#1Nestle Nestlé in Eastern Europe and Russia & Eurasia Region Bernard Meunier Market Head Nestlé Russia & Eurasia Region September, 2008#2Nestle Disclaimer This presentation 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. September, 2008#3Nestle Nestlé in Europe Population: Europe 820 M. Western Europe Eastern Europe 395 M. Turnover 40 Bio. CHF 34.4 Bio. CHF Factories: 184 148 Other -CEE; 9% Russian Region; 5% 425 M. 5.6 Bio. CHF 36 Alcon Nespresso 4% Other W- EUR; 18% Dairy & Ice Cream 4% Nutrition France; 7% 21% 9% 2% CPW Pet Food 10% Waters 11% Spain; 7% Italy; 11% UK; 12% Germany; 16% 1% Others 15% Coffee&Beverages 23% Culinary 14% September, 2008 Confectionery#4* CEE the growth engine Nestle ■ Double digit Organic Growth for the past several years and will continue ■ Above average profitability vs. W-EUR ■ Strong positions established across the region - Presence in all countries with key categories Adriatic's 3% Bulgaria 3% Romania 4% Hungary 5% Ukraine 12% 1% Baltic's 15% Czech & Slovak Rep. 17% Poland Z-EUR in CEE 4 Bio CHF (*) Dairy 2% Ice cream Nestle Prof. 5% 5% Confectionery 35% 40% Russian Region Culinary 18% (*) exclude Waters, Nutrition, Pet Food, Alcon, CPW September, 2008 36% Coffee & Bev.#5Nestle A Strong Industrial Set Up in CEE CAPEX over the last 5 year in CEE: 750 Mio. CHF 38 factories Bulgaria: CZ & SL Republics: NO IR ES FR DE FI SE AU HU IT RO BO CS BG GR 2 3 Hungary: 4 Poland: 9 Republic of Serbia: 1 RU Russia & Eurasia 15 Ukraine: 2 Romania 2 UA *Namangan Uzbekistan September, 2008#6Well balanced portfolio of local Nestle heartland and international brands Confectionery: Nestle KitKat Lion <Orion> Cimor BOCI Pocenty "щедрая душа Kak Nuts Взанна COMILFO Culinary: Maggi WINIARY ТОРЧИН CARPATHIA Coffee & Beverages: NESCAFE Nestle NESCAFE GOLD Nesquik Orio GRANKO September, 2008#7Nestle CEE the growth engine Strategy fully aligned with Nestlé Strategy ■ NHW - 60/40+ ■ PPP - Bottom of the Pyramid ■ Well Established Mainstream Pillars ▪ Premium / Super Premium (Nespresso, NDG, Mövenpick of Switzerland...) ▪ Strong Teams (Locals and Expatriates) September, 2008#8Nestle Z-EUR in CEE: Our Ambition We plan an accelerated Growth in the coming years from >10% to >15% CAGR to reach 20% of Z-EUR with above average margin. September, 2008#9Nestle Welcome to Nestlé in Russia & Eurasia Region September, 2008#10Nestlé in Russia & Eurasia Nestle Moscow 15% of the earth territory 3.8% of the world population (230 mio consumers) 35% of world mineral resources 11 time zones September, 2008 France#11Nestle 12.0 Why are we bullish on Russia? Continuous GDP growth... 10.0 10.0 8.0 6.0 5.1 4.0 4.7 2.0 7.3 7.2 7.4 6.4 8.1 7.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 E 2008 E: Analysts consensus September, 2008#12Nestle Why are we bullish on Russia? Switzerland United Kingdom USA France Germany Japan Russia 58084 45575 44114 41511 40415 34312 9075 Brazil 6938 China 2461 GDP Per Capita 2007 (Nominal in $) India 978 10000 20000 30000 40000 50000 The fastest GDP growth in BRIC Zone... Source: Euromonitor International from International Monetary Fund (IMF) September, 2008#13لعباس Nestle Why are we bullish on Russia? Ruble keeps appreciating vs dollar... until recently! 7.9.2004 9.11.2004 8.1.2005 9.3.2005 USD/RUR 10.5.2005 9.7.2005 9.9.2005 8.11.2005 26.1.2006 5.4.2006 CHE/RUR 4.6.2006 3.8.2006 2.10.2006 1.12.2006 30.1.2007 September, 2008 31.3.2007 30.5.2007 34 EUR/RUR 32 30.7.2007 29.9.2007 28.11.2007 27.1.2008 27.3.2008 24.5.2008 23.7.2008 26 26 14 20 22 20% NNN 16 24 28 30 36 38 40#14***Why are we bullish on Russia? Nestle Fast growth of incomes: 6000 the Russian consumer is 4 times richer than right after crisis Annual disposable income, Per capita USD / year 5000 4000 3000 4830 2000 3954 3261 2607 1000 2065 1685 1185 0 2001 2002 2003 2004 2005 2006 2007 Source: Euromonitor International from national statistics September, 2008#15* Why are we bullish on Russia? Nestle Russian Food market benefits from the macro-economic growth Japan 0.0% Germany 0.6% UK 0.9% Italy France Spain USA Brazil Canada Ukraine Ireland Thailand China 1.0% World weighted I average 2.5% World food retail sales CAGR (2004 - 2009F) 1.2% i 2.2% 2.4% 2.6% 3.0% 3.7% 4.6% 6.2% 6.9% Russia 0% 1% 2% 3% 4% 5% 6.9% T 6% 7% September, 2008 Source: DBUFG research#16Nestle The Changing Russian Consumer Self-estimation of financial situation, Russia, all households in cities with 100 thousand+ population 100 7 9 9 11 11 14 6 7 90 ☐ No answer/ refusal 12 23 16 19 20 80 20 33 22 30 36 70 60 44 50 40 45 30 20 T T 47 41 37 29 29 25 22 20 27 20 18 10 17 12 16 11 9 T 6 5 ☐ Can hardly buy food 0+ 2000 2001 2002 2003 2004 2005 2006 2007 Moscow 2007 41 42 43 43 44 41 Have enough money for everything except real estate no financial difficulties ☐ Have enough money for h/h appliances Enough clothes but not for major h/h appliances Enough money for food but not clothes People can start spending beyond food September, 2008 Source: TGI-Russia#17Nestlé in Russia & Eurasia. Nestle Key figures ■ 1.9 billion USD of sales ■ 15 factories ■ 11 000 employees ■ 15 sales offices ■ 700 million USD of investments Fast growth in sales 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 September, 2008#18Nestle Our Competition in Russia Nestle is # 2 in Russia Wrigley Danone Kraft 650 800 DANONE KRAFT 850 Mars Un Conf Coke Nestle MARS 980 incorporated 1050 1300 Coca-Cola 1600 Nestle WBD 2200 0 500 1000 1500 2000 Sales in mio $ 2007 September, 2008 2500 Source: Expert Top 400 Nestlé estimates#19NESCAFE Nestle ***Milestones of Nestle in Russia Coccuby PURINA Opening years: Nestlé starts export of NutsⓇ and NescafeⓇ to Russia 1992 1995 1994 Nestlé opens first representative office in Moscow Acquisition of Rossia 1996 factory in Samara 1998 Acquisition of Kamskaya and Altay confectionery factories Economical crisis in Russia Foundation of Nestlé Food LLC 2001 Cereal Partners Worldwide, Nestlé's joint venture with General Mills, acquired a 2002 breakfast cereal plant in Perm Nestlé Waters acquired the Kostroma based "Saint Springs" bottled water company 2005 Nestle opens the 1st full cycle coffee factory in Timashevsk 2003 Infant cereals factory In Vologda was acquired "Clear Water", a leader in home and office water delivery Nestle Fitness Nestle Быстров 2007 Nestle has started to merge numerous legal entitiesof Nestlé in Russia into one company Nestle Rossiya LLC Nestle opens a green field manufacturing facility in Vorsino, Kaluga region 2006 Acquires a majority stake in Bistroff company Acquires RKF chocolate factory with the leading positions in premium segment September, 2008 Рузская кондитерская фабрика PKCP#20Nestlé has strong market Nestle positions in Russia: #1 in soluble coffee market with NESCAFÉ #1 in chocolate market with Nestle and #1 in infant nutrition with Nestle #1 in culinary aids with Maggi #1 in breakfast cereals with Nestle. PURE LIFE #1 in Home & Office Delivery Water with Nestle #2 in ice cream with Nestle дороженое #2 in pet food with PURINA September, 2008#21Nestle Nestlé Sales Offices Minsk St.Petersburg Voronezh Perm 0 Nizhniy Novgorod Rostov-on-Don Samara • Ekaterinburg Tbilisio Novosibirsk Irkutsk Vladivostok Baku Tashkent Almaty September, 2008#22Nestlé factories in Russia and Nestle Eurasia Ruza, 2007 Vologda, 2003 and 2008 Zhukovsky, 1996 and 1999 80 • Kostroma, 2002 Domodedovo, 2003 Kaluga, 2007 Perm, 1998 and 2001 Samara, 1995 Timashevsk, 1998 and 2005 Namangan, 2001 September, 2008 Barnaul, 19980#23Besides Russia, our Region comprises Nestle Central Asia, Caucasus and Belarus BELARUS 10m RUSSIA 142m GEORGIA 5m ARMENIA 3m AZERBAIJAN 8m KAZAKHSTAN 15m KYRGYZSTAN 5m TURKMENISTAN 7m TADJIKISTAN 7m UZBEKISTAN 27m 227 million consumers! September, 2008#24Nestle OUR AMBITION IS: To be the engine growth in Europe for Nestle and a centre of competence for the group within the BRIC markets September, 2008#25Nestle To realize this ambition we have to ensure that our products reach our consumers in the best quality... September, 2008#26Nestle Route to Market Optimization Storage and transportation conditions are important. Distributors as a part of supply chain should provide us with required quality of their services to ensure the quality of the products on the shelves. NESTLÉ DCs DISTRIBUTORS Retailers Consumers September, 2008#27Nestle Key deliverables ■ Network of 35 distribution providers who ensure best in class supply chain services to modern trade, traditional and impulse Optimized coverage of trade channels and numerical distribution of our products ▪ 4 Sales Forces visiting 115, 000 outlets in more than 500 cities September, 2008#28Nestle EXCLAY NORWAY SWE Nestlé distributors SVALBARD ARCTIC OCEAN Norwegian Sea Stockholm FINLAND ΠΟ LITHO LAT Mank BELARUS JKRAINE Decons O O Ahanges Barents Sea KAZAKHSTAN Distributors ▲ Nestle DC September, 2008 BLANDS HONGQUA Sea KURA ●ISLANDS Sathain Jaland Drouped by Tutmo CHINA JAPA#29Nestle Besides, Nestlé is actively realizing several important initiatives aimed at strengthening its leading positions in the Region... September, 2008#30Nestlé financial priorities Nestle 25.0% 0.0% 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007 3Q2007 4Q2007 ■ Reduction in our working capital ■ Sustainable improvement in our EBIT ■ Focus on the categories where we can lead and grow profitably ■ Reduction of the number of SKUs we handle in each 20.0% 15.0% 10.0% 5.0% category # SXU 335 305 k 105 38 Sold in 2005 Sold in 2006 Discontinued (Jan-Dec) (Jan-Dec) or to be done during 2007 Newly added/to be added during 2007 245 238 Portfolio post 1H 2007 review Target Dec 2007 (# in Demand Plan) Confectionery: Average MC (before royalty) 2006: 36.3% Target MC (before royalty) 2007: 37.9% September, 2008#31Transformation into a Nutrition, Nestle Health & Wellness Company ■ Quality 60/40+: Key strategic transformation tool around which all projects evolve ■ Good Nutrition Programme: Improves children's eating habits 2.4 million kids in 30 regions ■ Nutritional Compass: Encourages and empowers consumers to make informed choices ■ Wellness promo campaign in Summer 2007 ■ Acquisition of Bistroff: Step toward innovative Health & Wellness solutions ■ A new communication campaign on "Good Food - Good Life" for some of our best selling brands. Starting August till the end of the year September, 2008 6040+ D Быстров#32Introduction of Popularly Positioned Nestle Products - PPP Our objective is to offer nutritious quality food products to the 13 mio low income families of Russia and the many more in other countries of the Region. Our key Battlegrounds: ■ To reach these consumers (living in small towns and villages) through a specific Route to Market ■ To launch specific formats and recipes of our brands NPS per month is already > 2.5 mio CHF Nestle CLASSIC Nesquik Maggi Вкусн притри 80 КУБИКОВ September, 2008#33Introduction of more Premium and Nestle Super Premium products Zolotaya Vershina NAN HA Premium Mövenpick of CH Nestle NAN H.A. We must do more to fulfill this consumer need! NEXT JON BAND ℗ 2004 Nertà UKLT New Nescafé Super Premium - CapColombie/AltaRica/Kenjara/Espresso Mov ne n inat NESCAPE ALTA RICA NEPATE KENJARA. NISCATE COLOMBIT NISCATE ESPRESSO - September, 2008#34Nestle Acquisition of RKF Thus Nestlé Rossiya reinforces its position in the chocolate premium segment with a company with: ■ Sales of USD 72 million in 2007 (+42% vs 2006) ■ The high-quality image of the Comilfo and Ruzanna brands which ideally complements the Nestlé chocolate brand portfolio in Russia ▪ A manufacturing basis in Moscow region Beanna September, 2008 Рузская кондитерская фабрика PKCP#35Nestle What is RKF? Impressive growth story in Premium Market ■ CAGR 05-07: 15% Volume; 36% Value Know-how in production: ■ Modern production facilities ■ Frozen cone Technology ▪ Brand new souffle production Strong and experienced team ■ 100 people in Head Office ■ 143 sales people (incl. ESRs and merchandisers) ▪ 700 people in production Impressive brand portfolio КОМИЛЬФО September, 2008 Konstan КОКТЕЙЛЬ#36Building a High Performance Nestle Culture Company HR remains the #1 challenge in Russia: ▪ Recruitment ■ Retention ▪ Recognition ■ Career development RECOGNITION PEOPLE Shared vision and values Emotional engagement Individual accountability Achievements LEARNING CULTURE ORGANIZATION Shared KPIs Joint leadership Collaboration Communication Service culture PEOPLE DEVELOPMENT ATION High performance culture September, 2008#37Delivery of the Nestlé Model Nestle Fast Growth - Faster EBIT EBIT Margin 1998 2000 2002 2004 2006 2008 2010 Russia & Eurasia contributes to the Nestlé Model with an EBIT above Group average and growing September, 2008#38Nestle All our initiatives are aimed at providing our consumers with high quality products and being the preferred and most respected Food, Nutrition, Health and Wellness Company in Russia & Eurasia Region September, 2008