or the
Japanese business disrupted by natural disasters; or whether it is our businesses in the
troubled economies of southern and western Europe that continue to deliver positive growth.

These achievements not only differentiate our performance in the first half of 2011; they also
give us confidence in our ability to deliver, not just for the rest of the year, but beyond.

Finally, as I said, we have unprecedented opportunities to invest in future growth particularly
in emerging markets, both organically with cap-ex, and through bolt-ons. With that in mind,
and with an eye on the uncertain economic environment, we are retaining financial flexibility
to drive our strategic priorities with confidence.

Thank you. Let’s now open up for discussion.

16


Q & A SESSION

Questions on: Background decisions on not extending the buyback
Movement in cash flow

David Hayes, Nomura:

Morning, gentlemen, thank you. Just firstly quickly on the buyback, I wonder if you can give
us any background as to whether that decision on the policy was changed or taken in the last
few weeks with obviously the market and the economic uncertainty that we've seen. And
whether also with the Swiss franc move the last few weeks that you've delayed effectively
some dividend pay through from the subsidiaries, which is part of that decision process as
well as you watched that play out?

And then I guess still just focusing on cash flow again, you kind of alluded to maybe some of
the points in the presentation, but I'm just noticing that the variation in other operating assets
and liabilities is an additional outflow of about a billion in the first half versus last year and
then other investing cash flows about an additional 1.5 billion. I just wonder if you can give
us any more colour as to what those outflows actually relate to and why they're quite a big
difference to the first half of last year? Thanks very much.

James Singh:

Okay, let's come back to the share buyback programme, you know David we have always
said the share buyback programme is optional given the priorities we have laid out. The
priorities have always been to invest in building our business. I believe that this year, as we
have communicated to you, that we have several opportunities to invest in capex for organic
growth, in areas where - especially in areas today where we are constrained because of very
demanding utilisation of existing capacities and you have seen what we have announced in
terms of possible M&A transactions this year.

In addition our commitment to the dividend, you see the dividend increasing year after year,
those are really our priorities. I think you're right, given the economic environment in which
we operate, combined with the opportunities we have to invest - the cash flows, we believe it
is a point in time where we have to focus on driving the business with confidence.

We are not saying that share buybacks will never occur, as we said share buybacks will
continue to be under the watchful eye of the board and they will make a decision on that from
time to time. But I think at this moment as we have communicated, our focus is really driving
our internal priorities.

Just on the cash flow David, I think generally - I don't want to get into the specific lines, if you
look at our cash flow, CHF 1.7 billion in cash in operating cash flow and about 300 million in
free cash flow, which is about just under three billion down from what we reported last year.
First of all we said Alcon, the impact and the disposal of Alcon in our free cash flow is about
1.4 billion, working capital increased about a billion, the carrier of the foreign currency on
financial assets, the impact and our funding, the negative impact was about one billion and
minority and associates was positive about half a billion. When you add those up you
basically explain where we were half year versus half year.

17


Now you also realise that the impact on the cash investments, etc, from the Alcon proceeds
most of those occurred in the second half of last year. So they are more or less in this half
year versus last half year. So the comparisons are a bit different. The base is slightly
different. However, I would say those three or four items explain the movement in cash flow.


Just quickly coming back on the buyback, from what you're saying the decision on the
buyback policy today which as you say may be reviewed, but that could have well been the
same decision three months ago rather than today effectively? It was kind of a long term
plan rather than a reaction to the marketplace, is that fair?

James Singh:

Yes, it is and as we said David when we announced our first half year results we said that we
will not make any decision on the share buyback while we're continuing to execute the
existing programme.

Questions on: Contributing factors to working capital increase
PPP and Dolce Gusto growth update

Alain Oberhuber, MainFirst:

Good morning, Roddy, good morning, Jim. I have two questions. First is about the working
capital increase in H1, is this a strategic one just for this year or is it also for 2012 given that
the economic environment is delayed. If you could maybe elaborate a little bit on that
because it looks to be interesting?

Secondly could you also give us and update please on Dolce Gusto and PPP revenue.

James Singh:

Just on working capital Alain, thanks for the question. The 1.2 billion was significantly
influenced by inventories. And the inventory bill in the first half, compared to the first half last
year as I said, related to some specific circumstances. There are markets, especially in the
Emerging Markets, particularly in Asia, where we have had to build inventories to overcome
certain capacity issues that exist at that point in time. We are addressing those, as you
notice on the chart by accelerating our investments in several factories to address these
issues.

And the other issue is that we have had severe disruption in certain parts of the world
because of high impact events that have been announced from time to time. So I think our
objective over time is to manage our working capital relative to the evolution of our sales.
And in spite of this increase in working capital, working capital as a percentage of our sales
is trending down. So I think that trend will continue, at least that is our objective.

Roddy Child-Villiers:

18


Alain on your second question, PPPs we gave you the number it grew 13.3%. Dolce Gusto
was well over 50%. The PPPs are around 5 billion; I haven't got the Dolce Gusto number at
this stage in the year.

James Singh:

Just to let you know that Dolce Gusto is trending to exceed half a billion CHF, more than half
a billion CHF this year.

Questions on: Enhancement of dividend in Swiss Franc terms
Margin stability in local currency in H2

Patrik Schwendimann, ZKW:

Hi Jim, Hi Roddy. First regarding the statement about the dividend, you were mentioning
that you continue to enhance it. So does this mean that you also increase dividends for the
current financial year despite probably a negative EPS in the Swiss franc?

And secondly regarding the margin improvement which was really good in the first half,
increased 40 basis points in local currencies, in the second half you were already mentioning
that the second half of 2010 had already this admin cost improvement in it, so does it mean
that in H2 the margin could more or less be stable in local currency? That's my second
question. Thank you.

James Singh:

Thanks Patrik. The dividend as we said, assuming everything else being equal that it is the
intention to enhance the dividend in CHF, that's the intention. And that is how we've
approached the dividends in the last four or five years, every year you've seen a substantial
increase in the dividend, but you know it is our intention that we will improve the dividend
payout in CHF to our shareholders. How much will depend on the particular circumstances.

The margin improvement - we said also that our margin including the old EBIT margin, the
model is that we will improve in constant currencies. You notice that at the EBIT level we
were flat in constant currencies, so we are expecting that margins will improve also in the
second half.


You remember for 2010 we had the sort of reverse of 2011 with a very tough H1 comp and
an easier H2 comp. So it's a reverse this year, that's opportunity for the margin to improve
as Jim says.

19


Question on: Decline in litigation and onerous lease costs in H1 and steer for
FY

Jamie Isenwater, Deutsche Bank:

Good morning. Just one question actually. There's a big decline in your litigation and
onerous lease costs in the first half, about a 100 million CHF swing. I'm just wondering what
the driver of that was and whether you can give us any help on what we should expect for
the full year? Thank you.

James Singh:

Morning Jamie and thanks, yes there is a decline in what we call other trading operating
expenses and income. You know the litigation expenses are triggered depending on
different circumstances. This year so far it has been very low and you know I'd love to give
you guidance but I really don't know because I don't want to tell you we're going to spend
more on litigation when in fact so far we have spent very little. And so I really can't give you
guidance. We have given you guidance more or less on restructuring which we said will be
30 to 40 basis points. You know we will have to make decisions with respect to making
provisions for litigations depending on what's there today.

We don't see any particular material litigation currently, but you know we have to manage
that from time to time.

Jamie Isenwater, Deutsche Bank:

And just sorry on the onerous leases, presumably you can see for the full year. Is that a big
number? Is that a big swing factor?

James Singh:

Not so far this year, last year we had some arrangements with respect to sorting contractual
arrangements and the supply chain that we have had to sort out. This year we don’t have
any of those so far. There are always going to be - you know litigations and onerous
contracts, etc, but I really can't give you any guidance on that. But as I say we do our best to
manage our business in a way that we avoid those costs.

Questions on: Pension cost benefit contribution to Europe margin in H1
Pricing to offset input cost inflation in Coffee and effect on
volumes

Jeremy Fialko, Redburn:

A couple of questions. The first question is on your Zone Europe margin. You mentioned
you had a pension cost benefit within the half. Can you quantify how much of a contributor
that was to the region's margins and what you'd be looking for that to be in the full year?

20


And the second question is on your Coffee business. Clearly that's one which has had some
very significant input cost inflation in it. Can you say how much of that you have hopefully
priced through and how the volume reaction to that has been so far and what you'd expect it
to be in the second half of the year? Thanks.


I'll start by taking the coffee question. As we said the Soluble Coffee business had a good
year, both in terms of price and in terms of margin so we've clearly been successful in
recovering the cost pressure that we've faced. The same is true in the Nespresso business,
their weaker H1 related to 2010 is simply the result of the launch of their first ever global
launch of a coffee machine, the Pixie machine. So we have been successful in protecting
the margin.

We have priced up, clearly, and we have not necessarily always been followed as quickly as
we would have hoped by the competition and soluble has had some share pressure as a
result, but competition has since followed and we're seeing the share coming back. So I
think the soluble business is in good shape, the strength of the Nescafé brand helping us to
get the necessary pricing.

James Singh:

Jeremy, on the pension question first of all I think the first half we have seen some good
results from our pension plans, especially in Europe, the pension - the funding ratios have
been up. We have some benefit of course by virtue of foreign exchange translation. But
over the last two years we have done a lot of work in trying to restructure benefit plans for
post retirement benefits. And we have started and we've made some good progress last
year in some markets and this year we continue to do that.

Last year we had about 125 million for the whole year, this year we would like to get closer -
slightly above that. But what I must caution is that most of the benefits that we got last year
was in the second half, whereas this year the benefits are in the first half. So that will sort of
average itself during the course of the year but we expect around that as a benefit from the
restructuring of our post retirement benefit plans, with a big focus in Europe, where we have
not done that for many years, but now we're doing this. So I hope that answers your
question.

Questions on: Weighting of input cost increases

Expected Consumer facing A&P in H2

What is Nestlé looking for in terms of M&A opportunities?

Robert Waldschmidt, Merrill Lynch:

21


Good morning, gentlemen. Two questions if I may. In terms of the margin bridge and how
we think about second half, I remember guidance was for margin to be stronger delivery
second half weighted. Can you remind us in terms of input costs, that would be first half
weighted from memory, what do you expect the impact to be second half?

And then two, in terms of A&P consumer facing, it was up in first half, can you illuminate for
us how it will be in the second half? And then second question, you've mentioned
unprecedented opportunities to invest in the business both organic and inorganic, can you
remind us in terms of what opportunities you'll be looking for in terms of deals, sizes,
categories and regions perhaps? Thank you.

James Singh:

Just let me deal with the input costs, yes we did say that for the input costs this year, the
impact would be somewhere to the upper end of the range we had given which is CHF 2.5 to
3 billion in terms of price and mix. We have seen slightly more than half of that impact in the
first half of the year. So we do expect that there will be a marginal decline on impact on the
second half of the year.

On A&P we continue to spend to support our brands. You have seen in constant currencies,
our consumer facing marketing was up 6.2% in constant currencies. And this was on top of
what we spent the same time in 2010 which was up 14% in constant currencies. So it is an
investment priority for us and you have seen the benefits of that, primarily through the
improvement in market shares on a global basis and a strong real internal growth of 4.8% for
the first half.

Just coming back on the input cost guidance, I want to maintain, I want to reiterate our
guidance on input cost this year for price and mix to be somewhere at the upper end of the
2.5 to 3 billion CHF range.

On capital expenditure, we have announced and that's portrayed on the slide, we have
announced several major capital expenditure programmes around the world, primarily in the
Emerging Markets, where we are experiencing very good growth. So that of course has
always been a priority for us. And this year we will spend about close to 5 billion CHF - I
mean that recognising that there is also an impact on the exchange. So we had said 5 to 5.5
billion, given the exchange impact we'll be closer to 5 billion this year.

On M&A we also have included that on the slide. Those are deals that have been completed
and announced - not yet completed. And those are the projects we're working on to make
sure we bring them to a successful completion. I unfortunately will not give you any specific
targets, but I would say that we are looking for M&A opportunities all over the world, in the
developed world, in the Emerging Markets, and in categories that are of strategic importance
to our future. So we are focused on bolt-on acquisitions and that’s what we will continue to
do.

Robert Waldschmidt, Merrill Lynch:

And on those deals, do you see more opportunities now than say a year ago, should we
expect the activity to increase?

James Singh:

22


Yes, I would say in our industry I have seen a little more activity this year than last year and
it's not only in the Emerging Markets, it's all over the world. But you know we're going to be
very discriminate in terms of what is strategically compelling and with good financial logic and
that's how we are pursuing these deals. Some maybe we will win, others we won't. But
that's how we have always conducted our M&A, executed the M&A strategy for the Group.

Questions on: Raw material guidance
Explanations on long-term financial investments

Jeff Stent, Exane:

Good morning, Jim, good morning, Roddy. Two questions if I may. The first one, just on the
raw material guidance, the 2.5 to 3 billion, given the strength of the Swiss franc that
effectively is an underlying increment. And I'm just a little bit surprised at that given what
we've seen in a number of commodities. I know there's a lot of hedging, etc. but we still have
seen a number of your material inputs come down quite significantly over the last quarter.
So I'm just a little puzzled as to how on a sort of underlying basis you're effectively increasing
the commodities guidance further. So if you could shed any colour on that, that would be
great.

And secondly on the long-term financial investments, could you give any colour as to what's
actually in there and also the rationale? So are you effectively using your favourable short-
term borrowing cost to buy longer-term investments on the asset side? Or if you could just
clarify a little bit the thinking behind it? Thanks.

James Singh:

Okay on raw materials in the guidance towards the 3 billion impact does include the benefits
of transaction exchange costs in the markets. So yes there is - the question is if everything
was okay in the world would this number increase or go down? But unfortunately it is not
and there continues to be significant volatility in the markets. So given where we are, and we
have spent slightly more than half that number already, I don't think it's advisable to change
because of volatility in currency and commodities. We have more or less seen some
offsetting impacts and we are confident the guidance to the upper end of the 2.5 to 3 billion is
what we would likely experience this year.


Also Jeff it's worth remembering that our guidance was not based on prices at the time it was
based on our expectation for how prices were going to evolve over the course of the year.
So the guidance incorporated a view on the various commodities as well as on the currency
impacts.

James Singh:

On the long term investments, it's really the overflow of the income from Alcon disposition
and the timing horizons of our debt obligations. Some of the excess cash was invested in
equities, in Asian equities where we are making a lot of investments in capital and also some
of our M&A deals and in bonds.

23


And then of course we also have some treasury shares which we're holding. So as I said in
the discussion the nature of these investments are good from a return point of view but also
give us the flexibility in the event we need cash in those parts of the world.

Jeff Stent, Exane:

Sorry Jim, just one point of clarification. Did you say some of this money has been invested
into European equities?

James Singh:

No, Asian equities.

Jeff Stent, Exane:

Right. But this is plain vanilla quoted equities is it?

James Singh:

Yeah, more or less, well, when you say plain vanilla, you know, these are blue chip
companies in these markets and we have investment managers, this is being managed by
our investment management company. So we have a target return for the Group assets and
that’s what we expect to get.

Questions on: Organic growth guidance in H2
Net debt after end of buyback

Jon Cox, Kepler:

Good morning guys, congratulations on the good strong sales figures there. I have a couple
of questions for you. First on the guidance, your 5% to 6% would be towards the top end this
year and obviously you did 8.5% in Q2 and you're saying that pricing will actually increase as
we go through the year. You seem to be guiding that you're only going to be somewhere
around 4%, 4.5% in the second half of the year, it's all going to be volume - sorry, it's all
going to be pricing and actually volume will go negative. Is that a correct extrapolation of
what you're saying or are you just being slightly cautious as we still have some way to go for
the year? That's the first question.

The second question, Jim, previously you said you don't want Nestlé to go back to a AAA
credit rating. You said that you need probably 25 billion net debt on your balance sheet to
avoid that. On my calculations at least, including your investments, you'll be probably around
7 billion at the end of this year because you've stopped the buyback programme. Is it still
your aim - you know I can understand what you're saying about the M&A and you probably
have a bit of a pipeline but can you still see you going back to the 25 billion net debt just on
the M&A? I'm just wanting a bit more guidance on that if possible. Thank you.

James Singh:

24


Okay, Jon thanks and good morning. First of all on the organic growth guidance I think -
yeah we are cautious because of the environment in which we are operating. And by the
way to get even to 6% we have to do more than 5% for the rest of the year, we're not saying
that is what we're going to do, but our guidance yes you can say we are being cautious. I
think at this time this is what we believe is prudent to do. We are not letting up in the
organisation to do less. We will do and we will be competitive as we have done in the past
and as we need to be to make sure we get fair share of growth and continue to drive our
market shares.

But at this time yes we are guiding towards the top end of our 5 to 6% range. You know we'll
look at it in the third quarter again, but we feel comfortable with this and we think that's a
good challenge to the rest of the organisation to keep driving our competitive performance in
the marketplace.


Jon, I think also the Q2 is perhaps not the right start point for which to base your expectation
for the full year, because the Q2 RIG was clearly inflated by the late Easter, so probably the
half one is a better start point then the Q2 number if you're thinking about your full year. We
told you back in Q1 that Q1 was impacted negatively and that Q2 would be impacted
positively on the RIG side, it clearly has been. So I think the H1 number is a better start point
than the Q2 number.

James Singh:

Yes, and the other thing Jon is that the first half price was 2.7% and that’s what we said, that
average will increase as the year progresses.

Now coming back on the AAA and the debt level. We had said in London and during our
subsequent discussions that we were targeting by the end of 2012 that we will be back to a
net debt position as to where we were at the end of 2009. And at the end of 2009 with Alcon
we were about slightly over 15 billion, without Alcon we were about 18 billion. So
somewhere between those two numbers is where we think we will be at the end of 2012,
2013.

So we have never mentioned a 25 billion CHF number, there must have been some
miscommunication. But that is what we said at the time and that's still our objective.

With respect to AAA we said we believe that our current credit quality of AA, AA+ is a gold
standard that we strive for. We know as a company we are a AAA quality company, but we
are very happy with where we are from a credit quality and a credit rating point of view. AAA
is not an objective for our organisation.

Jon Cox, Kepler:

Okay. I wanted just some clarification on the pricing. I understood when you were talking
that the Q2 pricing of 3.8% would actually rise as we went through the year. You're basically
saying now actually it's a 2.7% average, we saw in April will rise as we go through into the
second half of the year?

25


James Singh:

Yes, because we're talking cumulative Jon.

Jon Cox, Kepler:

Okay, but even sort of taking all that into account and obviously you had 4% odd pricing in
Q2 and I presume H2 will be similar to that. You seem to be implying that there will be a
serious deceleration in volume, or you guys are already working on the assumption that the
volume will decline close to zero by the end of the year. Am I being slightly too pessimistic
with what you're saying there?

James Singh:

Well I don't necessarily agree with you, you know we believe that a performance guiding at
the top end of a range is a prudent one. We have no expectation that our volumes are going
to be negative, because as I said we will continue to compete and we will drive a
combination of RIG and price, albeit maybe price is going to be a slightly bigger part of the
mix going forward. But we are not expecting to have any kind of negative real internal
growth numbers for the balance of this year.

Questions on: Expectations for the currency impact for FY

Treasury Stock

Julian Hardwick, RBS:

Morning, two questions from me. One, Jim, on currency impact for the year I thought I heard
you say that for the full year you didn't think the currency impact would be as bad as the 13%
odd decline in the first half. Is that correct? My numbers look as though it will still get worse
by the time you get to the full year.

And secondly just back on this long-term investment. Can you tell us how much of the 4
billion is invested in your treasury stock? And presumably the right way to think about this is
your net debt is really 10.8 rather than 14.5 at the moment if we're trying to sort of look at
where you're - how you're going to get to your 15 to 18 eventual target?

James Singh:

Yes, I think on the currency Julian I think you may be right. If you look at the US dollar in the
first six months this year compared to the first six months last year we moved from an
average of about I don't know, 1.08 to about 90 cent, so it was 16, 17% as we said and the
same thing for the Euro.

You know it's difficult to predict, it could be slightly better, it could be slightly worse. But at
the end of the day we have to find a way to manage through this, as you see we have done
in the first half. So it's really difficult to give a guidance on currency impact given what we
have seen over the last two or three days, especially Swiss franc relative to other currencies.

26


Now the last time I looked the Swiss franc relative to the Euro was about 1.05, 1.06 and 72,
73 cents to the dollar. But it is a reality of our world and we have to manage that.

Now the impact in terms of the margin was 20 basis points and that's also something we
have to manage and that's why we give our guidance in constant currencies, while also
making some important underlying improvements in our performance.

Now the long term - as I said our net debt at the end of the first half was 14.5 billion and if
you did deduct the long term investments, etc, it would have been 10.8, I think that's the
number we use. So you're absolutely right there Julian.


And how much of that is treasury stock?

James Singh:

Two billion.


The two billion is in addition to the four billion; we have four billion in long term investments
and two billion in treasury shares.

James Singh:

Yes so the two billion is not part of - in other words if we were to convert - the two billion is
not part of the net debt, whether it's 14.5 or 10.8.


Just coming back on the currency comment since I made it in my speech. What I said was
that it could lessen a bit due to the relative comparison versus 2010. In other words the - you
know the deterioration in the currencies was already happening the second half of last year,
so the comparison is easier. Clearly if the currencies continue to deteriorate then you know
the situation will get worse. But simply the point was that the relative start point is easier in
H2 than it was in H1.


Sure. Based on where spot rates are sitting today, we would expect to see a negative for the
full year than you reported for the first half?


Sure.

27


Questions on: Investments in securities

Confectionery margins


Hi, gentlemen, sorry, just a couple of follow ups. Just going back to that point earlier about
the investments you're making in other securities, I guess two things. Just in terms of where
that comes through, is that included in the 2 billion of other investing cash flows? I'm just
trying to reconcile that with the fact that short-term investments was an inflow of 3.9 billion in
the first half of the year.

And then I guess also just in terms of mark to market of those investments, do you mark to
market those investments at the end of each period and is that appearing as a profit or loss
item on the P&L and where does that appear? And then I guess related to that as well, if an
investor said to us why are you investing in Asian blue chip securities rather than Nestlé
equities does that not mean you think Nestlé offers more upside? I just wondered what you
would respond to that. Thanks very much.

James Singh:

Okay, David thanks for the question, as you said - as you note we said before that we are
also investing in Nestlé equities. We have about just under a billion in Asian equities and we
have about two billion in Nestlé shares. And yes, we'd likely continue to do some more
Nestlé shares, depending of course on the price.

Now, and sorry what was the other question David?


Just in terms of where you see those - that investment going through the P&L - through the
cash flow and whether you mark to market the investment - the return on those investments?


Yes, it is mark to market at the period end as you say and it goes into the comprehensive
income statement, which is equity basically.


Okay, but not through financial income or any other, not through the main …

James Singh:

No, not through the operating - no.


And then sorry, one other operational question as well just in terms of the Confectionery
margin, obviously a big movement there. You explained some of the moving parts. Is that
the new norm margin wise for Confectionery or is that a higher level than you would expect it

28


to hold or is that now what we should be looking for Confectionery to be able to sustain as a
margin point? Thank you.

James Singh:

I think Confectionery as we said has got some benefits primarily in the administrative cost
reduction. And that will sort of normalise during the course of the year. So it's not a target, I
expect the margins will sort of flatten out for the balance of the year.


Okay, so more in line with last year or flatten in terms of the first half is just …

James Singh:

No we don’t give guidance on the margin, but just to say that it did get a benefit as we talked
for this important reduction in administrative costs in the first half, which will sort of normalise
itself - not normalise but it will be less impactful in the second half, or the full year
comparison.


Okay thank you.


Also there are a lot of moving pieces going on in Confectionery, both the seasonality issue;
also we're seeing very strong growth in some of the Emerging Markets where we have very
good margins. So there is a - as you've seen over now I think three, four, five years even
there has been a continuing trend of improvement and returns in that business. So there is
also an underlying clear improvement going on over time.

Questions on: Infant formula in China

Nespresso and Dolce Gusto outside Europe

Dolce Gusto tie-in with Green Mountain

Pablo Zuanic, JP Morgan:

Good morning, everyone. I really don't have questions about the quarter but maybe two just
structural questions. Roddy, can you talk about your baby formula business in China. You
know from outside we hear that Mead Johnson compete mostly in the premium segment
than on, apparently, across the board in all the segments. Obviously the value, the low end
of the market is not growing, so they seem to be losing share. Just talk about your business
in baby formula and remind us of what your market shares are in China, in baby formula
versus Mead Johnson, Wyeth and Danone?

And then just a final one on Nespresso and Dolce Gusto, just give us some more colour
there. In the case of Nespresso, I think you said sales - likely growth as in the first quarter. I
guess that means more than 20%. Just how much of the business of Nespresso at the

29


moment is coming outside of Western Europe? What's the progress you're making in the US,
particularly with Nespresso? And related to Dolce Gusto, what's the progress of that
business in the US and other European markets say versus Tassimo or versus Senseo
particularly in Western Europe? That type of colour would help, thank you


Thanks Pablo, just on China, it's a relatively small business, it's only a few hundred million,
so it's not exactly material to the results discussion so I haven't got a lot of information on it.
But the Nielson market shares are around mid single digit, they probably understate our true
market share because we're very present in rural areas where Nielson isn't. But the
business is growing very meaningfully in double digits, performing very well. We've seen a
very material acceleration in traction across infant formula, all the way through to the growing
up milk business as well in China. That whole business is absolutely flying at the moment.
So it's doing really, really well.

The market share as I say is not particularly accurate and also the reason that we would also
say that the market share is not accurate is that we've been growing that business double
digit, over 20% for a couple of years and the market share data point hasn't moved and there
aren't that many babies being born in China. So we're clearly doing well, coming back from a
difficult period three or four years ago, and we're very excited about it. But it's not a material
part of the Nestlé Group.


But it's still a material market right? It's one of the largest markets in baby formula in the
world. I mean you're big in Latin America in baby formula, not in China that's my point I
guess.


Yeah and that's why it's so fantastic that we're doing so well in that business at the moment
in China. It's absolutely a key market for us and we're growing, as I say, way over 20% and
it's going really well.

On Nespresso the performance is as you say it is. I haven't got the percentage split for
Europe relative to the rest of the world. It won't have changed very much from the last
number we gave you because Europe is as you know over 80%, growing double digit. So it's
not going to have changed materially from the last number that we gave you.

The business is continuing to deliver double digit growth in its big markets, it's growing much
faster in the US as you'd expect off a smaller base, again similar levels of growth that we saw
in the first quarter and we quoted you a number then of around 50%.

Dolce Gusto as we said it's growing at over 50% globally, again, it's a predominantly
European business so the growth in Europe continues to be very, very strong. We quoted
you 400 and - I forget the number now, 420, 480 basis points of market share gain in system
sales in Europe. So that business clearly has real traction. In the US with the US launch
which was primarily in Wal-Mart, that launch is going fine and the really good news about the
launch is that where we have sold the machines the capsule consumption is higher then
we're seeing in most other markets. So the take up once the machines are sold is very, very

30


strong and that is the reason why we are very bullish about that project going forwards in the
US.


Can I just have a follow on, obviously it's very early days and you are doing well in the US
with Dolce Gusto, but given the explosive growth of Green Mountain coffee roasters and their
huge size in single-serve coffee, would it make sense for Nestlé to actually make Dolce
Gusto take cups for Green Mountain or - that would be action that would not make sense for
you?

James Singh:

Our strategy on Dolce Gusto is clearly one that is focused on our total control and execution
and we're doing - you know that's the strategy, that's the strategy we're executing around the
world. And that's the model we have in the US and elsewhere, we're not going to change
that.


Also important to remember that the US market is growing well, indeed the global market is
growing, but also the US market is growing very rapidly in systems. So it's not about having
all to be in one system, there's room for a number of players in that market and we clearly
intend to be one of the leaders. Well we are the leader at the moment globally.

Questions on: Investments in Nestlé shares

International launch for BabyNes

Jon Cox, Kepler:

The investments you have in your own shares and running parallel to the buyback
programme. I'm just wondering when you're actually investing in your own shares I guess
you're not using that second trading line, you're just coming into the market when you feel
there is an opportune moment. Or are you saying basically you won't cancel the 5 billion
worth of shares that you'll be completing in the next couple of weeks, you won't cancel them
next year? That's the first question.

Just secondly, just on the BabyNes you said it's gone very well in Switzerland, just wondering
does that mean you will do a sort of a more of an international launch. Should we expect
that over the next couple of months and quarters? Thanks

James Singh:

Okay Jon thanks, the shares - yes the treasury shares are bought in the normal market,
whereas the share buyback is done on the second trading line. And yes the intention is what
we do on share buybacks will be cancelled. So I hope that deals with your first question.

I think BabyNes; we had a very successful launch, based on our criteria for the project. And
maybe as we progress later on in the year we would likely give you an update Jon. But right

31


now the focus is trying to get the launch right and all the dynamics that are included in taking
such an important innovation to the marketplace. So we're very focused in getting the Swiss,
which is the first market, right, and building and using the learnings there to build a
programme for the other markets.

Jon Cox, Kepler:

Okay, just to come back to this, you investing in your own shares. How should we think
about that going forward then? Will you just act opportunistically, if you think the share is
looking interesting from however you might want to value it, and you'd just come in and buy
the stock and then we'd hear about it every half year when you announce, or would you
announce it to the Stock Exchange in the normal way that - depending if key ratios are hit
under the Swiss Stock Exchange regulations?

James Singh:

Yes, you know I don't think we will get to a level where we have to make any disclosure. It is
an activity we engage in from time to time but as I said it's not a priority for us, it's one way of
managing the cash flows in the short term.


Before we did our share buybacks, the share buybacks for cancellation, I think if I remember
well back in 2004 and before we only ever announced the treasury share amount annually,
not bi-annually. So I don't think you can expect to have regular updates on whether we're
buying or selling our treasury shares.

Questions on: Special T Update

Patent protection for capsule in 2012
Development trend in business in Poland, Russia and
Ukraine

Simon Marshall-Lockyer, Jefferies:

Yes. Good morning Roddy, good morning, Jim. Just a question one with the machine-based
systems, can you just update us on Special T and the Viaggi machine? And could you give
us some indication as to the approaching deadline in respect to the IP losses around the
capsule in 2012; I think I'm correct in saying?

And the second question is could you give us some more granularity in perspectives in
Eastern Europe including Russia, but particularly on Poland, Russia and Ukraine, how the
development of the business trended in the first half and what you're expecting there? Thank
you.


Special T to start, Special T is continuing to perform very well, it's to expectations. We're not
going to give you any numbers because it's so clearly not material at this stage. The clear
focus now obviously is to have a very successful Christmas season, as with the other

32


systems machines, the big selling for the machines is during the Christmas season with
gifting. But so far we're very pleased with how Special T is going.

On what you call the capsule 2012 issue, fundamentally we have a whole series of
protections around the Nespresso systems; there isn't one issue that's going to be material to
us. I've got no update to give you because there's nothing new that happens it's just a
situation that we will have some patents come off protection in 2012 but all the other patents
will continue to be on protection and there's no material business risk to Nespresso.

Russia is a bit of a mixed picture, if you start with the Zone, the impulse business, primarily
Chocolate which is our big Zone business continues to suffer from poor consumer sentiment.
The other less impulse more fundamental businesses like the Soluble Coffee business, the
Soup business, are doing very well and Ice Cream is also doing okay.

If you go out of the Zone into Nutrition, the Nutrition business is doing terrifically well, double
digit growth now for a number of years and no let up there, going very well. And also I
mentioned in my presentation PetCare also performing very well in Russia. The Ukraine
especially performing very well indeed across the business.

We've been quite active, as you know in recent years in acquisitions in the Ukraine, we have
a super business in the Ukraine, we've also recently opened our Shared Service Centre for
Europe in the Ukraine and that business is performing very, very well indeed.

James Singh:

And Poland, I think we're having reasonable progress for the first half. So we're quite happy
with the markets that you mentioned. Russia continues to improve, albeit a bit slowly.


And the other exciting news in Russia is that we're opening a Nescafé factory imminently, it
may even have just opened. So that's a big benefit to us in terms of levelling the playing field,
having local manufacturing of Nescafé in Russia.

End of Q&A Session

James Singh:

Well thank you for your attention this morning, your time and attention. You've seen we have
delivered a very solid performance in the first half, which really gives us the confidence that
our strategies are working, even in these difficult times as we look at the business and the
economic environment in which we operate around the world.

The performance in the first half gives us confidence that we can once again recommit
ourselves to achieving the Nestlé model in 2011, which as you know - and this time we
reiterate the organic growth at the top end of our 5 to 6% range and an improvement in our
margins in constant currencies. Thank you.

End of call.

33

2011 hy results_confcall_transcript

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