Nestle

Annual Review 2015

Our businessNestlé has grown from a company founded 150 years agoto a global leader in Nutrition, Health and Wellness.Wherever you are in What we sell (in CHF billion)the world we have safe,nutritious products to Powdered and Nutrition and Milk products Prepared disheshelp you care for yourself Liquid Beverages Health Science and Ice cream and cooking aidsand your family. Ourproduct portfolio has seven 19.2 14.9 14.6 12.6categories, offering youhealthier and tastier choices PetCare Confectionery Waterat every stage of your life,at every time of the day. 11.5 8.9 7.1Our growth has enabled Where we sell (in CHF billion) EMENAus to help improve thelives of millions of people AMS 27.5through the productsand services we provide, 39.1 AOAand through employment,our supplier networks 22.2and the contribution wemake to economies aroundthe world. Number of employees Number of countries we sell in 335 000 189 Total group salaries and social Corporate taxes paid in 2015 welfare expenses (in CHF) (in CHF) 16 billion 3.3 billion

Our commitmentsOur 39 commitments in the Nestlé in society report guide all of usat Nestlé in our collective efforts to meet specific objectives.For a company to prosper Nutrition, health and wellness 8041over the long term and createvalue for shareholders, it 192 billion Number of products renovated formust create value for society nutrition or health considerationsat the same time. We call Number of servings of fortifiedthis Creating Shared Value. foods provided worldwideOn the right is a selectionof key achievements fromeach CSV focus area. Rural development 10 950 760 000 Total number of Tier 1 suppliers audited from 2010–2015 Number of farmers supplying directly to Nestlé Water 7.7 million m3 41.2% Quantity of water in our operations either recycled or reused Cumulative reduction since 2005 of direct water withdrawals per tonne of product in every product category Environmental sustainability 105 42.7% Number of factories achieving zero waste for disposal Cumulative reduction since 2005 of greenhouse gas (GHG) emissions Our people, human rights 34% and compliance Percentage of women holding 6049 leadership roles Number of work opportunities offered to young people by Nestlé in Europe

Contents 2 Letter to our shareholders 8 The strategy12 The highlights32 The future38 Financial review40 Group overview44 Product category and operating segment review51 Principal risks and uncertainties52 Factories54 Corporate Governance and Compliance55 Corporate Governance56 Board of Directors of Nestlé S.A.58 Executive Board of Nestlé S.A.60 Compliance61 Shareholder information Accompanying reports Nestlé in society Corporate Governance Report 2015 Creating Shared Value and Compensation Report 2015 meeting our commitments 2015 Financial Statements 2015Nestlé in society Corporate Governance Report 2015Creating Shared Value Compensation Report 2015and meeting our Financial Statements 2015commitments 2015

Our performanceOur performance is driven by our Nutrition, Health and Wellness strategy,the engine of our value creation.In 2015 we delivered Group sales (in CHF) Organic growth Real internal growthprofitable growth at thehigher end of the industry 88.8 billion 4.2% 2.2%in what is still a challengingenvironment. This profitable Trading operating Trading operating Trading operatinggrowth was on the back profit (in CHF) profit margin profit marginof consistent performancesin previous years. On the 13.4 billion 15.1% +10right is a summary of the basis pointsresults we achieved duringthe year. Constant currencies Earnings per share Underlying earnings (in CHF) per share 2.90 +6.5% Constant currencies Operating cash flow Free cash flow (in CHF) (in CHF) 14.3 billion 9.9 billion 92.7% of net financial debt Proposed dividend Proposed dividend (in CHF) increase 2.25 +2.3%Nestlé Annual Review 2015 1

Letter to our shareholdersDear fellow shareholder,In 2015 we built on the consistent, sustainable performance of previous years,delivering growth in a difficult and volatile trading environment. Our 2015performance was driven by the relevance of our Nutrition, Health and Wellnessstrategy, which represents our engine of value creation and which we continueto execute effectively.We delivered organic growth of 4.2%, composed of real internal growth of 2.2%and pricing of 2.0%. Sales were CHF 88.8 billion, impacted by foreign exchangeof –7.4%. The Group’s trading operating profit was CHF 13.4 billion with a marginof 15.1%, down 20 basis points on a reported basis affected by the strong SwissFranc, up 10 basis points in constant currencies. This performance was achievedwhile we again increased substantially our investment in brand support, digital,research and development, and our new nutrition and health platforms. Net profitwas CHF 9.1 billion. The reduction of CHF 5.4 billion versus last year was mostlydue to the one-off impact from the disposal in 2014 of part of the L’Oréal stakecombined with the revaluation of the Galderma stake. There was also some effectfrom foreign exchange. Earnings per share at CHF 2.90 were down 36.1% for thesame reasons. Underlying earnings per share in constant currencies increasedby 6.5%. The Group’s operating cash flow remained strong at CHF 14.3 billion andfree cash flow was CHF 9.9 billion or 11.2% of sales. In view of this performanceand the company’s strong financial position, the Board is proposing a dividend of ­CHF 2.25 per share up from CHF 2.20 last year. During the year we completeda share buyback of CHF 8 billion. It is worth noting that since 1942 your companyhas never reduced the dividend paid to its shareholders. In fact, the dividend hasincreased every year since 1995.Based on our solid and consistent record in delivering growth at the higher endof the industry, we are confident we can continue to deliver on our long-termcommitment: organic growth of 5% to 6% with improvements in margins andunderlying earnings per share in constant currencies, and capital efficiency. Therewill be years when we exceed this ambition and years when we come close, butthis is the profitable growth line we walk over time.2016 marks the 150th anniversary of our company and we will celebrate 150 yearsof passion for Nutrition, Health and Wellness. Our founder Henri Nestlé’sdetermination, commitment and pioneering spirit have inspired our people aroundthe world to develop and apply scientific and nutritional know-how to enhance thequality of life of our consumers and those they care for. This passion for nutrition2 Nestlé Annual Review 2015

Peter Brabeck-Letmathe, Chairman (left), and Paul Bulcke, Chief Executive Officer (right).Nestlé Annual Review 2015 3

Letter to our shareholderswill continue to guide the development of our company in the future and willfurther strengthen our determination to bring Good Food, Good Life to billions ofconsumers around the world. It is with this conviction that we have made publiccommitments to further improve the nutritional profile of our products by reducingthe amount of salt, sugar and saturated fats, and remove trans fats completely.Thanks to our unique global Research and Development capabilities, we are ontrack to meet these promises.In addition, we are extending the boundaries of our business beyond our food andbeverages portfolio to fully realise our Nutrition, Health and Wellness ambitions. In2011 we created Nestlé Health Science to exploit the therapeutic role of nutritionwith an innovative pipeline of products designed to make a major contribution to thehealth of different populations. Then, in 2014 we created Nestlé Skin Health whichis helping people meet the needs of their skin at every stage of life’s journey withproducts to protect, serve and enhance skin health. It is our size and our scale thatallows us to invest heavily in these new areas that have the potential, over the longterm, to offer great benefits to society.For our business to prosper over the long term, we must deliver value to you, ourshareholders, as well as to the communities in which we operate and to society as awhole. This is what we call Creating Shared Value. This is how we go about runningand developing our business. This is how we build trust over time. Our full set of39 public commitments provide the framework for our engagement with society.We build trust by providing our consumers with products and services of thehighest quality and safety. We build trust with every consumer contact we makeas this is the basis of our future success, particularly as consumers and the publicin a digital world enjoy full transparency on all aspects of the life of the companyand are consequently more demanding. When trust is challenged, such as in Indiawith Maggi or in the United States with Beneful, we act swiftly and decisively todeal with the issue. Maintaining the trust of consumers is a non-negotiable priorityfor our company.In 2015 we continued our portfolio management, designed to ensure the rightresource allocation and maximise the growth opportunities in every category. Aspart of this process we divested our Davigel frozen food business and announcedour intention to build a strong player in the ice cream industry by setting up a jointventure with R&R Ice Cream, a leading European ice cream company. This andother developments were examined during the Board of Directors’ annual strategyreview. The Board also examined the company’s R&D strategy and reviewed the4 Nestlé Annual Review 2015

major acquisitions of the last few years as well as the company’s business in China.Reflecting our belief in the importance of our people, the Board also consideredour progress in diversity and gender balance. For the first time in 2015 we soughtthe approval of the Annual General Meeting for the compensation of the Board ofDirectors and the Executive Board as the new Swiss ‘say on pay’ law required. Allthe proposals were passed with large majorities. We believe the approach we havetaken in this area is in line with both the law and with the spirit of the law.During the year Nandu Nandkishore, Executive Vice President in charge of ZoneAsia, Oceania and sub-Saharan Africa, took early retirement after a long anddistinguished career with Nestlé. The Board of Directors appointed Wan LingMartello to succeed him in that role and François-Xavier Roger to succeed her asChief Financial Officer. Also José Lopez, Executive Vice President in chargeof Operations, took a well-deserved retirement after 36 years of dedicated serviceto the Group. He was succeeded by Magdi Batato who was most recently theMarket Head of Pakistan. We would like to thank Nandu, José and all of those whoretired during the year for their contributions and extend our best wishes for along and happy retirement.As we embark on our next 150 years of passion for nutrition, we thank you, ourshareholders, for your continued trust in Nestlé. Thanks to your support, ourclear strategic direction, our balanced portfolio, strong innovation pipeline andcommitment to quality and to building trust, we continue to prosper. We wouldlike to thank all our 335 000 employees whose hard work, alignment behind ourNutrition, Health and Wellness strategy and commitment to Nestlé enable us todeliver on our promises. By fulfilling the expectations of consumers in meaningfulways each day, they ensure that your company continues to generate the profitablegrowth that you, our shareholders, rightfully expect.Peter Brabeck-Letmathe Paul BulckeChairman Chief Executive OfficerNestlé Annual Review 2015 5

6 Nestlé Annual Review 2015

We are the leadingNutrition, Health andWellness company.We enhance liveswith science‑basednutrition and healthsolutions for allstages of life, helpingconsumers carefor themselves andtheir families.Nestlé Annual Review 2015 7

The strategy Nestlé Annual Review 2015With our Nutrition, Healthand Wellness strategy wesupport people who wantto live a healthier lifestyle.Industry-leading research anddevelopment drives innovationand supports the constantrenovation of our food andbeverage portfolio. In addition,our researchers are exploringthe role of nutritional therapiesto maintain or improve healthand investigating how we canhelp people look after theirskin. By sharing our insightson global Nutrition, Healthand Wellness challenges, bybuilding partnerships and byengaging with policymakers,stakeholders and key opinionleaders we strive to havea positive impact on thesocieties in which we operate.We empower people to make informed decisionswhen they choose what to eat. Through StartHealthy Stay Healthy, our interactive, science-based education programme, we help parentsand caregivers provide their children with thenutrition they need in the crucial first 1000 daysof life. Our United for Healthier Kids programme,takes this further, helping parents and caregiversestablish healthier eating, drinking and lifestylehabits for children as they get older, and ourNestlé Healthy Kids programme is helping to8

Nestlé Annual Review 2015 9

The strategydeliver a healthier lifestyle for children by teaching In addition, we have set out six strategicnutrition and encouraging physical activity. priorities. Firstly, Make Choices: put resources behind the ideas, products and categories that We are on track to deliver on our commitments help us on our journey to recognised Nutrition,to reduce the amount of salt, sugar and saturated Health and Wellness leadership, and to deliverfats in our products and remove trans fats, sustained financial performance. Secondly, Graspwhile maintaining consumer preference. We are Opportunities: see the opportunity in changeenhancing our portion guidance and improving and trends, and translate them into concreteour labelling, printing GDAs (Guideline Daily business opportunities. The third is Value WhatAmounts) on the front of packs, making it easier Consumers Value: all that we do should createfor people to read them. value for consumers and drive out waste. Fourth, Engage with Stakeholders: we want to be trusted In recent years we have reinforced and by all consumers and stakeholders as a genuineexpanded our Nutrition, Health and Wellness and responsible member of the community. Fifth,strategy with the creation of Nestlé Health Embrace Digital: deepen the connection withScience and Nestlé Skin Health. Nestlé Health consumers through the growing e-commerceScience is advancing the role of nutritional channel and through real-time listening,therapy to change the course of health for engagement and dialogue. Sixth is Win throughconsumers, patients and for our partners in People and Teams: we need the right people withhealthcare. With Nestlé Skin Health we are the right capabilities and effective leadership at allentering the field of specialised medical skin levels to engage, empower and enable everyonetreatment by offering science-based solutions for to give their best.the health of skin, hair and nails over the courseof people’s lives. As we strive to become a more agile and higher-performing organisation we ensure that We strive to meet the fast-changing we embed our strong culture and values acrossexpectations of our consumers because like all our operating companies, especially thosethem, we care deeply about quality, food safety, that are newly acquired, all within the frameworkthe environment and sustainability. Responsible of compliance which governs all that we do. Webehaviour wherever we operate is at the very take a long-term view, framed in a robust set ofheart of what we do. It is our fundamental belief principles and values that are based on respect:that for a company to prosper over the long term respect for people, respect for future generations,we need to create value for shareholders while at respect for the environment and respect for thethe same time creating value for society. We call diverse world we live in.this Creating Shared Value. Trusted leadershipin Nutrition, Health and Wellness is our strategic Nestlé Annual Review 2015ambition, Creating Shared Value is how we goabout it. The inclusion of the Nestlé in societyreport, alongside this Annual Review and theFinancial Statements in the 2015 Annual Reportpackage, reflects how Creating Shared Valueis fully embedded into internal managementprocesses and the way we do business. The Nestlé Strategic Roadmap (illustratedopposite) is the compass that guides ourorganisation, driving internal alignment behindour goals. The roadmap shows how we deliverprofitable growth, the competitive advantagesthat we leverage and the organisation we havechosen, in order to be effective and efficient. It isthe framework that we use to establish prioritiesand drive execution.10

Operational Growthpillars drivers Innovation Nutrition, Emerging and renovation Health and markets and Wellness Popularly Positioned ProductsWhenever, nability Crea Out-of-homewherever, consumption however Compliance – Sustai ting Shared ValueOperational efficiency Our objective is to be the Premiumisation leader in Nutrition, Health and Consumer Wellness, and the industry Unmatched engagement reference for financial product performance, trusted by all stakeholders and brand portfolio Nestlé culture, values and principles People, Unmatched Unmatched culture, values geographic research and attitude presence and development capability Competitive advantagesNestlé Annual Review 2015 11

The highlights Nestlé Annual Review 2015‘Good Food, Good Life’ isthe commitment we makeevery day, in every part of theworld. We have more than2000 brands in our portfolio,from global icons to localfavourites. We help peoplelive more enjoyable, healthierlives, leveraging 150 years ofpassion for nutrition to bringthem products and servicesthey can trust. On the following pages we highlight the innovation and renovation of our portfolio over the past year. We begin with the two newest parts of our business. Nestlé Health Science champions the role of nutritional therapies that have proven clinical benefits. Nestlé Skin Health offers science-based solutions to care for the skin, hair and nails. These businesses build on the strong foundations of our food and beverage business, and in the following pages we also highlight the new ways we are engaging with consumers in these areas. In 2015 we reported sales of CHF 88.8 billion. We report our sales numbers by category, and the review of the food and beverage portfolio follows the same approach. 12

Nestlé Annual Review 2015 13

Nestlé Health ScienceNestlé Health Science was created with the bold ambition to seizeopportunities in nutritional science and focus on advancing the roleof nutritional therapy to change the course of health managementfor consumers and patients, and in the minds and practicesof healthcare providers. It is supported by the Nestlé Institute ofHealth Sciences which researches how nutrition can empowerpeople to improve and maintain their health.Nestlé Health Science’s portfolio is focused onhelping to address key challenges our societyfaces: how to age healthily, how to maintainbrain health and gastrointestinal health, andhow to support those born with inborn errors ofmetabolism. Its business is organised into threemain areas. Consumer Care covers products people payfor themselves in a pharmacy, a retail outlet orvia websites. In North America, the main brandis Boost, intended for consumers who want tolive physically and mentally active lives but whostruggle to get the right amount of nutrition. Twonew additions to the range, Boost Compact andBoost Calorie Smart 100 calories, were launchedduring the year in the US. In Europe, the Meritenerange of products, which addresses varioushealth challenges from bone, muscle and jointhealth to helping to reduce tiredness and fatigue,was rolled out to new countries.40 Boost products can be a mini meal or a between-meal snack. They containhigh-potential high‑quality protein and 26 vitamins andprojects give NHS minerals, including calcium and vitamin D.a strong innovationpipelineMedical Nutrition is Nestlé Health Science’s Nestlé Annual Review 2015largest business and covers productsrecommended by healthcare professionalsand mainly reimbursed by insurers or servedin institutions. One key focus area is acutecare with a range of nutritional solutions forcritically-ill people and for older peoplesuffering from disease-related malnutrition14

or swallowing difficulties. Another key focus Breastfeeding is best for babies, but for thosearea is food allergy and intolerances. One range who are fed with infant formula, Nestlé Healthof products, Althéra, Alfaré and Alfamino, can Science has a hypoallergenic range for thebe used to provide nutrition for infants who are dietary management of cow’s milk allergy.allergic to cow’s milk protein. Another, Vitaflo,provides ‘diets for life’ for those sufferingfrom inborn errors of metabolism who requirespecialised nutrition to survive and grow. Novel Therapeutic Nutrition is a businessin the making, focused on gastrointestinalhealth and brain health. One area of focus isinflammatory bowel disease where thestandard treatment involves either drug therapyor surgery. The company is developingtwo new nutritional therapies that can beused as an ‘add-on’ to standard drugtreatment, developed as medical foods. Nestlé Health Science benefits from a stronginnovation pipeline with forty high-potentialprojects on the way. As part of the NestléGroup it can leverage Nestlé’s route to market,innovation capabilities and unrivalled Researchand Development network. A new Nestlé ProductTechnology Centre will be established in NewJersey, United States, dedicated to acceleratinginnovation in Nestlé Health Science’s three mainbusiness areas. The company also has a strong externalinnovation network, allowing it to exploit thebest scientific and technological know-how. Ithas invested in the most advanced microbiometechnology company, Seres Therapeutics, andin Lipid Therapeutics, a company developing anovel therapy to address ulcerative colitis. It hasalso expanded its venture capital partnershipwith Flagship Ventures which helps launchtransformative start-ups in therapeutics andhealth technologies.Nestlé Annual Review 2015 15

Nestlé Skin HealthNestlé Skin Health’s mission is to enhance the quality of life bydelivering science-based solutions for the health of skin, hair andnails. Nestlé Skin Health conducts ground-breaking research toprovide both the healthcare community and the consumer withan ongoing progression of innovative technologies and productsto protect, serve and enhance skin health.The skin, our largest organ, protects us from European Union approval was granted earlyharmful environmental factors, acts as an in the year for Soolantra, a novel solutionenvelope for the body and can influence the way to treat lesions of rosacea, further reinforcingwe interact with the world. Other people look at the portfolio.our skin and it shapes their perception of who weare. We look at our skin and it influences our view Nestlé Annual Review 2015of ourselves and our sense of well-being. Today, as people live longer, their needsand expectations are changing. We all want tolook and feel good, and to play an active rolein society. To do this best, our skin needs toovercome the challenges of time as it ages. NestléSkin Health’s innovative products and solutionsstrive to protect, nourish and enhance healthyskin and, when needed, treat, correct and restorecompromised skin. Some three thousand skin diseases havebeen identified, more than for any other organof the body. Galderma is the Medical Solutionsbusiness of Nestlé Skin Health and works closelywith the healthcare community to ensure it hasa clear understanding of patients’ needs and canrespond effectively. In acne, for example, Galderma can deliverdrugs like Epiduo, the number one topicalprescription drug treatment for acne worldwide.Galderma is committed to partnering withphysicians to provide new and effective optionswhile, where the market allows, increasingaccess to treatment by offering self-medicationsolutions available in pharmacies. This approachoffers healthcare professionals a range ofproducts that they can prescribe or recommendwith total confidence. We are witnessing a significant shift in themainstream perception of well-being. Thesetrends are driving strong growth in the Aesthetic16

and Corrective dermatology category andGalderma is well-positioned to meet this demand.Our portfolio consists of medical products usedfor minimally and non-invasive procedures torestore and enhance the appearance of theskin, administered by a qualified healthcareprofessional. Our Restylane product, the leaderin its category, was launched nearly twentyyears ago. Based on leading consumer brands suchas our Cetaphil range of skincare products andour Daylong sun protection line, the newlyformed Consumer Skin Health business aims tobring science-based innovation to the broadermarket, leveraging the company’s insights andscientific expertise. Healthcare needs will evolveand change as the global population of peopleover‑60 is predicted to grow to 1 billion by 2020,and this will impact the demands on and the roleof healthcare professionals. As a response tothis challenge, Nestlé Skin Health has launchedseveral key initiatives to help contribute towardsresearch, education and the development ofsolutions for life-long health. Cetaphil Baby is a range of products that are hypoallergenic and formulated to protect and nourish the delicate skin of infants and young children.Nestlé Annual Review 2015 17

Nestlé Food and BeverageWe enhance lives by offering tastier and healthier food and beveragechoices for all stages of life and at any time of the day, helpingconsumers care for themselves and their families. Our food andbeverage portfolio is the core of our business, the essence of ourstrategy. The portfolio is wider than any other in the food industryand offers everything from Popularly Positioned Products forconsumers on low incomes to premium products and services forthose who want an indulgent moment of pleasure.Powdered andLiquid BeveragesMilk productsand Ice cream18 Nestlé Annual Review 2015

Prepared dishes 19and cooking aidsNestlé NutritionPetCareConfectioneryWaterNestlé Annual Review 2015

Powdered andLiquid BeveragesSales CHF 19.2 billionOrganic growth + 5.4%Real internal growth + 3.1%Trading operating profit margin 21.3%Trading operating profit margin – 180 basis pointsNestlé is the global leader in coffee, uniquely Nespresso’s Suluja ti South Sudan is the firstpositioned with two strong brands Nescafé coffee exported from the world’s newestand Nespresso, offering consumers a complete nation, after a four year effort to reviverange of products, systems and services across production there.all channels. This is a category we have builtand shaped over many years and which we will 6000continue to shape in the future. Nescafé is theworld’s favourite coffee brand. One fifth of the cups of Nescafé coffee30 000 cups of coffee served each second around are served aroundthe world today are cups of Nescafé. Meanwhile, the world each secondour premium coffee brand Nespresso hasredefined and revolutionised the way people enjoy Nestlé Annual Review 2015espresso coffee and continues to grow globally,capitalising on the significant development of theportioned coffee segment. The Nescafé ‘REDvolution’ continues to buildbrand equity for the Nescafé brand, aligning andenhancing the brand communication in everymarket with the brand line ‘It all starts with aNescafé’. The growth is supported by the globalsuccess of the Nescafé Dolce Gusto system(now in 84 countries around the world) andthe beverage business of Nestlé Professionalwhich serves the out-of-home industry. A newmanufacturing facility making Nescafé DolceGusto capsules has opened in the south east ofBrazil, the first outside of Europe, underscoringNestlé’s confidence in the coffee market acrossLatin America. Nespresso inaugurated a newfactory in Switzerland during the year to satisfygrowing world demand for its capsules andsupport its expansion plan in North Americawhere its VertuoLine system is pioneering a newsegment of highest-quality, long-cup, freshly-brewed coffee. Worldwide demand for coffee continues togrow, and our coffee businesses are focusedon ensuring that sustainably-sourced, good-quality supplies are available so that everyone,everywhere can enjoy a great cup of coffee. The20

Nescafé Plan, a global initiative bringing together Nescafé Koumibaisen is a super premiumNestlé’s commitments and activities that support range of coffee rejuvenated in 2015 withresponsible farming, production and supply of freshly brewed aroma and taste to appeal tocoffee celebrated its five year anniversary during drinkers who prefer ‘roast and ground’ coffee.2015. The Nespresso brand’s strong commitmentto sourcing the highest-quality coffee in the Coffee-mate 2GO, a portable creamer thatworld is evident in its project to revive the coffee does not need refrigeration, is an opportunityindustry in South Sudan. The first exports from to align the brand with the ‘always on-the-go’the new nation, the result of a partnership with attitude of millennials.local farmers and a non-profit organisation,TechnoServe, led to the creation of a new Limited 21Edition addition to Nespresso’s Grand Cru range. Consumer demand continues to evolve withyounger consumers in particular looking forgreater variety and sophistication based on theirout-of-home experience in coffee shops or bars.Nescafé is responding with innovations like thenew flagship coffee houses Nescafé Harajuku inTokyo and Nescafé Itaewon in Seoul that offerinteractive displays and new coffee creationsinspired by the local trendsetting communities.In the Austrian city of Vienna, Nespresso hasopened the first Nespresso Café, combining apremium coffee shop and takeaway service withthe Nespresso Cube that uses robotic technologyto prepare an order from the Grand Crus orLimited Edition range in a matter of seconds. Innovation is helping to drive demand for thecreamer brand Coffee-mate with the all-naturalvariety of Natural Bliss, and Coffee-mate 2GO,a conveniently sized portable creamer forout‑of‑home usage. The creamer category haddipped slightly during the recession in the UnitedStates but has since made a strong comebackwith more consumers opting for flavouredcreamers than ever before. Meanwhile, theadvanced technology of Nestlé’s premium-portioned capsule tea system Special.T, alongwith its range of more than 30 varieties of tea andherbal tea, are now available in Japan and sevenEuropean countries. Special.T was the company’sthird major innovation in capsule beveragesystems after Nespresso and Nescafé DolceGusto. The system offers a selection of fine teassourced from the top 1% of the world’s tea farms.More information about how Nespresso’s AAASustainable Quality Program and also the NescaféPlan help farmers can be found on page 25 of theNestlé in society report.Nestlé Annual Review 2015

Milk productsand Ice creamSales CHF 14.6 billionOrganic growth +1.7%Real internal growth +1.3%Trading operating profit margin 16.9%Trading operating profit margin +180 basis pointsAcross the globe, Nestlé’s heritage dairy brands, One glass of Nido Golden Start has all thewhich are often children’s first experience of a essential breakfast nutrients needed toNestlé product, represent a strong foundation for prepare children for an active day at school.the company’s continued growth. Dairy productsare considered to be essential for good health in Nestlé Annual Review 2015many cultures. At Nestlé, we leverage the bestof our science and product expertise to providefamilies with both nutritionally enriched milkproducts and delicious dairy treats. Today, weoffer dairy products to support healthy diets at allstages of life, from early childhood to old age. While our dairy products have many naturalnutritional benefits, such as provision of calcium,sometimes they need to do more. At Nestlé,we are proud to offer affordable dairy productsthat also help to address local micronutrientdeficiencies, particularly in developing countries.Milk is naturally rich in calcium and a good carrierof micronutrient fortification, making it a viable,long-term way to deliver more nutrition to largesegments of the population. 590 million bottles of Nestlé Milo Nutri G will be produced each year by our new factory in MalaysiaThe Nestlé range of children’s milk brandshas been developed to offer the energy, proteinand micronutrients needed by growingchildren. To make these products accessible forlower-income groups, Nestlé makes these milksavailable in affordable formats. These productsare also fortified with iron, zinc, vitamin A andother micronutrients as appropriate for themicronutrient deficiencies prevalent in each22

area. Nido Golden Start was launched in Mexico Extrême ice creams are particularly popular into coincide with the start of the back-to-school France, and combine different flavours, texturesseason. Each glass contains milk, cereals and colours to provide people with an indulgent,and fruit, and provides proteins, calcium, sophisticated treat.vitamin C and fibre. It is designed for childrenwho skip breakfast because they are in a rush,estimated to be one in five of the school agepopulation in the country. Another innovation with strong Nutrition,Health and Wellness credentials, Nestlé MiloNutri G, is a blend of four whole grains (oats,barley, brown rice and wheat) with malt, milkand cocoa in a ready-to-drink format newlylaunched in Malaysia. It is aimed at young adultswho want the convenience of a ready-to-drinkproduct and the Nestlé Milo taste they grew upwith, and who recognise the health benefits ofwhole grain. In Brazil this year we launched newNesfit non‑dairy beverages, including a wholegrain rice and whole grain oat drink designed tobe drunk plain or added to breakfast cereals. Therange included an instant oatmeal, rich in wholegrain and fibre, helping those watching theirweight to stay motivated. We offer the best-tasting ice cream productsand continually improve the nutritional profileand benefits of our range. We build upon thewholesome milk at the heart of ice cream, tooffer healthier options for you and your family.In addition, we have enhanced our nutritionallabelling, portion size recommendations and theavailability of smaller pack options. Our Outshinerange, available in North America, has beenexpanded to include a 100% yoghurt bar, and inEurope we launched the Mövenpick 100% Naturalstick ice cream during the year. We continue towork to ensure that our ice cream products areproduced, packaged and distributed in ways thatare environmentally sustainable.More information about our commitment to Delicious ready-to-drink peanutencourage consumption of whole grains can be milk from our joint-venture Yinlufound on page 18 of the Nestlé in society report. is popular in China and suitable for those who are lactose intolerant.Nestlé Annual Review 2015 23

Prepared dishesand cooking aidsSales CHF 12.6 billionOrganic growth + 0.1%Real internal growth – 1.3%Trading operating profit margin 13.7%Trading operating profit margin + 40 basis pointsOur food portfolio offers products that form the Stouffer’s Fit Kitchen frozen meals offercore of healthy and nutritious meals. By making big flavours and at least 25 g of proteinfood tastier, more balanced and easier to prepare, in each serving. The range is primarilywe help improve eating habits and contribute aimed at male consumers.to an enjoyable, healthy lifestyle. We continueto improve our products, enhance nutritional 10information and portion guidance. We want toempower consumers to make the right informed new recipes werechoices on food and nutrition, and constantly introduced in theevolve our packaging and digital support for our Lean Cuisinebrands to help achieve this. We are focused on Marketplace rangedeepening this engagement with consumers toensure we can better serve their needs. Nestlé Annual Review 2015 Through innovation and renovation we areenhancing the ability of our brands to contributeto a healthy diet, while ensuring they are relevantto the changing demands of consumers. In theUnited States, Lean Cuisine has reintroduced itselfas a modern eating brand. No longer focused ondiet, the brand has evolved to reflect a shift in theway Americans, primarily women, are eating andshopping. The Lean Cuisine brand relaunchedwith ten new recipes within the Lean CuisineMarketplace range, all offering modern benefitssuch as organic ingredients, gluten-free, high-protein options, no-preservative options, andproducts with no GMOs. Meanwhile, the new Stouffer’s Fit Kitchenrange is primarily aimed at men, after researchshowed that many didn’t feel there were enoughnutritious and satisfying meals in the frozenfood aisle. Six varieties, each offering 25 or moregrams of protein, complex carbohydrates andvegetables, were successfully introduced inthe summer. In Europe, the new Rustipani warm breadsmall meal from Wagner is baked in a traditionalrustic oven with two variants, a naturally maturedsourdough and a dark oven rye flour bread. Thepizza meets the Nestlé Nutritional Foundation24

criteria, based on nutrition science and public Maggi bouillon cubes and tablets fortifiedhealth dietary recommendations from bodies with iron can play an important rolesuch as the World Health Organization and the in addressing micronutrient deficienciesInstitute of Medicine. The Rustipani is topped with in emerging markets.high-quality ingredients such as smoked cheese,marinated tomatoes, ham and asparagus. The Nestlé Professional Chef range has been created by chefs for chefs, saving them time Innovation and renovation are key to success and the cost of making the dishes from scratch.across our food portfolio and drive growthacross the category. Maggi Tender cooking 25papers seasoned with herbs and spices such ascoriander, muscat, black pepper and oregano,enable consumers to flavour meat in the pan,keeping it tender without adding any oil. Theproduct has been rolled out across our Europeanmarkets and in Latin America. We are leveraging what we call the ‘KitchenCupboard’ approach, renovating our portfoliowith the aim of increasing the use of ingredientsconsumers recognise and are familiar with suchas spices and herbs, while accelerating theremoval of artificial additives. This is an importantpillar of our efforts to build trust with the peoplewho buy our products, providing transparency ofwhat the product is made from with informationthat is easy to read and understand. We recognise we have a role to play inaddressing the problems of under-nutrition, aswell as certain non-communicable diseases. Inemerging markets, fortified products like Maggisoups and bouillon cubes are contributing toefforts to counter the effects of micronutrientdeficiencies in iron and iodine. In Central America,consumers use Maggi chicken noodle soups asa base to cook tasty and balanced meals. Maggihas renovated the entire range and each servingnow provides 15% of the recommended dailyamount of iron, is low in fat and made withoutartificial preservatives. We are also helping toaddress problems caused by over-nutrition likeobesity. Throughout our portfolio we are helpingfamilies to improve their diets by reducing theamount of salt, sugar and saturated fats in ourproducts and removing trans fats.More information about micronutrient fortification canbe found on page 16 of the Nestlé in society report.Nestlé Annual Review 2015

Nestlé NutritionSales CHF 10.5 billionOrganic growth + 3.1%Real internal growth +1.4%Trading operating profit margin 22.6%Trading operating profit margin +110 basis pointsOur nutrition business is dedicated to providing Appropriate protein supply in early life canhigh-quality, innovative, science-based nutrition shape long-term health outcomes. Nestléfor mothers and infants, helping to nurture Nutrition’s NAN Optipro offers proteinhealthier generations. Good nutrition and the composition and concentration closer toright feeding practices during the first 1000 days the gold standard of breast milk.of life, from conception to a child’s secondbirthday, are crucial for a child’s health, growth Wyeth Nutrition’s illuma brand helps toand development. Establishing the right feeding enhance infants’ absorption of key nutrientspractices in early childhood also supports the and supports their immune function.establishment of good eating habits. Nestlé Annual Review 2015 25 countries have Start Healthy Stay Healthy, our science-based education programme for parentsWe promote and support breastfeeding whichis the best start a baby can have in life. Wherebreastfeeding is not possible, we providebreast-milk substitutes. We have also developedscience-based nutritional solutions for infantswith specific medical needs, who are unableto absorb, digest or metabolise standard infantformulas and are at risk of death or abnormaldevelopment if left without access to the rightnutrition support. In addition, we provide a rangeof complementary foods such as growing-upmilks, infant cereals and meals and drinks. Theseproducts contain carefully selected high-qualityingredients and are fortified with nutrients tomeet the specific needs of infants and youngchildren. Our BabyNes system, now availablein four countries, is the first advanced nutritionsystem for infants and toddlers that offers age-specific, single-serve formulas for children up tothe age of three years.26

PetCareTo encourage good nutrition in the first Sales CHF 11.5 billion1000 days, we seek to support mothers through Organic growth + 5.9%our extensive range of educational materials Real internal growth + 3.5%and information. Start Healthy Stay Healthy, our Trading operating profit margin 20.8%interactive, science-based education programme Trading operating profit margindesigned to help parents and caregivers provide +100 basis pointsnutritionally and developmentally adequatenutrition in the crucial first 1000 days of life, has Petcare is a strong growth driver for Nestlénow been rolled out to 25 countries. around the world. With a portfolio of many of the world’s most popular and trusted dog and We market our breast-milk substitutes in line cat food brands, Nestlé Purina is committed towith the aims of the World Health Organization’s enriching the lives of pets and the people whoInternational Code of Marketing of Breast-milk love them.Substitutes as implemented by governments.Our marketing standards are the strictest in the 500+industry. We are the only breast-milk substitutemanufacturer to be included in the FTSE4Good nutritionists, scientists,responsible investment index. We implemented veterinarians and animalthe new global Nestlé Maternity Protection behaviourists workedPolicy which is one of the most progressive on the renovationprogrammes of its kind in the industry. This and innovation of thepolicy gives employees a minimum of 14 weeks Nestlé Purina portfoliopaid maternity leave and the right to extend theirmaternity leave up to six months. It also includes In 2015, Purina introduced ground-breakingflexible working arrangements and guaranteed nutritional advances and product innovations.access to breastfeeding rooms during working The successful US launch of Purina Pro Planhours in all sites with more than 50 employees. Bright Mind for adult dogs aged 7+ leveragedNestlé currently has more than 190 breastfeeding the company’s breakthrough research findingsrooms across its global working facilities. that a diet containing medium-chain triglycerides (MCTs) from enhanced botanical oils can helpMore information about our commitment to market promote healthy aging and healthy cognition inbreast-milk substitutes responsibly can be found on senior dogs. In Europe, the Purina Pro Plan brandpage 21 of the Nestlé in society report. renovated formulas targeted to the changing nutritional needs of dogs in different life-stages,Nestlé Annual Review 2015 from building a growing puppy’s natural defences to helping adult dogs maintain a healthy weight. Our focus on product innovation can also help strengthen the bond between people and their pets. Friskies, a global brand of cat food and treats, in the US launched Friskies Pull ‘n Play, the first ever tender, edible strings for cats, as a new way for pet owners to treat and play with their cats. The treat may be fed alone or in conjunction with Wobbert, a wobbly cat toy that can accommodate two treats at once. Globally, Nestlé Purina employs 500+ world‑class nutritionists, behaviorists, veterinarians, immunologists and other pet 27

experts who are working to improve the lives Purina Beyond dog food provides healthyof pets. Nestlé Purina manufacturing facilities nutrition using only high-quality naturalaround the globe meet or exceed all regulatory ingredients, so owners can be sure they arerequirements and use comprehensive food safety making the right choice for their pets.programs to ensure every Purina product meetsour high standards for safety and quality. Nestlé Purina promotes responsible petcare, humane education and strengthening thebond between people and their pets. In Italy, aneducational programme promoted in schoolshelps children learn the basics of pet care andnutrition through a kit distributed to teachersthat includes contributions from veterinariansand other experts. Petfinder, Nestlé Purina’ssearchable web database of pets in need ofadoption, has helped over 24 million find homesso far. Guided by our passion for pets, we arecommitted to using our scale to support shelterpets, creating tools and resources to help themfind new homes. In 2015, Nestlé Purina donatedmore than USD 8 million to pet-related causesand community organizations and civic groupsacross the Americas. Nestlé Purina is constantly working onopportunities to improve our environmentalperformance through designing smarter and moreefficient systems. We work throughout our supplychain to ensure our high-quality ingredients aresourced responsibly. As a manufacturer, we arefocused on reducing solid waste and greenhousegas emissions and improving the efficiency of thewater and energy used at our facilities around theworld. Nestlé Purina science and expertise underpins Purina Pro Plan, a super-premium pet food range that delivers optimal nutrition for dogs and cats.28 Nestlé Annual Review 2015

ConfectionerySales CHF 8.9 billionOrganic growth + 6.2%Real internal growth +1.8%Trading operating profit margin 14.0%Trading operating profit margin + 20 basis pointsNestlé’s involvement with chocolate goes back Nestlé announced its entry into the dynamicto François-Louis Cailler who started to make global super-premium chocolate categorychocolate in Switzerland in 1819. Today Cailler with Cailler, a Swiss brand that is almostis Switzerland’s oldest chocolate brand. Through 200 years old.various acquisitions, including Cailler in 1929,and more recently in 1988 with the purchase KitKat is the world’s third biggest chocolateof the UK company Rowntree, Nestlé has brand. More than 20 billion fingers of KitKatbecome one of the world’s largest chocolate are consumed around the world each year.and confectionery producers. Chocolate is ahighly attractive category for Nestlé with growth 29increasingly fuelled by premiumisation. Aroundthe globe it is the number one snack of choiceand there is high potential for emerging marketgrowth where the habit of chocolate consumptionis starting to grow. billion+ fingers of KitKat are consumed around the world each yearWith KitKat, Nestlé has a strong global playerdriving performance in both emerging anddeveloped markets. KitKat will become thefirst global confectionery brand sourced from100 percent certified sustainable cocoa, startingearly in 2016. The brand already uses sustainablysourced cocoa, accredited by independent third-party bodies, in products sold in certain markets,but this new announcement extends the practiceworldwide, including the United States. An essential element of Nestlé’s desire toenhance people’s lives is our commitment todeliver healthier options which help you feelbetter about enjoying a treat, for example by usingNestlé Annual Review 2015

Waternatural ingredients, removing artificial colours Sales CHF 7.1 billionand flavours, and making it easier to understand Organic growth + 7.0%how many portions there are in a product through Real internal growth + 7.0%clearer information on the packaging. A year ago Trading operating profit margin 11.2%we committed to stop marketing confectionery Trading operating profit marginto children under the age of 12 years and this + 90 basis pointsis recognised in the updated and strengthenedNestlé Marketing Communication to Children Bottled water is a healthy, convenient way toPolicy which came into effect at the end of 2015. stay hydrated. Nestlé Waters contributes to consumers’ healthy hydration with its global Our confectionery brands are using brand Nestlé Pure Life, local water brands inpartnerships with major tech firms like Google different countries and premium internationaland Amazon to help build new relationships with mineral waters S.Pellegrino and Perrier. A keyconsumers. KitKat worked closely with Google component of Nestlé’s Nutrition, Health andto launch a new global digital campaign to help Wellness strategy, water is also a growingconsumers find the top trending YouTube videos category, particularly in developed marketson their mobile phones while having a KitKat as more consumers switch to water frombreak. When Nestlé began the transformation carbonated sugary drinks. More than half Nestléof the Swiss chocolate brand Cailler into a Waters’ sales are in North America where bottlednew global super-premium chocolate brand, water is on track to become the top sellingit chose Amazon as its primary retailer. Cailler beverage by the end of the decade. There is alsois still produced at ‘Maison Cailler’, the original good growth in emerging markets, helped byfactory in the Swiss town of Broc, using milk growing urbanisation and the rise of the middlefrom local farms and high-quality cocoa from class in many parts of the world.the Nestlé Cocoa Plan. The new productscan be bought through Amazon in the US, UK, 52China and Germany. They are also sold intravel retail outlets in major airports in Geneva, brands makeZurich, Dubai and Singapore. up the Nestlé Waters portfolioMore information about our commitment onresponsible marketing communication to Nestlé Waters has a portfolio of 52 brands,children can be found on page 21 of the Nestlé enabling constant innovation to meet the differentin society report. expectations of consumers all over the globe. The company is the world’s number one bottled water30 company by value and Nestlé Pure Life is the largest bottled water brand in the world. We make every effort to offer healthy bottled water that tastes good. Because quality is the foundation of what we do, consumers can ensure they are hydrated every day in complete confidence, using our bottled water. Water is a precious resource. At Nestlé Waters, responsible water management does not stop Nestlé Annual Review 2015

at being best-in-class within the walls of our The new S.Pellegrino Magnum, a champagne-factories, but extends to collective actions with style bottle, has been successfully introducedother water stakeholders to ensure the long- in various markets around the world.term stability of shared watersheds. Since itscreation the company has striven to be bestin class in terms of protecting water sourcesand reducing the environmental impact of itsactivities. In the United States, investments inconservation measures in the state of Californiaduring the year are projected to save 55 milliongallons (208 000 cubic metres) of water annually,a reduction of nearly 8%. In Switzerland, NestléWaters has built an agricultural biogas facility toprovide renewable energy for the plant whereits local brand Henniez is bottled. At the sametime, the company continues to optimise itspackaging and recycling efforts, so as to reducethe environmental impact of its business. NestléWaters reduced packaging weight per litreproduced by 14% between 2009 and 2014. Nestlé has pledged to adopt sustainablewater practices in areas where we operate,source our goods and where our suppliers,employees and consumers live. For example,in Pakistan Nestlé has established seven cleandrinking water facilities near its facilities: thelatest was inaugurated next to the Nestlé WatersSheikhupura factory. It is estimated that at least5000 people living in the area will have access todrinking water each day from the facility.More information about our commitments on water Sold in more than 40 countries, Nestlé Purestewardship can be found on page 28 of the Nestlé Life is a great-tasting water that is filtered andin society report. enhanced with minerals to provide healthy hydration for the whole family.Nestlé Annual Review 2015 31

The future Nestlé Annual Review 2015Our changing environmentcreates new challenges, forNestlé and for society. TheUnited Nations estimatesthere will be 9.6 billion peoplein the world by 2050, 70% ofwhom will live in urban areas.We believe we have a strongcontribution to make as theworld looks for ways to feedits growing population.Even as competition for land, water and energyincreases, the scale of the population growthpredicted means the world will need to findenough sufficiently nutritious food to feed anadditional 2.3 billion people over the next 35 years.In addition, provision has to be made for the800 million people who do not have access toadequate nutrition today. That is approximatelyone in nine of the global population. Business has a role to play in both mitigatingthese issues and adapting our global foodsystem. Companies like ours create value forconsumers and the societies in which they live.Processing food enables us to deliver food to theconsumer wherever they are in the world. Theseare products they can trust, manufactured tothe highest specifications and completely safe.Our researchers deliver innovation we can applythroughout the value chain to the sourcing ofingredients, to manufacturing, packaging anddistribution, and to offer consumers new types ofproduct or service, or benefits through our brands. We are driving advances in agriculturalpractices and biotechnology to help to secure thefood supply, from developing new preservationtechnology to contributing to better food safety.We are improving our ability to produce morewith less environmental impact, reducing carbonemissions, water consumption and waste.32

Nestlé Annual Review 2015 33

The futureWe are helping smallholders develop sustainable future generations. The jointly-funded public-farming practices. At the same time, we are private partnership we have with an internationalsetting ourselves tough challenges to overcome. alliance of researchers known as the EpiGenWhat ingredients can we use with less Consortium is the largest of its kind. Theenvironmental impact? How can we accelerate collaboration is helping us to better develop ourthe usage of plant proteins and reduce our understanding of the influence of nutrition andreliance on animal proteins which require more genetics at the beginning of life. It will enable usresources to produce? How can we further to create products that have a proven, positiveexpand our use of micronutrient fortification? impact on the health of mothers and theirHow can we contribute to the fight against children. We are already patenting breakthroughnon-communicable diseases? discoveries so that we can build products and portfolios on a strong foundation. We publish 5000 more scientific papers, and these are cited more often, than any other company in the food and scientists work at beverage industry. Nestlé Research We use both nutritional and consumer insightsFor instance, today obesity is becoming a global throughout our business to identify the rightproblem. There are twice as many obese people Nutrition, Health and Wellness innovations thatin developing countries as in developed ones. We could evolve into platforms for future growth.have a role to play in helping to address this. We So-called ‘millennial’ consumers in particular areare renovating our portfolio to reduce the amount more interested in artisanal and natural optionsof sugar, salt and saturated fats, and remove focusing on new health trends like productstrans fats from our products, and have committed that are free of genetically modified ingredients,ourselves publicly to targets which allow people organic or gluten-free. They want quick,to follow our progress. Material science has the ready‑to‑eat solutions and guidance on servingspotential to offer a much greater contribution and portions to complement busy lifestyles.to this effort in the years ahead. For example, Meal occasions are fragmenting and snacking ismuch of the reduction today is achieved through becoming more popular. Family structures arerenovation of a product recipe by replacing changing as single-parenting becomes moresugar with healthier ingredients. Our researchers widespread in many societies and more peopleare working on new approaches to make these live alone. In addition, there is a growing gapreductions even greater. between how people want to feel and what they actually achieve through their daily activity. We have the strongest Research and Increasingly they value balance and look for mealsDevelopment network in the food industry with that offer positive health benefits. Our Nutrition,more than 5000 scientists and researchers working Health and Wellness strategy ensures we areacross the world. We recognise the potential to well-positioned to meet these needs. We canmultiply this effort through collaboration with the expect consumers living longer, more active andbest in each scientific field, from universities to healthier lives to generate new opportunities forbiotech companies to start-ups. We are working our businesses and brands.with partners in new areas like epigenetics: thescience of how eating behaviours and other Another area of focus is the ‘internet ofenvironmental factors can affect your genes, things’, the growing ability for devices in ouryour health and that of your offspring, and for lives to share data. This offers a company like ours opportunities to develop new products or34 systems that will allow people to personalise the nutrition they receive more closely than ever before. The challenge is finding ways to harness all the data produced, for example, by a sensor you wear to work out how many calories you Nestlé Annual Review 2015

BabyNes is a smartnutrition system thatcaregivers can useto prepare formula,using capsules tailoredto a baby’s specificdevelopmental needs. With people living longer lives, Nestlé Health Science is investing in research to develop nutritional solutions that support healthy and active aging.Nestlé’s United for Healthier Kids initiative Nestlé’s R&D centre in Abidjan is developingunites schools, businesses, government better methods of cocoa plant propagation inand civil society to help caregivers raise partnership with the World Cocoa Foundationhealthier children. and the Côte d’Ivoire government.Nestlé Annual Review 2015 35

The futurehave used in a day, to help you plan your next and teams. Here too we have made publicmeal in order to replace those calories and get commitments and publish data so that people canthe nutrients you need while not over-eating. The see our progress towards achieving our goals.opportunities presented by digital are immense,and will grow in the years ahead, making it more We are confident about the future. We haveimportant than ever that we have the right people demonstrated through our 150 years of existencewith the right capabilities at Nestlé to enable us to that we are able to anticipate consumers’ needsexploit them. and this has been a key enabler of our success. Although the challenges faced by society are not Our people and the way we work together as a to be underestimated, we believe we will beteam are critical if we are to achieve our targets. able to make a strong contribution, creatingWe recognise the importance of strengthening value for our shareholders and for the societiesour global talent pipeline, while also playing a in which we operate. Many of the 17 newrole to ensure that young people in the societies Sustainable Development Goals announced bywhere we operate have the right skills to find the United Nations during the year match directlyemployment with us, with our suppliers and our own Creating Shared Value focus on nutrition,throughout the industry. Our Global Youth water and rural development. We are part ofInitiative is helping us develop the next generation the solution to these societal challenges, andof Nestlé leaders, filling the skills gap left by the ready to play our part.retirements of the ‘baby boomer’ generation.Almost a fifth of our workforce is over the age More information about our commitments toof 50. improve gender balance and diversity can be found on page 39 of the Nestlé in society report. 200 Nestlé Annual Review 2015 business partners have been mobilised by Nestlé to create an ‘Alliance for YOUth’So far in Europe we have hired more than11 000 people as part of the Nestlé EuropeanYouth Employment Initiative and created morethan 6000 apprenticeships and trainee positions.We have mobilised close to 200 businesspartners, creating an ‘Alliance for YOUth’. Inthe Americas, the Global Youth Initiative hasnow been launched in all markets with theaim of offering 24 000 job opportunities and7000 apprenticeship, internship or traineeshipopportunities across the Americas by 2018.And in Asia, Oceania and sub-Saharan Africa,our markets are partnering with governmentsand others to build capabilities and generateopportunities for young people. We continue tofocus on developing strong leadership throughoutthe company as well as further improving thediversity and gender balance of our talent pool36

The Nestlé Milo Champions Band and app give parents personalised information on their child’s nutritional intake and physical activity, to help them lead healthier lives.The Digital Acceleration Team (DAT) bringstogether future leaders from across Nestléto build brands, innovate and engage withconsumers in an increasingly digitallyconnected world.A new global partnership with Amazon to Nestlé Japan is pioneering a new consumerdrive e-commerce began with the launch of engagement model using the robot ‘Pepper’historic Swiss super-premium chocolate brand – which responds to human emotions – to sellCailler in the US, China, UK and Germany. Nescafé products.Nestlé Annual Review 2015 37

Financial review38 Nestlé Annual Review 2015

Key figures (consolidated)In millions of CHF (except for data per share and employees) 2015 2014Results 88 785 91 612 13 382 14 019Sales 15.1% 15.3%Trading operating profit 14 456as % of sales 9 066 15.8%Profit for the year attributable to shareholders of the parent (Net profit) 10.2%as % of salesBalance sheet and Cash flow statement 62 338 70 130 15 425 12 325Equity attributable to shareholders of the parent 24.7% 17.6%Net financial debt 14 302 14 700Ratio of net financial debt to equity (gearing) 92.7% 119.3%Operating cash flow 14 137as % of net financial debt 9 945Free cash flow (a) 3 872 3 914Capital expenditure 4.4% 4.3%as % of salesData per share CHF 3 129 3 188 CHF 2.90 4.54Weighted average number of shares outstanding (in millions of units) CHF 3.31 3.44Basic earnings per share 2.25 2.20Underlying earnings per share (b)Dividend as proposed by the Board of Directors of Nestlé S.A.Market capitalisation, end December 229 947 231 136Number of employees (in thousands) 335 339(a) Operating cash flow less capital expenditure, expenditure on intangible assets, investments (net of divestments) in associates and joint ventures, and other investing cash flows.(b) 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.Principal key figures (c) (illustrative) in CHF, USD, EUR Total CHF Total CHF Total USD Total USD Total EUR Total EURIn millions (except for data per share) 2015 2014 2015 2014 2015 2014Sales 88 785 91 612 92 143 99 961 83 153 75 431Trading operating profit 13 382 14 019 13 889 15 296 12 533 11 543Profit for the year attributable to shareholders of the parent (Net profit) 14 456 15 774 11 903Equity attributable to shareholders of the parent 9 066 70 130 9 409 70 863 8 491 58 307Market capitalisation, end December 62 338 231 136 63 012 233 553 57 651 192 170 229 947 232 434 212 658Data per share 2.90 4.54 3.01 4.95 2.72 3.74Basic earnings per share(c) Income statement figures translated at weighted average annual rate; Balance sheet figures at year-end rate.Nestlé Annual Review 2015 39

Group overview Trading operating profitIntroduction 14 000 14 019 15.3% 15.3%In 2015 we delivered profitable growth at the 13 000 15.0%higher end of the industry in what is still a 13 382 15.1% 14.7%challenging environment. This profitable growthwas on the back of consistent performances 12 000 2014in previous years. Our organic growth of 4.2% 2015was supported by increased momentum inreal internal growth combined with continued P In millions of CHFmargin improvement. Additionally, we grew or P In % of salesmaintained market share in the majority of ourcategories and markets. Operating segments: trading operating profit 15.7 In % of sales 19.4 At the same time, we continued to invest 18.4for the future with increased support behind Zone EMENA 10.8our brands and further development of our Zone AMS 22.6new platforms in nutrition and health as well as Zone AOA 15.7e-commerce. We kept up the focus on portfolio Nestlé Watersmanagement, turning around our frozen food Nestlé Nutritionbusiness in the United States, disposing of non- Other businesses (a)core businesses and forging a new partnership tocreate a leading player in ice cream. (a) Mainly Nespresso, Nestlé Professional, Nestlé Health Science and Nestlé Skin Health. Our free cash flow generation was again at thetop end of the food industry at 11.2% of sales, asa result of our focus on margins with discipline incapital expenditure and working capital. Following the changes in management responsibilities as from 1 January 2015, Zone Europe has been renamed Zone Europe, Middle East and North Africa (EMENA) and now includes the Maghreb, the Middle East, the North East Africa region, Turkey and Israel, which were formerly included in Zone Asia, Oceania and Africa. Zone Asia, Oceania and Africa has been renamed Zone Asia, Oceania and sub‑Saharan Africa (AOA). Nestlé Nutrition now includes Growing‑Up Milks business formerly included in the geographic Zones. Finally, Other businesses now includes the Bübchen business, formerly included in Nestlé Nutrition. Information by product has been modified following the main transfer of Growing‑Up Milks business in Milk products and Ice cream to Nutrition and Health Science. 2014 comparative information has been restated.40 Nestlé Annual Review 2015

Group results Sales by geographic areas Differences 2015/2014 (in %) in CHFIn 2015 Nestlé’s organic growth was 4.2%, millionscomposed of 2.2% real internal growth and By principal markets in local2.0% pricing. Sales were CHF 88.8 billion, United States in CHF currency 2015with a foreign exchange impact of –7.4%. Greater China Region 25 293Acquisitions, net of divestitures, added 0.1% France +7.7% + 2.4%to sales. Organic growth was broad-based Brazil + 6.4% + 3.2% 7 060across geographies and categories, 5.8% in United Kingdom – 12.0% +0.1% 4 848the Americas (AMS), 3.5% in Europe, Middle Germany – 23.3% +2.9% 3 925East and North Africa (EMENA) and 1.9% in Asia, Mexico + 0.6% +3.0% 3 006Oceania and sub-Saharan Africa (AOA). Real Philippines – 12.3% – 0.2% 2 929internal growth was also broad-based, 2.4% Italy – 7.1% +5.3% 2 749in AMS, 2.8% in EMENA and 1.2% in AOA. Canada + 6.2% +3.6% 2 645 Spain – 11.4% + 0.8% 1 867 We demonstrated our continued strength Switzerland – 5.9% + 3.8% 1 847in developed markets with organic growth Australia – 10.1% + 2.2% 1 668of 1.9% and in emerging markets with 7.0%. Japan – 1.0% – 1.0% 1 549We increased or maintained market share in Russia – 7.6% + 5.5% 1 498the majority of our categories and markets. Rest of the world – 3.5% + 4.3% 1 440 Total – 23.1% +16.3% 1 330Trading operating profit – 6.1% 25 131Trading operating profit was CHF 13.4 billion, – 3.1% (a) 88 785with a margin of 15.1%, down 20 basis pointson a reported basis affected by the strong Swiss (a)Franc, up 10 basis points in constant currencies.We delivered this margin improvement while (a) Not applicable.increasing substantially our investment in brandsupport, digital, research and development, and Geographic sales and organic growthin our new nutrition and health platforms, and atthe same time absorbing the cost of exceptional OG (%) P AMS +5.8%events like Maggi noodles in India. 6 CHF 39.1 billionNet profit 4 P EMENA +3.5%Net profit was CHF 9.1 billion. The reduction of CHF 27.5 billionCHF 5.4 billion versus last year was mostly due 2to the one-off impact from the disposal in 2014of part of the L’Oréal stake combined with the 0 P AOA +1.9%revaluation of the Galderma stake. There was also Sales CHF 22.2 billionsome effect from foreign exchange. Reportedearnings per share at CHF 2.90 were down by 22.5 27.5 32.5 37.5 CHF billion36.1%, for the same reasons. Underlying earningsper share in constant currencies were up 6.5%. Each region includes sales of the corresponding Zones as well as Nestlé Waters, Nestlé Nutrition, Nespresso, Nestlé Professional, Nestlé Health Science and Nestlé Skin Health.Nestlé Annual Review 2015 41

AMS Sales by geographic area Employees by geographic area Factories by geographic areaEMENA (a)AOA 44.1% 32.5% 161 (2014: 43.0%) (2014: 32.7%) (2014: 163) 30.9% 34.7% 166 (2014*: 32.5%) (2014*: 34.6%) (2014*: 170) 25.0% 32.8% 109 (2014*: 24.5%) (2014*: 32.7%) (2014*: 109)* 2014 figures have been restated – see note on page 40.(a) 10 885 employees in Switzerland in 2015. Employees by activity 2015 2014 In thousands 170 175 Factories 165 164 Administration and sales 335 339 Total Nestlé Annual Review 201542

Cash flow / Working capital Evolution of the Nestlé S.A. share in 2015The Group’s operating cash flow remained in CHFstrong at CHF 14.3 billion and free cash flow wasCHF 9.9 billion or 11.2% of sales. This was the 75.00 105.0%result of our focus on margins and our discipline 70.00 100.0%in capital expenditure and working capital, 65.00and shows Nestlé’s capability to deliver very 60.00 95.0%strong cash flow despite the challenging foreign 90.0%exchange environment. The average total working 85.0%capital has improved by 60 basis points from5.3% of sales to 4.7%. | | | | | | | | | | | |Financial position J F M A M J J A S O N DThe Group’s net debt was in line with historiclevels, increasing from CHF 12.3 billion to P Nestlé S.A. shareCHF 15.4 billion, driven by our completion of the P Nestlé relative to Swiss Market Indexshare buy-back, an investment of CHF 6.5 billionin 2015. Our strong free cash flow during the year Earnings per share Operating cash flowat CHF 9.9 billion more than offset the payment of in CHF in billions of CHFdividends of CHF 6.9 billion. 4.54 14.3 14.7Return on invested capitalThe Group’s return on invested capital was 2.9010.9% including goodwill and intangible assets,up 10 basis points and it was 29.9% excluding 2015 2014 2015 2014goodwill and intangible assets, down 50 basispoints, impacted by unfavourable foreign Dividend per share 2.25exchange. in CHFDividend 2.15 2.20The Board of Directors is proposing a dividendof CHF 2.25 per share, up from CHF 2.20 in 2014. 2.05Outlook 1.95We anticipate that our trading environmentin 2016 will be similar to previous years witheven softer pricing. As such we expect todeliver organic growth in line with 2015, withimprovements in margins and underlying earningsper share in constant currencies, and capitalefficiency. 2011 2012 2013 2014 2015Nestlé Annual Review 2015 43

Product category and operating segment reviewLeading positions in dynamic categoriesIn millions of CHF 2014* 2015 Proportion of total sales (%) RIG (%) OG (%)Powdered and Liquid Beverages 9 328 8 880 46.1% +3.1% +5.4% 10 974 10 365 53.9%Soluble coffee / coffee systems 20 302 19 245 100.0%Other 21.3%Total sales 4 685 4 100Trading operating profit 7 112Water 6 875 796 +7.0% +7.0% 710Total sales 10 686 11.2%Trading operating profit 3 951Milk products and Ice cream 11 073 14 637 73.0% +1.3% +1.7% 4 117 2 471 27.0%Milk products 100.0%Ice cream 15 190 14 854 16.9%Total sales 2 295 2 909Trading operating profit 6 984Nutrition and Health Science 14 605 5 595 +2.3% +4.4% 3 136 12 579Total sales 1 724 19.6%Trading operating profit 6 365Prepared dishes and cooking aids 7 302 1 130 55.5% – 1.3% +0.1% 6 230 1 375 44.5%Frozen and chilled 13 532 8 870 100.0%Culinary and other 1 801 1 246 13.7%Total salesTrading operating profit 11 488 2 386Confectionery 7 053 71.8% +1.8% +6.2% 1 148 12.7%Chocolate 1 568 15.5%Sugar confectionery 9 769 100.0%Biscuits 1 344 14.0%Total salesTrading operating profitPetCare 11 339 +3.5% +5.9% 2 246Total sales 20.8%Trading operating profit* 2014 figures have been restated – see note on page 40.44 Nestlé Annual Review 2015

Zone Americas (AMS)Sales CHF 25.8 billion In Latin America we saw good performancesOrganic growth + 5.5% in many countries in spite of the volatileReal internal growth +1.6% environment. In Brazil, our business achievedTrading operating profit margin 19.4% positive organic and real internal growth despiteTrading operating profit margin the challenging, recessionary environment. + 80 basis points Nescafé soluble coffee and Nescafé Dolce Gusto, KitKat and Nesfit were the growth drivers. MexicoGrowth in the Zone picked up momentum delivered good growth across the entire portfolio,through the year and market shares grew broadly helped by strong performances in creamers,in both North and Latin America. Nescafé Dolce Gusto, Nescafé soluble coffee and ambient culinary. Other highlights were Chile, In North America growth accelerated, led by driven by ice cream and biscuits, Colombia withthe turnaround in the frozen meals business. ambient culinary, Peru with Nescafé, and theSales of the new ranges of Lean Cuisine and Plata Region and Ecuador with growth acrossStouffer’s were strong, supported by positive their portfolios. Petcare continued its very goodconsumption trends. Pizza’s positive momentum growth momentum across Latin America,also accelerated, driven by innovation. In ice benefiting from expanded capacity in Argentinacream, Häagen-Dazs and snacks continued to and Mexico.drive growth with new product launches. Coffee-mate maintained its good momentum through We increased investment in consumer facingconstant innovation and renovation of flavours marketing support while improving the tradingand packaging as well as new distribution. operating profit margin thanks to a favourablePetcare in North America continued to grow with product mix, operational efficiencies, lower inputstrong performances from Fancy Feast, Purina costs and low restructuring and litigation costs.One and cat litter. Increased brand support ishelping the recovery of Beneful.Zone AMS 2014* 2015 Proportion of total sales (%) RIG (%) OG (%)In millions of CHF 16 396 17 187 66.5% +5.5% 10 229 33.5%United States and Canada 8 657Latin America and Caribbean 2 860Powdered and Liquid Beverages 3 190 6 609 11.1% +1.6%Milk products and Ice cream 7 025 4 833 25.6%Prepared dishes and cooking aids 4 744 3 454 18.7%Confectionery 3 972 8 088 13.3%PetCare 7 694 25 844 31.3%Total sales 26 625 100.0% 5 021Trading operating profit 4 940 1 038 19.4%Capital expenditure 1 027 4.0%* 2014 figures have been restated – see note on page 40.Nestlé Annual Review 2015 45

Zone Europe, Middle East and North Africa (EMENA)Sales CHF 16.4 billion Petcare, Nescafé Dolce Gusto, Nescafé solubleOrganic growth + 3.7% coffee and confectionery all delivered very goodReal internal growth + 2.5% growth across the region, leveraging strongTrading operating profit margin 15.7% market positions. Despite the difficult businessTrading operating profit margin context, Russia had a good year with positive + 50 basis points growth and market share gains, especially in premium coffee.The Zone continued to outperform the marketsin its main categories with positive contributions In the Middle East and North Africa therefrom all geographies, with good evolution of was a solid performance despite the unstablemarket shares despite the economic and political environment. There was good growth in Nescafévolatility. soluble coffee, confectionery and petcare, that was partially offset by softer trading in ambient The exceptional performance relative to the dairy. Saudi Arabia, Kuwait, Qatar and Iranenvironment in Western Europe was driven by contributed to an overall solid performance.successful innovation and renovation. Petcare Nescafé soluble coffee and chocolate drove thecontinued to deliver growth across the region strong growth in Turkey. The difficult conditions inwith Felix and Purina One dry cat food. Nescafé Yemen, Libya and Syria had an impact.Dolce Gusto and frozen pizza with the Wagnerand Buitoni brands were the other growth drivers. The trading operating profit marginCulinary was impacted by the competitive retail improvement was the result of careful pricingenvironment and softness in the category. and significant cost reductions which were partlyOverall France, Germany and Benelux were the reinvested in promotional and marketing activitieshighlights, and Spain accelerated. to generate future growth. Solid growth in Central and Eastern Europewas driven by Russia, Ukraine and Poland.Zone EMENA 2014* 2015 Proportion of total sales (%) RIG (%) OG (%)In millions of CHF 12 087 11 022 67.2% +3.7% 16.0%Western Europe 3 088 2 629 16.8%Eastern and Central Europe 2 790 2 752Middle East and North AfricaPowdered and Liquid Beverages 4 700 4 366 26.6% +2.5%Milk products and Ice cream 2 356 2 171 13.2%Prepared dishes and cooking aids 4 382 3 853 23.6%Confectionery 3 446 3 124 19.0%PetCare 3 081 2 889 17.6%Total sales 17 965 16 403 100.0%Trading operating profit 2 735 2 572 15.7%Capital expenditure 840 710 4.3%* 2014 figures have been restated – see note on page 40.46 Nestlé Annual Review 2015