Nestle S A : Alternative Performance Measures - July 2021 Edition (pdf, 2Mb)

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Alternative Performance Measures

July 2021 Edition

Definitions of Alternative Performance Measures

The Annual Report, the Half-YearReport and other communication to investors contain certain financial performance measures, which are not defined by IFRS, that are used by

management to assess the financial and operational	performance	of the Group. Management
believes that these non-IFRS financial performance	measures provide useful information
regarding the Group's financial and operating performance. Such	measures may not be

comparable to similar measures presented by other companies. The main alternative performance measures used by the Group are explained and/or reconciled with our IFRS measures (Consolidated Financial Statements and/or Condensed Interim Financial Statements) in this document.

Foreword

Evolution of the Net financial debt and Return on Invested Capital are presented only on a yearly basis as these are not relevant at the end of an Interim period.

Organic Growth (OG)

OG combines Real internal growth and Pricing and represents the growth of the business after removing the impact of acquisitions and divestitures and other changes in Group scope of activity, and exchange rate movements. This provides a "like-for-like" comparison with the previous year in constant scope and constant currency, enabling deeper understanding of the business dynamics which contributed to the Evolution of sales from one year to another.

In order to limit the distorting effect of hyperinflation, pricing in excess of around 2% per month (the level at which hyperinflation generally occurs) are excluded from OG calculations in hyperinflationary economies, with a corresponding adjustment in changes in exchange rates. The exception to this is Venezuela, which the Group excludes completely from RIG, Pricing and OG to eliminate the volatility due to this extreme business environment.

For purposes of calculating OG (a) the sales of an acquired business are excluded for the 12 months following the business combination, but incremental sales generated by post-acquisition expansion of the business are generally included; and (b) sales of

a divested business are removed from comparatives for the 12 months prior to the divestiture. Supply agreements related to the divested business are included in acquisitions and divestitures during a transitory period. The pricing impact of changes in the way that a business is transacted in an entire country (e.g. establishing a local operating company instead of exporting to a distributor, or vice versa) are included in acquisitions and divestitures, respectively.

The effects of changes in foreign exchange rates are calculated as the current year sales' values converted at the current year's exchange rates, less the current year's sales converted at the prior year's rates.

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Real Internal Growth (RIG)

RIG represents the impact on sales of volume increases or decreases, weighted by the relative value per unit sold. It is calculated at the level of the individual product reference (stock keeping unit) per distribution channel, by comparing the weighted sales (this year's volumes valued at the prior year's prices in local currency) to the prior year's sales. At the product level, it is therefore primarily driven by changes in volume, while when aggregated at operating segments or Group level, it embeds the impact of the evolution of the product mix. Sales of newly launched products are included from the moment of launch which tends

to increase RIG, while products which are discontinued have a negative impact on RIG since the historical sales continue to be included in the prior year comparatives. This reflects in a balanced way the impacts of renovation and innovation and the impact on sales coming from ongoing product rationalization efforts. In hyperinflationary economies, the sales of newly launched products are deflated to the price level of the prior year.

As RIG is a component of OG, it excludes the impact of acquisitions and divestitures, and exchange rates.

Pricing

Pricing is part of OG and represents the portion of sales growth caused by changes in prices over the period. It excludes the impact of RIG, as well as the impact of acquisitions and divestitures, and exchange rates.

Analyzing pricing allows management to assess the degree to which inflationary (but not hyperinflation, see Organic Growth above) or deflationary factors have contributed to sales evolution, and the degree to which cost changes have been passed to customers.

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Evolution of Sales

The Group uses OG (including RIG and Pricing), exchange rate impacts, and the effects

of acquisitions and divestitures in order to understand the Evolution of sales from one year to the prior year (either the increase or the decrease in the current year's sales compared with the prior year's sales, expressed as a percentage).

Total Group

Sales (in millions of CHF) Evolution vs prior year (in %)

January-June

2021

41 755

+1.5%

January-June

2020

41 152

-9.5%

The reconciliation of OG to the total Evolution of sales is as follows:

Total Group
In %
		January-June	January-June
		2021 vs	2020 vs
		January-June	January-June
		2020	2019
Real Internal Growth	+6.8%	+2.6%
Pricing	+1.3%	+0.2%
Organic Growth	+8.1%	+2.8%
Effect	of exchange rates	-3.5%	-7.0%
Effect	of acquisitions, divestitures and other changes in Group scope activity	-3.1%	-5.3%
Evolution of sales	+1.5%	-9.5%

Underlying Trading Operating Profit Margin

Underlying Trading operating profit margin is when Underlying Trading operating profit is calculated as a percentage of sales. Underlying Trading operating profit is Trading operating profit before the impact of Other trading expenses and Other trading income (mainly restructuring costs, impairment of property, plant and equipment, and litigations and onerous contracts). See note 4 of theConsolidated Financial Statements of the Nestlé Group 2020 (www.nestle.com/sites/default/files/2021-02/2020-financial-statements-en.pdf)for more details of Other trading expenses and Other trading income.

The exclusion of these items allows tracking and better understanding and prediction of the results due to the day-to-day trading activities under the control of the operational management in the business units. It excludes the impacts of decisions (such as factory closures, disposal of a piece of real estate, or restructuring plans) made in conjunction with Zone or GMB management, or litigations and disputes or events which distort the underlying performance due to their frequency or the unpredictability of the outcome.

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