#NestléNOW

J JUULY
N E2 2
0011
88

Confidential

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N E S T L É N OT L I V I N G U P T O I T S P OT E N T I A L

v Nestlé has been too slow to react to significant changes across the
consumer products industry given structural issues around strategy,
portfolio, and organization, and thus operates far below its potential

v CEO Mark Schneider has acknowledged the need for improvement,

but pace and magnitude of change seem insufficient and reflect
Nestlé’s staid, sometimes sclerotic, culture and tendency toward
incremental improvements

v Nestlé is losing market share across its categories to both smaller,

more nimble competitors and larger, more focused competitors

T HI R D POI N T , ON E OF N ES T L É’ S L A R GES T
v As a result, financial performance has been weak and shares have
I N V ES T OR S , OF F ER S T HI S R OA DMA P T O EN S UR E
underperformed
N ES T L É MA I N T A I N S I T S C OMPET I T I V E POS I T I ON
A N D A C HI EV ES L ON G- T ER M S UC C ES S

Source: Third Point LLC

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 TO REVERSE UNDERPERFORMANCE, NESTLÉ MUST ADOPT A
#NestléNOW MINDSET
TO REVERSE UNDERPERFORMANCE, NESTLÉ MUST BECOME SHARPER, BOLDER, AND FASTER

Assessment Recommendation

Strategy vaguely defined BE SHARPER. Clarify total company and

S T R AT E G Y and raises questions about category-specific strategies, improve
transparency, add food & beverage
focus and capital allocation
expertise to Board

Management not moving BE BOLDER. Divest as much as 15% of

sales and financial stake in L'Oréal. Recycle
PORTFOLIO quickly enough to exit
proceeds into M&A / buybacks to better
underperforming and
non-strategic businesses align portfolio around key categories

Insular, complacent, and BE FASTER. Simplify organizational

bureaucratic organization is structure and split internally into three
O R G A N I Z AT I O N overly complex, moves glacially, divisions (organized around categories) to
and misses too many trends improve focus, agility, and accountability

Note: Nestlé management highlighted coffee, pet, nutrition, and water as key categories. Source: Third Point LLC; Nestlé company materials

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P R O P O S E D C H A N G E S C A N M AT E R I A L LY I M P R O V E T H E LO N G -T E R M ,
O P E R AT I N G A N D F I N A N C I A L T R A J E C T O R Y O F T H E B U S I N E S S

Stronger and more sustainable growth Potential to double EPS over the next 5 years
Nestlé earnings per share, CHF
v Faster and more responsive organization with
more focused strategy

v Better organic sales growth from greater

exposure to higher growth key categories

v Higher margins from announced productivity

savings and improved category mix

v Proceeds from divestitures recycled into

acquisitions and share repurchase

Note: Historical financials updated for restatements where applicable. Source: Third Point LLC; Nestlé company materials

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Industry
L A R G E S T G LO B A LBackdrop
F O O D & B E V E R AG E C O M PA N Y

v Focused on “nutrition, health and wellness”

v Nearly CHF 90 billion in sales with about half from

growing categories like coffee, pet, nutrition, and water

v More than 30 brands generate over CHF 1 billion in sales

v Balanced geographic exposure with 43% of sales from

higher growth emerging markets

Source: Third Point LLC; Nestlé company materials

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Industry
C O N S U M E R P R O DBackdrop
UCTS INDUSTRY HAS CHANGED

Consumers increasingly prefer variety of Shopping habits have also evolved

new product attributes

v Shift to eCommerce lowering barriers to entry and driving influx

of new competition

v Rise of club stores and hard discounters accelerating shift to

private label products

Source: Third Point LLC; Nestlé company materials; Google Images

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N E S T L É H A S B E E N L AT E T O PA R T I C I PAT E I N K E Y T R E N D S
D R I V I N G G R O W T H I N T H E F O O D A N D B E V E R AG E I N D U S T R Y

v Missed large trends that drove growth across

food & beverage, e.g. natural pet food, organic
baby food, flavored sparkling water, etc.

v Slow to renovate legacy brands with more

modern attributes

v Failed to leverage enormous R&D budget with

successful innovation at scale

v Not enough acquisitions of fast-moving smaller

brands to better participate in growth

N EW ER BR A N DS T OOK S HA R E, W HI L E
N ES T L É HA S F A L L EN BEHI N D

Source: Third Point LLC; Google Images

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Financial
S LO W R E S P O N S EPerformance
TO INDUSTRY CHANGES
HAS LED TO WEAK FINANCIAL PERFORMANCE

Organic sales growth has slowed Earnings growth stalled

Nestlé organic sales, % growth Nestlé earnings per share, CHF

Note: Historical financials updated for restatements where applicable. Source: Third Point LLC; Nestlé company materials

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D I V I D E N D G R O W T H H A S A L S O S TA L L E D
A N D PAY O U T R AT I O H A S M O V E D H I G H E R

Dividend now only growing ~2% Dividend now nearly 2/3 of EPS
Nestlé dividend per share and dividend growth Nestlé dividend payout ratio, %

Note: Historical financials updated for restatements where applicable. Source: Third Point LLC; Nestlé company materials; Bloomberg

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S H A R E S H AV E S I G N I F I C A N T LY U N D E R P E R F O R M E D
E U R O P E A N S TA P L E S P E E R S

Nestlé Performance Gap vs. European Peer Average

Total Shareholder Return Gap, %

Note: Total Shareholder Return (measured in local currency) includes dividends; Nestlé TSR on a 1, 3, 5, and 10 year basis was -5%, +22%, +45% and +135% respectively;
European Peer Index consists of SPDR MSCI European Consumer Staples Index members with market capitalization greater than $40 billion as of June 29, 2018; companies
include Anheuser-Busch InBev, British Tobacco, Danone, Diageo, Heineken, Henkel, L'Oréal, Reckitt Benckiser, Pernod Ricard, Unilever. Source: Third Point LLC; Bloomberg

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 T H I R D P O I N T O F F E R E D A PAT H F O R WA R D
FOR NESTLÉ IN JUNE 2017

Re-accelerate sales growth and boost margins

SALES & MARGINS v Use (already announced) cost savings to invest in demand generation and improve margins
v Create formal margin target to reduce reinvestment risk

Optimize balance sheet efficiency and return capital to shareholders

C A P I TA L v Take leverage to 2.0x and hold it there
EFFICIENCY v Use balance sheet capacity to repurchase shares ahead of substantial inflection in earnings

Re-shape portfolio through acquisitions and divestitures

PORTFOLIO v Make accretive bolt-on acquisitions in key growth categories
M A N AG E M E N T v Strategically reduce exposure to challenged businesses

Monetize non-core financial stake in L'Oréal

L’ O R É A L S TA K E v Stake can be monetized with limited tax consequences
v Use proceeds to invest in Nestlé’s own business and repurchase shares

Note: Third Point letter available at https://www.thirdpointoffshore.com/portfolio-updates Source: Third Point LLC

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M A N AG E M E N T R E S P O N D E D B Y A N N O U N C I N G
A S E R I E S O F N E W TA R G E T S

v Reaccelerate organic sales growth to

mid-single digits
v Achieve 17.5% to 18.5% EBIT margin
FINANCIAL (2020) v CHF 20b buyback “spread evenly”
v Expects net debt to EBITDA ratio of
1.5x

v Focus on four categories: coffee, pet,

nutrition, water
PORTFOLIO v Portfolio adjustments worth up to
10% of sales
v No update on L'Oréal

Source: Third Point LLC; Nestlé company materials; Financial Times (September 2017)

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F I N A N C I A L TA R G E T S A H E L P F U L S TA R T, T H O U G H
L E S S A M B I T I O U S T H A N U N I L E V E R ’ S TA R G E T S

Unilever set bolder margin target and …while also delivering and targeting
is making faster progress to achieve it… stronger organic sales growth than Nestlé
Organic sales, % growth
2016 Base 2017 Actual 2020 Target

16.0% +50bps 18.0%

(+200bps)

16.4% +110bps 20.0%

(+360bps)

Note: Historical financials updated for restatements where applicable. Nestlé 2020 margin target based on midpoint of 17.5-18.5% range; 2018 organic sales based on
midpoint of company guidance (Nestlé targeting 2-4%, Unilever targeting 3-5%). Source: Third Point LLC; Nestlé and Unilever company materials

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FURTHERMORE, INTERNAL PROBLEMS
H AV E Y E T T O B E S U F F I C I E N T LY A D D R E S S E D

S T R AT E G Y PORTFOLIO O R G A N I Z AT I O N

Strategy vaguely Management not moving Insular, complacent, and

defined and raises quickly enough to exit bureaucratic organization is
questions about focus underperforming and overly complex, moves glacially,
and capital allocation non-strategic businesses and misses too many trends

Source: Third Point LLC

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S T R AT E G Y S T I L L VAG U E LY D E F I N E D
A N D P L AG U E D B Y I N C O N S I S T E N C I E S

v Nestlé describes itself as a company focused on “nutrition, health

and wellness,” but many categories and brands continue to fall
beyond that definition

v Nestlé highlights coffee, pet, nutrition, and water as key

categories, but nearly half of the portfolio sits outside those
categories

v Making acquisitions across diverse range of new categories (e.g.

vitamins & supplements, roast & ground coffee, meal kits)

v Lack of transparency and broad category definitions (in financial

reporting) mask underperformance of various businesses

v Operates complicated series of joint ventures and partnerships

v Unable to articulate a compelling strategic rationale for continued

ownership of L'Oréal

Source: Third Point LLC; Nestlé company materials

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 B O A R D O F D I R E C T O R S R E S P O N S I B L E F O R S T R AT E G Y

Swiss boards set corporate strategy Nestlé Board missing key perspectives

v Only 1 of 12 independent Nestlé directors (newly

“The Board of Directors elected appointed Kasper Rorsted) has fast-moving consumer
by the shareholders is responsible goods experience

for the strategic direction and

supervision of the company.” v Zero directors have external food & beverage experience

Swiss Code of Best Practice

for Corporate Governance

Note: Swiss Code of Best Practice for Corporate Governance sets guidelines and recommendations for Swiss companies Source: Third Point LLC; Nestlé company materials; economiesuisse

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S T R AT E G Y – R E C O M M E N D AT I O N :
B E S H A R P E R I N A R T I C U L AT I N G S T R AT E G Y

C L A R I F Y O V E R A L L C O R P O R AT E S T R AT E G Y

Clarify strategies
Add external food & Change category
within categories,
beverage expertise to financial reporting to
e.g., coffee,
Nestlé Board improve transparency
consumer health

Source: Third Point LLC

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PORTFOLIO STILL SUBOPTIMAL

Too much exposure outside key Other categories

categories structurally disadvantaged
Nestlé sales mix, %

v Less aligned with “nutrition,

health and wellness” strategy

v Typically slower growth and

lower margin

v Fewer barriers to entry

Note: Nestlé sales mix disclosed at 2017 Investor Seminar. Source: Third Point LLC; Nestlé company materials

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L A R G E E X P O S U R E O U T S I D E K E Y C AT E G O R I E S
WEIGHING ON GROWTH

Key categories already growing 3-4% Other categories barely growing 2%

Organic sales, % growth Organic sales, % growth

C UR R EN T POR T F OL I O UN L I K EL Y T O S US T A I N A BL Y DEL I V ER
MI D- S I N GL E DI GI T % OR GA N I C S A L ES GR OW T H

Note: Using category results for Powdered and Liquid Beverages, Pet Care, Nutrition and Health Science, and Water as proxy for key categories; Historical financials updated
for restatements where applicable. Source: Third Point LLC; Nestlé company materials

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D E S P I T E O W N I N G M A N Y U N D E R P E R F O R M I N G A N D N O N - S T R AT E G I C
B U S I N E S S E S , N E S T L É H A S B A R E LY M A D E A N Y S I Z A B L E D I V E S T I T U R E S

Completed and proposed disposals

account for less than 2% sales

US Confectionary (~1% sales) Gerber Life Insurance (~1% sales)

EL EV A T ED MUL T I PL ES A N D S T R ON G S T R A T EGI C DEMA N D

MA K E N OW A GOOD T I ME T O S EL L A S S ET S

Note: US Confectionary sold to Ferrero in March 2018; strategic review underway for Gerber Life Insurance. Source: Third Point LLC; Nestlé company materials; Google Images

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P O R T F O L I O – R E C O M M E N D AT I O N :
BE BOLDER IN RE-SHAPING THE PORTFOLIO

Divest as much as 15% of sales

to better align portfolio around key categories

Use proceeds from

Segment portfolio
into three buckets:
focus, develop, divest
Monetize non-core
divestitures for
financial stake in
acquisitions and
L'Oréal
share repurchases

Source: Third Point LLC

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 SEGMENT PORTFOLIO INTO THREE BUCKETS:
F O C U S , D E V E LO P, D I V E S T

Focus on key categories with high barriers to entry

where Nestlé has competitive strengths
FOCUS v Advantages driven by consumer trust, technical expertise, and brand strength
v Key categories include coffee, pet, nutrition (infant and medical), water

Develop other categories to create scale and competitive competency

D E V E LO P v Opportunities in chocolate, creamers, and dairy

v Employ “up or out” strategy for developmental brands

Divest inherently weak and non-strategic categories

through sales, spin-offs, or other methods
DIVEST v Target categories with limited brand strength and vulnerability to changing preferences
v Opportunities include frozen food, ice cream, packaged meats, pasta, peanut milk
products, skin health, and others

Source: Third Point LLC

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D I V E S T A N D AC Q U I R E B U S I N E S S E S T O B U I L D A M O R E AT T R AC T I V E
P O R T F O L I O W I T H G R E AT E R E X P O S U R E T O K E Y C AT E G O R I E S

Illustrative
Divest Acquire

Source: Third Point LLC; Nestlé company materials; Google Images

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T I M E T O M O N E T I Z E L' O R É A L

v Stake is financial, not strategic

v Shareholder agreement with

Bettencourt family expired in March
2018

v L'Oréal CEO (breaking with tradition)

publicly expressed willingness to buy
Nestlé's entire stake, signaling nature
of relationship between the
companies has changed

Note: L'Oréal CEO comments from February 2018 public interview. Source: Third Point LLC; Google Images

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O P P O R T U N I T Y T O TA K E A D VA N TAG E O F S I G N I F I C A N T
VA L U AT I O N D I S PA R I T Y B E T W E E N N E S T L É A N D L’ O R É A L

L'Oréal now trades at Monetizing stake could unlock value and

significant premium drive mid-single digit % EPS accretion

Note: Multiples as of June 29, 2018; Nestlé owns 23.12% of L'Oréal; EPS accretion math assumes L'Oréal stake sold and Nestlé shares repurchased at market
prices as of June 29, 2018. Source: Third Point LLC; Bloomberg

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NESTLÉ CAN USE PROCEEDS FROM ASSET SALES
F O R AC Q U I S I T I O N S A N D S H A R E R E P U R C H A S E S

Acquisitions Share repurchases

v Strategically increase exposure to key v Opportunistic time to repurchase

categories with better long-term shares ahead of inflection in sales and
prospects margins

v Leverage global scale and take smaller
brands into new geographies
v Drive earnings accretion
v Share repurchases are lower risk than
acquisitions and less dilutive to return
on invested capital
v Drive earnings accretion

OPPOR T UN I T Y T O C R EA T E HI GHER QUA L I T Y

POR T F OL I O W I T HOUT EA R N I N GS DI L UT I ON

Source: Third Point LLC

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O R G A N I Z AT I O N S T I L L T O O I N S U L A R

v Board led by prior CEO Paul Bulcke

• Bulcke presided over long period of underperformance, seems too comfortable with the status
quo, and may be holding up the pace and magnitude of change

v Limited changes to Executive Board since appointment of new CEO

• Current Executive Board also oversaw period of underperformance and lacks fresh perspectives

v Most notable executive change under Schneider has been internal promotion in key US market
• After years of disappointing performance, Nestlé (rather than hiring an outsider) promoted US
CFO Steve Presley to CEO and US CEO Paul Grimwood to Non-Executive Chairman

OR GA N I Z A T I ON W OUL D BEN EF I T F R OM
MOR E OUT S I DER PER S PEC T I V ES

Source: Third Point LLC

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O R G A N I Z AT I O N D E S I G N S T I L L T O O C O M P L E X A N D B U R E A U C R AT I C

Nestlé structure Current design suboptimal

v Company managed through confusing mix of

geographic zones and categories

v Too many layers of management

v Complex decision-making process

v Unclear lines of responsibility

Source: Third Point LLC; Nestlé company materials

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O R G A N I Z AT I O N – R E C O M M E N D AT I O N :
B E FA S T E R I N O V E R H A U L I N G T H E O R G A N I Z AT I O N

Simplify organization to improve focus, agility, and accountability

Separate business Create more clear Reduce layers of

into three divisions lines of responsibility bureaucracy

Source: Third Point LLC

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R E I N V I G O R AT E N E S T L É S T R U C T U R E
B Y S E PA R AT I N G B U S I N E S S I N T O T H R E E D I V I S I O N S

v Separate business along category lines into Beverages, Nutrition, Grocery divisions
• Each group of categories has a different outlook and set of opportunities for sales growth and profitability

v Each division would benefit from having separate management teams

• Distinct strategies, dedicated sales forces, and greater accountability would drive stronger operating performance

v Businesses within Grocery in particular would benefit from a different approach

• Lower growth businesses require management with different skill set and attitude

v Separation would allow Nestlé CEO to focus more on overall corporate strategy and capital allocation

N EW OR GA N I Z A T I ON A L S T R UC T UR E W I L L I MPR OV E
F OC US A N D S PEED T O MA R K ET F OR EA C H C A T EGOR Y
(A K EY OBJ EC T I V E OF C EO MA R K S C HN EI DER )

Source: Third Point LLC

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E AC H D I V I S I O N S H O U L D H AV E I T S O W N C E O, R E G I O N A L
S T R U C T U R E , A N D C AT E G O R Y M A R K E T I N G H E A D S

Illustrative
Nestlé pro-forma organizational chart

BEVERAGES NUTRITION GROCERY

v Coffee v Pet v Confectionary

v Water v Infant Formula v Prepared Meals

v Medical Nutrition v Ice Cream

v Milk Products v Other

Source: Third Point LLC v Consumer Health

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A D O P T I N G A # N e s t l é N O W M I N D S E T W I L L A L LO W N E S T L É T O
B E C O M E S H A R P E R , B O L D E R , A N D FA S T E R

Portfolio will have greater exposure to Organization will be better suited to

key categories compete in rapidly evolving industry
Nestlé sales mix, %
v More clear total company and category-specific
strategies

v Better focused portfolio with structurally and

sustainably higher growth and margins

v Faster and more responsive organization with

greater innovation and quicker speed to market

Source: Third Point LLC; Nestlé company materials

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T H I R D P O I N T R E C O M M E N D AT I O N S W I L L M AT E R I A L LY I M P R O V E T H E
LO N G -T E R M T R A J E C T O R Y O F T H E B U S I N E S S

v Sales reaccelerate and then sustainably grow at mid-single

digit % rate given improved portfolio mix and organizational
changes
v 20% margin achievable from improved category mix and in-
flight productivity initiatives
v Includes tax benefits from US corporate tax reform and in-
flight tax savings initiatives (shared service centers, etc.)
v Proceeds from asset sales (L’Oréal, divestitures) used for
accretive acquisitions and share repurchases

MI X OF OPER A T I ON A L I MPR OV EMEN T , POR T F OL I O MGMT ,

A N D BA L A N C E S HEET OPT I MI Z A T I ON PR OV I DE MUL T I PL E
PA T HS T O DOUBL E EPS BY 2 0 2 2 A N D C R EA T E S US T A I N A BL Y
BET T ER PER F OR MA N C E OV ER T I ME

Note: Historical financials updated for restatements where applicable. Source: Third Point LLC; Nestlé company materials

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DISCLAIMER

THESE MATERIALS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY INTERESTS IN ANY FUND THESE MATERIALS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY INTERESTS IN ANY FUND MANAGED BY THIRD POINT LLC OR ITS AFFILIATES. SUCH AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY INTERESTS MAY ONLY BE MADE PURSUANT TO DEFINITIVE SUBSCRIPTIONS DOCUMENTS BETWEEN A FUND AND
AN INVESTOR.

The information contained herein reflects the opinions and projections of Third Point LLC and its affiliates (collectively “Third Point”) as of the date of publication, which is
subject to change without notice any time subsequent to the date of issue. Such opinions and projections reflect various assumptions by Third Point concerning anticipated
results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes.
Third Point does not represent that any opinion or projection will be realized. While the information presented herein is believed to be reliable, no representation or
warranty, express or implied, is made concerning the accuracy or completeness of such opinions or projections, or with respect to any other materials herein and Third
Point disclaims any liability with respect thereto. All information provided in this presentation is for informational purposes only and should not be deemed as investment
advice or a recommendation to purchase or sell any specific security. Third Point has an economic interest in the price movement of the securities of the company
discussed in this presentation, and may buy, sell, cover or otherwise change the form of its investment in the subject company for any or no reason. Third Point hereby
disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Third Point investment.
MANAGED BY THIRD POINT LLC OR ITS AFFILIATES. SUCH AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY INTERESTS MAY ONLY BE MADE PURSUANT TO
DEFINITIVE SUBSCRIPTIONS DOCUMENTS BETWEEN A FUND AND AN INVESTOR.

The information contained herein reflects the opinions and projections of Third Point LLC and its affiliates (collectively “Third Point”) as of the date of publication, which is
subject to change without notice any time subsequent to the date of issue. Such opinions and projections reflect various assumptions by Third Point concerning anticipated
results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes.
Third Point does not represent that any opinion or projection will be realized. While the information presented herein is believed to be reliable, no representation or
warranty, express or implied, is made concerning the accuracy or completeness of such opinions or projections, or with respect to any other materials herein and Third
Point disclaims any liability with respect thereto. All information provided in this presentation is for informational purposes only and should not be deemed as investment
advice or a recommendation to purchase or sell any specific security. Third Point has an economic interest in the price movement of the securities of the company
discussed in this presentation, and may buy, sell, cover or otherwise change the form of its investment in the subject company for any or no reason. Third Point hereby
disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Third Point investment.
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