Message to Shareholders (Annual Report 2017)

Alois Hofbauer & Dato Sri Dato' Seri Syed Zainol Anwar Jamalullail From left: Alois Hofbauer, Chief Executive Officer - Nestlé (Malaysia) Berhad and Y.A.M Tan Sri Dato' Seri Syed Anwar Jamalullail, Chairman

Dear Shareholders,

2017 was another challenging year for us as we faced hurdles in both the domestic and global economic arena.

To an extent, we had largely anticipated these market conditions and had clear plans in place to mitigate their impact on our business. As a result, the Group delivered a sustained growth trajectory throughout the year and we enter 2018 confident that we are in a position to continue to build on our success.





On behalf of the Board of Directors, it therefore gives us great pleasure to present the Company’s Annual Report for the financial year ended 31 December 2017.

Economic Landscape

Throughout 2017, economic uncertainty prevailed both at home and abroad. The weakening ringgit increased the costs of our imported raw and packaging materials and the overall rise in commodity prices negatively impacted our business. In addressing these challenges, we proactively implemented a comprehensive range of internal and external efficiency and cost management initiatives which enabled us to continue to deliver value to our consumers. On top of this, Nestlé is an innovation powerhouse. Our drive to innovate in order to steer growth enabled us to continue delivering exciting new products that are of high quality, offering greater value to our consumers.

Delivering Growth through FIT

Our ongoing FIT operational strategy remains at the heart of our success. FIT represents the three key pillars which power our growth – ‘Fuel to Grow’, ‘Innovate to Grow’ and ‘Transform to Grow’. Our FIT strategy has been pivotal in steering us through the challenges throughout the year to deliver sustainable growth.

Our Purpose and Values

In 2017, we have been inspired by the launch of the Nestlé Group’s newly articulated Purpose, driving us towards ‘Enhancing quality of life and contributing to a healthier future’ and guiding us by our Values, which are rooted in Respect: Respect for ourselves, others, diversity and for the future.

As we progress, it is important that we all continue to embrace the same purpose and stand guided by the same values that define how we will move forward as an organisation.

The fundamental principles behind our purpose and values have led us to achieve 105 years of success in Malaysia and they will continue to guide us in the future. We at Nestlé are all responsible, both individually and collectively, for incorporating Nestlé’s purpose and values into everything we do, enabling us to bring greater value and impact to society.

We accelerated our growth to 3.9%, lifted our market share to 15.5% and increased our profit
before tax by 6.2%

Financial Performance

Despite the strong headwinds coming from higher commodity prices and a weakened ringgit, we accelerated our growth to 3.9%, lifted our market share to 15.5% and increased our profit before tax by 6.2%.

Our emphasis on investments in marketing and trade activities to sustain value for money for our consumers and our focus on innovation and continuous efficiency increases were key determinants of our success which will continue to sustain our turnover and profit growth in the future.

Dividends

Whilst we do not have an official dividend policy, we are committed towards delivering the best value to our Shareholders via consistent dividend payments. The Board of Directors declared a final dividend of RM1.35 per share for the financial year ended 31 December 2017, bringing total dividends for the year to RM2.75 per share.

Corporate Governance

We place a high value on corporate governance and our corporate culture adopts the strictest standards of compliance, accountability and transparency in everything we do. We understand that sustaining good governance ensures the trust of all our stakeholders and is key to our future success.

In 2017, we welcomed the introduction of the Securities Commission’s new Malaysian Code on Corporate Governance. We take this opportunity to further enhance our corporate governance provisions in line with this.

Awards & Recognitions

Throughout the year, we were again the proud recipient of numerous prestigious awards.

In recognition of our strong sustained performance, we received the Gold accolade for the Highest Return on Equity over the Past Three Years for the Consumer Products category at The Edge Billion Ringgit Club Awards. We were also recognised at the Minority Shareholder Watchdog Group (MSWG) ASEAN Corporate Governance Award with the Industry Excellence Award under the Consumer Product category for our exemplary standards of corporate governance; and received the Special Mention award at the PwC Building Trust Awards 2017, topping the charts in the Trust in Business Public Poll.

For our commitment to employee engagement, we were named ‘The Most Popular Graduate Employer’ in the FMCG category for the fifth consecutive year by Grad Malaysia; one of the top three Most Attractive Employers for the second year running at the Randstad Award 2017; and for the second consecutive year as one of the top 10 companies Malaysians want to work for by JobStreet.com. We were also recognised as the ‘Healthiest Employer 2017’ under the Large Organisation category of the inaugural Malaysia’s Healthiest Workplace survey organised by AIA Vitality.

Our products also took home top accolades. Six of our brands received trophies at the 2017 Putra Brand Awards. Two of our key brands, MILO and MAGGI, won Gold awards; NESCAFÉ and KIT KAT took home Silver Awards and NESTLÉ OMEGA PLUS as well as Nestlé Breakfast Cereals were honoured in the Bronze category. The Putra Brand Awards is the only brand awards in the country endorsed by the Malaysian External Trade Development Corporation (MATRADE) and supported by the Branding Association of Malaysia, the Malaysian Advertisers Association and the Media Specialists Association. At the Product Innovation Award 2017, hosted by the Malaysian Institute of Food Technology, Nestlé CERELAC NUTRIPUFFS and Nestlé BLISS PLUS received the Gold and Silver awards respectively.

We are also delighted to announce that our reporting was honoured this year. At the National Annual Corporate Report Awards (NACRA) 2017, we were privileged to take home the highest honour of Platinum for our 2016 Nestlé in Society sustainability report. We had also won the Gold accolade for the Food & Consumer Packaged Goods category at the Annual Report Competition (ARC) International Awards, which is one of the world’s premier annual report competitions hosted in New York.

Outlook

We have a robust plan for sustainable growth in place and we are confident that our FIT strategy will enable us to meet the challenges ahead. We will continue to lift efficiency across our entire value chain and reinvest our realised improvements into growing our business sustainably. Moving forward, we will remain guided by our purpose of enhancing quality of life and contributing to a healthier future and continue to focus on delivering high quality products at greater value to all Malaysians.

Appreciation

The strong performance of our Company throughout this year could not have been achieved without the dedication of our Management Team and we thank them for their strong leadership. We are extremely grateful to our valued employees and we would like to extend our appreciation to them for their support and loyalty; and we express our gratitude to our consumers and all Malaysians who continue to place their trust in Nestlé.

Working in partnership with all our customers, suppliers, business partners and Shareholders, we look forward to the coming year with confidence.


Thank you.

Tan Sri Dato' Seri Syed Zainol
Anwar Jamalullail

Chairman

Alois Hofbauer
Chief Executive Officer - Nestlé (Malaysia) Berhad