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Management Report 2000Products and brandsThe strength of Nestlé’s brands has given the company an unparalleled position on aglobal basis across a wide range of product categories. Six worldwide corporatebrands, Nestlé, Nescafé, Nestea, Maggi, Buitoni and Friskies contribute about 70% ofthe group's total sales, with the Nestlé brand itself contributing 40%. These brandsare the first choice of consumers around the world, whether as stand alone brands orin combination with product brands such as KitKat and LC 1 .Nestlé also owns regional and national brands with which consumers have a closeand often longstanding familiarity. These brands enable consumers to express theirindividuality and to respect their traditions whilst still enjoying the quality of a Nestléproduct and, as such, are key elements of the Nestlé portfolio.Nestlé’s brands and products are the focus of continual innovation and renovation sothat they will be relevant and appealing to today’s and tomorrow’s consumers. Asimportant as ensuring that our brands meet and beat our consumers’ expectations isensuring that they are available whenever, wherever and however our consumerswant them.The terms in italics are registered trademarks of the Nestlé Group.27

Products and brandsBeveragesWith well over 3000 cups drunk every second, sales of Nescafé have been growingever since 1938 when Nestlé launched the first commercially successful solublecoffee. Nescafé, which today includes ready-to-drink varieties, is by far the world’smost popular brand of coffee. The Group markets traditional roasted coffees inseveral European countries, as well as espresso coffee in capsules through Nespresso.Nestlé is also the worldwide leader in chocolate/malt beverages, with brands such asNesquik, Milo and Nescau. Nestlé is present in fruit juices, where its most importantbrand is Libby’s in the United States, and in tea-based drinks, particularly soluble andready-to-drink Nestea. Nestlé is the world leader in mineral and spring water throughbrands such as Vittel, Contrex, Perrier, S.Pellegrino, Levissima, Vera, Panna, FürstBismarck and Naleczowianka in Europe and Arrowhead, Poland Spring, Zephyrhills,Deer Park and Ozarka in the United States. The roll out of the Nestlé Pure Life brand,successfully launched in Pakistan in 1998 and in Brazil in 1999, has continued in Asiaand Latin America in 2000 and will spread rapidly into other emerging markets.A spring water under the Nestlé Aquarel brand was launched in five Europeancountries in 2000.SalesTrading profitCapital expenditureIn millions of CHF28200023 0444 318936199920 8593 764618199819 8793 253593

Products and brandsThe finest quality coffeeComplete coffee mixDifferent types of NescaféNestlé has ever producedfor a refreshing cold drinkfor younger consumers(Japan).(Korea).(the Netherlands).SalesNescafé sales continued to grow strongly,particularly due to the economic rebound in EasternEurope and the success of complete coffee mixesin the developing markets of South East Asia.2000 was also marked by vigorous innovation andrenovation of the Nescafé portfolio, which deliverednew product launches across all continents.Our proprietary research into coffee extraction andaroma development created a milestone in the historyof Nescafé through a quantum leap in quality forNescafé Gold Blend. The result is the best solublecoffee ever produced by Nestlé. It has gained massiveapproval by consumers following its launch in theUK and Japan, two of our biggest markets for coffee.Meanwhile, Eastern Europe is the focus of a majormarketing effort to make Nescafé part of the daily wayof life in those countries. The superior quality ofNescafé Classic in Russia, for example, is now matchedby new packaging with high on shelf visual impact.30A key challenge is to develop tomorrow’s coffeedrinkers by attracting today’s young consumers toNescafé. We are continually creating Nescafévariations to build a following within this target group.Examples include Nescafé Nes in France, Nescaféfor you in the Netherlands, which is a range offlavoured coffees in convenient single serve sticks, andNescafé Ice, a bottled ready to drink beveragesuccessfully tested in the UK.We upgraded the packaging and product quality ofthe Nescafé portfolio in Mexico with, for example, theintroduction of a new coffee aroma in the premiumrange. The result has been record volume growth.Nespresso improved upon last year’s strongperformance, driven by exciting new colour machinevariants, additional customer services from NespressoClub and the addition to its web site of a new onlineorder service that has immediately achieved a high

Launched in 2000,in Europe.The Nespresso system for aNew dynamic pack designs toperfect espresso every time.attract young consumers.Waterlevel of consumer acceptance and has become animportant business channel. Visibility has beenenhanced and sales stimulated by the creation ofshop-in-shops, a proven route to market for luxurybrands, in major European department stores andby its first boutique store in Paris.Sales saw continued growth in 2000 as PerrierVittel responded to European consumers’ demandfor a lower priced spring water with the launchin Spain, Portugal, France, Belgium and Germany ofthe low mineral content Nestlé Aquarel. In the yearahead, we will expand it to other European countries.Nestlé’s major chocolate/malt beverage brands,especially Nesquik and Milo, have been givena heightened visual impact. This has led to greatercompetitiveness and brand loyalty. The combinationof worldwide promotional activity and availabilityin out of home through chilled and shelf stable readyto drink packs ensured increasing numbers of regularconsumers and generated increased awareness ofthe intrinsic quality of our brands.Meanwhile, product innovations such as “ContrexBeauty Water” and “Vittel Fruits”, a mineralwater enriched with fruit juices and natural flavours,stimulated demand for the existing brands.In the iced tea category, sales of Nestea continuedto make progress though our joint venture withCoca-Cola, with market share growth achieved in thekey markets of North America and Europe.Our water business continued to expand rapidly inthe United States, particularly in the fast-growing PETsegment. Our leading position was reinforced throughinnovative packaging such as the “32oz wide mouth”bottle, aimed specifically at the younger “on the go”segment. In the Home and Office channel, sales werestimulated by the launch of a new 5 gallon bottle,incorporating a handle, and by improved distribution.31

Products and brandsBeauty WaterPure and safePerrier special editionThe new “widewith enrichedfor emergingfor Wimbledon.mouth” bottle.flavours.markets.The launch of Nestlé Pure Life has been the catalystfor the continued development of our positionin emerging markets, particularly China, Mexico,Philippines, Thailand and Argentina. This brandwill be rolled out rapidly in other emerging markets.The Group has also developed a Home and Officebusiness in Argentina, Pakistan and China, as well as,at the end of the year, our first European Homeand Office business in the UK. We will take this sectorinto other countries in the years ahead.Capital expenditureCapital expenditure increasedfrom CHF 618 million to CHF 936 million. We installedthe new manufacturing process for Nescafé Gold Blendin Japan and invested in new vending machinesfollowing the acquisition of the vending part of UCCUeshima Coffee Co. Ltd. We also continued to invest inour water business, supporting the launch of NestléPure Life in Argentina, China, Mexico, the Philippinesand Thailand, increasing our PET capacity in the US,as well as building a new factory for Poland Spring.AcquisitionsProfitTrading profit increased by 15% and marginsimproved thanks to favourable commodity pricesand to a strong sales progression. The profitabilityof Water continues its progression despite asharp PET cost increase, due to volume growth,and productivity improvements, as well as somenon-recurring items.32We acquired the vending partof UCC Ueshima Coffee Co. Ltd. in Japan, whichhas considerably reinforced Nestlé’s position in themassive ready to drink coffee sector; Nescafé is nowavailable anytime, anywhere in ready to drink formfrom over 300 000 vending machines in Japan.We also made a number of acquisitions in waterover the year, including Kekkuti in Hungary, Aberfoylein Canada and Valvita in South Africa. In the Homeand Office sector we acquired Black Mountain in theUnited Sates and Fresh Water in Argentina.

Products and brandsMilk products, nutrition and ice creamNestlé has long been a major player in the dairy business worldwide, originally withwell known shelf stable brands such as Nido, Nespray, La Lechera and Carnation, thenbuilding a strong international presence in chilled dairy and ice cream underthe Nestlé brand. Innovation and renovation play a major role in the developmentof milk based products as well as of breakfast cereals, managed as a joint venturewith General Mills. The area of nutrition, with its benefits to health, well-being andfitness, is having a significant impact on the development of our business. A widerange of added value products such as start-up and follow-up formulas, growing-upmilks, cereals, enteral diets, oral supplements and performance foods are activelydeveloped and brought successfully to market under the Nestlé brand.SalesTrading profitCapital expenditureIn millions of CHF34200021 9742 620530199919 4112 168366199819 1751 837576

Products and brandsStick pack ofcalcium-enrichedsweetenedcondensed milk.Flavoured skimmed milkNatural, creamy yoghurtswith sweetener, enrichedenriched with calcium.with calcium and iron.SalesShelf stable dairy products showed stronggrowth in 2000 as a result of both our increased paceof innovation and the better economic situation inAsia and Latin America.We have followed the successful launches of 1999with roll-outs into our main markets of value-addedproducts such as pre-school milks with thePrebio 1 branded active ingredient and adult milkswith Omega 3:6.Our innovation has been focused at making traditionalproducts attractive to new consumers. Examplesinclude Molico flavoured non-fat milk powders withchocolate and strawberry in Brazil; flavouredsweetened condensed milk stick packs sold in Braziland Chile; and special packs with small plasticDisney characters in Colombia.36We have also re-entered Bangladesh with Nido fullcream milk powder and Blue Cross milk drinksand we launched a UHT Nestlé milk in the Mumbairegion of India, the second largest market in theworld for cows’ milk.Meanwhile, subsequent to the letter of intentsigned with Snow Brand Milk Products Co. Ltd.in Japan, we have reached an agreement to establisha marketing joint venture. Nestlé branded yoghurtswill be launched around May 2001 under the Everydayand Sveltesse brands. Snow Brand will be responsiblefor the primary activities of manufacturing anddistribution, Nestlé for marketing, quality assuranceand product development.Whilst the chilled dairy category has not grownat the same rate as shelf stable, important marketsincluding France, Portugal, Spain, Mexico andHong Kong delivered strong performances.