1. Building up Customer Management Skills to Improve Trade Spend Efficiency and Effectiveness CONFIDENTIAL

2. 1 DOCUMENT CONTENTS Project objectives and scope Overall confirmed profit potential Transparency phase Recommendations and potential for each key lever Implementation plan for each key lever Specific action plans by account Confirmed potential and required resources Implementation organization

3. 2 PROJECT OBJECTIVES AND SCOPE Project objectives Project scope Profitability: Improving overall profitability by 1 - 2 percentage points –Better pay for performance –Improved promotions –Improved product mix –Lower cost to serve Not: Reduction of Trade Spend only Skill building: Upgrading KAM skill profile from being purely sales oriented to becoming more cross-functional and customer contribution oriented Nestlé Spain “Dirección Refrigerados“ and shared service departments where necessary (e.g., Finanzas y Control, Servicios Corporativos, Producción, Comercial Corporativa) Source:Team

4. 3 REFRIGERADOS DEVELOPMENT OF TOTAL TRADE SPEND VS. TOTAL PFME/MEDIA Million pesetas, percent of net sales *Including corporative costs (Disney license, “Alimentaria”,…), merchandising, and actions negotiated by KAMs and trade marketing **Trade spend is equal to the sum of rebates, periodic allowances and temporary price promotions ***Before license fee Source: Nestlé Refrigerados P&L OLD ALLOCATION Total trade spend** Total PFME/Media 1994199519961997199819992000 (Estimated) 32.7 35.2 36.9 38.4 40.2 43.0 46.9 1.41.00.31.42.93.02.6 Profitability*** 30% of PFME is not controlled by marketing itself*

5. MA118054010119 Final Doc - Part1 4 DOCUMENT CONTENTS Project objectives and scope Overall confirmed profit potential Transparency phase Recommendations and potential for each key lever Implementation plan for each key lever Specific action plans by account Confirmed potential and required resources Implementation organization

6. 5 Optimize trade terms Increase promotion effecti- veness Improve product- mix Total potential *Footnote Source:Sources IMPROVEMENT POTENTIAL Operating profit in million pesetas *Considering only the external distribution chain of “Refrigerados” Nestlé Spain (from Nestlé central warehouses to selling points) Source:Team 200 to 260 555 to 730 Improvement potential between 555 and 730 million pesetas could be achieved This potential is equivalent to an increase in operating profit between 1.7 and 2.3% over net sales (basis 1999 year) Potential without any change in the existing distribution system Improve existing distribution system* (“preventas” model) 70 to 100 105 to 120 100 355 to 470 *Footnote Source:Sources Improve cost to serve* 80 to 150

7. MA118054010119 Final Doc - Part1 6 DOCUMENT CONTENTS Project objectives and scope Overall confirmed profit potential Transparency phase Recommendations and potential for each key lever Implementation plan for each key lever Specific action plans by account Confirmed potential and required resources Implementation organization

8. 7 KEY TRANSPARENCY PHASE: ACCOUNT P&L 0. Transparency1. Trade terms2. Cost to serve3. Product mix4. Account plans Findings There are structural differences in contribution by client cluster: Top 20 accounts: contribution varies heavily by account (variation 22 percentage-points); no correlation between size and contribution. Contribution variations are explained mainly by trade terms (variation 19 percentage-points) and cost to serve (variation 20 percentage-points) Other main accounts (21-40): contribution over net sales is almost 2.5 points above the Top 20 and 1 point above the total average due mainly to lower trade terms Direct sales to distributors: contribution over net sales is more than 10 points above average due to significantly lower trade terms partially compensated by above average cost-to-serve Small regional clients: contribution over net sales is about 1 point below average due to higher cost-to-serve and product mix, partially compensated by lower than average trade terms ATC-”colectividades”: contribution over gross sales is aligned with the average, which is a more homogeneous comparison due to specific pricing policy applied to this group. Trade terms are above average and this gets compensated by lower product mix and cost-to-serve 0.1 Account P&L 0.2 Brand P&L 0.3 Market Source:Team

9. 8 0.1. PROFITABILITY DRIVERS BY CLIENT CLUSTER Percent of net sales - EF 1999 Top 20 accounts Other main accounts (21-40) Direct sales to distributors Direct sales to small regional clients ATC “Colectividades”* ContributionTrade-terms *Profitability drivers of ATC are not directly comparable to other client groups due to the different pricing policy applied. Comparison becomes homogeneous in terms of gross sales, where the ATC contribution (16% over gross sales) gets aligned with the average (15.8 over gross sales) Source:Nestlé Spain Refrigerados; Team 19.1%43.0% Average Non Quid-pro-Quo trade terms of Top 40 accounts Pricing policy for non- reference products and small accounts Product-mix 35.1% Product-mix of 21- 40 accounts and small regional clients Cost-to-serve 23.8% Cost-to-serve of direct sales to distributors and small regional clients Areas of estimated potential

10. MA118054010119 Final Doc - Part1 9 0.1 TO 20 ACCOUNTS SEPARATION OF PROFITABILITY DRIVERS Percent - EF 1999 *Variation from weighted average of customer contribution as percent of net sales Source:Nestlé Spain Refrigerados; Team CUSTOMER CONTRIBUTION 17.7 % CUSTOMER CONTRIBUTION 17.7 % 2279 0598 0565 0611 2277 0385 2404 1956 1958 0452 2231 2478 1959 0005 2476 2474 0213 2225 1419 2084 All other TOTAL TRADE TERMS 46.5 % TOTAL TRADE TERMS 46.5 % COST OF GOODS SOLD 35.0 % COST OF GOODS SOLD 35.0 % DISTRIBUTION COSTS SELLING EXPENSES 22.0 % DISTRIBUTION COSTS SELLING EXPENSES 22.0 % Trade terms =+ Product-mixCost-to-serve + Variation*Key account

11. 10 TRANSPARENCY PHASE: BRAND P&L 0. Transparency1. Trade terms2. Cost to serve3. Product mix4. Account plans Findings The most value-adding products per category are the most profitable Contribution varies significantly by brand (variation 29 percentage-points), mainly in yogurts subcategories Yogurts show the biggest contribution variations between brands; LC1 and enriched La Lechera are the most profitable brands within yogurts Flor de Esgueva is the brand with the biggest contribution (16% of net sales and 22% of total category contribution) 0.1 Account P&L 0.2 Brand P&L 0.3 Market Source:Team

12. MA118054010119 Final Doc - Part1 11 TRANSPARENCY PHASE: MARKET 0. Transparency1. Trade terms2. Product mix3. Cost to serve4. Account plans Findings Overall market growth has been driven mainly by private labels Danone has grown in line with the market Refrigerados Nestlé has grown slower than the market in each category –Desserts and fresh cheese are categories with biggest growth gap (more than 10 percentage points) –In some subcategories Nestlé’s growth has been much higher than market growth but from a low base (e.g. liquid yogurts) –Nestlé is third player for yogurts and desserts after Danone and Private Labels. Only La Lechera and some other desserts hold better positions. –Nestlé is first in fresh pasta Numerical and weighted distribution follow market share trends With regard to prices some products have potential to capture part of the value between Nestlé’s and other competitors with lower market shares (e.g. “natillas”) Nestlé stock-outs (numerical and weighted) are above competitors for the majority to products 0.1. Account P&L 0.2. Brand P&L 0.3. Market Source:Team

13. MA118054010119 Final Doc - Part1 12 DOCUMENT CONTENTS Project objectives and scope Overall confirmed profit potential Transparency phase Recommendations and potential for each key lever Implementation plan for each key lever Specific action plans by account Confirmed potential and required resources Implementation organization

14. MA118054010119 Final Doc - Part1 13 0. Transparency1. Trade terms2. Cost to serve3. Product mix4. Account plans Source:Team Recommendations 1.1 Price discounts –For small accounts reduce price discounts to defined range –Establish process to monitor small accounts price discounts, including follow-up of salesmen’s behavior 1.2 “Quid pro Quo” trade terms –For some of Top 20 accounts reallocate money from non “Quid pro Quo” discriminatory trade terms to “Quid pro Quo” –Establish process to monitor non “Quid pro Quo” trade terms 1.3 Promotional effectiveness –Shift promotions to products with higher contribution per promotion –Improve the type of promotions to be used with some clients –Establish processes to improve promotion management –Modify/launch promotion monitor process –Establish process to determine regular and promotional mix and prices Potential (million pesetas) ~40 ~30 to 60 ~40 15 to 30 ~ 50 Not estimated Total 175 to 220 PROJECT KEY LEVERS: TRADE TERMS Processes to implement

15. MA118054010119 Final Doc - Part1 14 0. Transparency1. Trade terms2. Cost to serve3. Product mix4. Account plans Source:Team PROJECT KEY LEVERS: TRADE TERMS - PRICE DISCOUNTS TO SMALL ACCOUNTS Processes to implement Recommendations For small accounts, reduce price discounts to defined ranges Establish process to monitor small accounts price discounts, including follow-up of salesmen’s behavior Potential (million pesetas) ~40 Findings Significant range of price discounts variation for small accounts (around 30% for reference products and 40% for non-reference products) 1.1 Price discounts

16. MA118054010119 Final Doc - Part1 15 1.1PRICE DISCOUNTS FOR SMALL ACCOUNTS AND REFERENCE PRODUCTS* Example: Enriched yogurt with sugar or taste** Total gross sales by account (Million pesetas) *Regional clients with total growth sales of 100 million pesetas or below. Data from January/October 2000 **Reference products analyzed; yogurt natural, yogurt with taste (pack and tarrinas), Flanby, enriched yogurt with sugar or taste and Dalky standard ***Price discounts not related with “Cadenas”. It includes discounts on regular and promotional prices and other trade allowances specific to the client Source:Team Range of price discount variation for small accounts and reference products around 30% Reducing discounts to acceptable range has improvement potential of  32 million pesetas Acceptable range Percent of price discount on gross sales***

17. 16 1.1ACTIONS TO BE TAKEN TO REDUCE RANGE OF PRICE DISCOUNTS FOR SMALL ACCOUNTS Key actions Define ranges of price discounts by category of product and account size Periodically (i.e., twice or three times a year) monitor fulfillment of defined objectives at account level Regionally, follow-up salesmen’s fulfillment of objectives, taking into account: –Average discount for assigned clients by product category and account size –Variability of price discounts within portfolio of assigned clients Source:Team 1. Set ranges of price discounts 2. Establish monitoring system

18. 17 PROJECT KEY LEVERS: TRADE TERMS - “QUID PRO QUO” TRADE TERMS Findings Non “Quid pro Quo” concepts represent 68% of total trade terms for Top 20 accounts From this 68%, which makes ~7,300 million pesetas, more than 65% (~4,900 million) are general pricing policies and follow a fixed and non-discriminatory discount scale Finally, there are ~ 2.400 millions pesetas which are non “Quid pro Quo” and that do not follow any specific rule, except for the need of building- up an attractive net/net price for retailers 0. Transparency1. Trade terms2. Cost to serve3. Product mix4. Account plans 1.2“Quid pro Quo” trade terms Recommendations/ Issues moving forward Establish process to monitor non “Quid pro Quo” Trade Terms For some of Top 20 accounts reallocate money from non “Quid pro Quo” discriminatory trade terms to “Quid pro Quo” Potential (millon pesetas) ~30 to 60 Source:Team Processes to implement

19. 18 1.2 CLASSIFICATION OF TRADE TERMS COMPONENTS *Everyday low prices to Nestlé customers, not always transferred to the final consumer Source:Team Trade terms “Quid pro Quo” Non “Quid pro Quo” Non discriminatory Discriminatory Considerations “Real trade terms” with substantial performance orientation Examples Promotional activities Space Volume target incentives Non directly related with a quantifiable target or objective Hidden price reductions needed to match higher mark ups given by competitors Includes EDLP* Sales and trade relationship allowances (“Colaboración comercial” and “bonificaciones”) Historically driven, today little performance orientation Follow a fixed discount model General pricing policy (“condiciones de venta”) Non-discriminatory price discount STUDY CLASSIFICATION Percent of total trade terms for Top 20 accounts 32% 22% 46%

20. 19 1,190** 3,423 4,897 293 270 703 155 65 127 136 754 324 3,034 1,863 1,589* 169 31 2,383 *Price allowances to discount retailers with an everyday low price (Mercadona, Día, Continente, Eroski and Tengelmann) not always transferred to the final consumer **It also includes some discriminatory price discounts on regular prices that should be reclassified as NQPQ- discriminatory Source:Nestlé Spain Refrigerados; Team 1.2 TRADE TERMS COMPONENTS - TOP 20 ACCOUNTS Million pesetas, percent - EF 1999 General Price allowances Percent over net sales 8.113.22.01.41.212.1 QPQ NQPQ (Discriminatory) NQPQ (Non-Discriminatory) 3.23.30.6 0.50.346.5 Non discrimina- tory price discounts In store displays shelf-space, listing fees,... Sales allowances (“Boni”) Trade relation allowances (“Colabo- ración comercial”) Discrimina- tory price discount (regular + promotio- nal) Promotion advertise- ment Trade promotions and others Volume targets (“Boni”) Cadena funds (“Prima colab. Cadena”) Sales targets, anniversary openings Interests and early payment discounts Total Top 20 General pricing policy Space Trade promotional activities Specific target incentives Financial costs 462 10,703 734 2,779

21. MA118054010119 Final Doc - Part1 20 Source:Team 1.2POTENTIAL FROM NON QUID-PRO-QUO DISCRIMINATORY TRADE TERMS - TOP 20 ACCOUNTS Total Top 20 General pricing policy Space Trade promotional activities Specific target incentives Financial costs 1,190 3,423 4,897 293 270 703 155 65 127 136 754 324 3,034 1,863 1,589 169 31 2,383 462 10,703 734 QPQ NQPQ (Discriminatory) NQPQ (Non-Discriminatory) A total of ~800 million pesetas are non “Quid pro Quo” discriminatory trade terms Estimated reallocation potential of 20% to 40% with total contribution potential between 30 and 60 million pesetas

22. MA118054010119 Final Doc - Part1 21 PROJECT KEY LEVERS: TRADE TERMS - PROMOTIONAL EFFECTIVENESS 0. Transparency1. Trade terms2. Cost to serve3. Product mix4. Account plans 1.3. Promo- tional effecti- veness Findings Promotion volume by product Promotions area significant part of total sales (>50% for most products and clients) Promotion contribution and volume uplift vary across products and accounts Weakest volume uplifts for products with strong brands. E.g. LC1, La Lechera Promotion mix Cabecera promotions and “lotes” are less profitable than simple leaflet promotion but show stronger volume uplift Present/lotteries do not show additional uplift “Muebles” provide additional uplift and positive contribution especially when additional placement Promotion management Promotion agreements with customers often too unspecific Poor data availability about promotion compliance and performance Promotion price control not working well Mismatch of realized vs. invoiced promotional sales Regular and promotion mix and prices High variability of regular and promotional sales mix and net/net prices across accounts Final prices to consumer vary also significantly across clients Recommendations Shift promotions to products with higher contribution per promotion Check opportunities for promotion price increases Renegotiate promotion costs Shift promotions to more price sensitive products (e.g. Dalky) Modify/launch promotion monitoring process Use cabecera promotions and lotes only to generate volume, mainly in hypermarkets Use present/lotteries only if requested by client Implement “muebles” in 50 selected supermarkets Negotiate all promotion parameters (time, place, recommended price, scope) with all clients Establish processes to improve promotion management Establish a process to determine recommended ranges of regular and promotional mix and prices based on price- elasticity Adopt a “win-win” strategy to maximize profit pool with the retailer by repositioning prices Potential (million pesetas) Processes to implement ~40 15 to 30 ~50 Not estimated

23. MA118054010119 Final Doc - Part1 22 2 3 1 4 1.3VOLUME UPLIFT VERSUS PROMOTION CONTRIBUTION* Percent versus million pesetas * Contribution to client’s net contribution; leaflet promotions only Source:Team Promotion contribution per promotion* (Million pesetas) Volume uplift (Percent of baseline volume) Yogurt natural Flanby Dalky PRYCA LC1 firme 400 300 200 100 0 Flan eggs LC1 liquid Enriched La Lechera Shift 4 promotions from LC1 firme to: –Dalky (+2) –LC1 liquid (+2) Shift 2 promotions from Yogurt natural to Flan eggs or Bio Calcio Firme Bio Calcio firme Potential (Million pesetas) Assumptions Promotion costs spread over all products including baseline sales (method used today to calculate “aportación neta”) One price (invoiced promotion price equals regular price) Recommendations 1.0 0.6 0.2 Net effect on number of promotions: +/- 0 Additional contribution 1.8 million pesetas

24. 23 -3,5-3-2,5-2-1,5-0,500,5 1.3 VOLUME UPLIFT VERSUS PROMOTION CONTRIBUTION BY TYPE OF PROMOTION Percent versus million pesetas Source:Team Promotion contribution per promotion (Million pesetas) Volume uplift (Percent of baseline volume) PRYCA CASE Findings and potential actions Cabeceras + price reduction High cost of 2.5 million pesetas per cabecera make these promotions unprofitable in spite of high volume uplifts –Negotiate additional cabeceras for cabecera payments (annual negotiations) –Consider shift to simple leaflet promotions Special promotions (“lotes”) + price reduction Special promotions have the same contribution as leaflet promotions without consideration of cabecera costs. In spite of including cabecera costs they become very unprofitable –Negotiate additional benefits for special promotions (e.g. additional cabeceras) –Reduce costs for special promotions by avoiding special packaging –Consider shift to simple leaflet promotions Leaflet + price reduction Cabecera + leaflet + price reduction Special promotion + cabecera + leaflet La Lechera Flan eggs Yogurt with taste LC1 firme 2.000 600 0 300 500 100 200 400 Flanby 42 1 3 Enriched

25. MA118054010119 Final Doc - Part1 24 1.3VOLUME UPLIFT VS. PROMOTION CONTRIBUTION OF PRESENTS/LOTTERIES Percent versus million pesetas Source: Team Promotion contribution per promotion* (Million pesetas) Try “cheap” special promotions (i.e. lottery to win tickets) as a pilot with clients that show higher sensitivity to promotions in general Recommendations ESTIMATES Uplifts are not higher than those for comparable promotion without present / lottery Promotions have negative contributions Findings Volume uplift** (Percent of baseline volume) 3 1 24 Regular promotion Special promotion Bowl (present) El Corte Inglés Multipacks Yogurts Type Client Products 500 Car (Lottery) GIGAE Bio Calcios Type Client Products Entry Tickets (Lottery) Tengelmann Enriched La Lechera + Sveltesse Type Client Products Trip to Paris (Lottery) Tengelmann All products Type Client Products X X 4

26. MA118054010119 Final Doc - Part1 25 1.3 SECOND PLACEMENT OF PRODUCTS IN SUPERMARKETS (“MUEBLES”) *Points of sale that have space for “muebles” and are visited at least once week by sales force Source:Team Implement “muebles” in 50 selected supermarkets* Make sure 6 meters of shelf space per “mueble” are used for additional placement and not for replacement of shelf space (implementation: assume only 1/3 - 2/3 of “muebles” space is additional) Outsource ownership, delivery, and maintenance of “mueble” at costs of about 6,000 pesetas/month RecommendationIdentified potential (estimate) Space (m) Sales (Million pesetas) Contribution (Million pesetas) 554 51-69 CurrentAfter implementation Additional product contribution of 18-35 million pesetas Renting costs of “muebles” 3-4 million pesetas 315-398 Final contribution ~15-30 million pesetas

27. MA118054010119 Final Doc - Part1 26 1.3 PROMOTION MANAGEMENT: INVOICED VERSUS REALIZED PROMOTIONAL SALES Percent of volume - 1999 Source:Team Hidden discount: Application of promotion prices 5 to 7 days before start of promotion Non-compliance: All products from one product group ("gama") are invoiced at promotional price, but promotion is only applied to selected products (La Lechera, LC1, Bio Calcio) Promotion price simply not applied (Petit Nesquik) Natillas vanilla (74;97) Multipack Natural yogurt (90;81) Products sold at promotional price to end-consumer Products invoiced at promotional price to customer Bio Calcio Frutas (86;48) Flanby vanilla (75;35) La Lechera Natural (74;56) La Lechera trufa (63;70) Bio Calcio Natural (64;61) LC1 yogurt (64;38) LC1 liquid (40;68) Mousse chocolate (23;34) Trufas (44;33) Petit Nesquik (47;16) ALCAMPO Payments without performance ESTIMATE Explanations Total payments for unrealized promotions equal~15 million pesetas

28. MA118054010119 Final Doc - Part1 27 1.3MIX OF PROMOTIONAL AND REGULAR SALES AND NET/NET PRICES Enriched yogurt with sugar or taste (example of reference product) Percent of total sales volume*, pesetas per unit *Estimated from January/October 2000 data Source:Nestlé Refrigerados Spain; Team AlimerkaEl Corte Inglés UvescoCapra- bo GICHnos. Martín Ahorra- más GadisaEnacoAholdBiscay Regular sales Promotional sales CHANNEL: SUPERMARKETS DialsurSabecoUnigro High variability of regular and promotional sales mix and prices across accounts Develop a system to periodically define and monitor regular and promotional mix and prices Regular net/net price Promotional net/net price

29. MA118054010119 Final Doc - Part1 28 1.3VARIABILITY OF CONSUMER PRICES ACROSS CLIENTS Enriched yogurt with sugar or taste - May/October 2000 CHANNEL SUPERMARKETS Nestlé Danone Source:Nestlé Spain Refrigerados Variation of consumer prices across clients of about 12% with a range of 56 pesetas

30. MA118054010119 Final Doc - Part1 29 1.3 PROCESS TO DETERMINE REGULAR/PROMOTIONAL MIX-DETAIL End products Activities Producto X Volume multipliers Get Nielsen report on regular/promotio nal price elasticities Define volume functions Define contribution functions Determine price range that maximizes contribution Consider competitors prices Summarizs regular/promotio nal price ranges Discuss analysis with Nielsen representative and monitor progress Using price elasticities, get total volume by product as a function of price Based on variable cost per product derive contribution as a function of price Find price range that has maximum contribution Adjust optimal price range considering competitors’ prices and potential reactions Summary analysis for all products V (P) para producto X Volume  (P) = (P-C).V(P) Product X Prod. ABCABC Reg. Price Prom. Price 99-11580-90 Discount 5% Price Contribution Optimal range Precio Nestlé Compet. A Compet. B 10%... Price Contribution Precio Frecuency: once a year

31. 30 1.3 PROCESS TO DETERMINE REGULAR/PROMOTIONAL MIX-DETAIL Source:Team End product Activities Product X Using volume functions and recommended price range calculate expected regular sales by product Repeat analysis for promotional sales Determine percent of time on promotion and type of promotions to reach volume targets by product Consider marketing objectives Forecast regular sales Forecast promotional sales per promotion Determine required promotional sales Prepare summary report with regular/promotional mixes Summarize analysis for all products Regular volume Regular price Product X Total Volume % Prom. sales 0% Volume target Product% Reg. sales % Prom. sales ABC...ABC... 80%. 20%. Promotional volume Promotional price Product X 10%... Frequency: once a year

32. MA118054010119 Final Doc - Part1 31 PROJECT KEY LEVERS: COST TO SERVE 0. Transparency1. Trade terms2. Cost to serve3. Product mix4. Account plans Source:Team Recommendations 2.1 Nearby hypermarkets –Improve efficiency of direct distribution to nearby hypermarkets 2.2 Central warehouses operators –Improve delivery efficiency through modifying contracts with central warehouses operators 2.3 “Preventas” model –Modify external distributors’ current distribution model Potential (million pesetas) 50 to 80 30 to 70 200 to 260 Total 280 to 410

33. MA118054010119 Final Doc - Part1 32 PROJECT KEY LEVERS: COST TO SERVE - NEARBY HYPERMARKETS 0. Transparency1. Trade terms2. Cost to serve3. Product mix4. Account plans Source:Team Findings Returns at hypermarkets directly served by Nestlé are much bigger than when served through distributors Recomendations Improve the quality of orders by developing skills of “reponedores” Improve delivery efficiency 2.1 Nearby hyper- markets Potential (million pesetas) 50 to 80

34. MA118054010119 Final Doc - Part1 33 2.1NEARBY HYPERMARKETS DIRECTLY SERVED BY NESTLÉ *Total year 1999 Source:Team More than 60 hypermarkets which are close to central warehouses are served directly by Nestlé through external operators Orders are realized by carried out and temporary people hired through agencies More than 60 hypermarkets which are close to central warehouses are served directly by Nestlé through external operators Orders are realized by carried out and temporary people hired through agencies Reduce level of returns through: Incorporate these hypermarkets in external distributors tours, or Improve current efficiency through increasing quality and skills of merchandisers and delivery efficiency Reduce level of returns through: Incorporate these hypermarkets in external distributors tours, or Improve current efficiency through increasing quality and skills of merchandisers and delivery efficiency Current situationRecommendationComplication Percent of returns over gross sales* Average of current situation ~7% Average when distributed through distributors ~3%

35. MA118054010119 Final Doc - Part1 34 PROJECT KEY LEVERS: COST TO SERVE - CENTRAL WAREHOUSES OPERATORS 0. Transparency1. Trade terms2. Cost to serve3. Product mix4. Account plans Source:Team Findings Stocks-outs at distributors warehouses are higher than at central warehouses Recomendations Select delivery efficency KPI’s and measure them on an on-going basis Include KPI’s in contracts with current central warehouses and transport operators If delivery efficiency does not improve change operators 2.2 Central warehouses operators Potential (million pesetas) 30 to 70

36. MA118054010119 Final Doc - Part1 35 PROJECT KEY LEVERS: COST TO SERVE 0. Transparency1. Trade terms2. Cost to serve3. Product mix4. Account plans Source:Team Findings Three months ago a new distribution and merchandising model, which is fairly similar to the one of Danone, was launched by two Nestlé’s distributors Results from new model are very positive: –Increments sales –Improves product mix Recomendations Launch the new model for two or three distributors as pilots Track results and launch new model for the rest of distributors as soon as possible 2.3 “Preventas” model Potential (million pesetas) 200 to 260

37. MA118054010119 Final Doc - Part1 36 2.3 “PREVENTAS” MODEL OF ESPLUGUES’ DISTRIBUTOR *Except in hypermarkets, where there are dedicated external people Source:Interviews Traditional model People involvedMain activities 12 “autoventas” Realize order Get products from distributor’s warehouse Make the products’ “picking” at client site and distribute them Do merchandising* “Preventas” model People involvedMain activities 9 “repartidores” Get products from distributor’s warehouse Make product picking during distribution Distribute products Do merchandising* CONCEPTUAL Other considerations In comparison with Cordoba model, this model does not imply an extra cost, even though there is a cost reduction caused by using renting cars instead of trucks Key question is if product picking should be made or not by the “repartidor” 3 “preventas” Contact client Realize order

38. MA118054010119 Final Doc - Part1 37 2.3PROS AND CONS OF “PREVENTAS” MODEL *Model of Esplugues distributor Source:Interviews; Team Qualitative/process: –Improve quality of the order –Improve contact (time and quality) with the client –Increase control of selling-point –Better define roles to be played by each agent Quantitative/results: –Increase sales –Improve product-mix –Reduce stock-outs and returns –Reduce distributors’ cost* Could imply a reduction of numerical distribution if it is applied to distributors/tours where breakeven cannot be achieved for small doors Implies a possible investment in systems (mainly mobile terminals for getting orders) Advantages of the new model justify the need to apply the model as soon as possible Extension of the “preventas” model should be limited to those distributors/tours which have similar characteristics as current Cordoba / Esplugues model Pros Cons

39. MA118054010119 Final Doc - Part1 38 KEY LEVERS OF THE PROJECT: PRODUCT MIX 0. Transparency1. Trade terms2. Cost to serve3. Product mix4. Account plans 3.1. Improve current product - mix Recommendations/ Issues moving forward Improve product-mix for 13 accounts of Top 20 group by: –Listing some SKU’s –Changing volume weight between products/ SKU’s –Setting target volume growth by products/SKU’s Implement account process to define and monitor optimal product- mix by channel/account Findings The gap between actual and optimal product mix for total “Refrigerados” Nestlé is very large Potential (million pesetas) Source:Team Total ~100 Processes to implement ~100

40. MA118054010119 Final Doc - Part1 39 3.1 CHANGE OF PRODUCT MIX: WIN-WIN SITUATION Example: Grupo Carrefour Million of pesetas and percent Source:Team ~20 million pesetas Yogurt Natural, with taste or sugar Liquids Whipped cream Fruits + Yoco Low fat yogurts Mousse Petit + Yoco Fresh cheese Mousse +82% +5% +27% +20% +5% -4% 3 SKUs +10% Impact on contribution Proposed changes (percent growth) HYPOTHESIS: CONSTANT VOLUME ESTIMATION Total NestléRetailer ~35 million pesetas

41. MA118054010119 Final Doc - Part1 40 3.1 KEY ACTIONS TO BE TAKEN TO IMPROVE PRODUCT MIX - 2000* Million pesetas and percent * Improvement potential based on analysis of 2000 data **Deducing contribution of products that reduce volume. Hypothesis: constant volume, except for Día (7% volume growth) Source:Team Account Yoco liquid Fruits + Yoco Svel- tesse natural + taste Svel- tesse fruits Lc1 Liquid Bio Calcio natural Bio calcio low fat Mou- sses Petit Especia- lity Petit Yoco Others Net incremental contribution** (million pesetas) Carrefour (hipers) Carrefour (supers) GIGAE Alcampo Dia Ahold/ Supercliplo GIC SABECO Unigro Ahorramás DASA 18% Reintro- duction 22% 44% 68% Reintro- duction 3% 36% 1 SKU 100% 8% 300% 53% 20% Reintro- duction 70% 1 SKU 20% 14% 3% 1 SKU 9% 55% 1 SKU 40% 15% 20% 35% 7% 10% 1 SKU 15% 1 SKU 25% 35% 11% 1 SKU 15% 20% 25% 6% 14% 10% 20% 15% 5% 35% 15% 10% 5% 15% 19% 15% 10% 15% 17% 10% 5% 10% 18% 10% 100% 10% 15% 20% 10% 25% 15% 6% 9% 15% 10% 35% 27% 15% 25% 5% 25% Reintro- duction 1 SKU 75% 100% 15% 150% 97% Reintro- duction 60% 20% 100% (Petit Classic) 21% (Petit Classic) 3% (Desserts Lechera) 15% (Bio Calcio Liquid) 2 SKU’s (Yogurt + Desserts Lechera) 10% (MousseSvelttesse) 15% (Sveltesse liquid) - 5% (Yogurt Lechera) - 20% (Desserts Lechera) 17.5 3.9 26.4 10,1 12.1 5.5 9.2 5.0 8.9 3.8 2.0 Total ~100 million pesetas Growth New SKU’s

42. MA118054010119 Final Doc - Part1 41 3.1 PRODUCT MIX OPTIMIZATION MONITORING PROCESS Source:Team What do we get out of it? Define model’s parameters and weights Calculate theoretical product mix by channel Introduce clients’ current situation to calculate theoretical product mix by client Adjust theoretical product mix by client to get feasible target Theoretical product mix for Nestlé Spain Refrigerados Sub- category Natural with taste % Vol. 100%...... Contri- bution Total Theoretical Product Mix by Channel Hypermarkets % Vol. 100% Contri- bution Discounts Supermarkets Sub- category Fa- cings 206...... Theoretical Product Mix by Client % Vol. 100%...... % Vol. Growth Dia Carrefour Sub- category Contri- bution Targets by account: New listings Growth targets by product Volume share by product 0% Frequency: twice a year

43. MA118054010119 Final Doc - Part1 42 DOCUMENT CONTENTS Project objectives and scope Overall confirmed profit potential Transparency phase Recommendations and potential for each key lever Implementation plan for each key lever Specific action plans by account Confirmed potential and required resources Implementation organization

44. MA118054010119 Final Doc - Part1 43 1.1 IMPLEMENTATION PLAN: PRICE DISCOUNTS Reduce price discounts for small accounts to defined range –Group products into homogeneous clusters according to variable discount level (approx. 10/15 clusters) –Classify product clusters as reference or non-reference –Set variability allowed above average for reference and non-reference products and by client size segment –Define target average discount and maximum discount allowed by product cluster and client size segment –Revise assigned budget to sales regions according to new discount ranges –Communicate to sales region new ranges of discounts and adjusted budget –Implement/negotiate new discounts Monitor periodically fulfillment of discount objectives (twice a year) as defined process Extend reduction of price discounts for small accounts to fresh pasta and cheese ActivitiesResponsible Trade Marketing J. Urcola J. Tronchoni Regional Sales Force Trade Marketing Source:Team

45. MA118054010119 Final Doc - Part1 44 Source:Team 1.2 IMPLEMENTATION PLAN: “QUID PRO QUO” TRADE TERMS Reallocate non “Quid pro Quo” discriminatory trade terms to “Quid pro Quo” –Confirm and negotiate concepts defined with the retailer –Implement “Category Management” in selected retailers –Monitor fulfillment of objectives defined and value results Launch trade terms monitoring process to measure periodically (once a year) the evolution of “Quid pro Quo” - non “Quid pro Quo” trade terms for top 20 accounts Activities KAM’s Corporate Trade Marketing Trade Marketing KAM’s / Sale force Trade Marketing KAM’s Controller Responsible

46. MA118054010119 Final Doc - Part1 45 1. IMPLEMENTATION STATUS: TRADE TERMS Source:Team Reduce price discounts for small accounts to defined range Reallocate money from non “Quid pro Quo” discriminatory trade terms to “Quid pro Quo” Shift promotions to products with higher contribution/ promotion Improve type of promotions (“muebles”) Establish processes for improving promotion management In execution by Trade Marketing Not initiated 40 30-60 40 15-30 50 TotalRecommendations Implementation status Financial benefits (Million pesetas) Realized1Q01Beyond2Q013Q014Q01 10 7.5-15 5 10 7.5-15 7.5 1.5-3 6 10 7.5-15 7.5 1.5-3 6 10 7.5-15 20 12-24 38 KPI’s Average price discount by product and client segments Percent of clients with discount out of range Percent of space by account Percent share of space by level and account Number of new SKU’s Percent of realized/planned promotions by type Average contribution of promotions by account Number of “muebles” by account Sales for each store with “muebles” Qualitative KPI’s for reports: –Availability –Quality –Completeness BASIS FOR ACTION CONTROLLING

47. MA118054010119 Final Doc - Part1 46 1. SUMMARY OF KPI’S - TRADE TERMS Source:Team Percent Units Percent Units Percent Number of reports Scale 1 to 5 Actions to monitorKPIUnit Measured in relation to FrequencyCalendar 1.1 Reduce price discounts for small accounts to defined range 1.2 Reallocate money from non “Quid pro pro “ discriminatory trade terms to “Quid pro pro” 1.3 Shift promotions to products with higher contribution/ promotion 1.4 Improve type of promotions (“muebles”) 1.5 Establish processes for improving promotion management Average price discount by product cluster and segment of client size Percent of clients with price discount above maximum by product cluster Number of facings by account Share of space in each level by account Number of new SKU’s by account Percent of realized promotions versus planned by type/ product/ account Average contribution of realized promotions by account Percent of “muebles” installed versus planned by account Volume increase for each store with “muebles” Qualitative KPI’s for reports: –Availability –Quality –Completeness Defined target average price discount by product cluster on client size Target number of facings by account Target share of space in each level by account Defined objective of new SKU’s by account Number of planned promotions by type/ product/ account Planned average contribution of planned promotions by account Number for “muebles” planned by account Previous year Previous period 2/ year 4/ year monthly 3/ year Monthly 3/ year Jan., Jul. Jan., Apr., Jul., Oct. Jan., May, Sep.

48. MA118054010119 Final Doc - Part1 47 2. IMPLEMENTATION STATUS: COST TO SERVE Source:Team Improve direct distribution to nearby hypermarkets Improve delivery efficiency of operators Modify external distributors’ model Not initiated In progress 50-80 30-70 200-260 TotalRecommendations Implementation status Financial benefits (Million pesetas) Realized1Q01Beyond2Q013Q014Q01KPI’s Percent of returns over sales Product availability at nearby hypermarkets Percent of stock-outs at distributors warehouses Percent of sales growth by product and distributor Number of new SKU’s by distributor and client 3-5 1-2 18,5- 27,5 7,5- 17,5 13-18 18,5- 27,5 7,5- 17,5 25-34 10-20 15-35 161-206 BASIS FOR ACTION CONTROLLING

49. MA118054010119 Final Doc - Part1 48 DOCUMENT CONTENTS Project objectives and scope Overall confirmed profit potential Transparency phase Recommendations and potential for each key lever Implementation plan for each key lever Specific action plans by account Confirmed potential and required resources Implementation organization

50. MA118054010119 Final Doc - Part1 49 SPECIFIC ACTION PLANS BY ACCOUNT (1/5) Account 2279 0598-0565 Non “Quid pro Quo” Improve assortment in supermarkets Improve quantity of space Improve quality of space Increase participation in client's promotional activity Actions Decrease 4 promotions of LC1 firme Increase 2 promotions of Dalky Increase 2 promotions of LC1 Liquid Decrease 2 promotions of natural yogurt Increase 2 promotions of Egg Flan or Biocalcio Firme Products Fruits + Yoco Sveltesse Natural + Taste Sveltesse Fruits Sveltesse Liquid LC1 Liquid Biocalcio Firm Biocalcio low fat Biocalcio Liquid Liquid Nestlé Desserts La Lechera Mousse Petit specialities Petit Classic Petit Yoco Mousse Sveltesse Fruits + Yoco Sveltesse Natural + Taste Sveltesse Fruits Sveltesse Liquid LC1 Liquid Biocalcio Firm Biocalcio low fat Biocalcio Liquid Liquid Nestlé Mousse Petit specialities Petit Classic Petit Yoco Mousse Sveltesse New SKU’s 1111 Volume growth 100% 3% 15% 40% 10% 5% 22% 3% 15% 200% 75% 4% 36% 14% 7% 35% 6% 10% 17% 10% 18% 15% 6% 111% 25% 10% Source:Team Potential (million pesetas) 9-18 8-16 Potential (million pesetas) 26.4 17.5 Total potential (million pesetas) Product mix improvement Potential (million pesetas) 3.9 35.4 - 44.4 29.4 - 37.4 Promotional effectiveness Actions

51. MA118054010119 Final Doc - Part1 50 MODIFICATION OF CURRENT ACCOUNT PLANS DEFINITION PROCESS Definition of “dirección” objectives by brand product Recommendation and/or mandatory objectives by brand/product/ channel: –Ranges of regular/ promotional prices –Ranges of regular/ promotional sales mix –Global rules of thumbs for promotions –Optimal product mix by channel/ account Establish objective framework Break-down of objectives by account Preparation of account plans Agree final account plans Presentation of account plans Strategy by account Historical performance of the account Detailed action plan by account: –Volume objectives –Product mix –Regular and promotional net/net prices –Promotional activity –Space Final action plan by account Overall agreement Action plan ready for implemen- tation Promotion/regular prices and mix Promotion effectiveness Product mix What do we get out of it? Pro- ducts Regular with taste... Volu- me 1000 Share (%) 35% Net Net Re- gular 170 Net Net Prom. 190 Avg. Net Net 185 Account A Source:Interviews; Team New vs. current Frequency: once a year

52. MA118054010119 Final Doc - Part1 51 DOCUMENT CONTENTS Project objectives and scope Overall confirmed profit potential Transparency phase Recommendations and potential for each key lever Implementation plan for each key lever Specific action plans by account Confirmed potential and required resources Implementation organization

53. 52 Product mix IMPLEMENTATION ORGANIZATION Sponsor Provide resources Ensure consistency/quality Take critical decisions Review progress and results Roles Provide intellectual leadership Push for implementation, eliminate bottlenecks Steering committee “Pure” trade terms** Text Promotional effectiveness Text Cost to serve J E. Mestre E. López A. Bricall P. Folch J. Tronchoni M. Pedros J. Urcola *Coordinate logistics and prepare KPI’s follow-up **“Non Quid pro Quo” and small accounts discounts Source:Team Provide day-to-day leadership Elaborate work plan Coordinate actions Present end products Perform analyses Execute tests Implement solution Team members (Currently, 20% allocation) Responsible Cooordinator* M. Pedros