Mr Roddy Child-Villiers Head of Investor Relations Nestlé S.A. This transcript might not reflect absolutely all exact words of the audio version.

Transcription

1 NESTLÉ S.A NINE MONTHS SALES CONFERENCE CALL TRANSCRIPT Conference Date: 22 October 2010 Chairperson: Mr Roddy Child-Villiers Head of Investor Relations Nestlé S.A. Disclaimer This transcript might not reflect absolutely all exact words of the audio version. This transcript 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. 1

2 Roddy Child-Villiers, Nestlé SA, Head of Investor Relations Slide 1 Logo slide Welcome to the Nestlé 9 months sales conference call. Three things before I get into the sales. First, we are in New York, so our press conference will be later than usual, at Swiss time. It will be hosted by Paul Bulcke and feature much of the North American management team. We are trialling the concept of doing the nine month press conference outside Vevey, and not surprisingly, are starting with our biggest market, the US. Second, the Nestlé Investor Relations team has today launched an iphone and ipad app. It will give you access to the latest additions to the web site in a downloadable format. I am hoping that the first upgrade, a little later, will also include a press clips service that will have any articles that we think are relevant to Nestlé or our industry from a shareholder perspective. You can download it on itunes. Just go to the app store and search Nestlé. We hope this is a useful tool for you, and we welcome any feedback. Third, just in case you missed them, we placed three powerpoint presentations on our web site in September, covering North American PetCare, North American Water and Nestlé USA. Slide 2 - Disclaimer Let s now go to the numbers, and I will take the usual safe harbour statement as read and go straight to the highlights. Slide 3 Introduction With organic growth unchanged from the half year at 6.1% for the Group and 5.7% for Food and Beverages, it is clear that we have maintained the good growth momentum seen earlier in the year. There are some changes as one gets into the different reporting areas, the acceleration by Nestlé Waters being the most noticeable, and I will cover these over the course of the call. All the operating segments have contributed growth, as have all the product segments. It is noteworthy that more economically-challenged regions, such as Western Europe, have continued to grow. This is testament to the efforts of our people in those markets, who responded with great commitment to the challenges that they have faced. It also reflects the benefits of preparedness and, of course, of having a strong pipeline of innovation, backed up by appropriate brand support. With the performance year-to-date trending well, we are maintaining our guidance unchanged, of organic growth around 5%, combined with an improvement in the EBIT margin in constant currencies. Slide 4 Total F&B: A strong broad-based performance globally Let s start our discussion of our nine-month sales with a look at the total food and beverage business, split between the three geographic zones. These numbers include all our 2

3 businesses, both regionally and globally managed, as well as the F&B joint ventures. We provide them to give you the most accurate base from which to benchmark our regional F&B growth against that of our peers. There are no meaningful changes from the half year. This means that we continue to achieve single-digit growth in the world s developed markets and double digit growth in the emerging markets, about 11%. Equally, our BRIC markets continue to achieve growth at a rate higher than the average of the emerging markets. This performance demonstrates that having 18 emerging markets with annual sales of over half a billion Swiss francs is a wonderful platform from which to achieve double digit growth. It also reflects the success of our various initiatives in different markets: from popularly positioned products, or PPPs, for lower income consumers, which have continued to grow double-digit; to premium products for those who want to enjoy the affordable pleasure that premium food and beverage provide. Success of initiatives ranging from our over-arching focus across all categories on nutrition, health and wellness, to those that are categoryspecific, such as the international roll-outs of Maggi Juicy Chicken, Nescafé Dolce Gusto and Nescafé Green Blend, of hypo-allergenic infant formula for babies born by cesarian section, Nestlé NAN HA, and so on, all supported by appropriate brand investment. Slide 5 Operating segments: Positive RIG/OG everywhere On the next slide you can see the operating segments. Once again, it shows positive real internal growth and organic growth across all segments. Let s have a look at the performance in more detail, starting with Zone Americas. Slide 6 Zone Americas The Zone slowed somewhat after a very strong second quarter. This was due to North America. Here, we continued to see a normalisation of growth in Confectionery following the Q1 trade stocking associated with the launch of Willy Wonka into the Chocolate category. PetCare was also weaker in the quarter, though this reflects 2009 comparatives, and will pick up by the end of the year. Growth in ice cream was also a bit weaker, whilst the nutritional frozen food market remained subdued: I ll cover these two categories in my product group review. Over the nine months, there are good performances in North America from Chocolate, Soluble Coffee, Sugar Confectionery and Chilled Culinary. Equally, the Pizza business, acquired earlier this year, continues to perform well. The big news in the quarter was in September, with the nation-wide launch of Nescafé Dolce Gusto in the US. This is a major launch, reflected by the fact that it is being carried in 2,000 WalMart stores, among other retailers. That concludes my remarks on North America. If you tune in to the press conference later today, you will hear briefly from the heads of Zone Americas and Nestlé USA, and the North American regional heads of Nutrition, Water, PetCare and Nestlé Professional. Moving now to Latin America. Here, in contrast, we accelerated somewhat in the third quarter, particularly due to Brazil, where growth continues to be double digit, but also due to some of the smaller regions. Seven out of the ten categories in Latin America are achieving double-digit organic growth for the nine months and the biggest, Ambient Dairy, accelerated meaningfully during the 3

4 third quarter due to some successful innovations, including our expansion from powdered to liquid milk in Brazil. This is the product shown on the slide. It is shelf-stable and is attracting a different consumer group than our range of powdered milks. Slide 7 Zone Europe Next is Zone Europe. The Zone s nine months performance is broadly in line with the six months, with slightly less pricing and unchanged RIG. This reflects a normalisation of the growth trend after the volatility in the first two quarters caused to a great extent by the timing difference of Easter in 2009 and The good growth for the nine months was achieved in a year that will not be remembered for its sunny weather. The weak evolution of the ice cream market is reflected in our own figures: it is the only major division that did not grow in Western Europe. The other categories more than compensated. Among those, I would highlight the Culinary, Frozen and Chilled food businesses, Herta in charcuterie, and Buitoni and Wagner in Pizza, as well as PetCare, Soluble Coffee and Chocolate. The trend of positive growth is reflected across the markets as well. All the big markets are delivering positive growth, as are the so-called PIIGS, taken together, even if Greece is not. In Greece, our market share performance is holding up well. Across the Zone, too, I can report a good market share performance. We are gaining in most of our big markets. Those where we are not, are showing signs of turning things around. The PPP products are growing much faster than the average for the Zone, and so are our sales to our biggest customers, demonstrating the benefit of our focus on improving customer service levels. The Zone has had a tough year in Eastern Europe, particularly Russia, where the big impulse categories, especially chocolate, have been under pressure. There are early signs that the Russian market is improving, and we are making share gains, which bodes well for Slide 8 Zone AOA Next is Asia, Oceania and Africa. The strong performance seen earlier in the year has continued. The Asian emerging markets are achieving double digit growth, so is Africa, so is the Middle East. The level of growth achieved in the different regions of the zone hasn t changed materially in the last quarter. The performance is broad-based by category. I would highlight Ready-To-Drink, the Milo and Nescafé brands, as well as double digit growth in Ambient Dairy and Culinary, and high single digit growth in Powdered beverages and Chocolate. And across the board, I would highlight our PPP business model, which is significantly accretive to the Zone s organic growth. 4

5 Japan is also growing. Notable is the performance of our coffee systems, Nescafé Dolce Gusto and Nescafé Barista, both of which are performing very well. We have also launched a new version of Nescafé with micro grounds, broadening the appeal of the sachet and jar range. Slide 9 Nestlé Waters Next is Nestlé Waters, where the category has returned to growth in the developed world. The trend seen earlier in the year of improving real internal growth has accelerated in the third quarter. We are seeing market share gains in most European countries, including France, Switzerland and the UK, as well as in the United States. Equally, we continue to see double digit growth in Asia and Latin America. The growth is broad-based. We are seeing good growth from the International brands, such as Perrier and S. Pellegrino, both of which are high single digit; and there is double digit growth in Nestlé Pure Life, in emerging markets and in the USA. The regional brands in the US, such as Poland Spring, are also achieving positive growth. The image on the slide is an example of the communication that we are doing in the US to differentiate our spring waters from processed water, and to highlight the unmatched purity of our spring waters. Slide 10 Nestlé Nutrition Next is Nestlé Nutrition. We have seen another strong quarter for the business. Leading the growth is the Infant Nutrition business, and within that, infant formula, which is growing double digit, and baby foods and infant cereals, both of which have contributed well. The Infant Nutrition business continues to perform storngly in the US, both in baby food and formula, and in the emerging markets. Among these, I could highlight many, including China, Russia, a number of Latin American markets, the South Asia region and Africa. Its performance in Western Europe remains on an improving trend, led by infant formula. Among a rich stream of innovation globally, I would highlight products that address allergies or that target colic; as well as infant cereals with probiotics. The Healthcare Nutrition business has also seen its growth pick up during the year, driven by its key strategic benefit platforms. Jenny Craig is performing well with its At Home service in the US, and this is compensating for a weaker performance in the Jenny Craig Centres. The European launch in France and the UK is still in its early stages, but we are pleased with the first signs. Slide 11 Other Food & Beverages Next is Other Food and Beverages, consisting of Nestlé Professional, Nespresso and the food and beverage joint ventures, Cereal Partners Worldwide and Beverage Partners Worldwide. Growth here has slowed somewhat, reflecting slightly slower growth from all the constituents during the quarter except the smallest, Beverage Partners Worldwide. 5

6 Nestle Professional achieved mid-single digit organic growth. It has continued to capture opportunities, in both food and in beverages, in the favourable environment in AOA and Latin America, which both delivered double-digit organic growth. The environment has been tougher in Europe and North America, but we have profited in Frozen and Chilled food in Europe from an increased focus on commercial Out of home channels; whilst in North America, our beverage business has performed well, helped by our proprietary Nescafe solution business, as well as continuing growth in the traditional cash-and-carry channels. Nespresso has continued to perform at a high level, with growth for the nine months above 20%. It has also continued to achieve double digit growth in its biggest European markets. Overall, the business is on track to reach its target of adding CHF 500 million of sales in 2010 that Richard Giradot, the Chief Executive, mentioned in his presentation at our investor seminar last June. The two F&B joint ventures both contributed to the growth. Slide 12 Powdered & Liquid Beverages I ll move on now to the product groups, starting with Powdered and Liquid Beverages. 8% organic growth and over 6% RIG are very strong numbers. The slight reduction in growth since the half year is a reflection of what I have just mentioned in my comments on the Other Food and Beverages segment. First, Soluble Coffee, which has continued to deliver robust RIG. The big story here, as I mentioned, was the US launch of Nescafé Dolce Gusto. We are hopeful that this will build on the Dolce Gusto success story in Europe, as well as increasingly in Latin America, where it is present in countries such as Chile, Argentina and Mexico. The business has continued to perform well, exceeding our expectations. Also going well is Nescafé Green Blend. Its health-focused communication is having a halo effect on other Nescafé variants. Nescafé Clasico, in the US, is another continuing success story. Nescafé continues to perform well in Asia and Latin America, with our PPPs a key contributor to growth. Growth is strong in most emerging markets, double digit in some. You might think that a lot of our focus has been on the success of Dolce Gusto recently, but we are actively developing other innovations in this segment: the Soluble Coffee business has a number of exciting launches planned for The Powdered Beverage and Ready-To-Drink businesses are also performing well. Brands such as Milo, Nescau and Nescafé. Powdered s growth is high single digit and RTD is double digit. The businesses are delivering dynamic performances in Latin America, Africa, the Middle East and Asia. 6

7 Slide 13 Milk Products, including Ice Cream Next is Milk products and Ice Cream. There is a slight pick-up in both organic growth and RIG from the first half. This reflects increased cost pressure in Dairy, as well as acceleration in RIG in the category. The Ambient Dairy business continues to perform well with growth at or near double-digit in Latin America, Zone AOA and Nestlé Professional, which together represent over 80% of Ambient dairy sales. Behind the performance is a strong range of launches, from liquid in Brazil to fruit powders in AOA, and new initiatives in PPP, all supported by clear 60/40 wins in consumer blind-taste tests, as well as strong nutritional foundations. Many of these launches have been trialled in a few markets in 2010 and will be rolled out more broadly in We are also seeing a good performance in our dairy creaming brands such as Carnation, Milk Maid and La Laitiere. Again we have some exciting launches - already in the market or still to come. Dairy creaming is a real strength of ours, with about 30% of the global market, but it sometimes gets overlooked. CoffeeMate has had a more subdued year in the US, especially in liquid format. Again we are addressing this with some new launches, under the Café Collection banner. And we have more plans for We have also increased our presence in WalMart, which is not reflected in our market share performance. This is clearly a long term positive for the nondairy creamer business. Turning to Ice Cream. Rather than complain about the weather in Europe, I ll quickly take you through some of the business dynamics. First the emerging market business is going well. We have a strong PPP range, (currently about 10% of our sales outside the US come from PPPs), and this is a real growth driver. We have been successful in industrialising local, home-made-style ice creams and their particular flavours. This is enabling us to piggy-back long-standing ice cream traditions in emerging markets. In Europe, we are performing better in Northern Europe than in the South, with market share gains in a number of countries, including France and Switzerland. The Russian business is also performing well. The southern countries have been impacted by the weak European economy, which has reduced both domestic consumption and the number of tourists. The environment has been tough overall in Europe, but we feel that our ice cream business is in a more competitive position than it has been for a while, and that our brands and technologies are giving us a real advantage in the market place. This is also true globally, and I would cite, as an example of this, our strength in cones, which is a well-over CHF 1 billion franc business, with clear 60/40 preferences. In North America, we are seeing very strong growth in our snacks business, products like Drumstick cones, ice cream sandwiches, the Skinny Cow range and so on. This category is a meaningful part of our portfolio, and it benefits from being very brand-led and heavily weighted to the impulse consumption market. The benefits of this include a high level of consumer brand loyalty and a low level of store brand presence. 7

8 In packaged ice cream, both the premium and super-premium categories have shrunk in We have not been immune to the category weakness. But we have been able to mitigate the worst effects through the launch of $1 cups, which provide a more affordable, more portioned ice cream experience. They also provide a sampling opportunity for consumers who might not yet have tried a new flavour or a brand, be it Dreyer s or Haagen Dazs. Slide 14 Prepared Dishes and Cooking Aids Next Prepared Foods and Cooking Aids. In the US, the situation in the ready-meals market remains much as it has for the year so far. The single-serve, nutritional segment is still under-pressure, brands such as Lean Cuisine and Lean Pockets. The more family oriented segment is doing better, brands such as Stouffer s and Hot Pockets, as well as Buitoni in Chilled. We have launched a Lean Cuisine range under the Market Creations banner with good initial results. This should provide impetus to the range during the final quarter, though we are not expecting any meaningful improvement in the overall category. We have also launched a Buitoni range of premium frozen pasta, which is showing early positive signs. Up until now Buitoni has only been available as a chilled range in the US. The Pizza acquisition, made early this year, continues to grow, though the home delivery restaurants have lowered prices and are competing aggressively. In Europe, we are generally performing well. A particular highlight is frozen pizza. Our market shares in the category are up across the board. Our market shares are also up in Germany across all segments, and not only because of distribution gains with Lidl. We are seeing good growth in Maggi in culinary, both with our savoury products, with ranges such as Juicy Chicken, and with local speciality ranges. Also, performing well in Germany are Buitoni and Wagner frozen pizzas and Thomy sauces. France is also doing well. Herta continues to grow well there, as does Buitoni. The Swiss market is also enjoying strong growth, helped by increased distribution for Thomy with Migros, the biggest retailer in the country. The emerging markets are growing double-digit. India is a highlight, where we are the market leaders, as are Africa and Latin America. In India, we have launched various Flavour World products, such as a 2 rupee Maggi flavouring PPP to grow alongside our big noodle business. Finally, the big global and European brands, Maggi, Thomy, Herta and Wagner are growing at least mid-single digit whilst Buitoni is up about 10%. Slide 15 Confectionery Next is Confectionery. We are achieving over 7% organic growth and 3.7% RIG. Growth is down since the first half due to the US, as I mentioned. 8

9 Growth is double digit in Latin America and in the Asian emerging markets, and nearly double-digit in North America. We have seen a good acceleration in Great Britain, and are now achieving high single-digit growth. Russia, on the other hand, remains weak, in line with the market, as I have mentioned. The competitive environment hasn t changed meaningfully, which is to say that we are seeing a very volume focused approach from our bigger competitors. We are investing in new capacity in Dubai, as well as in China and India to meet the strong growth that we are experiencing in emerging markets. A little known fact for you: we sell over one tonne of KitKat every day at the Dubai duty free. You might be aware that 2010 is the 75 th anniversary of KitKat being launched. I thought I would mark it by giving you some fun facts. Its sales in 2009 were CHF1.4 billion. KitKat has over 1,000,000 facebook fans. 540 KitKat fingers are consumed every second worldwide We sell KitKat in 72 countries, and the taste is adapted to different taste preferences in different markets. There is a KitKat PPP in India priced at the equivalent of 12 Swiss centimes. We also have a three-fingered KitKat there to hit a certain price point. According to the Guinness book of records, KitKat is the most global confectionery brand, with 17.6 billion fingers sold every year. Of course, the book is not quite right to say every year, as KitKat continues to grow, so we will sell more than 17.6 billion fingers next year. Slide 16 PetCare Back to the nine months, and next is PetCare. I have already touched on this segment in my Zone discussion. The rate of growth dipped in North America but will accelerate in the final quarter. We have continued to see strong growth in our leading brands such as Friskies and Beneful. The renovations of ONE and Dog Chow have been well received, as have innovations such as Beneful Incredibites. Our team in North America are excited about the recent Waggin Train acquisition, which brings leadership in whole meat treats. Europe and AOA are maintaining momentum, whilst Latin America is achieving double-digit growth. Again it is the leading brands which are driving growth. Brands such as Pro Plan and Gourmet in Europe. That concludes my review of our sales performance. You ll find the usual back-up information in the appendix slides. 9

10 Slide 17 Summary I ll just summarise before going to questions. Our growth is in line with that achieved at the half year. The drivers of our performance are the key elements of our 4X4X4 roadmap: Geographic presence we have over CHF 30 billion francs of sales in emerging markets delivering double digit growth, with PPPs and nutritional benefits as catalysts for growth. Premiumisation we have our stand-out performers such as Nespresso and Nescafé Dolce Gusto, but we have successes in all our businesses, from Nestlé Professional to PetCare. Consumer relevant innovation and renovation - driven by our leading R&D capabilities. This is enabling growth even in the more challenging developed markets. Communication - We have continued to invest behind our brands, supporting innovation and nutritional arguments with appropriate spend. Distribution we continue to invest in increasing our distribution, driving deeper in emerging markets, but also in the developed world too. And, of course, Nestlé Continuous Excellence driving savings, and allowing increased investment in our brands, particularly our unmatched portfolio of billionaire brands. Looking forward to the rest of the year, we have reconfirmed our earlier guidance of organic growth around 5%, as well as an improvement in the EBIT margin in constant currencies. This is in line with our ambition of achieving a consistent year-after-year improvement in results, both at the top line and at the bottom line, or as we called it on the half year roadshow, performance without compromise. Thanks very much for listening. I d now be happy to take your questions. Question and Answer Session Questions on; Seasonal benefits and Q3 performance of Water Share buy-back update David Hayes, Nomura: There are two questions; Water wise, obviously a very strong third quarter performance. Danone talked yesterday about very good weather in Europe and Japan, but you seem to be mentioning weather in Europe being a negative for Ice Cream. I'm just wondering whether you can talk a little bit more contextually about the seasonal benefits in Water and whether that is a little bit one off - that performance in the third quarter in that division? 10

11 And the secondly, just in the release there was notably no mention of the buyback which I know explicitly you've talked about before, just an update on the levels and what the plan is. I just wanted to see why that wasn't in there this quarter and whether the plan, in terms of the buyback programme, is unchanged? Thanks very much. Yes on the buyback, yes nothing has changed, I guess we didn't - say anything because it's business as usual. We're targeting ten billion for this year, so we did five billion the first half, five billion second half and then at least five billion next year. So the buyback plan remains unchanged. Yes, I saw their comments actually about the summer weather, you obviously looked at it and paid more attention to it than I did, I just scanned the press released where they talked about the weather in Europe, but particularly in Japan. Frankly - as you know we try not to talk too much about the weather. But I think the reason it was good in Water and not so good in Ice Cream was because we had a pretty ordinary June in the second quarter and then a pretty ordinary July, a nice August and a pretty nice September. And of course by September Ice Cream has really had it anyway. So it wasn't a great season for Ice Cream in that sense, but perhaps better for Water. I think the important point is that we gained share in Ice Cream in North America, a slightly more mixed performance in Europe and since the weather is the same for everybody I guess that's the more important thing. And in Water we gained share in Europe, more or less everywhere apart from Italy and we gained share in North America. And again, the weather is the same for everybody so we're clearly outperforming the market. Now is there a sort of incremental benefit? I think we are quite comfortable with the growth trend we're seeing in Water, because it's clear that the market has picked up. If you remember in Q1, when we had a slightly weak start, we did assign our weak start to the fact that we hadn't slowed the pricing down in Q1 and we have done that since and that's seen the business pick up in North America. So I think we are quite comfortable with the trends we're seeing in Water. Questions on; Promotional environment in retailers Raw materials outlook Robert Waldschmidt, Bank of America I'm just wondering if I can get an update on the promotional environment in the retailers out there? We're hearing that it remains pretty intense and maybe it has plateaued at high levels, any colour would be great there? And then two, just if you could update us on your raw materials outlook, if anything's changed there - given some of the movements we've been seeing on screens? 11

12 Well on the promotional environment I don't think we're going to contradict what anybody else has said frankly. Clearly it varies enormously, country to country and category to category. But, you know over all it continues to be a tough environment. We have continued to invest behind our brands, as we said we would at the half year. So there's no particular change in our behaviour. On raw materials we guided to around 3% inflation back at the first half and for 2010 and we're happy with that guidance. Really by the time we announce and we come and see you all in late August we pretty much know where we are for the year anyway. So there's no change in our guidance on raw materials. We're not going to give you any guidance on raw materials for 2011 until February. Question on; Clarity of guidance Martin Dolan, Execution: I was thinking about the guidance and whether or not you'd put any deep thought into thinking about making it a little bit clearer, because obviously around 5% leaves a very wide variance in what might happen in the fourth quarter; particularly as just after you say around 5% you talk about challenging comparatives. And yet actually your 5.5% in Q4 last year wouldn't seem that challenging? Well, we obviously do think about our guidance very carefully. And you know the reason we have not increased our guidance is because of the strong final quarter. And you say it's not that challenging, but you know going from 1% RIG after nine months to nearly 2% at the full year, you know is clearly a material lift up. And we know where the consensus is, so we thought we were comfortable with the guidance and we don't see any particular point in trying to precise it any more than saying that I said before. Last year we were criticised for being over clever with our guidance so we're keeping it simple this year. Questions on; Ice Cream performance in Q3 Acquisitions and divestitures in Food and Beverage Julian Hardwick, RBS: I just wondered if you were able to give us any numbers around the Ice Cream performance for the third quarter, just so we can see what the impact of that was in terms of the overall group numbers? And secondly could you just talk about the components of the acquisition and disposal element, which seems to have gone negative in Q3? Well I mean the big element in the acquisition piece will be Alcon of course. 12

13 Julian Hardwick, RBS: Sorry, it's the Food and Beverage number. Okay I'll come back to that. On Ice Cream, the performance was only marginally weaker than it was at the first half, about 30 basis points weaker between the nine months and the first half. Julian Hardwick, RBS: What was the nine month number? Well we don't disclose Ice Cream. Julian Hardwick, RBS: Okay, thanks a lot. On the acquisition piece - I haven't got with me a breakdown of all the detail. But the acquisitions Food and Bev contributed 1.9%, where the divestitures were 0.3% negative; giving you the 1.6%. I mean it was 1.4% at the half year; it's 1.6% at the nine months - positive contribution. Questions on; Confectionery performance Feedback on Special-T launch Alan Erskine, UBS: Just a couple of quick questions, could you give us a little bit more colour around the confectionery performance? I mean essentially all I'm looking at is how big a drag on Europe was the Russian performance and obviously the US performance slowed, but did it slow in the third quarter to flat, or was it still positive in the third quarter, so just any kind of colour on that? And then just a small question - it's early days, but the launch of Special T I think that happened in the quarter, any sort of commentary on that? Sure, thanks Alan. Confectionery, the US is basically about double digit positive in terms of organic growth. It has slowed quite dramatically from where it was in the first quarter. We launched, as you know, Willy Wonka into chocolate. So when you're doing a national launch, you clearly have to stock up the shelves, so we had basically a level of growth that was about three times where it was at the moment. So it's about 10% now, so at about 30% for Q1 - not quite 30% but around that. 13

14 So basically you're see that - the loading ahead of the launch and then it's just normalising through the course of the year. So we're at about 10% now and we'll probably be a bit lower than that at the full year. Alan Erskine, UBS: What is the normal - I'm just trying to get a handle of what the normal run rate is, obviously the deceleration reflects that normalisation. But I mean in Q3 was it still up a few percent or? Well I haven't got the Q3 number I would say looking at the accumulators I would say that it was still slightly positive, yes. On Russia - the difference that Russia makes is that in Western Europe we are achieving positive organic growth of around 3%. And that number is halved by the contribution from Eastern Europe, which is primarily Russia. So it is quite meaningfully negative. As I said on the call there is an improvement in the third quite, a good improvement in the third quarter which is good news for us. It looks like the market is beginning to recover. And actually our market shares in Russia are okay. So it is a market issue in Russia, it's not a Nestlé issue. In Special T I think the launch has been very successful, I know that speaking personally when I have tried to get my machine they'd sold out of machines. So it has gone off very well because they did have a decent stock of machines in place and it sold out. So I guess that's good news, but I haven't got any numbers or anything to give you at this stage. Questions on; Nutrition growth rate PPP Q3 sales and organic growth Alain Oberhuber, MainFirst: Just on Nutrition, could you help us a little bit - how much would it have been, the Nutrition growth rate, excluding Medical Nutrition? Just to get a feeling how much the Nutrition growth could be next year excluding Medical Nutrition into the JV? And the second thing is about PPP, how much was the overall sales after nine months in PPP and how much was the organic growth? The Nutrition number excluding Healthcare Nutrition will be about the same, because Healthcare Nutrition is only a relatively small part of it. And I mean the difference would be a positive difference, Nutrition would be higher without Medical than with Medical. So it's not going to make a huge difference to the growth level. The real growth driver in Nutrition is Infant Nutrition and within that infant formula and cereals; both of which are doing terrifically well around the world. So I wouldn't worry too much about Healthcare Nutrition having any material impact on the Nutrition business overall. 14

15 On PPPs, I haven't actually got the total sales number for PPPs for nine months because we only give it at the full year. However, the growth was comfortably in the teens. So it was accretive to the growth of Emerging Markets. And that growth in the teens, it's obviously a higher number in Emerging Markets; a lower number in Europe and the best performance was in Zone AOA where it was - nearer to twenty than to ten. Questions on; Input costs for 2011 Reasons behind slowdown in PetCare Patrik Schwendimann, Zurich Kantonalbank: I have a question regarding input costs, you were mentioning for the current year about 3%. So bearing in mind recent developments and coffee prices, you were also mentioning dairy prices - what would be a fair assumption for 2011? Or would it be a fair assumption to say we will have a higher input cost number than this 3%? And secondly could you touch again on the situation in Pet Care where the growth slowed down to roughly 2% in Q3, organic growth. What's your assumption here for the future and what were exactly the reasons behind this slowdown. I know the basis was high, but still? Thank you. On the input costs, as I've said, we're not intending to guide for 2011 at this stage. Having said that the guidance that I will give you is that we certainly do not think that the input cost pressure will be anything like it was back in And you'll remember that in 2008 we were well able to manage that level of cost pressure and we delivered on the Nestlé Model with both top line and the EBIT margin moving forward. Whilst we see that - you know it's looking like it might be more challenging we're not unduly concerned by it. I think there's just another point to perhaps think about, which is that we've been in this sort of slightly curious cycle, which is that we had the 2008 raw material cost pressure and that led us to taking a lot of initiatives in the business around costs, around efficiency, Nestlé Continuous Excellence and all that sort of stuff to try and compensate those pressures. And all of that action that we were taking at the time meant that we were really in a very good place when we were struck by - you know the financial crisis and all that sort of stuff in We were already running our own internal initiatives around improving efficiency even beyond the standard annual stuff that we're doing. Now as we enter 2011 where it looks like we might have more cost pressure, you know the work that we were doing through the financial crisis in 2010 to ensure that we were able to deliver the Nestlé Model despite the environment we're in, is again, putting us in a good place in terms of how we manage our cost pressure in So I think the measure of preparedness that we talked about at the half year and again we mentioned it in my speech just now, means that we're very well prepared for the challenges we face. It was an important one, I think we're well position to manage really whatever 2011 brings us. In terms of Pet Care you probably won't remember this, but last year Pet Care was one of the last businesses to go through the GLOBE implementation. And that meant it had a very 15

16 strong Q3, in North America I'm talking about. So basically what we're seeing is just really the business struggling to post high growth over the tough comparators of All of the segments are up with positive growth in North American, dry and wet dog and cat as well as treats and litters. So everything is up in terms of growth and the market shares are okay as well. So there's nothing to worry about in terms of Pet Care. If you haven't seen the presentation on our website I really advise you to have a look at it because it's full of all sorts of good stats around the business. Patrik Schwendimann, Zurich Kantonalbank: Okay, so you would say Q4 we'll see a better growth than in Q3 in Pet Care? Yes, North America will come back in Q4 certainly. Questions on; Currency impact on input costs Strength of Water in Q3 and outlook for last quarter Mario Montagnani, NZB: I just had a couple of questions for you. The first one would be on these input costs, I'm just assuming that the strong Swiss franc is obviously giving you some headwinds. We saw that in Q3 on the top line, but probably it is giving some help as well on these line commodities, since part of these commodities you acquire are centrally managed? The second question is on pricing, we saw pricing basically moving sequentially with what we had in Q1, Q3 and I was wondering if you see that accelerating, going further into Q4? The last point is on the Water business. I didn't get this one quite well, but I'm just trying to do the math on Q3 and I come up with something close to 8% in terms of organic growth in Q3, whilst if I'm not mistaken I think you did something like 2.5% in Q1 and Q2? Can you elaborate again on the strength behind this division in Q3 and if you see that continuing in Q4, which I guess is not the case? Thank you Roddy. Yes, I think there is always a point that is worth remember that a lot of the input costs are in dollars and with the dollar weakening our businesses that are outside the US tend to have a benefit. I mean I can't give you any sort of meaningful data points on that, but it's always the case that whilst you might think about the negative impact from our very profitable US dollar denominated businesses becoming a smaller part of our overall business. There is always some compensation in terms of how the weaker dollar benefits the European and other markets around input costs. So there is some sort of positive trade off there. Pricing across the Group it was primarily driven by the dairy business. That was the biggest single factor in terms of pricing, Powder and Liquid Beverages were basically unchanged, Water was slightly better, the Dairy business, which as you know is predominately Emerging Market, we saw a bit more pricing, Nutrition marginally less, Confectionery a bit less after the peaks we'd been through. And I think we would agree with what was said yesterday that hopefully the milk market had peaked in terms of price levels. 16

17 On Waters, I mean I haven't done the Q3 number, but you're absolutely right it was a very, very strong number. And the strength was in all markets. I would highlight North America. North America as you know is our biggest market and fundamentally we went from low single digit RIG to mid single digit RIG, so you've got a very strong pull through in North America. And that reflects both what I said earlier on about the fact that we haven't taken pricing down in Q1 and we did so at the start of Q2 and also the fact that there was good weather of course in North America and heat waves in part of America. So there is a combination of both factors there; our own initiatives and the market. And as I said we are gaining share in North America. So again, whatever anyone wants to say about the weather, our business is outperforming the market. And again, if you haven't seen it go and see the presentation on our website that Kim Jeffery makes, it talks about the longer term trends in that market and how some of the key competitors are falling away. So that overall retail environment looks very positive. In Europe basically the performance wasn't hugely different, the third quarter from the first half. And in the Emerging Markets, you know we just continue to perform in the high teens. So a summary of all that therefore is that it's North America that's made the difference. Mario Montagnani, NZB: Sure. Can you just confirm this 8% for Q3 Roddy, organic growth in Water? Mario I haven't got a Q3 number, we don't do the Q3 numbers. But you know if you worked it out I'm sure you're right. Questions on; Trends in Emerging markets Food and Beverage slowdown Jeremy Fialko, Redburn Partners: A couple of questions for you Roddy. The first one is on the Emerging Markets. Generally it sounds to me like these are probably on a bit of an accelerating trend at the moment, basically Asia and Latin America very good and then Eastern Europe getting a little bit better. Is that correct, or are there some markets where you're seeing some signs of slowing? And then the second thing is on the other Food and Beverage slow down. It sounds to me like just generally you came off some pretty good growth rates, nothing particularly untoward there. But if you could give us a little bit more detail on that then it would be helpful? Thank you. Yes, I think you're absolutely right in terms of the Emerging Markets, we are seeing a broad acceleration in Latin America, it was double digit already in the first half, it is double digit in the nine months. But there is a light acceleration driven both by RIG and pricing. 17

18 Europe as I said, we're seeing some positive signs but nothing very material. In AOA the other Asian markets, which is basically all of our markets in Asia apart from Japan and Oceania are slightly stronger as a grouping and within the group almost all of them have accelerated a little bit. In Africa our performance hasn't really changed from the half. The Middle East performance is exactly that same. So we are across the board seeing either a little bit of acceleration or no change. Other Food and Bev, yes basically Nestlé Professional, our out-of-home business, is slightly slower, that s predominantly due to Europe. But still it's achieving mid single digit growth which is pretty good for an out-of- home business in this environment and that's driven predominantly by very strong Emerging Market business which is growing double digit and also some good segmentation in terms of Beverages in the US and commercial channels in Europe. Nespresso, at the half year I said it was above 25%, it's now above 20%, but it's still broadly close to 25% so there's not a material slow down at all, it's just slightly weaker and we re comfortable that it's on track still. And if you're thinking about the local competition issue in Europe, we continue to see growth in France in the teens. So you know it's clear that French market is growing and it's clear that we're getting the lion's share of that growth. The two JVs, BPW is going very well, CPW is slightly weaker but its market shares broadly are okay. I think the cereal market globally is a little bit weaker but CPW shares are okay. Questions on; Pricing in Q4 Improvement in North America in Q4 Reporting for next year Jon Cox, Kepler: A couple of questions just to follow up on this whole pricing issue, going into the fourth quarter. I think at the start of the year you were saying that - you know the pricing would become more material versus volume towards the end of the year. Do you think this is still the case in Q4? And then just a question - you mentioned earlier, North America will improve in Q4. Were you talking about Pet Care or were you talking about North America specifically? And then I wonder if I could have a somewhat nerdy analyst question, just regarding how you're going to report your numbers next year. I mean the full year numbers this year in April, will Alcon then move into discontinued, so you won't get - you see the impact above the EBIT line, etc, you just get a discontinued coming in somewhere around the net profit line? Is that how we should be thinking how you'll report it or will you continue to do as you're doing at the moment, it's basically sort of the dual track approach in terms the reporting? Thank you. 18

19 On my comment about North America it was about PetCare. I was saying that PetCare would accelerate in North America in the final quarter. And PetCare is a big business in North America, so unless something else goes naturally the other way that means North America will also accelerate. But we're certainly expecting PetCare to accelerate and my comment was about PetCare. I can't remember what we said at the beginning of the year about pricing becoming more material as the year went on. But I mean we've given our guidance which is that - you know we will achieve organic growth around 5%. And it's hard to see the pricing number moving very significantly in the final quarter just because of the rate of the nine months that have already passed. And as I say Dairy is the only place where we've taken any meaningful pricing. As to how we will report at the year end, my understanding is that at the year end we will report exactly as we have been reporting. So you will get total Group. I mean clearly you're obliged to give the total Group numbers and then we will also give the discontinued operations. And then next year there'll be no Alcon; equally there'll be no Pharma element. What is currently Other Food and Beverage will become Other. So it will have in it also the Galderma joint venture with L'Oréal and Innéov and that'll be how we're going to manage things next year. Questions on; Market share trends in Nutrition in Western Europe Maggi performance at Q3 stage Comparables in Q4 Marco Gulpers, ING: Three questions if I may. It's more on market share trends. The first is on Nutrition. Could you help us on what your market share trends are in Western Europe, specifically in INF and maybe give an update on the weaning food performance as well, i.e. the jars in Western Europe? The second is on culinary how is Maggi actually doing, perhaps an update on the Q3 stage? And just coming back to the comparables again in Q4 and your outlook guidance; if I'm looking into the granularity of the Q4 of last year, where the comparables are a bit more tough is basically in AOA and also in Nutrition. But it seems like in the course of this year that both AOA and Nutrition are actually accelerating. So I'm not quite sure where the tough comparable is actually coming from, but maybe you could shed some light on those two areas as well? Okay, I'll start with Maggi; because it's an easy one. Maggi is doing really, really well. Emerging Markets - it's fundamentally growing double digit. In Europe it's also doing well, I mention Germany where we're gaining share, we're gaining share also more broadly in Europe with Maggi. And what is driving that is as I mentioned, the increased distribution in Lidl in Germany and that clearly gives you a big step up. 19

20 Beyond that the Juicy Chicken range that we talked about in the past as a new launch has gone Pan European and going really, really well. That will be well over 100 million of sales at the full year this year. We're doing very well on our jelly versions of the classic Maggi cube as well in Europe. And also as I mentioned we have some different local things in different markets that are doing well, particularly in Germany. So Maggi really across the board is doing very well. And obviously the PPP story is a very strong one in Emerging Markets. India, as you know we have well over 90% share of the noodle market. Our share is down a little bit because you have new entrants into the market, clearly that does impact your share a little bit. But that said we've got over 20% growth and our issue really is to make sure we have the capacity to serve the growth. And we're not going to be giving up our share lightly, even if it is over 90%. And I mentioned also in my call that we're launching a big business in not only noodles, but we're launching more of the Flavour World stuff and the Flavour World stuff is basically the bouillon cubes and such like. We're launching it along side the noodle business. So Maggi is a good story. On Nutrition in Europe the jar business, so this is within the Naturnes and others is improving in terms of performance. We've done some renovation on the Naturnes line which is going well and it's being sold alongside glass jars, not instead of glass jars. In terms of market share the Infant Nutrition shares are improving globally. In Europe - France has improved as well, especially the retail area, the retail area has improved more than the pharmacy area. And particularly in infant formula - meals and drinks is lagging the success of infant formula in France. So we are quite pleased with how it's going and I think you'll find that our high single digit growth in Q3 in infant nutrition and our double digit growth in infant formula in Q3 will put us at the front of the pack in terms of Q3 performance by a Nutrition business. On comparables, if that's what you think fair enough. Clearly when you look at the volume Zone Europe improved by 50 basis points full year over nine months, Zone America improved by 50 basis point full year over nine months, Zone AOA, as you say, improved by 160 basis points full year over nine months. Nestlé Waters improved by 80 basis points and Nestlé Nutrition improved by 150 basis points. Other Food and Beverage improved by 80 basis points. So you know the whole - almost everything was improving full year over nine months. And I wasn t giving you Q4 numbers; I was giving you full year numbers. So the improvement is quite broad based. But you know we're sticking to our around the 5% guidance but the sense is for a bit over 5%. So you know I don't think there's an issue there, you know we're comfortable we're going to deliver. It's a performance in line with the Nestlé model. 20