Nestle European Council for Information And

1

Corp. HR/VL

NESTLE EUROPEAN COUNCIL FOR INFORMATION AND

CONSULTATION – PLENARY MEETING

CICG – Geneva / November 2008

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Minutes

1. Opening and Welcome

L. Cantarell and W. Ending welcomed the participants and opened the meeting.

Welcome extended to L. Freixe – successor to L. Cantarell - as well as to J. Lopez who will present Nestlé Continuous Excellence. J. Harris will be joining in the afternoon to give an update on Nestlé Waters business.

L. Freixe introduced himself and provided some key messages, i.e. belief in the value of the teams which are made up of people and the conviction that there are opportunities even in difficult periods. He also mentioned that the future is not a given nor a gift – it is a conquest. His role in Zone Europe will be to design the future with the teams in the markets which he will keep close contact with as the business is carried out in the markets and the clients are in the markets.

W. Endling thanked L. Freixe and looked forward to close co-operation.

2. Nestlé Continuous Excellence and Implications at Factory Level (J. Lopez)

J. Lopez thanked L. Cantarell and W. Endling for the opportunity offered to him to present Nestlé Continuous Excellence (NCE) - an important initiative of the Group - and briefly introduced himself.

Here are some highlights of his presentation (presentation provided) :

NCE is a journey, a new mindset

Nestlé is a key supplier of Nestlé and Nestlé is a key customer of Nestlé

Focus on safety (not yet at satisfactory level), consumercomplaints and cost when visiting factories

There should be less command and control and more empowerment

There should be more alignment of all actions around the world avoiding waste

Total Performance Management (TPM) will be a reality at Nestlé

A lot of stress is perceived when visiting the factories

Education and training are needed for the introduction of TPM and for enhancing people empowerment

There is less tension with TPM

TPM is a sustainable attitude and inspired approach to continuous improvement

The way to understand Nestlé Continuous Excellence is to engage everyone's heart and mind to a consumer-driven war on waste

The target is: 1 team, 100% engagement, 0 waste

TPM will make Nestlé a better place to work

Questions and Answers

W. Endling thanked J. Lopez for his presentation. He mentioned that a positive aspect of NCE is the involvement of employees and their contribution in terms of knowledge and hands-on experience and inquired about the training which will be provided to staff wondering if the company will be looking at whether staff has the skills for TPM and NCE and how to train them further, or whether the company will seek already skilled people from the market. He also asked about the company's intentions in terms of continuous training and inquired about responsibility in case of accidents and/or mistakes, against the background of the focus on teamwork in TPM.
J. Lopez mentioned how important it is to learn from one another and to avoid mistakes. TPM is a sustainable attitude and inspired approach to continuous improvement. Training will always be part of NCE. Training for the operators will be needed. It is important to help people enhance their capabilities, help them understand how to improve and enhance productivity. Responsibility lies at all levels - not only at the operators' level but also at management level in the Company.

W. Endling acknowledged that it is a must to have less waste and more improved quality and productivity and, in this context, noted that NCE was a cost-cutting and productivity-enhancing exercise which, by definition, could lead to job reductions. He questioned the logic behind encouraging and rewarding suggestions in the context of "continuous improvement", which would eventually lead to a reduction in jobs.
J. Lopez mentioned that very often upon introduction of TPM on one line, other lines immediately are keen to follow in introducing TPM. This is a progressive process. Regarding rewards, the concept is very much linked to a changing work place and to making the Nestlé operations a better place to work, contributing to total performance by improving operations.

J.P. Ribout–(France) mentioned that it is important to count on a tool which will eliminate problems and degradation in work. In order that people are comfortable in their work place, they should be assured of their job security and not be afraid of losing their jobs. We need to be careful that we don't push to extremes, trying to get things done quicker and quicker and exposing ourselves to accidents (working conditions, schedules, stress, etc.). To be comfortable at the work place, workers should be provided with development perspectives and with adequate purchasing power. He also made a reference to the consequence of GLOBE implementation.
J. Lopez referred to the investments in upgrading installations and not only for those done in new factories. He also mentioned that regarding GLOBE, the situation is monitored very closely with the objective to improve. There is overall more co-operation needed with social partners, members of management as well as all with the Nestlé employees.

E. Péry – (France) concurred with the emphasis put on safety. He also mentioned that should productivity be improved, it should not be to the disadvantage of the working conditions. Remuneration conditions should also be linked to the enhancement of the activities.
J. Lopez ensured that any improvement made is not made to the disadvantage of any other factor. Regarding job classifications, the capabilities of the operators towards any improvement should be recognised. Operators are awarded for the added value that they can bring in the working environment.

J. Feter – (Poland) referred to the number of the temporary workers and to how they will be involved in the implementation of the programmes.
J. Lopez mentioned that NCE is a process based on one model and that TMP is one of its elements. It is clear that temporary workers have to be included in the process in order to manage the operations according to the NCE model. Nobody is excluded.

J. Mesquita (Portugal) mentioned that there is a need to diagnose certain problems in order to work towards more efficiency. It has sometimes been noticed that operators do not know what they should do and that there are mistakes when operating machinery. He put the emphasis on working conditions, on the working environment and on adequate equipment.
J. Lopez mentioned the importance to have the right machinery, running as appropriate, removing waste and ensuring production as expected – protecting workers and improving their environment and their conditions. TPM put the emphasis on the reliability of the machinery. There is also a commitment from the company to ensure that the number of accidents is reduced. He mentioned being alerted to accidents and their circumstances. There is the objective of "0" accident and "0" complaints and everybody should work towards this direction.

C. Montllor (Spain) raised his concern about the contradictions felt as, on one hand there is the resolve to improve efficiency in the factory and, on the other hand, there is the resolve to reduce cost. Maintenance is crucial to doing a good job in the best conditions but it has a cost, and there is pressure to reduce this cost.
J. Lopez stressed the fact that the company is not just trying to reduce costs, the aim is to eliminate waste.

K. Hoffmann (Germany) mentioned the situation in the factory in Hamburg where a consultancy company has been mandated and is looking particularly at how to cut costs – other aspects being often neglected.
J. Lopez mentioned that the operations have to continuously deliver value to the other parts of the company to ensure competitiveness.

W. Endling thanked J. Lopez and underlined that he understood that this should not be seen as a cost- saving programme but rather a programme ensuring that workers are better trained and receive continuous training. He asked for feedback on the evolution of the programme to the next NECIC meetings if and as appropriate.

L. Cantarell thanked the representatives for their active participation ensuring that their concerns and comments will be taken into account. He mentioned that continuous improvement is also looked at in other parts of the organisation (administration, Globe, etc.) and not only in operations.

3. Business Results (L. Cantarell)

3.1. 2008 First 9 Months Results - Group

L. Cantarell presented the highlights of the results of the Group for the first 9 months of the year. The Nestlé model is built on 5% to 6% Organic Growth. Target is easier to be achieved in an inflationary period. There are good results overall for the Group and Food & Beverages – compared to our competitors. There is volatility in terms of consumption in Europe and a slow down. He mentioned that the financial position of the company and the way it is managed is under control. 8% OG and the Nestlé model should be delivered in 2008.

3.2. 2008 First 9 Months Results - Europe

Overall OG in Europe 2,1% - basically good result in GB region and in Petcare, accelerated growth in Germany. Situation in Russia slightly deteriorating. Ukrainian market has proved difficult and volatile. Good evolution also shown in market shares. Overall sustained and challenging evolution over the past few years in Europe where we could be proud of getting growth back. C&EE which was a small piece in the past is now getting bigger and helps in balancing the results.

3.3. Ice Cream

Ice Cream is a strategic category for the Group and in Europe. Figures are not as they should be. The Company constantly looks at re-evaluating the business, its structures, products and portfolio and wants to remain in the business, taking therefore the adequate measures. There is still a need for strong brands retail products. Sales and margins decreased and volume is an issue. Costs have to be well managed in this category (factories and distribution model).

Mövenpick of Switzerland: There is an ambition to create a platform to drive the development of this category. There will not be economical results in the coming years considering the investments, the creation of the teams and of the sales teams in the markets to push the brand. The quality of product is outstanding, has the right packaging and the right approach. Super Premium has a good success story.

3.4. Outlook 2008

The macro figures look challenging, there is continuous volatility, consumer confidence is unstable, and there is pressure on the business in Ukraine, Hungary, Russia, and Romania. However in the markets, opportunities remain despite the pressure.

The key to success in 2009 will be to continue and maintain the company's strategy – emphasis put on operational efficiency, innovation / renovation, product availability, appealing and attractive communication – with a need to set priorities, be fast and quick.

PPP (Popularly Price Products) is a priority for Nestlé in Europe. There have been good success stories so far in Russia and even in France (products launched with Herta and Maggi brands).

The key focus areas in 2009 will be:

Nutrition Health and Wellness

Portfolio Management

Market Shares

Customer Management

War on Waste

Response from the co-chairman

W. Endling thanked L. Cantarell for the business update and made the following comments:

Financial crises and economic crises – money lost in the world. Example of the car industry in the US where the major car companies are going bankrupt. 2009 will be a difficult year. Consumers have not received pay increases. Purchasing power is decreasing. Nestlé can show good results in 2008 also thanks to the price increases in the markets. Now, however, there is pressure to cut prices, commodity prices are falling. He wondered what will be the consequences of the decreasing consumption, of the pressure on prices on the business in 2009. He also considered the fact that the medium price segment is shrinking and that the discounters are further developing. He raised his concern on the fact that consumers will be more and more inclined to buy from discounters and be less and less loyal to Nestlé products.

Waters: Nestlé is at the centre of attention in this category with criticism raised in the area of bottled waters. Water is a basic commodity and there are people who still do not have access to water consumption on a daily basis. How will the image be preserved for Nestlé?

Ice cream: a few questions raised in this category, i.e. how will it be possible to get bigger margins in 2-3 years, what will have to be invested, will there be bigger lines, how long can we continue investing without making a profit, two factories have recently been closed, one in Romania and one in Denmark, advantage seen in production involving a co-packer, other companies have more capacity for production than Nestlé, any possibility examined to provide for the necessary capacity in a Nestlé factory?

Regarding the Esbjerg factory closure, an ad-hoc meeting was held within a week with information and an exchange of views. An information and consultation meeting bringing both parties should be held, however, before any decision is taken. Unfortunately, ahead of the ad hoc meeting the social plan had been agreed to. It was not possible to influence the measures which were being implemented. Although the social plan was agreed, some criticism was raised because employee were receiving their settlement but were requested to remain to ensure the continuation of production until the end of December. This was considered as not fair for the employees who had to devote time to look for new jobs.

Change in Management: L. Olofsson's resignation after 32 years in the Nestlé Group was surprising. He inquired whether there existed any clause in the contracts regarding the move to a competitor (P. Polman's case) and the way the situation of L. Olofsson will be managed, bearing in mind that he will now be negotiating conditions between Nestlé and Carrefour.

Payroll and accounting processes transferred to Poland: He mentioned that the situation was complex, the collective agreements are different from country to country, the pay slips are frequently inaccurate, and there is mismanagement. Important to take the necessary action to improve and eliminate errors.

Code of Business Conduct: There have been problems with the distribution of this document as there are potential conflicts with national legislation. There are cases where the code has been used to take measures against workers, whereas workers have behaved according to national legislation! Cases rose in Poland and in Spain. This situation has to be considered with the managers in Human Resources in the different countries.

Regarding the Financial crisis, L. Cantarell recalled the long term perspective of Nestlé. It is difficult to anticipate the consequences of the evolution of raw material prices. It seems however that the second half of 2009 may well be more encouraging. It is important to keep consumption at the right level and keep this in mind when considering pricing, promotions, and support to our brands in volatile and difficult situations. Indeed the mainstream business is shrinking and Premium and PPP developing. Nestlé is one of the best in dealing with Lidl and has good success story with another discounter company in Spain and France.

Regarding the Product Categories, J. Harris will present and comment the business situation in Nestlé Waters.

Regarding Ice Cream, this category is indeed strategic. It has been decided to invest in a Super Premium strategy (Mövenpick, Gelateria del Corso) and the company is working towards fine-tuning the organisation. This is not THE solution for the business but it is one of the elements of the solution. There is a need to take measures in some factories. The company believes in the future of this category. Referring to the factory in Bucharest, L. Cantarell mentioned that its closure was necessary in order to optimise the business.

The company invested in Esbjerg where the business was not a standard business for Nestlé and also a difficult business. No viable solution was found internally for more that 3 years. The solution has finally been found with a co-packer – and this seemed to be the only solution. The employees were the first to be informed. The NECIC co-chairman was subsequently informed. The social plan was then accepted. Indeed employees have been asked to remain until Dec. 5th in order to save the situation of the business for the future. The employees accepted the situation and do not react negatively.

Regarding L. Olofsson, L. Cantarell mentioned that he did receive an attractive offer to be CEO of the second biggest retail company in the world. He also mentioned that if anybody wants to leave, then it is his/her own choice to leave. He also mentioned that the Company does not have anything to hide in the way customers are managed within the Group.

Payroll: A. Silva took the opportunity to provide some information regarding the payroll situation now live in most of the markets in Europe (live in Switzerland, UK, France, Italy and Iberia - Germany in progress). There are some problems in France which are monitored on a daily basis but which are rather related to the service provider. Some problems also in Italy for similar reasons. The other markets encounter some minor problems.

Code of Business conduct: L. Cantarell reminded that the document "Code of Business Conduct" is not a legal document. This is a guideline complementing the document "Nestlé Business Principles". If the document is in conflict with local legislation, then local legislation will prevail.