Ladies and Gentlemen, dear Shareholders,

After a year 2002 marked by uncertainty, Nestlé in 2003 lived through a period influenced by a whole series of events and situations which, on the whole, weighed on the minds of people and which negatively influenced consumer confidence. Just let me remind you: the rapid advance of SARS in Asia, economic stagnation or even recession in many parts of the world, recurring or per­manent trade wars, as well as international or internal armed conflicts in several areas.

Let us also keep in mind the foreign currency situation and the strength of the Swiss franc, which weighed on our consolidated sales in Swiss francs, driving them down 7.6%. It is, Ladies and Gentlemen, the third consecutive year in which we had to cope with a negative influence of exchange rates on our sales figures. If we add up the impact of these three years, one notes that since 2001, 18 billion Swiss francs of Nestlé sales have “vanished” in the monetary turmoil.

Despite these strong headwinds, and as a result of the timely and flexible implementation of counter-measures appropriate to these difficult situations, the Group has nevertheless succeeded in reaching its overall objectives. Thus its sales, while down 1.3% in Swiss francs, have increased 6.3% in constant currencies and were clearly above the sector’s average.

Internal or organic growth of sales amounted to 5.1%. This is the growth that results from the addition of real internal growth and of price increases implemented in the course of the year. For 2003, these elements, which are complementary and which influence each other, were, respec­tively, 2.2% and 2.9%.

In the course of the year we had to adapt prices in a number of regions, in order to compensate for higher raw material costs, on the one hand, and for the massive devaluations that occurred in several countries, for instance in Latin America, on the other. This allowed us not only to reach our objectives with regard to organic growth, but also to protect, and even improve, our margins. The EBITA margin reached a record 12.5% while it amounted to 12.3% in 2002.

Acquisitions, net of divestments, contributed another 1.2% to sales. The most important ones took place in two of our key strategic areas, ice cream and water.

Ice cream was reinforced through the merger of our US ice cream business with Dreyer’s Grand Ice Cream and the acquisition of the Mövenpick ice cream brand in Europe. In the water sector, we consolidated our European leadership position in the “Home & Office Delivery – HOD” business (water fountains in businesses and homes and the supply of large water containers).

Our net profit and our net profit per share of the past year cannot be directly compared to the figures shown in 2002. In that year, several one-off events occurred which had a very significant impact. I am referring in particular to the initial public offering of 25% of the share capital of Alcon, the sale of Food Ingredients Specialities (FIS) to Givaudan, as well as restructuring costs and impairments. In fact, if one strips out the non-recurring elements of 2002 and 2003, one sees that net profit has increased by 7%.

Operational cash flow amounted to more than 10 billion Swiss francs, with a free cash flow of 6.4 billion Swiss francs. This brings it to 7.2% of sales, a new record level. The Group was able to reduce its net debt slightly, bringing it down to 14.4 billion Swiss francs and the net debt/equity ratio improved to 38%. All these elements contributed to reinforcing the Group’s AAA rating. This is a credit rating that only three industrial corporations of Europe manage to obtain. It naturally plays a very favorable role for the Group’s financing costs. These have gone down in 2003, even though the average debt in the course of the year was higher than in 2002. These figures show, in particu­lar, the high quality of the work accomplished by our specialists in the areas of finance and treasury.

As a result of the Group’s solid performance and of the favorable perspectives, the Board pro­poses a dividend of 7.20 Swiss francs per share, a slight increase over the past year. If you accept this proposal, the payout ratio will increase from 36 to 45%.

In view of the economic, social, political and monetary context of 2003, which was one of the most difficult years that Nestlé had to face in a long time, one can, without a doubt, state that the management and the staff of the Group have delivered a remarkable performance. They have suc­ceeded in simultaneously pursuing the implementation of our strategic objectives, while constantly and quickly adapting to the sudden changes in the environment. In this difficult year, this required on their part a great deal of insight, competence and a strong commitment to the Company. The results that were achieved are all the more pleasing in that they show that Nestlé does not only have a fair weather crew, but a team perfectly able to confront rough conditions and headwinds.

In the course of the year, we have pursued our programs aimed at increasing operational effec­tiveness. Target 2004+ which focuses on reducing the cost of goods sold, and therefore essentially on improving manufacturing, has again surpassed its objectives. Furthermore, the FitNes program that targets white-collar productivity has, in its first year of implementation, fully lived up to expecta­tions.

The roll-out of the GLOBE project continues on track, on time and on budget. Let me remind you that GLOBE is not a savings program in itself, but its implementation enables specific cost reduction programs such as Target 2004+ and FitNes to achieve their objectives. GLOBE aims at the group-wide introduction of best business practices, the implementation of data standards and data management, and the introduction of standardized information systems and technology.

We also pursued our continuous efforts to rationalize. This concern is not only dictated by the necessity to have performing businesses, it is also a long-term instrument which goes along with the transformation of Nestlé from a respected food and beverage company to a just as respected food, beverage, health and wellness group.

This strategic evolution results from our determination to see our products and their nature reflect the huge investments we are making in research and development and to generate a pay­back for these investments. By doing this, we shall be able to steer away from the limitations of a competitive battle that would be largely centered on commoditized products and therefore on price.

This allows us to find a competitive edge in products that offer a clear added value, especially in nutrition and health, and ultimately, in wellbeing.

In implementing our programs and rationalization measures, we scrupulously follow the relevant rules that we have laid down and published in the “Nestlé Corporate Business Principles”. These have been translated in over 40 languages, we insist that all our staff follow them and we audit their implementation. In the labor area, Nestlé upholds, amongst others, the freedom of association and the right to collective bargaining. Of course, applying Nestlé’s principles with regard to human resources and labor relations needs to be consistent with national law and the customs of our host countries. This is why we are convinced that discussions and negotiations with our personnel and their representatives must absolutely take place at the level of our operating companies in each country. This does not keep us from conducting audits to see whether our principles are correctly applied.

Without going into too much detail, I want to mention the new contract signed with the Betten­court family, concerning our participation in L’Oréal. As you could see in the press, we have pro­posed a merger between the holding company Gesparal and L’Oréal, in which it owns 53.8% of the share capital. Gesparal in turn is owned for 51% by Mrs. Bettencourt and 49% by Nestlé. This merger still needs to be formally approved by a General Meeting of the shareholders of L’Oréal in a week.

As a result of the merger, Nestlé will directly own 26.4% of L’Oréal, and Mrs. Bettencourt 27.6%. Moreover, the double voting rights that still figure in the L’Oréal by-laws will be abolished in the course of the upcoming General Meeting. Thus, the situation will more transparent, both for the shareholders of Nestlé as well as for those of L’Oréal.

In our balance sheet, you will also see our 75% participation in the pharmaceutical company Alcon. Alcon was acquired in 1977 for about 100 million US dollars. After the partial IPO, the market value of this participation is now clearly established. At the end of 2003, it amounted to nearly 18 billion Swiss francs, whereas it figures in the Nestlé S.A. balance sheet with an amount of about 500 million Swiss francs.

Observers sometimes question the strategic importance of our participations in L’Oréal and in Alcon. Without going into details, let me just state that both of these investments contribute regularly and significantly to our net profit and thus to the Nestlé dividend. In fact, over the past five years, this contribution amounted in average to about 18%.

Ladies and Gentlemen, dear Shareholders, let me now, once again, address the issue of corpo­rate governance. Over the past few weeks, you could read, in Switzerland’s popular dailies, a never-ending stream of reports on management remuneration. While it is disappointing to see corporate governance virtually reduced to this one aspect, I nevertheless believe that a few remarks are in order. All the more so, since the treatment reserved to this question fully justifies the term of populist voyeurism that I used at the very same occasion two years ago.

Your Board of Directors, Ladies and Gentlemen, has ever since followed a policy marked by pragmatism and restraint with regard to its own remuneration. Remember, Ladies and Gentlemen, that up to 1993 the Board was remunerated according to a percentage system. Until 1990, the Company’s by-laws even provided that 2% of the net profit of Nestlé S.A. – after deduction of the allocation to reserves and payment of a first fixed dividend – could be paid as a percentage to the members of the Board. Need I add that the Board never made full use of this right conferred to it by the shareholders in the by-laws? The Board limited itself voluntarily to a fraction of this amount, which, according to the by-laws would have stood at 4.6 million Swiss francs in 1981 and at 56.8 million in 2003. Today, the total remuneration of the Board members amounts to four million Swiss francs, of which half is paid out in shares. I continue to believe that the remuneration of the Board members is perfectly in line with the position and the size of your Company. It also corresponds to the function and the responsibility of the members of the Board.

As for the salaries and the bonuses that Nestlé pays its management, I believe the time has come to go beyond the simplistic comparisons that we read in the course of the past weeks. You have seen the figures: overall, the Group pays 18 million Swiss francs, that is 0.3% of its consoli­dated profit, to the members of the Executive Board and to the CEO, in the form of salaries and bonus. Objectively speaking this is a modest amount and we believe it perfectly appropriate in our situation. Let me remind you here that Nestlé is a group competing with international companies and that, unlike other companies or institutions of our country, this competitive environment has a very direct influence on the salary structure.

I also want to point out, for example, that a certain number of managers of the Group’s operat­ing companies draw higher salaries than the members of the Executive Board in Vevey. This is simply due to the fact that we want to attract, in the interest of the development of our company, high-quality managers who will spend their entire professional lives running Nestlé businesses. I also stress that the salaries of comparable companies outside of Switzerland are considerably higher than ours.

As for the insistent demands to disclose, in even more detail, the remuneration of management, I would simply point out to the authors that they risk provoking an effect that goes against their demand for moderation. In today’s competitive climate, the claims for transparency will automatically result in an upward pressure for remunerations. That is because every company will raise its offers in order to attract the most promising executives. And if this tendency to pseudo-transparency should gain ground in this country, I can assure you that a number of companies will simply base their executives abroad. As a result, the best-paid managers will be based outside of Switzerland, while those with lower pay will remain here, necessarily resulting in lower tax revenue for our coun­try. There is finally the idea to entrust political authorities with fixing a maximum income level for executives: let me point out that this is an economic aberration. Determining salary levels must be left to the market, in combination, of course, with the judgment required of the Board.

Overall, it is not very difficult to make up one’s mind whether the remuneration of a manage­ment team is appropriate or not. As shareholders, you quite rightly ask yourselves: are the salaries offered by our Company of a nature to attract men and women who are capable, loyal, trustworthy and who are ready to accept the responsibility and the workload required by their position? The Group’s global remuneration for the top management group amounts to 18 million Swiss francs. This is a corporation that achieves sales of about 88 billion francs, earns a net profit of 6 billion francs and has seen a more than satisfactory development over the past decades while enhancing, year after year, its image as a quality-conscious, solid and dependable enterprise. It appears to me that the answer is not in doubt. Nestlé acknowledges that you, Ladies and Gentlemen, as share­holders must know how much it costs you to have this Company managed and the global remu­neration of the Board and of the Executive Board therefore is given in the Management Report.

I fear that the detestable climate created by the populist exploitation of individuals’ remunera­tions will in the longer term weigh on the competitive position of Switzerland. As responsible players in the economy, it is our duty not to contribute to the deterioration of that position which has been already eroded in other aspects.

You, Ladies and Gentlemen, the shareholders, have the last word. By voting the release of the Board, you also take a stand as to whether our remuneration policy is appropriate. Your Board is determined to continue its policy, marked by good sense and by moderation, which takes into account business reality and the necessity to offer to its management, as well as to its personnel as a whole, attractive and competitive salaries.

It is not up to me to sit in judgment on excesses that have taken place here or there, nor to try and defend them. Nestlé has remained faithful to its value system, to its long-term policy and to its sense of measure that are part and parcel of its recipe for success. They also find their expression in the remuneration of the group to which we have entrusted the management of the Company. We can be proud of it and we need not amend it because of the attempted pressure from the street or of those who pretend to speak for it. Let me remind you here that a recent poll established that over 90 percent of the Swiss population consider salary and assets to belong to the private sphere that should not be made public under any circumstances. Am I really the only one to wonder why sud­denly the private sphere of a specific group of the population is not deemed worthy of protection anymore, even though these men and women are paid from private, and not public, funds?

We see the current year with cautious optimism, knowing full well that recent events will not make our task any easier. Our objective for organic growth remains unchanged at 5 to 6%. In 2004, however, we shall without a doubt not be able to increase prices as energetically as we did in 2003. In other words, organic growth will be driven more by volume increases, or real internal growth, than during the course of last year. We furthermore expect to be able to show yet another improvement of our margins.

Before closing this address, Ladies and Gentlemen, let me, on behalf of the Board of Directors, but also, I am sure, on your behalf, express my heartfelt gratitude to the entire staff of the Nestlé Group. It is thanks to their extraordinary commitment that the Group managed, in a very difficult environment, to achieve the results, which were brought to your attention.