Annual - Nestlé

1 Annual Rep or t 2012 Nutrition to enhancethe quality of lifeAnnual Report 2012 Table of contents 2 Letter to our shareholders Corporate Governance and Compliance 8 Corporate Governance 8 Board of Directors of nestl Compliance11 Executive Board of nestl The nestl Roadmap to Good Food, Good Life 14 Four competitive advantages Four growth drivers Four operational pillars16 2012 Highlights Global20 Nutrition, Health and Wellness24 Consumer engagement28 Unmatched geographic presence32 Building for the future Financial review38 2012 Business review39 Leading positions in dynamic categories40 Overview41 Principal key figures (illustrative) in CHF, USD, EUR52 Principal risks and uncertainties54 Geographical data: factories55 Shareholder informationNestl in societyCreating Shared Value and meeting our commitments 2012 Corporate Governance Report 20122012 Financial StatementsAnnual Report 2012 Accompanying reportsThe brands in italics are registered trademarks of the nestl Group.

2 nestl in society Creating Shared Value and meeting our commitments2012 nestl in societyCorporate Governance Rep or t 2012 including Compensation Report 20122012 Financial StatementsNestl Corporate Governance Report 2012 | 2012 Financial StatementsIn millions of CHF(except per share data)SalesTrading operating profitas % of sales Profit for the year attributable to shareholders of the parent (Net profit)as % of salesCapital expenditure as % of salesEquity attributable to shareholders of the parent before proposed appropriation of profit of nestl capitalisation, end DecemberOperating cash flow (a)Free cash flow (b)Net financial debtRatio of net financial debt to equity (gearing)Per shareTotal basic earnings per shareUnderlying (c)Dividend as proposed by the Board of Directors of nestl (a) 2011 comparatives have been restated following the changes in the cash flow statement described in the Consolidated Financial Statements: Note 1 Accounting policies.

3 (b) Operating cash flow less capital expenditure, expenditure on intangible assets, sales of property, plant and equipment, investments (net of disinvestments) in associates and other investing cash flows. As from 2012, movements with non-controlling interests are no longer deducted. 2011 comparative has been restated accordingly.(c) Profit per share for the year attributable to shareholders of the parent before impairments, restructuring costs, results on disposals and significant one-off items. The tax impact from the adjusted items is also adjusted figures (consolidated)2 01183 64212 48711. 3 %4 797171 28710 1804 75714 18614 61111. 5 %5 947190 03815 7729 87918 products meeting Nutritional Foundation criteria 11 7 0 0 Equivalent tonnes of salt removed by Maggi from its portfolio over the last eight years44 000 Farmers having access to financial assistance from nestl worth up to USD million39 Factories generating zero waste for millionChildren reached by the nestl Healthy Kids Global Programme, in 64 countries 100 billionServings of iodine-enriched Maggi products sold worldwide489 Water-saving projects in our factories, saving million m3 24%Reduction in direct GHG (Greenhouse Gas)

4 Emissions since 20026692 Renovated products for nutrition or health considerations690 054 Farmers working directly with nestl 217 Clean drinking water projects in the South Asia region, helping to improve access and sanitation for more than 100 000 school children 18 103 Employees completing our online human rights training tool Please see the attached nestl in society report for more in society: Creating Shared Value Highlights1 nestl Annual Report 2012 The nestl Model achieved in 2012 OutlookDespite the many challenges 2013 will no doubt bring, we expect to deliver the nestl Model of organic growth between 5% and 6% as well as an improved margin and underlying earnings per share in constant sales CHF billion+ billion+10.

5 2 %Trading operating profitCHF billion+ billionEarnings per shareCHF +12 . 2 %Proposed dividendCHF cash flowCHF billionCHF + billionOrganic operating profit +20 basis pointsUnderlying earnings per share+7. 5 %constant currencies+5 .1%+55%Group highlights2 nestl Annual Report 2012 Letter to our shareholdersFellow shareholders,The 2012 environment was once again challenging, but it also brought opportunities. As such, it was a good example of what we characterise as the new reality . The fact that we delivered for the 17th consecutive time the nestl Model of organic growth between 5% and 6% together with an improvement in our trading operating profit margin in such an environment demonstrates the value of having strong alignment of our people behind our strategic priorities.

6 This strategic alignment provides a framework for accelerated innovation, increased engagement with consumers and enhanced operational and financial performance. It enables us to build appropriate capabilities to ensure we remain fit to win in an ever more intense environment. It creates a real competitive advantage, empowering our people, and unlocking their energy and creativity, as we strive to meet and beat our objectives. It is a marriage of global inspiration and local execution , that means we are all on that same roadmap, but are always respectful of local cultures, tastes, habits and laws, and of the individuality of our 2012 results demonstrate that your company has made further progress.

7 Sales were up to CHF billion, with organic growth of , incorporating real internal growth of The trading operating profit was up to CHF billion and the margin increased by 20 basis points to The net profit was up to CHF billion and earnings per share increased to CHF per share. Operating cash flow increased from CHF billion to CHF billion. In view of this performance and the company's strong financial position, the Board is proposing a dividend of CHF per share, up from CHF last history of food has been of continual, gradual change, accompanied by an increasing understanding of the role of nutrition. At first, food was something people needed to survive, then something that brought families together, gave convenience and pleasure.

8 More recently, it has become more consciously a way to bring health benefits. And the role of nutrition continues to evolve. In today s era of spiraling healthcare costs, nutritional science can play a role in disease prevention and the role of nutrition has evolved, so has nestl , adjusting our offering to be in line with or anticipate the needs of our consumers, whilst staying true to our core business of food, beverage and nutrition. Today, our nutrition, health and wellness strategy has three aspects: All our food and beverage brands, regardless of category or eating occasion, should offer consumers not just the best taste and pleasure but also the best nutritional profile in their category, as part of a healthy diet.

9 We are targeting particular nutritional needs through nestl Nutrition, with its Infant, Performance and Weight management divisions. And, through nestl Health Science (NHSc) and the nestl Institute of Health Sciences, which was inaugurated in 2012, we are pioneering science-based personalised nutritional solutions to prevent and treat medical conditions. Nutrition is nestl s core. That core was enhanced in 2012 by acquisitions for both nestl Nutrition and NHSc. NHSc acquired a stake in Accera, whose key brand is intended for the clinical dietary management of Alzheimer s disease. NHSc also created a joint venture with Chi-Med, Nutrition Science Partners (NSP), to research and bring to market nutritional and medicinal products derived from plants with an initial focus on gastrointestinal health.

10 NSP will get access to one of the leading traditional Chinese medicine Nutrition s global leadership in infant nutrition was enhanced in November with the acquisition of the Wyeth Nutrition business from Pfizer. This business, with 85% of its sales in emerging markets, is a wonderful fit with our existing business, even after the required divestitures. In particular, it enhances our position in that category in China. China would now be nestl s second biggest market, with annualised sales of around CHF 6 billion, including the Wyeth Nutrition acquisition and our 2011 partnerships, Yinlu and Hsu Fu Chi. Our investments in China, including new R&D units in Xiamen and Dongguan, demonstrate our desire to benefit from the incredible capabilities and know-how which the country has to offer.