Luca Borlini - Head of Investor Relations Mark Schneider - Chief Executive Officer François Roger - Chief Financial Officer

Eileen Khoo - Morgan Stanley James Targett - Berenberg Martin Deboo - Jefferies Jon Cox - Kepler Alain Oberhuber - MainFirst. Patrik Schwendimann - Zürcher Kantonalbank

Good afternoon to everyone and welcome to the Nestle Half-Year Results Conference Call. I am Luca Borlini, Head of Investor Relations. Here with me is our CEO, Mark Schneider, and our CFO François Roger. As usual, first we will present our results and then we open it up for questions. [Operator Instructions] I draw your attention to the disclaimer in our notes on these statements. And now I hand over to Mark.

Thank you, Luca. And a warm welcome to our conference call participants today. As always, we appreciate your interest in our company. We are pleased to share with you today solid progress when it comes to our organic sales growth and underlying trading operating profit margin. As you know, the steady and balanced pursuit of these two value drivers is a major aspect of our long term value creation model. When it comes to sales, two of our country markets, the United States and China and one of our core categories nutrition have shown improved organic growth momentum. All of our categories continue to post positive organic revenue growth. Our underlying trading operating profit margin increased by 20 basis points in spite of commodity and packaging cost headwinds of another 20 basis points. We expect a continued acceleration of the underlying trading operating profit margin in the second half, supported by a further progress with our efficiency programs, more favorable commodity prices and last but not least, continued progress in our organic sales growth development. On a combined basis, our sales and margin development contributed to a constant currency increase of close to 10% in our underlying EPS. Based on the good progress in the first half, we are happy to fully confirm our 2018 guidance. We also narrow our organic sales growth expectation for 2018 to around 3% which implies a stronger second half of the year. So all-in-all, we’re seeing good progress in our financial results. More importantly however, we feel good about the progress that has been achieved during the last six months in refocusing and speeding up our innovation engine, advancing our portfolio management goals and progressing our various cost reduction initiatives. All of this puts us firmly on track for our 2020 targets and I thank our more than 300,000 associates around the world for the extra effort and sense of urgency as we adjust to and take advantage of the significant changes in our industry. Let me hand it over now to Francois for more detailed review of our first half results. François Roger: Thank you, Mark. Good afternoon or good morning to all. Let me start with the highlights for the six months. Our total sales for the first half where CHF 43.9 billion, up 2.3% on a reported business. Organic growth was 2.8% consistent with the levels of the first three months. RIG stayed strong at 2.5% remaining at the high end of the food and beverage industry. Pricing contributed 0.3%, reflecting the challenging environment in Europe and lower inflation in some emerging markets. Acquisitions and divestments had the net neutral impact on reported sales with the acquisition of Atrium Innovations and other transactions being offset by divestments mainly U.S. confectionery. Foreign exchange was a mild headwind of 0.5%. Underlying trading operating profit margin rose to 16.1% of sales. This represent an increase of 20 basis points both in reported and constant currency. This slide illustrate the performance of our sales forces zones, as well as our globally on regionally managed businesses by geography. Our growth was broad-based both in terms of organic growth and RIG with all geographies showing an improvement versus last year. The most notable increase came from AMS and more specifically North America. Within AOA, China showed an acceleration. Pricing was softer than last year industry geographies. Let’s now review our growth dynamics between developed and emerging markets. Developed markets saw an improvement of organic growth versus last year, mainly coming from improved RIG in North America. Pricing remain close to flat. Emerging market posted organic growth at meeting or mid-single-digital levels. RIG was helped by improve growth in AOA most notably China, as well as Middle East and North Africa. Pricing was lower due to deflationary trends in Brazil and lower level of inflation in Sub-Saharan Africa. Now let’s move to our performance for the five operating segments starting with Zone Americas. Sales for the half were CHF 14.2 billion. Organic growth was 1% driven fully by RIG as pricing was flat. North America saw positive organic growth in the first half with improvement in both United States and Canada year-on-year. Both RIG and pricing were positive. By category, petcare growth were supported by premium brands Purina proplan and Purina one as well as Tidy Cats in cat. Coffee was led by Nescafe Taster's Choice and Nescafe Clasico. Creamers did well helped by premium and natural coffee made offerings. In food, Hot Pockets and pizza particularly DiGiorno were also highlights. The divestment of the U.S. confectionery business had a positive contribution on organic growth. Latin America had positive organic growth but slowed compared to priority year because of lower pricing and the strike in Brazil. Pricing was still negative in the half, but improved significantly in the second quarter. Brazil continues to face a challenging trading environment. In May, the nationwide truckers strike temporarily disrupted operations and distribution. We recovered more than anticipated in June but overall this reduced organic growth in MS by around 80 basis points in the second quarter and 40 basis points in the six months. Mexico maintain mid-single-digit organic growth with positive performance in most categories. Nescafe were the key contributors. The zones underlying trading operating profit margin improved by 30 basis points as ongoing restructuring projects reduced structural cost. Efficiency savings more than offset cost increases from commodity and freighting inflation. Next zone EMENA sales were CHF 9.3 billion. Organic growth increased to 2.5%, RIG was stronger at 3.1%, reflecting an acceleration in the second quarter in both Western and Eastern Europe. This more than offset negative pricing. Looking at growths by region, Western Europe return to positive organic growth in both the second quarter and first half. Both Central and Eastern Europe as well as Middle East and North Africa show mid-single-digit organic growth. EMENA is now managed at category level for zone, will therefore provide more details in the category dynamics. Petcare, coffee and nutrition were the main contributors to growths. Petcare delivered mid-single-digital organic growth supported by an acceleration of RIG in Russia, and other emerging market in the second quarter. Felix was the major contributor. One of the interesting growth steps in the first half was Purina’s acquisition of Majoritistic in tails.com in the U.K. These happens exciting opportunities in the area of personalized pet nutrition and direct to consumer. Coffee also show good growth with RIG improving in the first three months across markets supported by the re-launch of Nescafe Gold. In the U.K., we launched nitrogen-infused coffee drink called Nescafe Asera Nitro. Nutrition and dairy performed well in Central and Eastern Europe as well as in the Middle East and North Africa. Confectionery show improved growth are into strong RIG in the U.K. France and Russia. We saw exciting new product launches for confectionery such as KitKat Ruby which was successfully launched introduced in April across Europe, as well as MilkyBar Wowsomes which was launched in the U.K. This product is the first to chocolate using Nestle’s new structural sugar to reduce sugar by 30% versus comparable bars. The sugar reductions come, thanks to a Nestle scientific breakthrough based on natural ingredients. The discipline category structured approach in the zone creating efficiencies which supported improvement of underlying trading operating profit margin by 70 basis points. The increase wasn’t so help by lower commodity cost as well as by strong RIG that also lead to better industrial capacity utilization and better operating leverage. Moving now to Zone AOA, we sands of CHF 10.6 billion, organic growth was 4.4% with RIG of 3.7% and pricing of 0.7%. Zone AOA delivered a mid-single-digit growth with positive contribution from most geographies and categories. China grew mid-single-digit and accelerating versus last year with a strong momentum in coffee and culinary. New product launches included newest Nescafe ready to drink flavors and e-commerce did particularly well on set as grew at strong double-digit levels. South East Asia had mid-single-digit organic growth driven by strong contributions from Vietnam and Indonesia. In Vietnam, Milo and Maggi grew strongly and in Indonesia, Milo performed well. South Asia had mid-single-digit growth supported by innovation and renovation, particularly for Maggi, Kitkat and Nescafe. Sub-Saharan Africa posted high single-digit growth even as inflation driven pricing slowed versus last year. Maggi and Milo where the key drivers. Japan and Oceania were flat with positive RIG offset by negative pricing in a deflationary environment. The most important development in AOA that we have to mention is that nutrition so improve sales momentum in most markets. China’s organic growth was close to mid-single-digit in the half, clearly improving versus last year. There were encouraging results from recent launches such as organic on A2 formulas and strong growth by Garber. AOA’s underlying trading operating profit margin remain strong and the highly accretive to the group. The decrease of 20 basis points was due to the phasing of certain cost items. Next is Nestlé Waters which finished the first half with CHF 4 billion of sales. Organic growth was 1% following a sequential improvement in the second quarter, driven largely by North America. RIG declined by 0.7%, mainly due to Europe and some emerging markets, pricing increased to 1.7%. The United States saw positive gross both RIG and pricing were positive. Price increases were implemented in June to reflect significant inflation in packaging and distribution cost. RIG improved sequentially in the second quarter helped by the launch of the sparkling range and the of six regional spring water brands. Europe’s saw slightly negative organic growth reflecting difficult comparable. Emerging markets were flat impacted by negative sales development in China and by depending divestment of the business in Brazil. The international premium brands some pedigree new and [indiscernible] continued to deliver good growth. The underlying trading operating profit margin decreased by 270 basis points, higher cost related to PET and distribution were not yet compensated by price increases that have been implemented in the U.S. in the later of part of Q2. And finally, we finish with the other businesses, which include Nespresso, Nestle Health Science and Nestle Skin Health. As from this year it has to include the Gerber Life Insurance business. Organic growth was 5.7% driven by strong RIG of 5.4% and pricing of 0.3%. Net acquisition increase the reported sales by 4.9% mainly with the consolidation of Atrium Innovations into Nestle health science from the first of March 2018. Total sales were CHF 5.9 billion. Nespresso maintain mid-single-digit growth, the Americas and Asia so strong momentum on Western Europe was a resilient in a context of high competitive pressure. Growth was supported by the continued progress of the virtual system roll out and boutique expansion. During the first half, Nespresso opened 20 new boutiques on point-of-sales to bring the total number to 728. Nestle Health Science saw mid-single-digit growth with a good momentum in medical nutrition. The acquisition of Atrium Innovations provided additional rules in the second quarter with strong demand for its non-GMO, organic and natural product offerings. Nestle Skin Health had mid-single-digit growth but pricing was negative. We saw very good performance in the aesthetic business and we set a field in consumer care. The underlying trading operating profit margin of other businesses increased by 160 basis points, this was mainly driven by an improvement Nestle Skin Health and Nespresso. Moving now to our performance by products. Our organic growth continue to be broad-based with all categories positive. Of key growth categories of Petcare, coffee, nutrition, water and the consumer health platforms when taken together grew about twice as fast as the others, reinforcing their position as growth drivers which are fully in line with our focused strategy. Confectionery showed improvement helped by the disposal of the U.S. business. Nutrition grew well with 2.9% organic growth for H1 reaching its highest level since 2016. Moving now to the profit evolution by products. Overall margin expansion in all categories were supported by operating efficiencies, unsuccessful execution of ongoing restructuring initiatives. Favorable input cost also helped in certain categories. Two categories were affected in H1 by specific factors, high packaging and transportation costs for water and so Brazilian strike from new products. Our leading categories powered and liquid beverages which is mainly coffee, nutrition and health science, as well as Petcare continue to deliver the highest level of margin in our portfolio and their profitability increased even further in H1. Looking at our gross margin, we saw a very slight decrease of 10 basis points in the prior year finishing the half at 49.3%. Our gross margin has been restated as of this year with the reclassification of certain cost items for marketing and administration to cost of goods sold in line with industry practice. We had some commodity on packaging headwind of about 20 basis points in the first half. We managed to offset part of these effects through efficiencies in industrial structural cost and conversion cost. For the second half, we expect some commodity tailwind but there are still some uncertainties linked to commodities that we buy on the spot market like fresh milk. Underlying trading operating profit increased by 3.5% to CHF 7.1 billion. The underlying trading operating profit margin increased by 20 basis points in both constant and reported currency to 16.1%. Margin expansion was supported by operational efficiencies and successful executive of ongoing restructuring initiatives. These cost savings were partially offset by higher commodity on packaging cost and significant inflation in distribution cost especially in waters and the Americas. We had some benefits from marketing spend efficiencies for example with the reduction of agencies, with the executor of regional campaigns or the optimization of agreements with suppliers for sampling on merchandizing materials. The underlying trading operating profit margin is expected to improve further in the second half of the year driven by more favorable commodity prices and further benefits of efficiency programs. Moving on to net profit and underlying EPS, net other trading income and expenses increased by 70 basis points which both restructuring cost and impairment of assets each arising by 30 basis points. As a consequence, trading operating profit margin decreased by 50 basis points to 14.6% both on the reported basis and income constant currency. Net other operating income and expenses had a positive contribution of 190 basis points, largely linked to the disposal of the U.S. confectionery business. Taxes increased by 50 basis points in percentage of sales, but the Group underlying tax rate decrease from 26.8% to 24.2% of 260 basis points. This is in line with what we have communicated before, it is lovely driven by the resurrection of the U.S. tax rate which accounted for around 200 basis points of this improvement. The other 60 basis points are coming from the mix of our geographies categories and activities. Basic earnings per share increased by 21.4% to CHF 1.92. The increase was mainly driven by income from the disposal of businesses, lower taxes and operating performance. Underlying earnings per share increased by 9.2% in constant currency and by 10.4% to CHF 1.86 on a reported basis. The share buyback program contributed around 1.5% to the underlying EPS increase net of the finance cost. Moving on to working capital, the 30 basis points decline and show that over the last 12 months we continue to make improvements on a working capital as a percentage of sales on a five quarter average basis. Following several years of significant progress in working capital reduction, we continue to see opportunities for further improvement but at moderate pace going forward. Free cash flow increased by 52% from CHF 1.9 billion to CHF 2.9 billion. This was mainly driven by an improvement in working capital which was partially supported by favorable comparable versus the prior half year. We also benefited from lower taxes and improve operating profits. We continue to work on all the lever of cash generation, gross, margin improvement and working capital improvement. Before we conclude, I would like to mention that we are progressing well to actively evolve of portfolio with a clear focus on its high gross, high margin categories and products. This includes both acquiring and divesting. In May, we announce that we are entering a global perpetual agreement with Starbucks granting us the right to market Starbucks consumer on food service products in channels. I would side as Starbucks coffee shops. We expect this transaction to close as at the end of August 2018. And we confirm the strategy review for our Gerber Life Insurance business. The process is on track and we expect to complete the exercise by year-end. Finally to close, I finish with our guidance for 2018 which we confirm. Our full-year organic sales growth expectation has been narrowed to around 3% with the top line momentum likely to be weighted towards Q4, partially due to comparable. Underlying trading operating margin improvement is going to be in line with of our 2020 targets. Restructuring costs are expected to be around CHF 700 million and we expect underlying earnings per share in constant currency and capital efficiency to increase. I now hand back over to Mark for his final remarks.

Thank you, Francois. Before we turn to the Q&A part of a call, I would like to place these first half results in the context of nationalists Nutrition Health and Wellness strategy. As you know, we’re committed to a path of accelerated value creation while pursuing this long term strategy. We have outlined specific goals are on track to meet or exceed these goals and if implemented substantial change at Nestle. We continue to invest in our core food and beverage grants and extent with prudence our portfolio into the promising attrition area of consumer health. We have rapidly evolved and developed the portfolio on both the acquisition and investor sides of the ledger. This includes investing in high growth businesses like Starbucks, Atrium and Blue Bottle Coffee as well as the divesting slower growth businesses like U.S. confectionery. We have committed to specific higher margin targets in our already delivery margin improvements without sacrificing growth. And we have returned significantly more capital to our shareholders including CHF10 billion in 2017 through dividends and share repurchases and another CHF11 billion in the first half of 2018. We have also increased our dividend for the 23rd consecutive year. The year-to-date results show some of our progress. We are pleased but not satisfied. We are far from done. There’s a lot more to come how commitment to investing for the future and leading change of Nestle is unwavering. Our progress is the result of a plan developed with the complete alignment of our board, its leadership and our management team. Let me underscore in this context my strong working relationship with our Chairman, Mr. Paul Bulcke. We are in full agreement regarding the scope and exhilarated pace of the actions we are putting into place. And we are unanimous in our commitment to analyze all aspects of our strategy as well as ensuring that our structure alliance with the strategy in all cases objectively and in a fact based manner. As CEO, I have the full authority to undertake this analysis and implement the right actions to meet and work directives. The management team and I are moving fast at a pace consistent with a significant shifts in our food and beverage market environment. In this context, let me previously comment on our corporate strategy. It is my deep belief that corporate strategy is the movie and not a photo. The logic and direction of such a strategy will unfold at the appropriate speed and will only become fully visible over time through consistent operating and portfolio related decisions. This movie builds on solid past foundations. It also requires keeping more than 300,000 employees aligned and motivated with an understanding of how a change needs to happen in a way that optimizes value even for the parts of the company that may not be with us going forward. We will continue to seek out expert views including from our board of directors. Several of our directors are consistently delivering enormous value at companies on the cutting edge of managing change in complex and fast moving consumer facing industries. We will continue to look objectively and thoughtfully at how best to advance our plans to increase value for our shareholders and other stakeholders. Finally, we have continuously sought feedback from all of our shareholders. We appreciate your constructive input, your support and your investment. I know we’re all learning a lot from our conversations with so many of you. I look forward to hearing your questions about the results reported today. As this is an earnings call, we would like to focus on our first half performance and prospects for the year. Luca, let me hand it back to you. A - Luca Borlini: Thank you, Mark. Thank you, Francois. With that, we are now moving now to the Q&A session and we open the lines for questions from financial analyst. [Operator Instructions] So the first question comes from Eileen Khoo from Morgan Stanley.

Well this was the last question and that we have today so we thank you very much for having participated to the Nestle conference call and thank you Mark in Francois. If you still have question outstanding do not hesitate to reach out to investor relation department and we look forward to speaking you again at the next nine months sales conference call in which will take place in October. Wish you all the best.

Have a nice summer. Talk to you in October.