Overview
The year under review was one that tested the mettle of companies worldwide where both large and small businesses were challenged to maintain their previous performance and growth momentum. The situation greatly influenced consumers spending behaviour who were very cautious and this had some bearing to the Group’s performance during the period under review.

Throughout the year, the company remained firm on its course, led by a dynamic and passionate team who accelerated the changes to meet consumer preferences and needs, stepped up innovation, reduced waste and increased efficiencies.

The full year sales performance was almost flat; favourably impacted by strong sales in the fourth quarter of the financial period. This was an overall satisfactory performance considering the softer local economy, which had seen a 3.8% contraction in the first 9 months of 2009. In addition to the external economic factors, the lower turnover was also impacted by the reduced prices for the range of MILO^® and Milk products, which took effect in February 2009.

During the year, the Group invested RM267 million in capital expenditures, mainly in new manufacturing lines which will increase production capacity as well as provide flexibility for product innovations and renovations. The Group also invested significantly in building its brands with strong marketing and consumer promotions aimed at stimulating consumer demand.

The Group continued to focus on prudent spending and on full cost optimisation across the entire value chain with NCE (Nestlé Continuous Excellence) initiatives rolled out from factories to business units and divisions driven by the dynamic mantra of “One Team, 100% Engagement and Zero Waste”. NCE will continue to assume an integral role in helping the company stay competitive to ensure long-term profitable growth.

One of the worthy achievements during the year under review was the market expansion of the Popularly Positioned Products (PPP) range that offers nutritionally balanced products at more affordable prices. This is part of our ongoing commitment to provide affordable nutrition and taste to all levels of society, as part of our Corporate Responsibility commitment while supporting the Government’s efforts to improve the nutritional status of all Malaysians. The year under review also saw the continuation of our strategies focused on single-serve pack sizes.

The wellbeing of our consumers is a key priority and as we make bigger steps towards our goal of being the world’s leading nutrition, health and wellness company, significant progress has been made in our efforts to improve our products’ nutritional profile by reducing sugar, sodium and fats and this will be an on-going effort.

Coffee & Beverages
During the period under review, market shares for MILO^® powder improved. MILO^® FUZE^® registered strong growth driven by the MILO^® FUZE^® Original relaunch and the introduction of a new product, MILO^® FUZE^® Oligofructose.

The MILO^® Nutrition Campaign emphasizing on the nutritional benefits of the MILO^® drink further strengthened the brand’s proposition of Nutrition, Health and Wellness in the minds of the consumers.

The key communication campaign, MILO^® Play More Learn More™, received strong support from consumers. By highlighting the benefits attributed to children’s involvement in sports, this campaign successfully touched the hearts of our audience and strengthened the MILO^® brand bond amongst Malaysian parents.

With decades of unwavering support for sports development, the MILO^® brand continues to reach out to millions of Malaysians from junior sports to international events. The MILO^® drink was once again the official nutritious beverage for our Malaysian contingent at the 25th SEA Games in Laos, Vietnam. One million signatures were collected by the MILO^® team from Malaysians all over the country to show our support for the national contingent at the games.

NESCAFÉ^® achieved a strong performance during the financial period driven by NESCAFÉ^® 3in1, the launch of a new product range - NESCAFÉ^® Menu and the Coffee and Health campaign.

NESCAFÉ^® 3in1 launched a new campaign to promote its 3 variants that suit different consumer taste preferences. Another key growth driver was the launch of the innovative NESCAFÉ^® Menu which offers Ipoh White Coffee, Tarik and NESLO. NESCAFÉ^® Menu is the 1st brand to offer a range of local coffee shop favourites in a convenient format. The launch was supported by a strong integrated campaign.

NESCAFÉ^® 3in1 launched a new campaign to promote its 3 variants that suit different consumer taste preferences. Another key growth driver was the launch of the innovative NESCAFÉ^® Menu which offers Ipoh White Coffee, Tarik and NESLO. NESCAFÉ^® Menu is the 1st brand to offer a range of local coffee shop favourites in a convenient format. The launch was supported by a strong integrated campaign.

In line with the company’s vision of becoming the leading Nutrition, Health and Wellness company. NESCAFÉ^® CLASSIC launched a new campaign that aimed to promote and educate Malaysians on coffee and its health benefits, primarily on antioxidants. The campaign featured a famous Malaysian celebrity, Maya Karin, who is popular and credible as a NESCAFÉ^® brand ambassador. The integrated campaign was supported with strong media investment and collaboration with the Nutrition Society of Malaysia.

Foods
Notwithstanding the challenges on the domestic front, the total Food sector performed well across the entire sales channel in all three competing categories.

In line with the Nutrition, Health and Wellness direction, MAGGI^® 2 Minutes Noodles ran a successful “MAGGI^® Mee My Way” communication campaign, encouraging Malaysians to add fresh ingredients to their favourite instant noodles. The MAGGI^® Tastylite low fat noodles made further inroads among the weight conscious target market, with an increased share of the modern trade.

The MAGGI^® Cukup Rasa all-inone seasoning had a growth spurt following strong
celebrity-endorsed communication and activation support.

Meanwhile, Nestlé’s involvement in the contract farming for fresh chillies with local farmers continues, with MAGGI^® using the best of the chilli crop for its range of Culinary Sauces.

Milks
Enhanced consumer activation on key brands resulted in greater market share across the portfolio, namely for NESVITA OMEGA PLUS with ACTICOL (added plant sterols that has proven cholesterol lowering properties), COFFEE-MATE coffee creamer, NESVITA 3 in 1 nutritious cereal drink and family milk powder (EVERYDAY filled milk and NESPRAY Fortified full cream milk powder) as well as the Growing Up Milk portfolio (NESPRAY and NESLAC EXCELLA GOLD). The Group’s continuous efforts in mining consumer insights and investment in scientific research saw the introduction of NESVITA CALCIPLUS with CALCILOCK (a calcium cocktail which helps retain calcium in the bones) as well NESTUM with real fruits.

In 2009, favourable world milk prices enabled savings to be passed to our consumers via various phases of price reduction and consumer price promotions and Nestlé continues to constantly monitor the trend of world milk prices while maintaining efforts to improve operational efficiency through Nestlé Continuous Excellence programmes.

The Milks category will continue to drive the Group’s vision of being a recognised nutrition, health and wellness company.

Confectionery
The confectionery business clinched another sweet year of commendable growth despite significantly lower demand in the Malaysian chocolate market, which experienced a volume contraction of 10%. The growth was propelled by the “Working like a machine” campaign for KIT KAT which successfully engaged consumers; enticing them to HAVE their BREAK with KIT KAT.

In line with the Nutrition, Health and Wellness direction, portioncontrolled Single Finger KIT KAT was introduced; offering consumers a product form that assisted them in balancing their diet appropriately. This is additional to the existing effort to provide Guideline Daily Amount (GDA) nutrition information on each pack to assist consumers in making informed decisions on their daily calorie intake.

Another growth contributor was the Popularly Positioned Product (PPP) MILO^® WAFER. Now in its second year, the product continues to drive the growth of the MILO^® range with a 21% organic growth, largely driven by Traditional Trade due to its affordability.

The business also continues to lead growth in the Malaysian Traditional Trade segment, registering a growth of 22%, surpassing the overall market’s 4% growth, largely attributable to relentless efforts in ensuring the availability, visibility and accessibility of the right products.

Nutrition
Infant Nutrition continued to chart new ground by focusing on sciencebased,
stage-appropriate innovation and renovation.

Key launches during the period under review included the NAN Pro & NAN HA infant formulas with the addition of active probiotics BL Bifidus. The addition of BL Bifidus is aimed at strengthening the natural defences of all infants, when breastfeeding is not a viable option, particularly in cases of bifidobacteria-depressed gut microflora, which occurs in caesarean-born infants.

Other new products were NAN Pro 3 and NAN HA 3 formulated milk powder for children, which support the optimal growth and development of toddlers while providing users with continuity and usage extension.

Due to the rising cost of raw materials coupled with the soft economic climate, the introduction of the NAN Pro infant formula Bagin- Box 700g and Nestlé Baby Rice Cereal Bag-in-Box 200g was timely as it offered consumers value for money.

The year under review was a major milestone for Nestlé Infant Cereals with the rebranding to Nestlé CERELAC, launched together with additional protection benefits from BL Bifidus PRO PLUS. The union of CERELAC, the baby nutrition expert, with Nestlé, the nutrition expert, will further strengthen and entrench Nestlé’s position as the baby nutrition expert.

Nestlé HealthCare Nutrition sustained strong growth momentum through our science based nutritional products that are specially formulated for people with specific nutritional needs. To help consumers better understand their nutritional needs, the business unit organised various consumer engagement and awareness building activities aimed at helping diabetics understand diabetes management and how they can lead normal lives. This was supported by the launch of a new website – www.nestle.com. my/nutren.

During the period under review, the unit launched Nestlé NUTREN untuk Diabetik, formulated in accordance with International Diabetes Guidelines; offering a great tasting nutritional solution to those who need to manage their blood sugar level.

Additionally, Nestlé HealthCare Nutrition, which caters to the needs of critically ill patients through Nestlé PEPTAMEN, continued its education outreach initiatives by organising the 3rd ICU Nutritional Therapy Workshop targeted at medical professionals.

Meanwhile, Nestlé Performance Nutrition, which has over the years nourished local athletes and sportsmen by providing the right nourishment for them to improve and perform at optimum levels, continued to make inroads in the sector. The PowerBar Performance System for instance, guides users on how to use the range of products effectively during various stages of a sport, training or workout session. Additionally, consumers can learn more about performance and nutrition from the dedicated website - www.powerbar.com.my, along with the on-ground activities led by the Team Elite members consisting of athletes and sportsmen from various disciplines who help raise awareness on the importance of sports nutrition.

Chilled Dairy
Chilled Dairy, which embodies Nestlé’s focus on Nutrition, Health and Wellness continued its Innovation & Renovation efforts to provide a more extensive product mix to its consumers. BLISS Yogurt Drink is the only yogurt drink in Malaysia, which comes with Inulin (fibre) and Live Cultures that helps maintain a good digestive system. Another first is the newly improved YOCO Cultured Milk Drink, which is now a source of calcium, vitamin D and zinc – making it the only Cultured Milk Drink that aids in the growth and development of children.

Ice Cream
Sluggish consumer spending patterns due to overall concern about the economy resulted in the overall ice-cream market contracting. However, Nestlé Ice Cream managed to buck the trend by registering strong growth in the take home tub and adult & teen impulse segments.

Nestlé Ice Cream continued to be the market leader in the take home tub segment in both the affordable and premium range categories. Nestlé LA CREMERIA – the No.1 premium ice cream brand – continued to gain market share, attributable largely to a combination of quality, taste, variety and affordability.

The key highlight during the year under review was the highly successful re-launch of Nestlé DRUMSTICK Classics cones. The entire range of products was renovated with new improved recipes and re-launched with stronger DRUMSTICK branding, while a new strawberry variant was introduced to complement the range. Two new M Size DRUMSTICK offerings at an affordable price and smaller portion were also launched mid year with great success, to tap into the consumption preferences of older adults and evolving consumer preferences overall. Similar success was recorded for the re-launch of Nestlé POTONG sticks, the first of its kind with a centre core of whole beans, together with the highly popular CRUNCH and APPLE SOURZ, contributing collectively to the double-digit growth of the segment.

Nestlé Ice Cream also continues to be the first in the market to offer indulgence with nutritional reassurance. The MAT KOOL range of kids ice and frozen confections are now made 100% made with no artificial colours and possess the necessary nutritional foundation per serving size recommended for children’s’ consumption.

With a commitment to delivering ‘better for you’ products that give every consumer uncompromised pleasure, all Nestlé Ice Cream’s key strategic brands are well-positioned to continue contributing significantly to the turnover of the division.

Nestlé Professional
NESCAFÉ PROFESSIONAL became a globally managed business in 2009. As the current market leader in the out-of-home industry, NESCAFÉ PROFESSIONAL geared up to grow the business further by providing innovative and creative system solutions and products to its customers. A key highlight for the year was the launch of NESCAFÉ Burgundy and NutriPro.

The former offers a brand new dimension to the omnipresent NESCAFÉ brand as the more stylish & contemporary look of NESCAFÉ Burgundy conveys assurance that the end cup of coffee delivered through NESCAFÉ PROFESSIONAL’s services, systems solutions and products is of superior quality.

NutriPro (Nutrition for Professionals), meanwhile, is a resourceful, knowledgeable and reliable coaching tool providing professional expertise and holistic solutions pertaining to everyday nutrition, health and wellness challenges. NutriPro helps guide out-of-home operators to expand their businesses through nutritional relevance. With the debut of NutriPro in Malaysia, NESCAFÉ PROFESSIONAL was able to clearly stand out from the competition and create shared value by guiding operators on how to enhance their business further with even more healthier choices, which in turn benefits the consumer in the long term.

As Nestlé continues to grow and nourish Malaysia in 2010, NESCAFÉ PROFESSIONAL will strengthen its commitment towards being an inspiring growth partner by delivering creative food and beverage solutions to its customers.

Exports
The pressure on key materials eased substantially during the period under review, which in turn resulted in lower export prices. The period under review also saw a shift in the product mix, with lower exports of higher value Milk Powder products to much higher exports of ready-todrink beverages and Coffee Creamer which have lower per kilo value. While sales value receded from the impact of lower raw material costs and changes in the product mix, the overall export volume increased by 11.0% year on year from the preceding year. An increase in export volumes contributed significantly to overall manufacturing optimisation and efficiency, which resulted in higher positive absorption of costs for Nestlé Malaysia.

To create further inroads and stronger visibility for Halal Asian Culinary products in Europe, Nestlé Malaysia collaborated with Nestrade S.A., to launch the “Taste of Home Ramadan Campaign” in key European markets during the Ramadan period. The campaign successfully expanded awareness of Malaysian products with new consumers of the Halal Asian culinary range in Europe, consisting of traditional and nontraditional consumers.

Sales
The Sales team continued its journey towards excellence with key focus on two basic elements - Winning with Shoppers and Winning with Customers.

The team continued to ensure that Nestlé wins at the point of purchase by driving deeper and wider distribution of the company’s products, flawless execution of world class merchandising and promotions, and providing high quality customer service to trade partners. The team also improved collaborations with various trade customers by implementing successful Joint Business Planning and Key Account Management initiatives throughout the year.

The team also continued to embrace technology as part of their work culture. Further enhancements and developments in the Sales Force Automation via Hand Held Systems and Warehouse Management Systems were initiated to achieve speed, efficiency and transparency of information. Malaysia was also the first Nestlé market to pilot DMSone - an advanced web based distributor management system.

The successful rollout of the Nestlé Distributor Card programme continued in 2009, and contributed to further improvements in working capital and enabled the sales operations to focus more on demand generating activities.

Our people are our greatest assets and we continued to upgrade the sales, merchandiser and distributor teams through various training, workshop and on-the-job training sessions throughout the year. In addition, the Sales College – a joint initiative between Nestlé and the Open University Malaysia produced its 3rd batch of graduates in 2009.

Human Resource
In pursuit of our goal to be the leading Nutrition, Health and Wellness company, the Nestlé corporate values of Trust, Respect, Involvement and Pride continue to provide the guiding principles for everything we do at Nestlé.

Talent development for succession of business leadership is the key thrust of our development initiative. Additionally, in spite of the freeze on recruitment due to the soft economy, Nestlé continued to carry out selective recruitment to fill up our talent pipeline. This included mid-career hires and leveraging on available talents from our Internship and Management Trainees programmes.

Nestlé Malaysia has been selected as one of the pilot markets to roll out the enhanced Performance Evaluation & Personal Development (PE/PDG) process, which is a business tool aimed at enhancing the knowledge and competencies of our talents in our journey towards High Performance Culture.

Various learning and development programmes have been initiated and further refined to equip our people to be creative, committed and competent within the context of a high performing company and to make Nestlé “A Great Place to Work”. Nurturing people, unleashing talent by engaging their hearts and their minds through inspiring leadership will continue to be our critical focus in accelerating our business with flawless execution. “War on waste” in all aspects beyond the factory gate will be the corner stone of our Nestlé Continuous Excellence initiative.

The year under review also saw the start of a new chapter in Nestlé Malaysia’s operations, as the company relocated its corporate headquarters to Surian Towers, after having been at its earlier location for 27 years. The new ‘nest’ at Surian Tower bodes well for the ‘Wellness at Work’ initiative, which has been cleverly weaved into the layout of the new workplace.

The year under review also saw HR taking a brave and bold move with the online HR Satisfaction Survey, which welcomes feedback on HR support and services that could help the HR department improve in the delivery of services and “Making the Difference for Excellence”.

Finance and Control
Finance and Control (F&C) continued to play a vital role by providing the “co-pilot” functions to support all the business divisions. Acknowledging 2009 as a very challenging year, F&C has worked even closer with the business units to feed options and quick information to facilitate prompt and effective decision making.

After having successfully transferred Accounts Payable, Accounts Receivable and the transactional part of Accounting Operations to the Nestlé Business Services-AOA (NBS), based in Manila, Philippines in 2008, the year under review saw improved efficiency from NBS delivering their services. The services are tracked monthly using pre-defined SLAs and KPIs. After more than a year in operation, NBS has resulted in improvements in service quality and the economies of scale, and we are confident that there will be continuous benefits.

Apart from the distributor card programme, which has been very successful in reducing balance of Accounts Receivable significantly, the Group began to focus on other trade working capital, with the aim of bringing down the level of stocks and maintaining the Trade Net Working Capital at optimum level.

Production - Capital Expenditure
Total capital expenditure for the period under review was RM 266.8 million, up from the RM 177.0 million registered in the previous financial year, consisting of Manufacturing as well as Sales, Administration and Distribution. As in the previous year, the capital investments were in line with the increased Market demand and the growing demand for export volumes.

The beginning of 2009 saw the new Non-Dairy Creamer production line successfully go into operation at the Shah Alam Factory. The plant also commissioned a new line at the end of the year to produce Soluble Coffee at a higher capacity. The production line is designed and built in accordance with the latest standards and technologies and will mainly supply Soluble Coffee for the export market.

As in previous years we also have made investments in areas of quality assurance and cost saving initiatives. The year under review also saw an increase in capital investment in the non-production area, stemming from the relocation of our Nestlé Head Office to Mutiara Damansara.

Supply Chain
Significant strides were made by Nestlé Malaysia’s Customer Service Lines (CSL), which clocked 97.3% in 2009; up from the 94.9% registered in 2008 and 94% in 2007. In 2009 we handled 36.7 mio cases of products from 11 business units, sent to 175 distributors through 11 Nestlé and other third party warehouses, using 26 transport or freight handling companies.

The CSL to our International Accounts also ramped up from 95.3% in 2008 to 98.6% in 2009. Since 2007, we have assigned dedicated Customer Service executives progressively to all Accounts and have received commendations from leading retailers including Tesco and Carrefour for the consistently high service levels.

These CSL improvements come from effective cooperation within our Operations team comprising of Supply Chain, Production and Purchasing, which resulted in consistent supply, with our focus on the Customer, our Distributors and our International Accounts.

For 2010, we look forward to further improving the level of collaboration with all our Customers by actively engaging with their teams responsible to replenish stocks in their warehouses.

Prospects
With key indicators being upbeat for 2010, and the Malaysian economy set to benefit from the expected stronger global demand for its exports, we are confident that the Group will fully leverage on the uptrend.

Several products are currently under the innovation and renovation process, aimed at ensuring that we have the right products to achieve top and bottom line growth for the year. Focus will be on affordability by introducing more “Popularly Positioned Products” (PPP) to ensure that even more Malaysians can afford to purchase and enjoy the nutritional benefits of Nestlé products. NESTUM SARAPAN BERKHASIAT, NESPRAY CERGAS, MILO^® wafer and MAGGI^® CUKUP RASA are among the PPP products in the market, which have done well.

Over the past 3 years, Nestlé Malaysia has spent more than half a billion ringgit to develop capacity and technical skills for Halal manufacturing, both for domestic consumption and exports. This will be an ongoing process, which will grow in tandem with market demands.

Simultaneously, we have a host of internal activities and initiatives aimed at boosting
cost-efficiency and absorbing external cost pressures. The challenge is to react swiftly to the dynamic commodity market and keep pursuing initiatives and solutions to further optimize operations, which will help mitigate the impact of higher input costs.

We are committed in our aspirations to Nourish Malaysia and will stay focused on the journey to become the world’s trusted and leading Nutrition, Health and Wellness company.