Generating value through our strategy

We compete in attractive and growing categories, and prioritize investments to stay relevant and win in every segment and market in which we operate. Our digital technologies help us identify emerging consumer needs and business model opportunities so we can bring differentiated innovation to market fast. We partner with customers across the retail landscape to adapt our product portfolio and channel strategies, leveraging our global brands to customize new products for local tastes and preferences.

In 2022:

• 31 of our trusted brands, including Maggi, Milo and Nido, generated over CHF 1 billion each in annual sales at the retail level.
• E-commerce sales represented 15.8% of sales and grew by 9.2%, and our digital marketing spend increased to 55%.
• Our premium offerings represented around 30% of sales and grew at a high single-digit rate.
• Plant-based products generated sales of around CHF 1 billion, posting high single-digit organic growth.
• Emerging markets represented 42% of sales and grew by 10%.
• Sales of affordable, accessible products - many nutrient-fortified - accounted for around 18% of emerging market sales and grew at a double-digit rate.

We focus on categories and geographies with attractive dynamics where Nestlé has an ability to win. Since 2017, we have completed or announced more than 100 transactions (acquisitions and divestitures) with annual sales equivalent to around 22% of 2017 Group sales.

In 2022, these included:

• Purchase of a majority stake in Orgain, a US leader in plant-based nutrition, with the option to fully acquire Orgain in 2024.
• Acquisition of Puravida, a premium Brazilian nutrition and health lifestyle brand, expanding the consumer health portfolio in Latin America.
• Acquisition of The Better Health Company in New Zealand, which includes the GO Healthy brand and New Zealand Health Manufacturing, expanding Nestlé Health Science's portfolio of vitamins, minerals and supplements in AOA.
• Acquisition of the Seattle's Best Coffee brand from Starbucks.
• Creating a partnership with L Catterton to bring together Freshly and Kettle Cuisine.
• Divestment of Gerber Good Start.

In 2022, Nestlé acquired a majority stake in Orgain, a leader in organic, plant-based nutrition in the United States, with a foundation in science, great taste and broad appeal.

We take decisive action to restore growth and profitability when businesses underperform. Nestlé has decided to explore strategic options for Palforzia, the peanut allergy treatment, following slower than expected adoption by patients and healthcare professionals. The review is expected to be completed in the first half of 2023. Going forward, Nestlé Health Science will sharpen its focus on Consumer Care and Medical Nutrition.

We have formed a partnership with L Catterton to bring together Freshly and Kettle Cuisine, a leading manufacturer of fresh artisanal foods for retail and foodservice customers. L Catterton will be the majority owner, with Nestlé holding a minority stake.

We continued to adapt our organization to be more agile, flexible and digitalized. In manufacturing, we continued to upgrade our operational footprint in 2022, increasing factory fixed overheads by around 6%. In procurement, increased global buying combined with a reduced number of product specifications helped us reduce costs and complexity. Global buying through our three purchasing hubs was 68% in 2022. In our administration, we continued to simplify and standardize processes.

As a percentage of sales based on a 5-quarter rolling average, working capital increased to 1.9% in 2022 due to our conscious decision to temporarily increase inventory levels. This decision, taken in the context of significant supply chain disruptions and the energy crisis in Europe, reflects our commitment to ensure continuity of supply.

Investing for the long term includes R&D investment, brand support and capital expenditure to support organic profitable growth. We focus on projects with the highest potential to create economic profit. We are accelerating our capital expenditure plans for our fast-growing categories, particularly coffee and pet care.

We are disciplined when it comes to mergers and acquisitions in order to protect our ROIC. We have a thorough project governance in place, with clear accountability and targets. Potential acquisitions must have a good strategic and cultural fit with our organization and offer attractive financial returns. We look for creative ways to structure transactions and build partnerships that enhance our strategic options.

We have demonstrated our commitment to maintaining a high level of reinvestment into the business while at the same time continually increasing capital returns to shareholders. We do this by increasing our dividend year after year. Based on our 2022 performance, the Board of Directors has proposed a dividend increase of 15 centimes to CHF 2.95 per share to be paid in April 2023. This will be our 28th consecutive annual dividend increase. As a result of our strong free cash flow generation and business disposals, we continued to return excess cash to shareholders through share buybacks. In 2022, Nestlé repurchased 92 million of its shares for a total amount of CHF 10.6 billion at an average price of CHF 115.36 per share. Nestlé plans to repurchase CHF 20 billion of its shares over the period 2022 to 2024.