9 mnth sales investor call transcript

NESTLÉ S.A.
2011 NINE MONTHS SALES CONFERENCE CALL TRANSCRIPT
SPEECH
Conference Date: 20 October 2011

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

Disclaimer

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

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

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Title Slide

Good morning everyone. Welcome to the Nestlé nine-month sales call. My presentation will
be short as I think you are all aware of the trends in our business.

Slide 1 - Disclaimer

I will start by taking the safe harbour as read.

Slide 2 – Performance Highlights: 9 Months

As you have seen from our press release, our top line growth remained solid. We've seen a
continued pick-up in pricing and an easing in our real internal growth or volume as we
expected. This Group dynamic between pricing and RIG is repeated in our primary
reporting segments and will continue to deliver positive growth. This dynamic is the same
also in most product categories, exceptions being Confectionery and PetCare. The RIG for
Confectionery was unchanged from H1 and the pricing increased, whilst PetCare delivered
both increased RIG and increased pricing. Currencies have remained a major headwind on
our reported numbers.

Our outlook is that we now expect to slightly outperform our long term 5% to 6% organic
growth range and we continue to strive for margin improvement in constant currencies.

Slide 3 – Key elements of Sales

Next the key elements of sales. Organic growth was 7.3% with RIG of 4.1%. Currencies
had a negative impact of 15.1% due to the continued strength of the Swiss franc. Also our
reported numbers include an impact from the sale of Alcon, resulting in a 5.7% reduction
from divestitures net of acquisitions.

Slide 4 – Regional Performance: Growth Everywhere

Looking briefly at the sales development by region, we achieved 5% organic growth in
Europe, 5.8% in Americas and 13.1% in Asia, Oceania and Africa. This demonstrates how
broad spread is our growth and it demonstrates our ability to deliver growth even in the
most difficult, more constrained markets.

Slide 5 – Growth in all Environments

On this next slide you can see a bit more granularity. As I was just saying, we are delivering
growth in more growth-constrained markets, such as the PIGS with 3.7% organic growth
and in the more dynamic markets such as the BRICs with 12.3%. Emerging markets as a
whole grew by 13.1% and the developed by 4%.

Slide 6 – Operating Segments: All Growing

Let's now have a look at the Zones and globally managed businesses. Here's the overview
chart and you can see that we have continued to grow in all our operating segments. I will
now go into the detail of our performance, starting with the Americas.

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Zone Americas: Growth in North & South

Organic growth was unchanged at 5.6% with increased pricing. Growth in North America
picked up. In Latin America it remains above 10%.

Looking at North America first, the biggest category, PetCare, had a good third quarter as
promised though its categories remained subdued. Market shares have improved.
Innovations are driving this outperformance. The recently launched One Beyond in
particular is going well.

In Ice Cream the pricing accelerated in the quarter due to super premium and snacks.
Market shares were about flat. Growth in Frozen Food was unchanged although the
category has if anything slowed further. That said, our innovations such as snacks for Lean
Cuisine have been well received.

Pizza continues to perform well and gain market share. It is worth noting that the home
delivery pizza segment has slowed somewhat so the players there have increased their
promotional activity. In Chocolate the Skinny Cow launch is doing well with early indicators
very positive. In CoffeeMate, the Natural Bliss launch is exceeding our expectations. This is
an important launch, as it takes CoffeeMate into Dairy creaming rather than being
exclusively a non-Dairy creamer. Dairy creaming is about 30% of the coffee cup market,
which was previously not open to CoffeeMate. The other recently launched CoffeeMate
range Cafe Collections is also performing well.

Turning to Latin America, we are continuing to achieve double-digit growth in those
markets. Categories and brands going double digit include Nescafé, Chocolate, Maggi,
PetCare and Powdered Beverages. The biggest category in the region is Dairy, which is
growing high single digit. Among brands, I would highlight the rollout of Nestlé Ninho liquid
milk with probiotics, Nescau Powdered Beverage in Brazil, Nestea and Nescafé in Mexico,
and Maggi in Venezuela.

Slide 8 – Zone Europe: Growth in East & West

Next is Zone Europe. As you would expect, with organic growth of 3.8% for the Zone and
positive RIG in all Western European markets, our market share performance has been
good. The Zone achieved another quarter of positive growth and this was even with a poor
Ice Cream season. Ice Cream's most important month is July, which had its worst weather
in 30 years. Our ability to deliver growth in the Zone as a whole, regardless of the impact
from Ice Cream, demonstrates the strength and the sustainability of our growth in Europe.

I think you know well by now the Nestlé theme in Europe, compelling innovation targeted at
specific consumer segments. For example, look at the success of Juicy Roasting in the UK.
Maggi is not an established brand in the UK. So, Juicy Roasting's success there
demonstrates the integrity of the concept. Equally in France we are selling one Juicy
Roasting every second. Juicy Roasting is now rolled out across much of Europe as well as
in other markets around the world. It is interesting to note that Juicy Roasting is the start
point for innovation in this category. I look forward to briefing you on the coming innovation
in the months and years ahead.

Equally Nescafé continues to benefit from a range of innovations, from super-premium
Nescafé Dolce Gusto to renovation on the premium Nescafé Gold Blend to the continued
rollout of Nescafé Green Blend with its Health and Wellness messaging around antioxidant,

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to PPPs such as Nescafé 3-in-1 in sachets launched successfully in a number of Western
European countries.

Turning now to the Zone's markets, France has continued to perform at a high level. The
UK has accelerated from the first half. Its competitors have increased pricing, particularly in
Soluble coffee. Eastern Europe remains a mixed picture with Russia and Poland
experiencing subdued trading but Ukraine and Asiatic region enjoying double-digit growth.
Culinary and Powdered Beverages as well as PetCare are performing well in the east.

Among the Zone's categories, I would highlight the growth of Soluble coffee, Culinary,
Pizza, Sugared Confectionery and Chilled culinary, particularly Herta in chilled. Also the
pan-European PetCare business has accelerated in the third quarter with rollouts of Felix,
One and Pro Plan amongst highlights. Our drive for growth and market share in Eastern
Europe is going particularly well.

Slide 9 – Zone AOA

Next is Zone AOA. Organic growth was unchanged from the previous quarter at 11.7%,
though with higher pricing. RIG remains an impressive 8.2% for the nine months.

The Japan and Oceania region has continued to deliver positive growth. Japan has had a
very resilient year. Coffee is performing well. Innovations include the two Nescafé systems,
Dolce Gusto and Barista, as well as new variants in Soluble coffee. In Chocolate KitKat is
performing well. A new launch is KitKat Black. This is a KitKat with a very dark, slightly
powdery textured coating. It tastes fantastic. It is aimed at a more mature consumer than
the standard KitKat, which is perhaps why I like it. In Oceania, the retail environment with
basically just two players is very price competitive, making for tough trading conditions.

The Zone's emerging markets have continued to perform well with most double digit.
Greater China, the Middle East, Africa, Indo-China, South Asia and the Philippines are all
performing well. Growth in the categories is consistent with trends earlier in the year. The
biggest are achieving double-digit organic growth and have high levels of RIG. Dairy,
soluble coffee, culinary are all contributing well, and our smaller categories, such as Ready-
to-drink Beverages and Ice Cream. Brands to highlight include Nido, Nescafé, Milo and
Maggi. Finally, on the Zone, I have no news to now on the closing of the two transactions in
China.

Slide 10 – Nestlé Nutrition – Growth in all Zones

Next is Nestlé Nutrition. Infant nutrition is the biggest division. The division achieved high
single-digit growth for the nine months, 9% plus, with a slight slowdown in Q3, which was
up against a very strong comparative quarter in 2010. In the US we were lapping the
stocking of a new WIC contract from the third quarter of 2010 as well as a competitor recall.
Also the Baby Food category there was under pressure due to the weak economic
environment. Europe continued to grow with France particularly strong. Growth continued
double digit in the emerging markets in all three Zones.

All the subdivisions, being formula, cereals, and baby food, contributed well. Highlights for
the nine months included Russia, China, Africa, South Asia, as well as a number of Latin
American markets. Recent innovations, be those colic (prevention) in infant formula or
probiotics in infant cereals, for example, are performing well. Just a word on BabyNes, the

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launch has had a good first few months and 92% of customers would recommend it to
friends and family, so a good start.

Both the other divisions, Jenny Craig and Performance Nutrition, enjoyed strong growth
internationally, Jenny in France in particular and Performance in AOA, but were held back
by continued subdued trading in the US. Both are impacted by the poor economic situation
there.
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Slide 11 – Nestlé Waters – Growth in all Zones

Next is Nestlé Waters. Organic growth was 4.7% for the nine months. The North American
business continued to be price disadvantaged following its price increases in Q2, which
impacted volumes and shares. We continue to see good growth, however, for Perrier and
San Pellegrino in the US. We've also now seen a few quarters of improving momentum in
the US home and office delivery business, which is benefiting from an improved value
proposition with Nestlé Pure Life. The European water business performed well in a
subdued market, gaining share in all key markets. The emerging market business continued
to deliver double-digit growth.

The international brands were the key drivers of growth with Nestlé Pure Life, San
Pellegrino, Perrier, Acqua Panna, and Vittel all performing well.

Slide 12 – Other: Growth in all Constituents

Next is our Other segment, which includes Nestlé Professional, Nespresso, Nestlé Health
Science and our joint ventures.

Nestlé Professional is having a good year with high single-digit growth. The emerging
markets are growing double digit, whilst growth is positive also in the developed markets.
The Beverage division is the key growth driver, as we would expect, with double-digit
growth. The new premium machines, such as Milano and the new super-premium machine
Viaggi, had a good reception with customers and are building their presence. As an
example, we have placed about 3,000 Milano machines with a QSR in North America. The
Food division is performing well relative to its industry with mid-single-digit growth and is
growing in all parts of the world. In common with Beverages, pricing actions have some
impact on RIG, but these are necessary to ensure we start 2012 at the right price points.

One thing to highlight is our work with hospitals. We are now able to demonstrate
concretely that in hospitals where Nestlé Professional is providing customized food
solutions for patients, the improved nutritional content is contributing to shorter recovery
periods. This is a measurable benefit for hospitals as it demonstrates that we don't just
improve supply chain management, but we also contribute to beds being freed up faster
than previously. Beds or so-called hotel costs are amongst the highest costs for hospitals.

Nespresso continues to grow around 20% and is on track to have around 250 boutiques
opened by the year end. Nestlé Health Science is integrating its recent acquisitions. It is
seeing good growth in its existing healthcare nutrition business and is gaining market share.
The Food and Beverage joint ventures, Cereal Partners Worldwide and Beverage Partners
Worldwide, contributed mid-single-digit growth.

Slide 13 – Product Categories: All Growing

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I won't spend long on the product groups. The key message on this slide is the continued
broad-spread growth with all categories contributing.

Powdered and liquid beverages saw a slight acceleration in the third quarter and delivered
12.6% organic growth for the nine months. The product group's constituents, Soluble
Coffee, Powdered Beverages, Liquid Beverages and Nespresso, all contributed to the
strong performance. Growth was double digit in Zone AOA and Zone Americas and high
single digit in Zone Europe and Nestlé Professional. Just a word on Nescafé Dolce Gusto. It
has sold 4 billion capsules since launch, is achieving above 50% organic growth, is in 41
countries and is already market leader in 20 countries.

In Milk Products and Ice Cream I would highlight the continued strong performance of Dairy,
which is growing double digit, even if increased pricing has had some impacts on RIG.
Highlights include the strong performances of our PPPs, of our higher value-add growing-
up milks, and of the launch in Latin America of liquid milk with probiotics. To mention just a
few countries and regions, China, Pakistan, Africa and Mexico are among the highlights. Ice
Cream I've already covered; it was a reasonable performance in a weak season.

Moving to prepared dishes and cooking aids, ambient culinary, which is predominantly
Maggi, continues to deliver strong growth and good market share performance generally. I
mentioned Juicy Roasting earlier. Some KPIs for you, we will sell 200 million packs in 2011
globally with organic growth of above 50%, we are the leader in 32 out of 34 markets and
have 88% share overall of the category. I've already discussed Frozen and Pizza in the US.

Confectionery is next. I just remind you that Q2 is positively impacted by the late Easter so
the right comparative for Q3 is the first half number. With that in mind, 4.4% organic growth
for the nine months reflects a slight increase in pricing and unchanged RIG. The emerging
markets continue to perform well with double-digit growth in Asia and Latin America and
high single digit in Africa. In Europe, France and Germany are performing well, whilst we
gain share in the subdued UK market.

Finally in Confectionery, we today announced the launch of Maison Cailler. This is a direct
consumer online model, offering the highest quality chocolates tailored to customers'
individual tastes. There will be more on this at our press conference after my call.

I've already discussed PetCare's improved performance. We grew market share in all
regions and all major segments. Growth in emerging markets continued strong with, for
example, double-digit growth in Latin America and Central and Eastern Europe. The Q3
acceleration was in line with the promise we made you on our first half call.

Slide 14 – Conclusion

That concludes my presentation. To summarize, we continue to grow at a good level with
7.3% organic growth. The environment is tough, particularly in the developed markets. That
said, we expect to slightly outperform our 5% to 6% long term run rate at the full year.
Equally we are striving for an improvement in the margin in constant currencies.

Thanks very much for listening and let's go to the questions.

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Question and Answer Session

Questions on; Detail on outlook and margin
Trends in cash flow

David Hayes, Nomura:

Morning Roddy. Just two things. Firstly just some detail on the outlook. Obviously using
this word slightly above 5% to 6% and I don't want to get too specific about how you define
things, but I just want to see whether you feel that you're comfortable with consensus,
which is around 7%. What you would define by slightly above that 6% level?

And then similarly on the margin, you've moved to saying you're striving for margin uplift.
And you talk about A&P uplift to support innovations in the release. Again I just wonder
whether you're as confident now as you were at the first half on the margin side and
whether that's at both the trading profit level and the old definition of operating profit level.

And on the second question is, slightly off the sales numbers, on the cash flow. As we
talked about the first half, obviously inventory was up substantially in the first half. There
was other cash outflows. I just wonder whether you can give us any indications in trends on
cash flow in the second half and whether some of that inventory has been unwinding.

Roddy Child-Villiers:

On the outlook, I'm not going to get into a discussion about how many basis points slightly
means. We've given you our guidance on the top line. You know where we are at the
moment with our organic growth. We believe we're going to slightly exceed our long range
run rate.

Now on the question about the striving to achieve, I think it's also a good question. The key
message here is that we are committed to the Nestlé model. And I've already discussed on
my call some of Nestlé’s specific issues in the third quarter. The other things that have
changed since the first-half results, no question that consumer sentiment has turned down
in Europe, has turned down in the US. Equally the Emerging Market currencies are weaker
against the US dollar and Swiss franc. So I think our guidance about striving is simply being
sensitive to the environment that we're in. But, as I say, we are still committed to delivering
the Nestlé model.

Now you asked on which margin we are guiding. Our press release guidance has always
been on the old EBIT, underlying EBIT margin. So that's where we're guiding.

On cash flow, I'm not going to go into any detail on cash flow on a sales call. I will reiterate
what we said at the half year, which is that one of the reasons for our cash flow
performance, setting aside the currency impact and the impact of selling Alcon, was that we
were using our cash flows as a way to hedge input costs, hence, as you say, the high
inventories. We did say to you at the half year that our cash flow performance would
improve in the second half of the year and what we are seeing year to date underlines our
confidence that that will indeed be the case.

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Questions on; Regional split of PPPs
HOD water business in US

Alain Oberhuber, MainFirst Bank;

A question about PPP, strong growth rate again. Could you break up in which areas you're
currently now in, how much is proportion of PPP when we look at Asia, Latin America and
Europe?

On the other side, I'm interested in the US home and office delivery water business. Could
you elaborate a little bit, what did you exactly do in order to get traction again and if the
market environment for HOD has clearly improved as well?


Thanks Alain. I'll just repeat the questions in case people didn't hear as I could hardly hear
them. The first one was on PPPs and I think it was the regional split between the PPPs.

We haven't given the regional split. We've said that we had around CHF11b of sales in
PPPs last year. As I showed you on the chart, they're growing low single digit. The bulk of
the PPPs are clearly in AOA and the Americas. It's a growing part of the European
business. Our PPPs in Europe are growing meaningfully faster than the European average,
but I'm not going to go into a split of PPPs by region.

On the HOD business, as you I think are all aware, the US home and office delivery water
business suffered quite severely following the downturn in 2008. And what we've done is
we have moved the mix of the product in the lorries so that we now have Nestlé Pure Life in
the lorries. We have bottles, smaller bottles as well as the five-gallon tanks. They've really
changed the offer to consumers and we've made it a more affordable proposition for
consumers, and that has been a catalyst for getting growth back into that segment for us. I
can't tell you, Alain, I don't know I'm afraid whether the segment as a whole is enjoying a
better trading environment, but certainly our business in the segment is.

Question on; Impact of economic situation on business performance

James Edwards Jones, RBS:

Just picking up on your comment about declining consumer sentiment in Europe and the
US, can you say anything about the trajectory of your performance through the quarter?
And as the economic news got worse did that have any discernible impact on your business
momentum?


It's hard to say. In Europe our weakest month was clearly July because of the Ice Cream
business. And in fact if you take Ice Cream out of the European numbers, then there was
no slowdown at all in Europe in Q3 from H1. But consumer sentiment doesn't just impact
the top line. It impacts the business as a whole. But I think it's important that we should be
sensitive to the environment we're operating in, in giving you our guidance and that's why
we've slightly adjusted the guidance. In North America there's no particular variation month
on month in terms of performance.

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Question on; Nutrition performance

Susanne Seibel, Barclays Capital:

Can you talk us a little bit more in detail through the Nutrition business? On a quarterly
basis the RIG is down to 2.5% in Q3. I assume that wasn't all down to Jenny Craig. Could
you give a little bit more detail on that performance please?


I think the starting point is the tough comparative. In Q3 2010 Nutrition had 8% RIG. So we
were always going to be up against that as a tough comparative. The slowdown has
actually got nothing to do with Jenny Craig. Jenny Craig's performance isn't good, but it's no
worse in Q3 than H1. So Jenny Craig is a net no impact on the quarter.

So the slowdown is really due to Infant Nutrition. It is weaker in the US. The issues in the
US are we had, obviously part of the tough comp relates to the competitor recall last year.
Last year we also won a WIC contract, which we were stocking in Q3 of last year. We don't
have the same benefit this year. There is a slowdown in Baby food, which we think is a bit
related to the economy as well. So those are the main reasons. We think that Q4 will be a
better quarter than Q3 because of the comp issue in Q3.

Question on; Factors behind Coffee business performance
Emerging market growth

Patrik Schwendimann, Zürcher Kantonalbank:

First question regarding the coffee beverages business, which still had outstanding
performance, plus 12.6% after nine months. Was there any extraordinary in here or can we
expect a similar performance in the near future? That's my first question.

And secondly regarding the emerging markets still growing very, very nicely. Here again not
any slowdown here, even not in Brazil?.


Yes, there are no extraordinaries in the Coffee business apart from the extraordinarily
strong performance of Nescafé, of the Dolce Gusto and of Nespresso, but they're not
unusual. Nescafé, total soluble coffee Nescafé is growing double digit off a near CHF11b
base. It was doing so in the first half of the year. It's doing so for the nine months and then
actually it's slightly accelerated. Nespresso continues to perform at the same level as it did
in the first half of the year. And within that Nescafé number you have Dolce Gusto doing
over 50% organic growth. So the whole coffee business is really performing extremely well.

And if you go back to our growth drivers and you think about what those are, Nutrition,
Health and Wellness, you've got good argumentation around Green Blend. The PPP
business is going terrifically well in the emerging markets. We also had a lot of success
launching these 3-in-1 sachets in Western Europe. Thinking about the out-of-home
business, I mentioned the Milano machines in my presentation, Viaggi. The out-of-home
business is going very well and that's growing double digit in soluble coffee. And
premiumisation of course is Dolce Gusto and even more so Nespresso, and again growing
double digits.

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So I think what is interesting about Soluble Coffee is that it's the poster child of how to drive
the growth drivers that we talk about in our presentations at the Group level. So nothing
unusual in the quarter, just consistent, good strong performance.

On the Emerging markets, no, there's nothing, there's no consistent theme. We looked at
Africa. You're seeing higher RIG and higher pricing. You look at the rest of the Asian
emerging markets, there is pricing, pricing's up in almost all of them. Some have got higher
RIGs, some haven't. Latin America, good performances across the regions. And then the
two big markets, Brazil and Mexico, also pulling their weight. So there's no sign of a
slowdown really in the business.

Questions on; Pricing reductions towards the end of the year
Outlook for RIG in North America

Jeremy Fialko, Redburn Partners:

A couple of questions. Firstly on pricing, clearly we've seen quite a lot of commodities come
off. Are there any areas where you do have more spot-related stuff, particularly in Dairy,
where you could see some sort of pricing reductions towards the end of the year?

And secondly, on the Americas, it looks like the RIG, if you were looking at just North
America, would have been negative in the quarter. And what's the outlook there? When do
you think that might start to turn positive again?


Pricing, fundamentally on raw materials we're done for the year in terms of our cost base
and we're also effectively done for the year in terms of pricing. And I don't think you're going
to see any impacts in our numbers in terms of pricing coming off and we're not expecting to
see pricing coming off in any of these categories. I think bearing in mind that it's, that the
pricing number you see is based on the 2011 quarter against the comparable 2010 quarter,
we're still going to see increased pricing in the final quarter of this year rather than a
reduction in pricing. So I don't think you're going to see any reduced pricing.

The North American RIG actually improved slightly in the third quarter, which was primarily
due to the very strong performance of PetCare. So there wasn't a slowdown in the North
American RIG.


But it was still negative in the quarter?


American RIG was, for the business in the Zone it was negative, yes.


And I just was wondering do you think that will become positive towards the end of the year,
next year, any comments there?

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We would certainly like them to make it positive, but I think it's a tough call in one quarter to
turn that RIG into a positive RIG. So hopefully it will be next year rather than at the end of
this year.

Questions on; Input costs guidance
Retailer promotion activity in UK

Robert Waldschmidt , Bank of America Merrill Lynch:

Just to come back on the input costs, can you just remind us where you are with respect to
the absolute increases? Is it still at the top end of the range?

And then in light of what Jeremy said in terms of input costs coming down, do you have an
early read on where we might be heading into 2012?

And in terms of US and Europe, can you update us in terms of the retailer promotional
situation in the UK? Tesco's clearly been trying to be more aggressive on pricing and what
if any impact is that having on your business?.


On the input cost guidance, we guided to CHF2.5b to CHF3b of incremental cost. We said
we'd be at the higher end of that range and that's good guidance. There's no change in the
guidance.

2012, I think when the environment is as volatile as it is the best way to give good guidance
is to give late guidance and I'm not planning to give any guidance for 2012 in October 2011.
Assuming that raw materials are an issue in 2012, then we'll obviously give you some
guidance in February next year, but not until then.

On the retail promotional side, yes, you're right. It's clear that there's an increased level of
price promotional activity in the retailers in the UK. The question is really just who will end
up paying for that, whether it'll be them or their customers. Equally, it's not necessarily
across all categories, not necessarily across all brands, but obviously that goes to my
earlier comment about weakening consumer sentiment in Europe and North America. And
that's one of the ways that our customers are responding to that sentiment. So it's part of
what I said earlier on about us responding to the environment in which we're operating

Robert Waldschmidt , Bank of America Merrill Lynch:

Okay. And just to build on that, we've seen the promotional activity increase in UK. You've
seen that in, also in concrete form in other places like France and Germany.


The French business, we are having a fantastic year in France. We're gaining share in
every category. All our categories are positive in France. Even Ice Cream is positive in
France despite the summer. Germany certainly is tough. The cClinary category was tough,
but when wasn't the Culinary category tough in Germany? Ice Cream business is, I think
the Ice Cream business is the weakest business in Germany, but then again that relates to

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July. So I haven't got a specific comment on Germany beyond my earlier comment that the
consumer sentiment is weaker.

And actually you guys must follow the VIX Index, sometimes known as the fear index. If you
look at that back at the end of June it was at 16 and now in this week it's at 32. So the VIX
Index has doubled, which tells you a lot about how the markets are thinking about risks in
terms of macro risks. And that's the environment that we're in so not surprisingly that there's
a bit more promotional activity.

Question on; Pricing and RIG in Q4

Warren Ackerman, Societé Générale:

Can I go back to an earlier question? I think it was a question from Jeremy. Can you just
clarify your comment about pricing? Did you say that pricing will be higher in Q4 than Q3?
Now I think Q3 pricing was around 4.2% so are you saying that Q4 pricing is going to be
higher than 4.2%? And how does that tally with your comments that most of your pricing
has actually been done?

And does it therefore follow that you that RIG will continue to decelerate in the final quarter,
especially given I think quite a tough RIG comp you've got? I think it was 5% for the final
quarter. I think Europe also had a very strong final quarter. Can I just clarify that please?
Thanks.


Sure. I wasn't making a specific Q4 comment, but Q4 2010 is the benchmark for the Q4
2011, not Q3. It's pricing on pricing from the prior year. So we are clearly going to see
positive pricing relative to where we were last year because of the raw material situation.
We have said all along that we expected pricing to increase over the course of the year.
Now frankly whether it increases by more or less in Q4 than it did in Q3, I don't know. But it
will continue to increase, we expect, over the course of the year, but it may be at a lower
rate than in Q3.

We don't measure pricing quarterly, as you know, on a backward-looking basis. We
measure it cumulatively. Equally we don't do the pricing at the centre; it's done in the
markets. And equally it's based off the prior-year quarter. So trying to work out in advance
what the quarterly pricing's going to be to a few basis points is not really worth the effort.


The trend is clearly for improved pricing and you've seen already this year that as we've
taken improved pricing the RIG has come down a bit. So that's all taken into our guidance
of slightly outperforming our 6% long term run rate.


And would you expect the RIG to continue to decelerate in the final quarter, that trend to
continue that you've seen through the year, given the comp?


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There's always a risk, Warren, that your RIG comes down when your pricing goes up. On
the other hand Q3 was a weak quarter for RIG because of the Ice Cream season. So again
it's not necessarily saying it's going to be weaker than it was in Q3, but there is a risk that
pricing will impact RIG.


Okay. And are there any special factors you would highlight for Q4? I think Europe had a
very strong end to the year. Their RIG was up almost 3%. Are there any other factors you
would point to?


I don't think so, no. I don't think there are any particular Q4 issues. No.

Question on; Direction of prices

Jeff Stent, Exane BNP Paribas:

Just thinking about pricing again, if you think sequentially, are there any areas of the
business where sequential prices have actually been slipping downwards as opposed to
upwards? Thanks.


No.

Jeff Stent, Exane BNP Paribas:

Okay, clear. Thanks.

Questions on; Frozen integration
Capital investments
Maison Cailler market rollout

Thomas Russo, Gardner Russo & Gardner:

Numbers worth getting up for. Congratulations. Roddy, a couple of quick questions. First,
North America, the frozen integration, how's that coming along, the frozen integration?


We're still in the midst of it. Tom, there isn't -- I don't really have an update. In terms of the
head office integration, that's done, but in terms of the nitty-gritty of integrating the Pizza
direct-store delivery with the Ice Cream store delivery, it's still pretty early days. I think we're
going to be well into next year before we have concrete evidence of benefits coming
through from there.


Okay. Thanks very much. And then just an update on the ability to commit the extra funds
to the capital spending and development of emerging markets. I think at midyear you said

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that the numbers would go from CHF1b to CHF2.5b in 2011. I'm curious how that spending
increase has been effective thus far.


Yes. We have been -- if you've been following us on the website, no doubt you saw, for
example, a couple of days ago, the announcement of the new soluble (coffee) factory in
Russia, another one about a Dairy factory in Algeria. So the investments are going through
as planned and as quickly as one can effectively manage the capital process in terms of
actually building the facilities. Clear though that the way that the currencies have moved,
our original CHF5.5b number is a high number. We're still committing to the same amount
of, if you like, incremental volume capacity, but obviously in Swiss francs it's costing us
less. But yes, we're going to be somewhere around the CHF5b number, I would guess, by
the year end for the Group as a whole.


Thank you. And then the Maison Cailler was quite interesting. You said it was home
delivery direct, customized to consumer. What markets would that roll out to and what are
your thoughts on that?


My thoughts are obviously very excited as a Chocolate lover. The concept is that you'll be
sent or you will send your loved one a selection of particular flavoured Chocolates from
which she will then be able to design her preferred -- well, Maison Cailler will be able to
design her taste preference and then tailor Chocolates to her particular desires, which to
me sounds like a pretty exciting concept. I'm not fully up to speed on which markets it's
going to be launched in. We tend to do these online launches in the domestic markets first
and then go from there. So I guess there'll be a European launch and then expand
thereafter.

Questions on; Categories most impacted by consumer sentiment in N. America
Trend in Q3 for Water in Europe

Pierre Tegner, Natixis:

I have just a question coming back on North America. We understood that probably
Nutrition business and pet foods are quite sensitive or are short sensitivity to the tough
consumer environment. Are you seeing other categories where you are surprised by
positive or negative sensitivity regarding the decrease in consumer confidence? And I'm
referring to what you were seeing two years ago when the environment in terms of
consumer was quite tough. Are there some big changes in relative to years ago? And what
are the key categories which are particularly sensitive apart from the Nutrition business and
the pet food? Thanks


Thanks, Pierre. I think the -- it was quite a bad line, but I think the question was about the
categories most impacted by consumer sentiment in North America. I think if one starts with

14

Nutrition, clear that Jenny Craig has been very heavily impacted. And the reasons for that
are really around the fact that it is a relatively high-cost approach to weight management
because it's based off a one-on-one consultative service. Another area, also Performance
Nutrition's been somewhat impacted. It's clearly a discretionary category.

Going into Frozen, the Lean Cuisine and the higher value or the higher-priced more super
premium, premium, single-serve dishes have been impacted. Lean Cuisine is a bit the
same dynamic as Jenny Craig in that it's generally bought by housewives who are tending
to prioritize their other family members over themselves in their shopping. So Jenny Craig,
Lean Cuisine, Performance Nutrition.

The premium segment of Ice Cream, and premium in the US is the same as mass in
Europe, but the premium segment of the US ice-cream market is clearly being impacted by
private label gains. And then PetCare, the PetCare category has certainly slowed. The pet
replacement rate has come down. That said, we've had a very strong third quarter and a
gain in share in the category.

I think those are the main categories that are impacted. And of course, HOD water we
talked about already, although we seem to have found a relatively good response to the
challenges there. So I think those are the main categories that are impacted.

Pierre Tegner, Natixis:

Okay, thank you. And a second question on the water business in Europe. Could you give
us an indication of the trend you had in Q3 for the water business in Europe?


The reason that the total water business was down was more than 100% because of
Europe because we had a good performance in North America and AOA in the third
quarter. So basically Europe is the reason for the slowdown. And I think the key thing for us
is that we gain share in all of our key markets. So even if because of the poor July weather
the water market as a whole was down, our performance relative to the market was very
good.

Questions on; Performance in China
Consolidation of aquistions in China
BabyNes launch and Viaggi machine updates

Simon Marshall-Lockyer, Jefferies & Co:

Just a couple of follow-ups in terms of geographies. Can you give us maybe a little bit more
detail on China and particularly whether you've seen any slowdown? You mentioned slightly
slower performance overall in baby within Nutrition. Was that anything to do with the China
business? Have you seen any indication of a slowdown maybe in the exiting months of the
quarter there?

Can you also remind us of the status on Yinlu and Hsu Fu Chi in terms of the consolidation
prospects, what the dates are or estimates?

15

Also could you give us some data points or are there any valuable data points to give either
on the launch of BabyNes -- I know it's a very small product and launched in Switzerland,
but any update on that and how that's going? Same thing on the Viaggi machine.


BabyNes, as I said on my call, BabyNes is going very well. It is only in Switzerland. It's a
very narrow distribution so the numbers are not meaningful, apart from the number that I
quoted, which is that 92% of customers would recommend the system to their friends and
family. So clearly the reception it's received from parents has been fantastic. So BabyNes is
going very well.

Viaggi, the thing to remember about Viaggi is that it's super premium so whereas we've got
3,000 Milano machines into one quick-service restaurant in North America in one hit, that's
not going to happen with Viaggi. Viaggi is going to be built machine by machine as we get it
into upscale bars and cafes and hotels. But, that said, the progress we're making with
Viaggi is very good.

Yinlu, Hsu Fu Chi, I haven't got an update. We're still waiting for the final clearances for
those transactions. And I'd rather not give you an idea of a timeline because, frankly, doing
these transactions in China is a new experience for us and we just need to go through the
process and hopefully get closure.

Trading in China, there's not really much to say since -- in Q3 relative to H1. The business
has continued to perform at a high level. It's growing double digit. The Ready-to-drink
business, which, by the way, Yinlu is the co-packer on, ready-to-drink business is going
very well. Ice Cream is going very well, Soluble coffee is going well and Dairy is doing well.
Culinary is a little bit slower, but nothing to worry about. Business is performing well. In the
Nutrition business in China we are well into double digits on infant and are performing well.

So I wouldn't say there's any sign of a slowdown in China. And we're going to be around --
we're certainly over 20% organic growth in China for the total business, including the Zone
Nutrition and the other businesses that we have in China. So good performance in China a
think.

Simon Marshall-Lockyer, Jefferies & Co:

Thanks Roddy.


Okay. I'd like just on Maison Cailler, just to say that I'm a little bit ahead of the game. It's
going to be launched in Switzerland initially, not Switzerland and France, Switzerland
initially, just to clarify.

Question on; Margin guidance

Jon Cox, Kepler Capital Markets:

Congratulations. A good set of figures. You guys certainly know how to deliver. But
obviously just on the concerns about this guidance on the margin, is it still right to say it's

16

not so much input costs, it's you're basically just bracing yourself for a further weakening of
consumer sentiment and potentially a bloody pitch battle in terms of A&P? Is that what
you're basically signalling there?

And then just on the environment generally, and obviously we, none of us have a crystal
ball, but do you think there's any danger next year that you'd actually maybe miss the 5% to
6% target as you did in 2009 or would you say conditions now are totally different? Thank
you.


Thanks Jon. Okay, coming back to the 2011 guidance, yes, I think, as I keep saying, I think
we're just being sensitive to the environment in which we're operating and we can't ignore
the fact that things have changed since the first half of the year. But we are not giving
ourselves a holiday from delivering margin improvement. We are still out there, 280,000
people around the world, working in all countries in the world to deliver margin
improvement. We are striving to do so. But it would be I think naive of us to pretend that the
world hasn't changed a bit; it has.

And you're right. We're not saying there's been a big change in the input environment. So
what has changed? Clearly the level of promotional, of competitive intensity has increased.
And we had examples of that in one of the previous questions. So that's simply the basis of
our comment. We're not talking about a miss. We're just saying that we're going to strive to
achieve it. It's, the environment's a bit tougher than it was.

And for 2012, I'm not going to give guidance for 2012, but we will be committing to the
Nestlé model as we always do. But I'm not going to start giving guidance on what the actual
number's going to be. It will be our intention, as it always is, to deliver the Nestlé model.

End of Question and Answer Session


Thanks very much everybody for your questions. We will be doing our press conference at
10 o'clock Swiss time, nine o'clock UK time. Webcast details are on our website. Paul
Bulcke and Jim Singh will host it and there'll also be a presentation from Laurent Freixe,
who's our Head of Zone Europe. Don't read anything to it being in Paris. You might
remember that last year it was held in New York. This year it's being held in Paris. Thanks
very much indeed for your interest in Nestlé and your attention today. Good morning. Thank
you.

END OF TRANSCRIPT

17

9 mnth sales investor call transcript

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9 mnth sales investor call transcript