Nestle Annual Report 2010

Annual Report 2010 Our objective is to be the recognised leader in Nutrition, Health and Wellness and the industry reference for financial performance Table of contents 2 6 7 8 10 12 14 18 22 26 27 28 38 40 42 44 46 48 Letter to our shareholders Board of Directors of Nestle S. A. Executive Board of Nestle S. A.

Creating value for society UN Global Compact – Communication on Progress The Nestle Roadmap to Good Food, Good Life Competitive advantages Growth drivers Operational pillars Financial review Principal key figures (illustrative) Overview Management responsibilities: Food and Beverages Leading positions in dynamic categories Geographic data: people, factories and sales Corporate Governance and Compliance Creating Shared Value Key Performance Indicators Shareholder information

Accompanying reports Creating Shared Value and Rural Development Summary Report 2010 Corporate Governance Report 2010; 2010 Financial Statements The brands in italics are registered trademarks of the Nestle Group. Key figures (consolidated) E I 1 1 1 In millions of CHF (except per share data) Sales EBIT (Group) Earnings Before Interest, Taxes, restructuring and impairments as % of sales EBIT (Continuing operations) Earnings Before Interest, Taxes, restructuring and mpairments as % of sales (Continuing operations) Profit for the year attributable to shareholders of the parent Net profit (a) as % of sales as % of average equity attributable to shareholders of the parent Capital expenditure as % of sales Equity attributable to shareholders of the parent before proposed appropriation of profit of Nestle S. A.

Market capitalisation, end December Operating cash flow Free cash flow (b) Net financial debt Ratio of net financial debt to equity (gearing) Per share Total basic earnings per share (a) Underlying (c) Equity attributable to shareholders of the parent before proposed appropriation of profit of Nestle S. A. Dividend as proposed by the Board of Directors of Nestle S. A. (a) 2010 figure is not comparable as it includes a one-off gain on the disposal of the remaining interest in Alcon. b) Operating cash flow less capital expenditure, disposal of tangible assets, purchase and disposal of intangible assets, movement with associates as well as with non-controlling interests. (c) Profit per share for the year attributable to shareholders of the parent before impairments, restructuring costs, results on disposals and significant one-off items. The tax impact from the adjusted items is also adjusted for. (d) ROIC calculation was amended in 2009 following changes in segment reporting. 2008 figures have been restated accordingly. 009 107 618 15 699 14. 6% 13 222 13. 1% 10 428 9. 7% 20. 9% 4 641 4. 3% 48 915 174 294 17 934 12 369 18 085 37. 0% 2010 109 722 16 194 14. 8% 14 038 13. 4% 34 233 31. 2% 61. 8% 4 576 4. 2% 61 867 178 316 13 608 7 761 3 854 6. 2% N I 3 2 1 D I 1 1 0 CHF CHF CHF CHF 2. 92 3. 09 13. 69 1. 60 10. 16 3. 32 18. 35 1. 85 C I 5 4 3 EBIT (Group) In millions of CHF 16 000 15 000 14 000 EBIT margin In % 14 12 10 13 302 2006 15 024 2007 15 676 2008 15 699 2009 16 194 2010 Continuing operations Group – 13. 5 2006 – 14. 0 2007 – 14. 3 2008 13. 1 14. 6 2009 13. 14. 8 2010 Net profit (a) In millions of CHF 30 000 20 000 10 000 Earnings per share In CHF 9. 00 6. 00 3. 00 9 197 2006 10 649 2007 18 039 2008 10 428 2009 34 233 2010 Underlying (c) Total (a) 2. 41 2. 39 2006 2. 80 2. 78 2007 2. 82 4. 87 2008 3. 09 2. 92 2009 3. 32 10. 16 2010 Dividend per share In CHF 1. 80 1. 20 +15. 6% 0. 60 +17. 3% +14. 8% +14. 3% +15. 6% Total cash returned to shareholders In billions of CHF 15 10 5 1. 04 2006 1. 22 2007 1. 40 2008 1. 60 2009 1. 85 2010 Share Buy-Back Dividend 2. 7 3. 5 2006 4. 4 4. 0 2007 8. 7 4. 6 2008 . 0 5. 0 2009 10. 1 5. 4 2010 Capital expenditure In millions of CHF 5 000 4 250 3 500 Return on invested capital (d) In % 32 24 16 4 200 2006 4 971 2007 4 869 2008 4 641 2009 4 576 2010 Including goodwill Excluding goodwill 11. 7 21. 2 2006 12. 2 22. 2 2007 14. 7 34. 8 2008 15. 6 35. 1 2009 15. 5 36. 1 2010 Highlights 2010 Strong operating performance. Broad-based: all operating segments contribute The Nestle Model achieved in 2010 CHF 109. 7 billion Group sales CHF 16. 2 billion Group EBIT CHF 104. 6 billion continuing operations sales CHF 14. billion continuing operations EBIT, +30 basis points EBIT margin improvement Net profit of CHF 34. 2 billion, 7. 4% increase in underlying earnings per share, 10. 3% in constant currencies CHF 13. 6 billion in operating cash flow Return on invested capital, excluding goodwill, of 36. 1% Return on invested capital, including goodwill, of 15. 5% Nestle’s commitment to shareholder value creation CHF 15. 5 billion of cash returned to shareholders through CHF 5. 4 billion dividend and CHF 10. 1 billion share buy-back CHF 6. 1 billion or a CHF 1. 5 dividend per share (proposed) for 2010, an increase of 15. 6% In excess of CHF 10 billion to be returned to shareholders in 2011 through dividend and share buy-back 2011: a year already characterised by high raw material costs and volatile currencies We are starting 2011 with continued momentum, well placed to face uncertainties ahead, including volatile raw material prices. We are therefore confident of achieving the Nestle Model in 2011: organic growth between 5% and 6% and an EBIT margin improvement in constant currencies Letter to our shareholders

Fellow shareholders, The aftershocks of the 2008 financial meltdown echoed through 2009, with recessions in many economies, and continued through 2010 and into 2011, with concerns over what may be still to come. This unpredictable and volatile macro-environment, particularly in the developed world, has weighed heavily on consumer confidence. On the other hand, the emerging world has rallied quickly, demonstrating that many economies in Asia, Africa and Latin America are more robust, and less dependent on the developed world than was perhaps thought.

One might say that many emerging economies are indeed emerging, and doing so on their own terms, with their own priorities, rather than simply having a “me too” ambition to mimic the developed world. This must be a good thing, both for those economies and for global trade and development. This environment has required specific, individual country-by-country approaches from your Company, so that we could identify opportunities for growth in areas characterised by low levels of consumer demand and also capitalise on buoyant demand in other markets.

These approaches shared a common strategic purpose, described in the Nestle Roadmap, which identifies our operational and strategic priorities. Our priorities were to ensure that we put consumers first; that we offered outstanding value propositions through our products and services, appropriate to our different consumer segments; that we achieved a high level of differentiation of our brands from those of our competition; and that we continued to increase investment in innovation, in consumer communication, in operations and in distribution.

And that we did this whilst driving improved operational efficiency across the business, simultaneous to achieving ever higher standards of process and product quality. This commitment lies at the heart of our performance in 2010, a year that saw Nestle’s stock market valuation make it preeminent amongst its consumer goods peers and one of the leading companies in Europe. Nestle’s organic sales growth was 6. 2%, including real internal growth (RIG) of 4. 6% and pricing of 1. 6%. The strength of the Swiss franc relative to many other currencies had a 3. % negative impact on reported sales, whilst divestitures, net of acquisitions, resulted in a fall of 0. 6%. Overall, sales rose by 2. 0% to CHF 109. 7 billion. The Group’s EBIT rose to CHF 16. 2 billion and the EBIT margin rose by 20 basis points to 14. 8%. Our continuing operations had organic growth of 6. 0% and RIG of 4. 4%. Despite a higher level of investment in marketing and R&D, the EBIT rose to CHF 14. 0 billion and the EBIT margin by 30 basis points to 13. 4%. The Group’s underlying earnings per share rose 7. 4% to CHF 3. 2, and by 10. 3% in constant currencies. The reported net profit was CHF 34. 2 billion, reflecting the profit on disposal of our remaining holding in Alcon, as well as the underlying improvement in our performance. The operating cash flow was CHF 13. 6 billion. The Group’s return on invested capital decreased by 10 basis points to 15. 5% including goodwill, but increased 100 basis points to 36. 1% excluding goodwill. In view of this performance, and your Company’s robust financial position, your Board is recommending a dividend per share f CHF 1. 85, an increase of 15. 6% from last year. This will be paid in 2011, and is in addition to the current CHF 10 billion share buy-back, split equally between 2010 and 2011. The 2010 results, achieved in an exceedingly challenging environment, were not the reflection of a single-minded focus on achieving short-term performance, but were achieved whilst investing for the future and laying foundations to shape the future direction of the Company: • in January we announced the acquisition of the leading USA player in frozen pizza.

This deal complements Nestle Annual Report 2010 2 The 2010 results, achieved in an exceedingly challenging environment, were not the reflection of a single-minded focus on achieving short-term performance, but were achieved whilst investing for the future and laying foundations to shape the future direction of the Company. our existing leadership in frozen meals, frozen snacks and ice cream in the US market, enhances our distribution capabilities there and complements the know-how that we have developed in our pizza operations in Europe.

On an annualised basis, we now have sales of over CHF 8 billion in mainstream retail frozen food and ice cream in North America, and clear leadership; • in August we closed the sale of Alcon. This transaction, together with the earlier divestments of our Alcon shares, brought the total realised by Nestle to USD 41 billion from an investment in 1977 of USD 280 million. Your Board thanks the past and present Alcon management teams for their great work over three decades in building such a successful business, which has enabled the creation of significant value for our shareholders.

Our desire to ensure that our shareholders benefited from that value creation is reflected in our commitment to buy back and cancel approximatively CHF 40 billion of our shares between 2005 and 2011; • in September we announced the creation of both Nestle Health Science S. A. and the Nestle Institute of Health Sciences. Nestle is the world’s leading Nutrition, Health and Wellness company: one responsibility of leadership is to be a pioneer. The creation of these two organisations will enable us to pioneer a new market between food and pharmaceuticals. 3 Nestle Annual Report 2010

They will develop the innovative area of personalised health science nutrition to prevent and treat health conditions such as diabetes, obesity, cardiovascular and Alzheimer’s diseases. Nestle Health Science will incorporate the Nestle HealthCare Nutrition business, with CHF 1. 7 billion of sales, including the 2010 acquisition of Vitaflo, focused on inherited metabolic disorders; • we also strengthened our position through acquisitions in different categories in both developed and emerging markets. These included, amongst others, Water in China, Culinary in Ukraine, Confectionery in Turkey and PetCare in North America.

Acquisitions play a role in helping to accelerate the Group’s strategic priorities and to enhance its growth profile, but our key driver of profitable growth is the organic development of our categories and geographic positions. We have made or announced major capital investments in the developed world and in emerging countries such as India, China, Indonesia, the Philippines, the Middle East, Russia, Brazil, Mexico, Chile, Angola, the Democratic Republic of Congo, Ghana, Kenya and Mozambique. In total, for 2010 and 2011 we have spent or committed CHF 4. 3 billion to capital investment in emerging countries.

We foresee investment in the emerging world continuing to run at significant levels as we build on our position as the largest food and beverage company in emerging markets. Equally, we will continue to invest in North America, Western Europe and the developed economies of Oceania and Japan: we see many opportunities for growth in the developed world and are investing to ensure that we are well placed to benefit from them. Capital investment, expanding our capacity, is only one part of the story: we are supporting this with investment in capabilities, both personal and technical, in R&D, in distribution and, of course, in our brands.

The strength of our balance sheet means that we do not have to make 4 either/or decisions when we are investing in our own business, acquiring another company or driving our performance, but that we can judge each opportunity on its own merits. This means that we will make appropriate investments and acquisitions in both developed and emerging markets, provided the financials stand up; and that we will drive short-term performance and, at the same time, invest in the longer-term development of our brands and market positions.

We are also using our financial resources and technical expertise to invest in countries and communities that are themselves contributing to our development. As an example, we are seeking to improve the security of supply of key ingredients, such as milk, green coffee and cocoa. In 2010, we announced our intention to invest CHF 500 million in a wide-ranging plan to address responsible farming, sourcing and consumption across the coffee supply chain. As part of this plan, we intend to deliver over two hundred million high-yielding plants to farmers over the next ten years.

We are also investing over CHF 100 million in an initiative in cocoa with similar objectives around the sustainability of the cocoa industry. These cocoa and coffee initiatives are just two examples of us using our financial resources to fund investment that will improve the quantity and quality of local ingredients that we are able to buy; this in turn will contribute to increased economic prosperity in those countries; equally, we are expecting to make further such investments as our business continues to grow, both locally and around the world.

The benefits to our Company will be an improved security of supply of higher-quality raw materials and a reduced impact from the volatility of raw material prices. These investments highlight the founding philosophy of how we go about our business: we believe that companies are only sustainable and successful over the long term if they Our commitment to Creating Shared Value and our principle-based approach to running our business stand front-and-centre as we pursue our objective of being the reference for financial performance in our industry because we want to achieve this whilst also being trusted by all stakeholders.

Nestle Annual Report 2010 create value not just for their shareholders but also for the societies in which they operate. We call this “Creating Shared Value”. We talk about this in more detail in this report, as well as our progress in relation to the United Nations Global Compact. Our commitment to Creating Shared Value and our principle-based approach to running our business stand front-and-centre as we pursue our objective of being the reference for financial performance in our industry because we want to achieve this whilst also being trusted by all stakeholders.

The Nestle Model has the objective of every year achieving a high level of organic growth and improving the EBIT margin. In the last ten years we have averaged an annual 6. 3% organic growth and an annual 30 basis point improvement in the reported EBIT margin. The benefit of our EBIT growing faster than our organic sales is reflected in the improving trend in our cash-flow performance, which is in turn reflected in the increased dividend paid to our shareholders, up 236% per share over that same 10-year time frame.

And, in the last six years, your Company has been paying a dividend and carrying out a significant share buy-back, which together total CHF 60 billion over that time. Comparability, transparency and the ability to be benchmarked are entry points to being the reference for financial performance: your Board committed in 2010 to change our sales recognition policy with effect from 2011 to facilitate comparisons of performance with our peers by bringing into line those of our key reported financial performance indicators that were not already directly comparable.

We believe this will not only facilitate external-benchmarking of our performance, but that it will also bring even closer alignment between internal targets and those value drivers that are of most importance to our shareholders. There was one change to the Executive Board in 2010. Richard Laube decided to leave the Company Nestle Annual Report 2010 and was replaced as Head of Nestle Nutrition and on the Executive Board by Doreswamy (Nandu) Nandkishore.

Nandu, of Indian nationality, has been with Nestle since 1989 and was previously the Market Head of Nestle Philippines and then the Head of Infant Nutrition globally. The Board thanks Richard for his contribution over his five years at Nestle and particularly for his contribution to the successful acquisition and integration of the three businesses which enabled Nestle Nutrition to double in size under his leadership. One new director will be proposed to shareholders at the 2011 Annual General Meeting. Ms. Ann Veneman, is a US citizen and former

Executive Director of the United Nations Children’s Fund (UNICEF). She also served as Secretary of the United States Department of Agriculture (USDA) and is a member of the Nestle Creating Shared Value Advisory Board, with extensive experience in areas such as children’s health and education. The events of the last few years have been unprecedented in many ways, and have created considerable uncertainty for many people in many countries around the world. Despite this, our people, over 280 000 of them, have continued to show a wonderful level of commitment to their jobs and of enthusiasm for their Company.

We would like to thank them on behalf of the Board and of all our fellow shareholders for their efforts in 2010. We would also like to welcome all those who have joined Nestle in 2010 and to wish them every success, in the knowledge that they have the full support of their colleagues. We are starting 2011 with continued momentum, well placed to face uncertainties ahead, including volatile raw material prices. We are therefore confident of achieving the Nestle Model in 2011: organic growth between 5% and 6% and an EBIT margin improvement in constant currencies. Peter Brabeck-Letmathe Chairman of the Board Paul Bulcke Chief Executive Officer Board of Directors of Nestle S. A. at 31 December 2010 Peter Brabeck-Letmathe (3, 5) Chairman Term expires 2013 (1, 2) Paul Bulcke (3) Chief Executive Officer Term expires 2011 (1, 2) Helmut O. Maucher Honorary Chairman Andreas Koopmann (3, 4, 5) 1st Vice Chairman Chairman of Alstom (Suisse) S. A. Term expires 2011 (1, 2) Rolf Hanggi (3, 6) 2nd Vice Chairman Former Chairman, Rud, Blass & Cie AG, Bankers. Term expires 2011 (1, 2) Jean-Rene Fourtou (3, 4) Chairman of the Supervisory Board, Vivendi. Term expires 2012 (1, 2) Daniel Borel (4) Co-founder and Board member, Logitech International S. A. Term expires 2012 (1, 2) David P.

Frick Secretary to the Board KPMG SA Geneva branch Independent auditors. Term expires 2011 (1) Jean-Pierre Meyers (4) Vice Chairman, L’Oreal S. A. Term expires 2011 (1, 2) Andre Kudelski (6) Chairman and CEO, Kudelski Group. Term expires 2013 (1, 2) Carolina Muller-Mohl (5) President, Muller-Mohl Group. Term expires 2012 (1, 2) Steven G. Hoch (5) Founder and Senior Partner, Highmount Capital. Term expires 2013 (1, 2) (1) On the date of the Annual General Meeting. (2) As Nestle’s Articles of Association provide for three-year terms, all members of the Board are being re-elected over the course of the following three years. 3) Chairman’s and Corporate Governance Committee. (4) Compensation Committee. (5) Nomination Committee. (6) Audit Committee. For further information on the Board of Directors please refer to the Corporate Governance Report 2010, enclosed. Naina Lal Kidwai (6) Group General Manager and Country Head of HSBC Group Companies in India. Term expires 2011 (1, 2) Beat Hess (6) Group Legal Director, Royal Dutch Shell plc. Term expires 2011 (1, 2) Titia de Lange Associate Director, Anderson Cancer Center, The Rockefeller University. Term expires 2013 (1, 2) Jean-Pierre Roth Chairman Geneva Cantonal Bank.

Term expires 2013 (1, 2) 6 Nestle Annual Report 2010 Executive Board of Nestle S. A. at 31 December 2010 Paul Bulcke Chief Executive Officer Members Executive Board Werner Bauer EVP, Innovation, Technology, Research and Development Frits van Dijk EVP, Asia, Oceania, Africa, Middle East Luis Cantarell EVP, United States of America, Canada, Latin America, Caribbean Jose Lopez EVP, Operations, GLOBE John J. Harris EVP, Nestle Waters James Singh EVP, Finance and Control, Global Nestle Business Services, Legal, Intellectual Property, Tax Laurent Freixe EVP, Europe

Petraea Heynike EVP, Strategic Business Units, Marketing and Sales Marc Caira Deputy EVP, Nestle Professional Jean-Marc Duvoisin Deputy EVP, Human Resources Doreswamy (Nandu) Nandkishore Deputy EVP, Nestle Nutrition David P. Frick SVP, Corporate Governance, Compliance and Corporate Services Yves Philippe Bloch Corporate Secretary EVP: Executive Vice President SVP: Senior Vice President For further information on the Executive Board, please refer to the Corporate Governance Report 2010, enclosed. Executive Board (from left to right): Werner Bauer, Luis Cantarell, David P.

Frick, James Singh, Laurent Freixe, John J. Harris, Paul Bulcke, Frits van Dijk, Petraea Heynike, Marc Caira, Jose Lopez, Doreswamy (Nandu) Nandkishore, Jean-Marc Duvoisin Nestle Annual Report 2010 7 Creating value for society Compliance with applicable laws and international conventions such as the Universal Declaration of Human Rights and strong support for the UN Global Compact, as well as our internal standards and regulations, is the foundation of our business. Beyond compliance, our business is based on sustainability, ensuring our activities protect the environment for future generations.

Yet we believe we need to go further, creating shared value for both the Company and society in areas where shareholders’ and society’s interests intersect. Three such areas – nutrition, water and rural development – are the focus for this strategy. Creating Shared Value goals Nutrition: Using science-based solutions, we contribute to the health and wellbeing of consumers, including those with specific nutritional needs, by offering products with higher nutritional value at affordable prices that appeal to consumers.

We also aim to generate greater awareness, knowledge and understanding among consumers through clear, responsible communication. Water: Our long-term success depends on the water resources that supply our business operations and support the livelihoods of suppliers and consumers, which is why water is a key focus area of Creating Shared Value. We work with stakeholders, ranging from agricultural suppliers to consumers, to manage water consumption in our operations and supply chain, and contribute to sustainable community water management schemes.

Rural development: We strive to increase farmers’ incomes through increasing productivity, growing higher value crops, using land more efficiently and gaining outside farming employment and income. We further contribute to rural development by providing technical and financial assistance and access to markets, and by investing in factories and rural areas that create infrastructure and employment. Performance Nutrition: While nutritional status has improved worldwide over the past fifty years, malnutrition and obesity still require solutions.

To ensure both taste preference and nutritional superiority in our products, we assessed CHF 36. 4 billion of our product portfolio and renovated 6502 products for nutrition or health considerations. To provide lowerincome consumers with greater access to affordable food products, Through The Nescafe Plan, Juan Lopez Cruz (left), a coffee farmer from Puebla, Mexico, receives high-yield coffee plantlets from Nestle agronomist Juan Sanchez. 8 Nestle Annual Report 2010

The Nescafe Plan In August 2010, we launched The Nescafe Plan, bringing all our Creating Shared Value coffee farming and production practices together. This global initiative will help us to optimise our coffee supply chain and reach our coffee farming, production and consumption targets. Under the Plan, we will, among other things, invest CHF 500 million in coffee projects by 2020, distribute 220 million high-yield coffee plantlets, train 30 000 farmers and support social projects in coffee-growing communities.

In Peru, schoolchildren learn about healthy eating in a fun way by participating in Nestle’s Crecer Bien programme. Nestle Prize in Creating Shared Value In May 2010, the first Nestle Prize in Creating Shared Value was presented to International Development Enterprises (IDE) Cambodia, which employs franchised Farm Business Advisors. Since 2005, IDE has increased the productivity among 4500 smallholder farmers in rural Cambodia, boosting their income and increasing their standard of living, and the CHF 500 000 prize will help IDE to reach an additional 20 000 farmers.

Healthy Kids Programme We believe that education helps children to understand the value of nutrition and healthy lifestyles. Building on Nestle-sponsored education programmes, we will have implemented our Healthy Kids Global Programme through partnerships in all countries where we have operations by the end of 2011. we offer 4860 Popularly Positioned Products at an affordable cost and appropriate serving size through a range of locally adapted distribution methods. Annually, 90 billion servings of Maggi bouillon cubes are fortified with key micronutrients to address deficiencies in certain markets.

In 2008, Nestle’s CEO – and those from eight major food and beverage companies – made five global commitments to the World Health Organization’s Director General, to tackle obesity and the non-communicable diseases associated with it through diet and physical activity. These commitments led to the International Food and Beverage Alliance (IFBA), which Nestle has co-chaired since its formation, and in November 2009, IFBA’s first annual report (see www. ifballiance. org) to the Director General outlined its members’ progress to date.

Water: Water has been identified as the most important factor for Nestle’s long-term success, as it affects the supply of raw materials, our operations and the consumption of many of our products. To become the most efficient water user in our industry: • Water Resource Reviews are conducted at factories and in commodity-growing areas; • we help farmers to become better stewards of water; • we support water resource awareness and education programmes; • we take a leading role in the global dialogue on the issue. We have also reduced our total water withdrawal by 32% to 144 million m3 since 2000.

Rural development: We will also continue to support 144 926 farmers through capacity-building training programmes, access to financial assistance, farm assessment tools and investment in biogas generation, amongst others. Full details of our performance are given in a comprehensive separate report and also in more detail on line. Our people: We continue to offer our workforce comprehensive training, development and career progression opportunities, and our global nutrition, health and wellness training programme has now reached 145 922 employees since 2007.

Safety remained a key focus, our main indicator improved by 18% to 4. 2 recordable injuries per million hours worked, and relations between employees, management and trade unions are generally strong. Nestle Annual Report 2010 9 UN Global Compact – Communication on Progress Since joining the UN Global Compact (UNGC) in 2001, we have embraced its 10 principles, integrated them into the Nestle Corporate Business Principles and continuously supported them. Our annual Communication on Progress illustrates our dedication and efforts in the issue areas of human rights, labour practices, the environment and anti-corruption.

Our full Communication on Progress is available online. Commitment and systems The Nestle Corporate Business Principles (NCBP) – endorsed by the Chairman and CEO, and available online – form the basis of our culture and reflect our values of fairness, honesty and respect for people and the environment. A revised version of the NCBP was developed during 2010, and translated into fifty languages. A comprehensive communication and training toolkit has been provided to all markets where local plans have been launched to ensure each employee lives up to the Principles.

Follow-up training is planned in 2011 to ensure deeper understanding of each Principle. Compliance is monitored through external audits under our CARE programme, and the Nestle Group Audit function. In 2010, 392 sites underwent CARE audits and no critical non-compliances were identified. To help maintain our reputation, our Code of Business Conduct outlines minimum standards of behaviour in key areas, our new Employee Relations Policy outlines international standards and sets a tone of open dialogue on labour matters, and the Nestle Supplier Code commits suppliers to comply with our core integrity standards.

Human rights and labour practices Since November 2008, Nestle has worked with the Danish Institute for Human Rights (DIHR), to review our human rights policy and assess our labour practices and human rights compliance. In July 2010, we signed a two-year partnership through which the DIHR will assist us in integrating human rights into our corporate systems, undertaking in-depth assessments with stakeholder consultations at a country level, and other monitoring and capacity-building activities. Nestle recognises the “corporate responsibility to respect human rights”, as outlined in the UN

Framework on Human Rights and Business proposed by John Ruggie, Special Representative of the UN Secretary General on Business and Human Rights. During 2010, labour rights and human rights issues have been discussed by our CEO Paul Bulcke with Professor Ruggie, and other international stakeholders. In cocoa-growing areas, child labour is a challenge, so Nestle and others in the International Cocoa Initiative (ICI) continue to tackle child labour and improve access to education. In Cote d’Ivoire, the Cocoa Plan has a strong child labour component, and a new project with the ICI will support twenty communities

Staff from all departments at Nestle’s Bugalagrande factory in Colombia attend an editorial meeting for the bimonthly employee magazine. 10 Nestle Annual Report 2010 UNGC Principles Human rights 1. Businesses should support and respect the protection of internationally proclaimed human rights; and 2. make sure that they are not complicit in human rights abuses. Labour 3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; 4. the elimination of all forms of forced and compulsory labour; 5. he effective abolition of child labour; and 6. the elimination of discrimination in respect of employment and occupation. Environment 7. Businesses should support a precautionary approach to environmental challenges; 8. undertake initiatives to promote greater environmental responsibility; and 9. encourage the development and diffusion of environmentally friendly technologies. Anti-corruption 10. Businesses should work against corruption in all its forms, including extortion and bribery. that supply cocoa for our confectionery business.

In Colombia, Nestle is a founding participant of “Guias Colombia” (Guidelines for Colombia), which brings together companies, government, NGOs and trade unions. We also have a formal dialogue with Alliance Sud, a group of Swiss NGOs examining the impact of our activities and our relationships with trade unions and local communities on national development and human rights. In 2010, all operating companies implemented action plans and are tracking progress on our Gender Balance initiative, while a network of Gender Balance Champions regularly shares best practice.

Nestle also published Corporate Guidelines for a Flexible Work Environment, and paired 130 senior executives with mentors in the second stage of our Corporate Mentoring Programme. In addition, several high-impact training and capability workshops are being rolled out as part of Nestle Continuous Excellence (NCE) which empowers people with the right knowledge, skills and competencies to drive business results and personal development. Environmental sustainability Our aim is to continuously improve our performance and produce tastier, nutritious food and beverages that are better for the environment.

We assess the environmental impact of our value chains including procurement, logistics, manufacturing, marketing and consumer engagement – using a life cycle approach. Through an ongoing commitment to operational environmental efficiency and a move towards cleaner energy we have kept our direct greenhouse gas emissions stable at 4 million tonnes CO2eq and increased energy consumption by only 4% to 88. 6 PJ, despite an increase in production volume of 6. 2%. We continue to focus on packaging optimisation and two additional factories in the UK achieved “zero waste to landfill” in 2010. Nestle

At a Nestle field school in Nobertkro, Cote d’Ivoire, farmers learn about responsible labour practices and the importance of education for children. is also a founding signatory of the UN Global Compact’s CEO Water Mandate, and has provided a Communication on Progress on water since 2009. We are committed to use only palm oil from sustainable sources by 2015 and became the first company to commit to eliminating tropical rainforest deforestation in our supply chain. Through our membership of The Forest Trust, we are working with our suppliers to meet a series of principles to achieve this.

In recognition of our improved environmental performance, Nestle was ranked second in the consumer goods sector in the Carbon Disclosure Project’s (CDP) Carbon Disclosure Leadership Index 2010, and contributed to the CDP’s Water Disclosure Project. Anti-corruption The Code of Business Conduct and the NCBP condemn any form of corruption and bribery, and our Supplier Code of Conduct requires our partners to embrace our “zero-tolerance” approach. Having performed a thorough anticorruption risk assessment, we have eveloped an anti-corruption training tool to provide employees with specific guidance on avoiding inappropriate behaviour, supplementing existing training efforts in this area. Our Code of Business Conduct introduced whistle-blower procedures in 2008, and we are complementing our local hotlines with a Group-wide integrity reporting system. 11 Nestle Annual Report 2010 The Nestle Roadmap to Good Food, Good Life Our objective is to be recognised as the world leader in Nutrition, Health and Wellness, trusted by all our stakeholders, and to be the reference for financial performance in our industry.

This objective demands from our people a blend of long-term inspiration, to build for the future, and short-term entrepreneurial actions, to deliver the necessary performance today. The 4x4x4 Roadmap combines four competitive advantages, four growth drivers and four operational pillars with the aim of aligning the priorities of the more than 280 000 people who are working at Nestle, and thereby accelerate the achievement of our objective. Our competitive advantages are: Our unmatched product and brand portfolio, with strong market positions. Over 20 Nestle brands have annual sales of over CHF 1 billion.

Whether global or regional, our brands are always relevant to consumers locally. Our unmatched R&D is the unseen impetus behind the growth of our brands. It is science-based, consumercentric and focused on differentiation from our competitors. It goes beyond food to cover new products, packaging, technology and manufacturing, quality and safety. Our unmatched geographic presence has been established over many years and is a reflection of both the breadth of our presence, with our brands available more or less everywhere, and the duration for which we have been present in countries the world over.

Our people, culture, values, and attitude enable us to be decentralised and entrepreneurial. It combines devolved responsibilities with a cohesive strategic direction. We are patient and not averse to taking reasonable risks. Our speed and focus enable us to remain competitive in spite of any challenges in the marketplace. Our growth drivers are: Nutrition, Health and Wellness. Each of our product categories, from Chocolate to Baby Food, has a specific strategy to ensure that it can be the nutrition leader in its space. Emerging markets and Popularly Positioned Products.

We have tailored not just our products, but also our business models and marketing mix to ensure that we are best able to realise the growing opportunity to provide nutritious, affordable, branded food to lower income consumers around the world. Out-of-home consumption is growing faster than in-home. We are the largest branded manufacturer, with a business built on branded ingredients but increasingly achieving new standards in customer solutions, systems and service. Premiumisation. Incomes are increasing; so is leisure time.

These are just two trends that point to accelerated growth in premium food and drinks, each a moment of affordable luxury, a moment of pleasure. Each of our product categories has its own specific premium strategy, encompassing brands such as Nespresso, S. Pellegrino, Perrier, Haagen-Dazs and Cailler. Our operational pillars are: Innovation & renovation. Innovation is about big steps and changing the rules of the game, or even changing the game. It is hard to copy. Its rewards can be measured by profitable growth for years to come and sustainable competitive advantages.

Renovation is more incremental, and lies behind the still-growing success of brands such as Nescafe and KitKat, both over 70 years old. Operational efficiency seeks to ensure that we have the highest quality, the lowest cost and best customer service. The aim is to improve our sustainability by being better, faster, more efficient, less wasteful and, as a result, higher performing. Whenever, wherever, however is the expression of our aim to have our products always at an arm’s reach of our consumers. We have created specific business models, distribution strategies and product solutions to meet this objective.

Consumer communication is about building trust, exciting consumers, and learning from them to help drive our R&D. It is about citizenship and responsibility and being aligned with the expectations of our consumers. On the following pages we are touching in detail on one of each of the competitive advantages, the growth drivers, and the operational pillars. All, however, are of equal importance. 12 Nestle Annual Report 2010 Competitive advantages Unmatched research and development capability Unmatched product and brand portfolio

Unmatched geographic presence People, culture, values and attitude pliance Su Com sta ity bil a in Cre ati n g d Value are Sh Innovation & renovation Nutrition, Health and Wellness Operational efficiency Our objective is to be the recognised leader in Nutrition, Health and Wellness, and the industry reference for financial performance Emerging markets and Popularly Positioned Products Ne Operational pillars Whenever, wherever, however s tl e culture an a dv es lu Out-of-home consumption Growth drivers Consumer communication Premiumisation Competitive advantages

Unmatched product and brand portfolio Unmatched research and development capability Unmatched geographic presence People, culture, values and attitude KitKat celebrated its 75th anniversary in 2010 but remains young and in touch with trends, having over 2. 5 million Facebook fans. It is sold in over 70 countries and enjoys good growth in the developed world and emerging markets, such as the Middle East, India and Russia. Japan is its second biggest market. 14 Nestle’s unmatched global presence is the result of the desire, soon after the Company was founded, to expand beyond domestic borders.

The result today, is that Nestle brands have been present in many markets, including emerging markets, for many generations, even over 100 years. With this presence come expertise, talent, experience, local knowledge and traditions that make Nestle an integrated part of those communities where it is present. Nestle’s sales are broadly spread across the world. Our presence in emerging markets, with about CHF 39 billion of sales, about 36% of the total, is an unrivalled platform to leverage our scale for a continued high level of profitable growth.

In 2020, by when there will likely be an additional one billion consumers in emerging markets, we expect to be achieving about 45% of Group sales in those countries. In total, our emerging markets achieved organic growth of 11. 5% in 2010. There are 13 emerging markets in which Nestle’s annual sales exceed CHF 1 billion, and we have 5 with over CHF 2 billion in sales. Our products are ideal for emerging markets, especially those that are shelf-stable and easily portioned, with the potential to be locally manufactured: Ambient dairy, Infant nutrition, Culinary, Powdered beverages, Soluble coffee, Chocolate, Ready-to-drink beverages and Water.

Ice cream and PetCare are growing rapidly in the emerging world from smaller bases, whilst Frozen and Chilled meals do not yet have any meaningful presence. This emerging market business is supported by local manufacturing, with 47% of our factories in emerging markets, local R&D and product technology centres, long-term relationships with suppliers and farmers, and, of course, home-grown, local talent working at Nestle. About 80% of the world’s population is living in emerging markets, and is working for a better future. Nestle is ideally placed both to contribute to that better future and to benefit from it.

Nestle’s presence in the developed world is also broad-based. We are one of the biggest food companies in North America and we have leading positions in our key categories in most European countries and in Australasia and Japan. We believe that there are opportunities for profitable growth and improved market shares everywhere in the developed world. These opportunities include particular channels, market segments and consumer groups. They exist at the premium end, but also amongst lower income consumers, just as they do in emerging markets.

The opportunities are realised through a strong pipeline of innovation, through increasing distribution, through product superiority for both taste and nutrition. Also, developed markets are often the launch pad for innovations that will end up with global reach. Nestle has a decentralised structure. It is our people on the ground in each country, who are closest to our consumers, who are best able to drive our progress locally. They all have their own challenges, but they are bound together by their alignment to our 4x4x4 Roadmap, and they share the same objective: to grow our business for the enefit of our consumers all over the world, of our business partners, our people and our shareholders. Nestle Annual Report 2010 15 Nestle Annual Report 2010 N Maggi is the leader in the Central West African Region. To reinforce its position as the best partner for tasty and balanced cooking, Maggi has launched an affordable range of powder seasonings Tro’ bon and Mix’Py, fortified in iodine, that enhance the taste of everyday cooking. Comilfo, the premium brand launched in Russia, has added three new products to its range. The unique boat-shaped chocolate cups with cream filling, a layer of caramelised wafer and a nut on top, combine to delight consumers with a multi-sensorial experience. Nescafe Cafe Viet captures the intense and unique taste of authentic Vietnamese coffee: strong, black with an intense and bitter taste consumed over ice. The Nescafe Cafe Viet product is the result of a R&D breakthrough which led to a patented process for co-extracting roast and ground coffee and soya. Nestle Fruit Selection Yogurt + Jelly is a breakthrough innovation in the category in the Philippines. Priced at PHP 20, it has a layer of jelly over fruit yogurt, a first in the market.

It has helped to increase yogurt consumption, addressing the main barriers of taste and price. Buitoni, the US leader in chilled filled pasta and sauces, entered the biggest segment of the frozen food market with a super premium range of meal solutions which are composed of filled pasta plus sauce in a pouch. This is providing consumers with an authentic and extraordinary Italian meal experience. Purina ONE SmartBlend combines nature’s ingredients (such as meat, fish, poultry, wheat, corn, rice, omega-6 fatty acids) into concentrated, nutrient-rich morsels with enticing taste nd texture: to combine essential amino acids, energy throughout the day, high levels of antioxidants and a natural source of fats that works harmoniously with the pet’s body. Nestle’s unmatched depth and breadth in emerging markets brings benefits in all aspects of the value chain: we have close customer relationships, whilst our brands are an integral part of millions of people’s lives on a daily basis. Equally, we can attract the best local talent and have well-established R&D, manufacturing and distribution capabilities.

We are enhancing these capabilities in 2011 with investments running into billions of Swiss Francs. Nestle Annual Report 2010 16 Growth drivers Nutrition, Health and Wellness Emerging markets and Popularly Positioned Products Out-of-home consumption Premiumisation Acquired in 2010, DiGiorno is the leader in frozen pizzas in the USA. Made with high quality cereals, meats, vegetables and cheeses, DiGiorno pizzas deliver on key elements of a balanced Mediterranean diet, such as carbohydrates, fats and proteins while adding variety and pleasure to people’s diet with their fresh baked taste.

Encouraging consumers to create balanced meals – right portions, addition of salads – strongly delivers on the “Good Food, Good Life” promise. 18 Nestle’s Food and Beverages business has the scale to touch consumers all over the world; the intimacy to provide the food and beverages they want; the diversity to do so at a great many eating occasions and to provide balance; the ubiquity to provide it whenever and wherever consumers want it; the presence to be there throughout consumers’ lives; and the know-how to advance nutritional science and to bring nutrition, health and wellness arguments to all food and beverage categories.

These are the pillars on which we make our claim of leadership in Nutrition, Health and Wellness: unmatched scale, intimacy, diversity, ubiquity, presence and know-how. We use these pillars to build our nutrition, health and wellness agenda across our categories for the benefit of the millions of consumers everywhere who consume our products every day. That agenda is encapsulated in the expression “Good Food, Good Life”.

This means that we aim to provide the best tasting products in our categories – after all, eating and drinking is first and foremost about enjoyment and pleasure – but that we also want to bring improved nutrition to our categories: we do this by ensuring that our product launches taste better and are nutritionally superior to those of our competitors in each category. We call this 60/40+, with the 60/40 being our targeted consumer preference and the + representing nutritional advantage.

Nutritional advantage might be achieved by the reduction or exclusion of certain ingredients or by the addition of some, either for fortification or for particular consumer benefits through our Branded Active Benefits. Further, we are committed to providing clear nutritional information and advice on-pack and through channels such as dedicated websites and helplines. And by doing so, we aim to contribute to the pleasure, balance and understanding that are critical to a healthy diet. There are consumers who have specific nutritional needs. We are ddressing their needs through Nestle Nutrition, with its specific products and services tailored to the needs of those consumer groups. Our biggest area of focus is infants. We believe that “breast is best”, and it is our commitment to use our nutritional expertise to build healthier generations, one infant at a time. We are doing this by pursuing a mission to build awareness among parents of the extreme importance of appropriate nutrition from the very beginning of a child’s life through our “Start Healthy, Stay Healthy” approach to infant nutrition, and by providing the products to help parents achieve that aim.

One responsibility of leadership is to be a pioneer: we aim to develop the innovative area of personalised health science nutrition to prevent and treat health conditions such as diabetes, obesity, cardiovascular disease and Alzheimer’s disease. In September 2010 we announced two initiatives: the creation of Nestle Health Science, incorporating the existing global CHF 1. 7 billion Nestle HealthCare Nutrition business; and the creation of the Nestle Institute of Health Sciences, which will conduct research in relevant areas of biomedical science to translate this knowledge into nutritional strategies to improve health and longevity.

We believe that personalised health science nutrition will create value for Nestle, and for society, by preventing, improving and treating acute and chronic medical conditions. Nestle Annual Report 2010 19 Nestle Annual Report 2010 N Nestle Pure Life, the biggest selling water in the USA and growing dynamically in emerging markets, is the world’s biggest water brand. It benefits from a multi-year, on-going light-weighting programme for its bottle. With its great taste, Nestle Pure Life makes healthy hydration pleasurable and affordable for the whole family.

Nestle Coffee-Mate, a billionaire brand, has a strong position in the USA and is growing in emerging markets, particularly where Nescafe has a strong presence. The US market has benefited from recent launches of the Cafe Collection flavours, such as White Chocolate Caramel Latte, as well as seasonal editions. Vitaflo was acquired in 2010. Its products are developed for specific medical purposes, such as inborn errors of metabolism (IEM) and disease related malnutrition (DRM). The business, which has an international presence, will be incorporated in Nestle Health Science S.

A. from 2011. Nestle Golden Morn is the leading cereal brand in Nigeria. It is an affordable and nutritious instant porridge suitable for the entire family. Made from locally sourced maize and soya, Golden Morn is a good source of protein, calcium and dietary fibre. Eskimo ice cream is sold in Thailand, and was developed as a wide range of products with the right nutrition profile for children, combining pleasure and fun. Its marketing communication incorporates education about the right eating habits and the benefits of physical activity.

Jenny Craig is a clinically proven weight management programme with a holistic approach to weight loss and weight maintenance focusing on “food, body and mind”. It offers the choice of either in-person support at a Centre or at home support by telephone through a dedicated personal consultant. In 2010, Jenny Craig was launched in the UK and France. Nestle brands touch consumers in all walks of life, throughout their lives. From starting healthy to staying healthy, to pleasurable indulgence. But also for specific needs as we get older. This ability to touch consumers throughout their lives nd at all eating occasions is unmatched in our industry and lies at the heart of our commitment to delivering “Good Food, Good Life” and to building our leadership in Nutrition, Health and Wellness. Nestle Annual Report 2010 20 Operational pillars Innovation & renovation Operational efficiency Whenever, wherever, however Consumer communication India is one of the growing fastest and largest markets for Nestle Infant Cereals. As category leader, Cerelac drives innovation. The entire portfolio in India now includes Nutriprotect and Growth Nutrients for Healthy Growth and development of the baby.

With Cerelac Nutriprotect (immunonutrients) the baby will be nourished every day. 22 Innovation & renovation is the process through which we keep our brands consumer-relevant and competitordifferentiated. It is driven by insights from our consumers and by our own initiatives, nutritional and scientific developments and R&D break-throughs. Nestle’s R&D touches all aspects of the food and beverage industry. For example, our R&D capabilities in beverage systems have been translated into leadership in coffee systems, with about 30% of the market, and are being extended across other opportunities.

Nespresso, with sales of CHF 3. 2 billion in 2010, is the leader in super-premium portioned coffee. It has built its position on unsurpassed coffee quality, continuous innovation, a unique route to market and a holistic approach to sustainability. Its leadership has been achieved with the support of passionate consumers with, for example, about 10 million members in the Nespresso club. Nescafe Dolce Gusto, with sales of about CHF 450 million in its fourth year, is becoming the system of choice for consumers who want coffee shop quality drinks at home, made in seconds.

Launched across Europe and in the Americas, it offers a wide range of drinks, with a particular focus on cappuccino coffees, but also chocolate, as well as Nesquik. SPECIAL. T by Nestle, launched in France and Switzerland in September 2010 is Nestle’s first entry into the super-premium tea market. It offers tea lovers the best tea in a system that combines sophistication and simplicity, with 25 varieties sourced from Asia and South Africa. Nestle Professional, our out-of-home business, with sales of CHF 6. 1 billion in 2010, is the global leader in branded hot beverage solutions.

It has a series of beverage systems, ranging from machines backed by personalised service, aimed at high-end restaurants and bars, to those which have been designed for low-cost operators in emerging markets. Recent launches include the premium Nescafe Milano system and the super-premium Viaggi barista system. Research & development and innovation & renovation also play a vital role at Nestle Nutrition, as we seek to drive competitive differentiation and address consumer needs. Just one example is Infant cereals, the first product made by Henri Nestle and, as such, the very heart of Nestle.

We are the worldwide leader with brands such as Cerelac, Nestum, Mucilon, Gerber and Nestle, and have about 65% market share in our top 20 markets. A significant driver of growth has been science-led innovation. An example is upgrading the entire Infant cereal portfolio in the area of Immune Protection through the addition of Bifidus BL, a proprietary Branded Active Benefit developed in the Nestle Research Center. This, together with Immunonutrients, such as Iron, Zinc and Vitamins A&C, helps strengthen babies’ natural defences.

The product has been launched in more than 100 markets in 2009 and 2010, and has been a great success, demonstrated by double-digit organic growth in 2010 for the Infant cereals division. In common with Nestle Nutrition’s other categories, Infant cereal benefits from a multi-stage pipeline of innovation which ensures that the category and its consumers will benefit from innovations for years to come, enhancing the goodness of cereals and providing “big nutrition for small tummies”. Nestle Annual Report 2010 w 2 23 Nestle Annual Report 2010 N

Nespresso allows consumers to enjoy the perfect coffee every time. Nespresso starts with the highest quality of coffee and combines that with its cutting-edge machine design. Designed to fit into urban living spaces, the CitiZ range satisfies consumers’ demands for style, convenience and quality. The CitiZ&Milk has a built-in fresh milk-frother for cappuccino and latte lovers. SPECIAL. T by Nestle is a pioneering single-serve capsule solution that invites consumers to discover the world’s best teas: from black, green, blue and white teas to flavoured teas, organic herbal infusions and red rooibos.

The tea leaves are protected by hermetically sealed capsules, and the machine selects the perfect brewing time and temperature for each variety. Cerelac is a category icon in the Middle East, it includes Bifidus BL, a proprietary Branded Active Benefit developed in the Nestle Research Center, and the inherent goodness of Cereals. Nescafe Dolce Gusto: the new Piccolo machine is very small and well-priced, but is built to the same standard as the bigger machines. This makes Piccolo a very convenient way of enjoying Nescafe Dolce Gusto, and incredible value for money, whilst its unique and quirky design reflects all the personality of our brand.

The Viaggi barista system offers, at the touch of a button, a menu of hot or over-ice espresso, cappuccino, and chocolate-based beverages to Nestle Professional customers. Breakthrough proprietary technologies, specifically developed with Nescafe, Cailler, and Nestle, will enable the Viaggi beverage programme to offer, “cup after cup”, perfect consistency, delivered through a dedicated commercial and service platform. Nestle 8 Cereals: Spain was a pioneer market to launch the range of Nestle Infant Cereals with Bifidus BL. Nestle 8 Cereals contains

Immunonutrients such as Iron, Zinc, Vitamin A and Vitamin C to help support the babies’ natural defenses. Nestle’s beverage R&D capabilities cover all aspects from farm to cup, including raw materials, flavour extraction, systems and packaging. The personalised consumer experience is at the heart of the Nespresso offer, with more than 200 boutiques such as the one in Sydney (top right), whilst Nescafe Dolce Gusto provides a fun and exciting experience for consumers who want cafe-quality coffee at home. These systems enjoyed double-digit growth in 2010 and will continue to do so in 2011. 24

Nestle Annual Report 2010 Financial review Sales Group Organic growth Group Real internal growth Group CHF 109. 7 billion 6. 2% EBIT Group EBIT margin Group 4. 6% CHF 16. 2 billion Sales continuing operations +20 bps to 14. 8% Organic growth continuing operations Real internal growth continuing operations CHF 104. 6 billion 6. 0% EBIT continuing operations EBIT margin continuing operations 4. 4% CHF 14. 0 billion Operating cash flow Group +30 bps to 13. 4% Free cash flow Group CHF 13. 6 billion Underlying earnings per share in constant currencies CHF 7. 8 billion Proposed dividend per share 10. 3% +15. 6% to CHF 1. 85 Principal key figures (illustrative) Income statement figures translated at weighted average annual rate; Balance sheet figures at year-end rate. In millions of CHF (except per share data) Sales EBIT (Group) Earnings Before Interest, Taxes, restructuring and impairments EBIT (Continuing operations) Earnings Before Interest, Taxes, restructuring and impairments Profit for the year attributable to shareholders of the parent Net profit (a) Equity attributable to shareholders of the parent before proposed appropriation of profit of Nestle S. A.

Market capitalisation, end December Per share Total basic earnings per share (a) Equity attributable to shareholders of the parent before proposed appropriation of profit of Nestle S. A. In millions of USD (except per share data) Sales EBIT (Group) Earnings Before Interest, Taxes, restructuring and impairments EBIT (Continuing operations) Earnings Before Interest, Taxes, restructuring and impairments Profit for the year attributable to shareholders of the parent Net profit (a) Equity attributable to shareholders of the parent before proposed appropriation of profit of Nestle S. A.

Market capitalisation, end December Per share Total basic earnings per share (a) Equity attributable to shareholders of the parent before proposed appropriation of profit of Nestle S. A. In millions of EUR (except per share data) Sales EBIT (Group) Earnings Before Interest, Taxes, restructuring and impairments EBIT (Continuing operations) Earnings Before Interest, Taxes, restructuring and impairments Profit for the year attributable to shareholders of the parent Net profit (a) Equity attributable to shareholders of the parent before proposed appropriation of profit of Nestle S. A.

Market capitalisation, end December Per share Total basic earnings per share (a) Equity attributable to shareholders of the parent before proposed appropriation of profit of Nestle S. A. (a) 2010 figure is not comparable as it includes a one-off gain on the disposal of the remaining interest in Alcon. 2009 107 618 15 699 13 222 10 428 48 915 174 294 2010 109 722 16 194 14 038 34 233 61 867 178 316 CHF CHF 2. 92 13. 69 2009 99 361 14 495 12 207 9 628 47 449 169 070 10. 16 18. 35 2010 104 972 15 493 113 431 32 751 65 977 190 163 USD USD 2. 70 13. 28 2009 71 259 10 395 8 755 6 905 32 922 117 308 9. 72 19. 7 2010 79 518 11 736 10 174 24 810 49 377 142 317 EUR EUR 1. 93 9. 22 7. 36 14. 65 Nestle Annual Report 2010 27 Overview This section should be read in connection with the 2010 Consolidated Financial Statements. After the decline in economic growth in 2009 and the related increases in unemployment, the economic environment in 2010 remained uncertain, with continued concerns over consumer confidence, as well as increasing raw material inflation and currency volatility as the year evolved. Nestle experienced its strongest growth of 2009 in the final quarter of the year, and therefore entered 2010 with strong momentum.

This impetus remained consistent throughout the year, even in the final quarter of 2010 when we were lapping that strong final quarter of 2009. We, therefore, also entered 2011 with strong momentum in our business: this will help us to manage the challenges that we face and to take full advantage of our opportunities to drive better performance and enhance shareholder value. It was not only our business momentum that remained consistent throughout 2010; so did our focus on our strategic priorities, outlined in the previous chapter.

This alignment around the world has created a framework within which we are driving our business, and within which we are able to adjust the different levers in response to changing dynamics and competitive environments around the world. Nutrition has a critical role to play for consumers in emerging markets, many of whom would lose their incomes if they were unable to work; and it is a priority for developed market consumers too, who have an increasingly sophisticated understanding of the relationship between diet and health.

Our drive to address the needs of those low income consumers with appropriate nutritional enhancements to Popularly Positioned Products (PPPs) is different from our approach in developed markets with, for example, the launch of the Jenny Craig Weight Management system in Europe. Out-of-home consumption is a big part of people’s lives in both developed and emerging markets, but our approach might differ in New York from New Delhi.

PPPs are growing in the developed markets, whilst premium products are growing in the emerging, and each opportunity needs its own approach: for example, we cannot use a PPP business model for premium in emerging markets, or vice versa. Equally, our route-to-market strategies will be very different in different markets. It is this flexibility in terms of how we manage our business, as well as our agility in being able to respond quickly to changing market dynamics that have held us in good stead in 2010 and will continue to do so in 2011. Another constant in 2010 was our