BBF3084 GLOBAL FINANCE

Trimester 2, 2019/2020

A Multinational Company Study: Nestlé

Submission date: 25 January 2019

BM 1A
Tutorial Group: ____________________
Tutor: Dr. Ng Tuan Hock
Prepared by:
Student ID Student Name E-mail Add. Hand Phone No.
1141128264 Lee Wei Chao [email protected] 014-6322485
1141128208 Lee Min Yan [email protected] 012-6428981
1141128411 Teng Yee An [email protected] 017-9748168
1141128436 Wong Keet Yee [email protected] 010-7061113
1141128689 Foo Cheng Yong [email protected] 010-2698782

Declaration by group leader

I hereby declare that all group members’ names are correctly included in the above section. I
hold a copy of this assignment which I can produce if the original is lost or damaged. I certify
that no part of this assignment has been copied from any other student’s work or from any
other source except where due acknowledgement is made in the assignment.

Group leader’s signature : _____________________________

Group leader’s name : _____________________________

Group leader’s student ID : _____________________________

Date : _____________________________
Assessment rubrics

Analytic rubrics (usually used when the assessment is based on a number of criteria.)

Score Content Oral Presentation Written presentation

17 marks 5 marks 3 marks
80% - 100%  Demonstrate complete  Appropriate voice and tone  Well organised
understanding of the  Good eye-contact  No grammatical or
problem  Communicate naturally and structural errors
 Original contribution fluently  Good formatting
 Clear evidence of creativity  Clearly organised  Report is prepared in a
 All requirements are  Appropriately dressed. professional manner
included.  All references are properly
included
 All submission requirements
are met
60% - 79%  Demonstrate sufficient  Appropriate voice and  Well organised
understanding of the tone  Minimal grammatical or
problem  Good eye-contact structural errors
 Original contribution  Communicate naturally  Proper formatting but not
 Some evidence of creativity  Properly organised outstanding
 All requirements are  Appropriately dressed.  Evidence that report is
included. carefully and thoughtfully
prepared
 All references are properly
included
 All submission requirements
are met
40% - 59%  Demonstrate partial  Rather poor voice and tone  Lacks organisation
understanding of the  Lacks eye-contact;  Some grammatical or
problem.  Lacks clarity in explanation structural errors
 Some original contributions  Lacks organisation  Rather poor formatting
 Some evidence of creativity  Appropriately dressed.  Lack evidence that report is
 Most requirements are carefully and thoughtfully
included. prepared
 Some references are missing
 Some submission
requirements are not met
20% - 39%  Demonstrate little  Poor voice and tone  Lacks organisation
understanding of the  Poor eye-contact;  Apparent grammatical or
problem  Communicate awkwardly structural errors
 No evidence of original  Poor organisation;  Formatting issues
contribution  Not appropriately dressed.  Evidence that report is
 No evidence of creativity carelessly prepared
 Many requirements are not  Some evidence of plagiarism
included.  Significant submission
requirements are not met
0% - 19%  Misunderstood the  Inappropriate voice and  No organisation
problem. tone  Apparent grammatical or
 No evidence of original  No eye-contact; structural errors
contribution  Fail to communicate the  Very poor formatting
 No evidence of creativity contents  Evidence that report is
 Significant requirements are  Not organised carelessly prepared
not included.  Not appropriately dressed.  Clear evidence of plagiarism
 Submission requirements
are not met

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Holistic Rubrics (usually used when errors in some part of the process can be tolerated, provided the
overall quality is high)

Score Description
80% - 100%  Demonstrate complete understanding of the problem
 Original contribution
 Clear evidence of creativity
 All requirements are included.
 Report is well organised, with proper formatting and preliminary pages
 All references are properly quoted and referred.

60% - 79%  Demonstrate sufficient understanding of the problem

 Original contribution
 Some evidence of creativity
 All requirements are included.
 Report is well organised, with proper formatting and preliminary pages
 All references are properly quoted and referred.

40% - 59%  Demonstrate partial understanding of the problem.

 Some original contributions
 Some evidence of creativity
 Most requirements are included.
 Report is not organised, no proper formatting and preliminary pages
 References are not properly quoted and referred.

20% - 39%  Demonstrate little understanding of the problem

 No evidence of original contribution
 No evidence of creativity
 Many requirements are not included.
 Report is not organised, no proper formatting and preliminary pages
 References are not properly quoted and referred.

0% - 19%  Misunderstood the problem.

 No evidence of original contribution
 No evidence of creativity
 Significant requirements are not included.
 Report is not organised, no proper formatting and preliminary pages
 References are not properly quoted and referred.

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 Table of Contents

1.0 Introduction ...................................................................................................................................... 1

1.1 Background of Nestlé .................................................................................................................... 1

2.0 Corporate risk and strategic management ....................................................................................... 2

2.1 Risks of Nestlé through multinational operation .......................................................................... 2

2.1.1 Impact of politic factors on Nestlé ......................................................................................... 2

2.1.2 Impact of legal factors on Nestlé ........................................................................................... 3

2.1.3 Impact of economic factors on Nestlé ................................................................................... 4

2.1.4 Impact of technology factors on Nestlé ................................................................................. 5

2.1.5 Impact of environment factors on Nestlé .............................................................................. 6

2.1.6 Impact of social factors on Nestlé.......................................................................................... 7

2.2 Ways to create value/minimise risks ............................................................................................ 8

3.0 Nestlé financial management ......................................................................................................... 11

3.1 Capital sourcing. .......................................................................................................................... 11

3.1.1 Debt...................................................................................................................................... 12

3.1.2 Equity ................................................................................................................................... 13

3.1.3 Bonds - Nestl Holdings, Inc., USA, year 2017 ....................................................................... 14

3.1.4 Bonds - Nestlé Finance International Ltd., Luxembourg...................................................... 16

3.1.5 Overall bonds in year 2017 .................................................................................................. 17

3.1.6 Nestlé S.A. shares and stock information ............................................................................ 18

3.1.7 Nestlé share capital.............................................................................................................. 19

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 3.1.8 Nestlé invested capital in product category ........................................................................ 20

3.1.9 Nestlé invested capital in operating segment ..................................................................... 21

3.1.10 Return on invested capital ................................................................................................. 21

3.2 Foreign Exchange Exposures and Management ......................................................................... 22

3.2.1 Cost and Revenue. ............................................................................................................... 22

3.2.1.1 Cost ................................................................................................................................... 22

3.2.1.2 Revenue ............................................................................................................................ 23

3.2.1.3 Nestlé geographic area sales based on zone in percentages ........................................... 23

3.2.1.4 Nestlé geographic sales and revenue ............................................................................... 24

3.2.1.5 Nestlé sales based on product category ........................................................................... 24

3.2.1.6 Nestlé shareholding ownership information .................................................................... 26

3.2.1.7 Types of currency used ..................................................................................................... 29

3.2.2 Nestlé’s practices of conducting foreign exchange risk management ................................ 30

4.0 Limitation and Recommendation ................................................................................................... 34

5.0 Conclusion ....................................................................................................................................... 35

References ............................................................................................................................................ 37

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1.0 Introduction

Figure 1: Nestlé’s Logo & Slogan

1.1 Background of Nestlé
The company we chosen is Nestlé. Nestlé was found in Vevey, Switzerland more than 150 ago in 1867,
when the founder Henri Nestlé created one of the first infant foods in response to the need for a
healthy and affordable product to serve as an alternative for mothers who could not breastfeed their
babies. The brand name - Nestlé was only start using after merges with Anglo-Swiss in 1905, prior the
combination with Anglo-Swiss, the product was called as Farine Lactée Henri Nestlé.
Today, Nestlé own more than 2000 brands ranging from global icons to local favourites, which
included Milo, Nescafe, Nestlé ice cream and so on. Besides, Nestlé has exact 477 factories present in
189 out 195 countries around the world and the employees who work with Nestlé are more than
339,000 people. In 2014, Nestlé was recognized as the world’s largest food and beverage company,
measured by revenues and other metrics. Furthermore, Nestlé ranked No.64 on the Fortune Global
500 in 2017.
Nestlé’s vision is to be the leader in Nutrition, Health, and Wellness Company by delivering world-class
products of the highest consistent quality, reliability, and convenience based on business excellence
principles throughout the operation. Besides, Nestlé’s mission is to enhance the quality of life with
good food and beverages, everywhere, so people could live a healthier life. In order to achieve their
vision and mission, Nestlé Nutrition Research Centre pays great attention to understand the
consumers' nutritional and emotional needs and utilize today's world superior science and technology
to produce high quality products to the world. (Nestlé, 2018).

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2.0 Corporate risk and strategic management
2.1 Risks of Nestlé through multinational operation
There are six type of Nestlé’s risk through multinational operation, which are politic, legal, technology,
economic, environment and social. All of the risk and factors will be discuss on the particular part with
detail.
2.1.1 Impact of politic factors on Nestlé

Figure 2.1 Sugar Tax Malaysia

In 2018, the government Malaysia has imposed the soda tax under budget 2019 in order to fight the
obesity and health problem in Malaysia. The main purpose of introducing the soda tax is want to
increase the price of the beverage which contain high sugar and decrease the demand of the high
sugar beverage (The Edge Markets.com, 2018). Thus, this new tax will actually affect the demand of
Nestlé beverages such as Milo, Nescafe, Bliss and so on. This is due to most of the Nestlé beverages
have exceeded the sugar contain per 100 millimeter that set by government. For example, Nestlé Bliss
contains more than 15 gram of sugar per 100 millimeter. Furthermore, once the tax imposed on Nestlé
beverage, the price will be higher and people will most likely go for
other subsidiary which in lower price. Nevertheless, this is yet the
worst situation, the worst situation will be this tax will increase the
awareness of consumers, this will cause they get rid of the high sugar
contains beverage, and no longer interested in high sugar beverages.
Therefore, Nestlé will lost most of their potential customers not only
because of the price of the beverages but also their healthy awareness.
Moreover, Malaysia is not the only country that exercise this
regulation, there are some other countries such as Mexico and
Thailand have imposed the soda tax on the high sugar beverages as
well. From the information above, we can know that many countries
are fighting with sugar and promote healthy lifestyle to their nationals, this will be a major obstacle
for Nestlé to enlarge their market globally.

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2.1.2 Impact of legal factors on Nestlé

Figure 2.2 Lawsuit alleges child labor used for Nestlé chocolate products
There are many cases that related to Nestlé in term of the legal issues. The most common case
definitely is the child labour issue. According to the online news, it alleged that Nestlé are using child
labour in cocoa plantation in the Ivory Coast. The cocoa is one of the raw material of making products
Nestlé. Therefore, Nestlé chose to ignore the child labour issue in order to lower the cost of production
(Smith, 2015). Besides, they also found that there are forced labours in Nestlé supply chain in Thailand.
The seafood industry in Thailand is one of the major supply chain under Nestlé to produce Fancy Feast
cat food brand (Kelly, 2016). Forced labour considers as labour abuse and it is illegal to do so, these
illegal issues will harm Nestlé’s reputation and it will cause Nestlé lost the market. This is because
there are some countries had banned to import the goods made
by child and slave labours. For instance, United State had started
to impose the regulation under The Trade Facilitation and Trade
Enforcement Act of 2015, which purpose of banned imported
goods made by child and slave labours (Bain, 2016). Therefore,
Nestlé will most likely lost the market in many countries, if they
unable to solve the child and slave labours issues.
Other than the child labours issues, Nestlé also facing the issue
of illegally bottling California water. There is an environmental
group claims that Nestlé illegally pump millions of gallons of
water from California’s San Bernardino National Forest with a
permit which already expired decades ago and it actually breaks
the federal law. Moreover, this case already become one of the
major reason that lead to the peoples in California boycott the
products of Nestlé, and they seem Nestlé as thief. This is due to the people in California suffered by
drought because Nestlé piping millions of gallons water from California (Moodie, 2015). Therefore,
this issue has affect the image of Nestlé, once the reputation of Nestlé become worst, people will not
have interested in their product anymore.

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2.1.3 Impact of economic factors on Nestlé
Trade war between United State and China will have a
massive impact to the world economic. This is because
many economists have predicted that the trade war
between two giant countries will spark the next global
financial crisis (Olsen, 2018). Furthermore, according to
International momentary fund, next global financial
crisis most likely will happen on 2019 and one of the
spark that cause financial crisis is the trade war between
China and United State (Collinson, 2018). Besides, the financial crisis on 2019 will more bigger and
serious compare to financial crisis on 1998 and 2008, it will bring negative impact to many industries
and Nestlé is hard to safely escape from the next financial crisis on 2019. This is because most of
people will suffer by the lower value of money and the higher price of goods, thus, this will cause
people have no enough money to buy the unnecessary goods or most of them might choose to buy
cheaper subsidiary goods. According to Wikipedia, there are wide range of products that provided by
Nestlé, for example, chocolate, bottled waters, cereal, infant food and so on. However, most of the
products are consider as unnecessary products for example snacks and pet foods. This is because
people will use their money to buy rice or something that they are necessary rather than spend money
on snacks or pet foods during financial crisis.
Take Malaysia as an example, if Malaysia are facing financial crisis, people will suffer by the
circumstance of high inflation and low income, and this will affect the purchasing power of Malaysian.
Even though Nestlé has sell many kind of products in Malaysia such as Kit Kat, Milo, Nestlé ice cream
and so on. However, once Malaysia are facing financial crisis, most of the people will not spend money
on snacks like Kit Kat and ice cream. Furthermore, most of the people will not go for Milo as well, they
most likely will go for other subsidiary goods such as Tesco brand chocolate drinks which are cheaper
than Milo. Therefore, this will cause the demand of products Nestlé will decrease and this will bring
negative impact to Nestlé in term of their marketing and future development.

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2.1.4 Impact of technology factors on Nestlé
The growing of advance technology has
bring pros and cons to Nestlé. One of the
risk in term of technology is the internet
become common and most of people will
spend at least 1 hour on surfing internet.
This is due to there are many information
are able to found on internet including the
scandals of Nestlé and this has high
probability to affect the image of Nestlé.
For example, internet are convenience to
users to access the information of Nestlé,
once users search “scandals of Nestlé” on
the search engine, it will show at least ten
different scandals related to Nestlé such as using slave and child labors. Besides, this leading to the
market of Nestlé decline due to if some of the people feel uncomfortable to what Nestlé had done,
they will boycott products Nestlé and go for other subsidiary products.
In the same time, online social media
such as Facebook is a very powerful
platform to spread the information.
There are many non-government
organization (NGO) are using the online
social media platform to spread the
information that what Nestlé had done
and ask people to sign the petition in
order to create awareness regarding human right issues (Emara, 2018). For example, there is a video
called as “is Milo really a healthy drink” was viral on social media few month ago, and the video has
more than 10 thousand viewers, this cause the people has created healthy awareness and doubtful
about the ingredient of Milo. Thus, this already cause many people get rid of consuming Milo in order
to take good care of their health. However, Nestlé finally admits Milo is not a healthy beverage after
pressure by the users on social media.

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2.1.5 Impact of environment factors on Nestlé
Environment factor has bring huge negative impact to
Nestlé. Bottled waters is one of the categories of
products in Nestlé, hence, Nestlé has to pump lots of
underground water in order to sustain the product line
of bottled water (Moodie, 2015). However, there is a
case between Nestlé and California in United State
already cause dissatisfaction of the residences in California, and they decide to boycott Nestlé in order
to show their dissatisfaction to Nestlé. One of the reason they object Nestlé continue to pump water
from California is because the water pumping activity that done by Nestlé has a major damage to the
forest in California. Besides that, there is a prove that Nestlé was taken the underground water in
California without permission for decades, this cause part of the Strawberry Creek went dry for the
first time ever, and the residences in California are facing drought again (Morris, 2016).
Moreover, Nestlé has also commit in the palm oil scandal.
Pump oil is one of the raw material of products Nestlé,
thus huge amount of palm oil is needed by Nestlé. There
is a news reports that over 10,000 hectares of forest gas
been deforest by palm oil plantation, and the palm oil
plantation is one of the supply chain in Nestlé. The
deforest activity has brought huge damage to the environment and the wild animals. Therefore, this
cause many people around the world dissatisfy with the products that produce by Nestlé, and the
image of Nestlé was affected as well (metrowebukmetro, 2010).

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2.1.6 Impact of social factors on Nestlé
Nowadays, most of the people are well
educated, this lead to they are capable to
distinguish what is bad and good to them,
and they would not blindly follow the
trend or tradition. Furthermore, the
changes of their education level has
significantly affected their lifestyle, for
example, Nestlé had promoted the infant milk powder to African mother in Africa, and due to their
low education level, this cause the mothers in Africa gave up to feed their children with breast milk
but feed them infant milk powder, because they trusted what the promoters said and fail to do
research. From this case, we able to understand that the mother who have low knowledge, they will
thought about feeding infants or toddles milk powder that produces by Nestlés are better than breast
milk from mother because of the advertisement, and an educated people will not blindly follow and
trust what is in the advertisement, however, they will go and understand the information of product
before they feed infant or toddle (DEE, 2018).
Furthermore, due to the campaign and encouragement by government as well as non-government
organization, many people are highlighted on the healthy lifestyle and get rid of unhealthy foods and
activities. Therefore, this will also be a challenge for Nestlé in term of social factors in future. The
reason being although the vision and mission of Nestlé is provide healthier food and beverage to
people, but according to the reports, it indicates that the sugar level of products Nestlé are quite high
and already exceed the maximum amount of added sugars a human may consume in a day. For
instance, a KIT KAT wafer Bar has contain 49 gram of sugar and it is much higher than the maximum
amount of sugars a human may consume in a day which is 37.5 grams (Gunnars, 2018). In the same
time, there is a news report shows that
Nestlé had emitted that Milo is actually not
a healthy beverage if it is not contains milk,
and it only worth 1.5 Health Star Rating
(POPOSKI, 2018). Thus, change of lifestyle is
one of the risk that might face by Nestlé in the future.

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2.2 Ways to create value/minimise risks
Today, Nestlé is one of the largest world leading food and beverage companies. And it is also becoming
the world’s leader in nutrition, health and wellness. The categories of Nestlé’s product lines can be
listed as coffee, water, beverage, dairy, ice cream, infant nutrition, frozen foods, chocolate, and pet
care. In this section, we will identify how Nestlé would create value to maintain its competitive
advantage in the industry.

The first is that Nestlé create value through their human capital which benefiting their local economies.
Nestlé is a company which take good care about their people and worker. The company is committed
to forming long-term value rather than short term. Their target had included their shareholders and
all those peoples around the world where they market their products. Besides that, Nestlé had
successfully create value via the human capital based on the concept of ‘food is a local matter’ in China
in the late of 1980s. In the 1987, the first local production for Nestlé was established which named
Nestlé Shuangcheng Ltd and more factories have been established afterword. Nestlé’s know-how has
helped China to replace imports in foreign currency with locally manufactured products. Until today,
there were many factory had establish by Nestlé and about 99% of its products which had similarly
high quality were manufactured locally and retailed in China. With the amount of factory, Nestlé had
created about 12,000 job opportunities for the local people in every places. Thus, all the people had
seen through Nestlé contributes so much for the development of local economy and increase the
community employment rates.

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Furthermore, Nestlé create value through Foreign Direct Investment. Nestlé has encounter the
international market through foreign direct investment which is FDI mainly in the dairy industry. They
had make sure that their international expansionary strategies are implemented within the company
as a key driver for the industry growth. Throughout the FDI, Nestlé has been able to enlarge their
operations to less developed economies, and thus utilise the advancing technologies to control
manufacturing to complement with the local conditions. Nestlé had also exploited cheaper labour in
these less developed economies and achieved economies of scale, reducing overall costs, providing
cheaper product with greater quality to customer, and thus gaining a competitive advantage.

Other than that, Nestlé create value through a combination of core competencies and cost leadership
in a diversified market. Nestlé market share is stretched through product differentiation and by
modifying products to the different tastes and cultural prospects of respectively region. The Nestlé
brand portfolio covers practically all food and beverage categories which including milk and dairy
products, nutrition (infant, healthcare, performance and weight management), ice cream, breakfast
cereals, coffee and beverages, culinary products (prepared dishes, cooking aids, sauces etc.),
chocolate and confectionery, pet care, bottled water. Many of the Nestlé’s brands have group their
own leadership, both globally and in the local markets. However, they also concerns about the foods’
packaging, advertising, taste and composition. Although Nestlé had offer the product in some minor

9
differences between counties, Nestlé has made their efforts to offer a consistent product worldwide
as a result of improved communication between Nestlé’s separate regional offices. Moreover, Nestlé
is marketing a range of products at affordable prices for the lower-income consumers in many
countries, Even though the cost is low, Nestlé provide a balanced diet by reimbursing for local dietary
deficiencies, and mixing good taste with suitable and appropriate nutrition for the consumer.

In addition, Nestlé also create value from their Research and development. Nestlé research
and development has enabled Nestlé to become the food industry leader in nutrition, health and
wellness over the organisation’s ability to form Innovation Partnerships at each stage of the product
development process. Moreover, Nestlé had invests around CHF 1.5 billion* in R&D every year and
the amount is more than any other food company. Thus, they confidently believe that their research
can create better food so that more and more people live a better life. Through constant improvement
of new products and renovation of existing products, Nestlé is creating and enhancing hundreds of
Nestlé products, especially in terms of their nutritional benefits.

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3.0 Nestlé financial management
In this section, the financial management of the Nestlé Group will be discussing in the following parts
which are capital sourcing and foreign exchange exposures & management analysis. All the data
source is from the Consolidated Financial Statement of the Nestlé Group 2017 in the Nestlé annual
report 2017.
3.1 Capital sourcing.
Capital sourcing will be discuss about two financing of Nestlé Group, which are liabilities and equity of
Nestlé Group. The annual report unit currency will be in millions of Confoederatio Helvetica Franc
(CHF). CHF is the abbreviation for the Swiss franc, the official legal tender of Switzerland and
Liechtenstein (Chen, 2017). Besides, the Nestlé’s equity, debt, bonds, shares and stock prices and
share capital will be discuss in the particular part. Below Figure 3.1 show the consolidated balance
sheet as at 31 December 2017 which concluding the calculation of total liabilities, total equity and
total liabilities and equity. The total liabilities and equity in year 2017 is being decreased to CHF 130
380 million which the amount in year 2016 is CHF 131 901 millions.

Figure 3.1: Consolidated balance sheet as at 31 December 2017 (before appropriations)

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3.1.1 Debt
Base on the consolidated balance sheet as at 31 December 2017 (Figure 3.1), it shows the total
liabilities in year 2017 is higher compare to year 2016 which the amount is CHF 67 603 millions
compare to CHF 65 920 millions. It show an increase of CHF 1 683 million (2.55%) in year 2017.
Although the total current liabilities show decline of CHF 1 463 million (- 3.89%) in year 2017 but the
total non-current liabilities had being increased around CHF 3 146 million (11.08%) in year 2017
compare to year 2016. The long term liabilities in annual report have including financial debt,
employee benefits liabilities, provisions, differed tax liabilities and other payables.

Figure3.2: Financial assets and liabilities (Notes 12)

Besides, the amount of financial debt and other payable in year 2017 did show increased. According
to annual report 2017, financial debt are initially recognised at the fair value of consideration received
less directly attributable transaction cost. Financial debt in non-current account shows increased in
large amount which increased from CHF 11 091 millions in year 2016 to CHF 15 932 millions in year
2017. According to notes 12 (figure 3.2) of consolidated balance sheet as at 31 December 2017, the
loan, receivable and liabilities at amortised cost for financial liabilities is CHF 47 842 million and the
derivative liabilities amount is CHF 507 million.
Next, the employee benefits liabilities in non-current liabilities had decreased in year 2017. The notes
10 of consolidated balance sheet as at 31 December 2017 shows the total defined benefits retirement
plans for employee in year 2017 had being decreased obviously at least CHF 1 430 millions compare

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to year 2016. In year 2017, the net defined benefit retirements plan was CHF 3 576 millions but the
amount in year 2016 is CHF 5 006 millions.
On the other hand, the provision in non-current account show there is a decreased amount around
CHF 195 million among year 2017 and 2016. Notes 11 of consolidated balance sheet as at 31 December
2017 show Nestlé Group has being loss in currency retranslation which the amount in year 2016 is
CHF 87 million but it become negative amount of CHF 12 million in year 2017. The provision made
during the year 2016 and 2017 also show there is an increased amount of CHF 303 million in year 2017.
The amounts used and reversal of unused amounts had fluctuated obviously in year 2017 compare to
year 2016. The modification of the scope consolidation in year 2017 is CHF 17 million and it was in
negative amount of CHF 39 million in year 2016.
The deferred tax liabilities in non-current liabilities had increased in year 2017, which is CHF 3 559
million. According to annual report, differed tax liabilities recognised on all taxable temporary
differences excluding non-deductible goodwill.

3.1.2 Equity

Figure 3.3: Consolidates statement of changes in equity for the year ended 31 December 2017

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Base on the above figure, the total equity was CHF 62777 million in year 2017 which go through
decreases of CHF 3204 million compared to year 2016. The equity also including the share capital,
treasury shares, translation reserve, other reserves, retained earnings and non-controlling interest.
The share capital represent 0.49 % (CHF 311 million) of the Nestlé total equity in year 2016 and year
2017. The treasury shares in year 2017 is CHF 4537 which it had shown a large increase of percentage
358.28% compare with year 2016. Besides, the translation reserve represent a small increase of CHF
634 million in year 2017 (CHF19433 million) with compare in year 2016 (CHF 18799 million). The other
reserves had represent 1.57% of the total equity in year 2017. According to the annual report, the
meaning of retained earnings was represent the cumulative profits as well as remeasurement of
defined benefits plan attributes to shareholders of parent. The retained earnings of Nestlé in year
2017 is CHF 84174 million while it show an increase of 1.57% in year 2016 (CHF 82870 million). On the
other hand, the non-controlling interest also consider as a part of equity. The amount of non-
controlling interest is CHF 1273 million in year 2017.

3.1.3 Bonds - Nestl Holdings, Inc., USA, year 2017

Figure 3.4 : Nestlé Holdings, Inc., USA’s bonds in millions of CHF

Based on the above figure, Nestlé Holdings, Inc., USA had issued 23 bonds on different currency such
as AUD (Australia), NOK (Norway), USD (United States), GBP (United Kingdom), CHF (Switzerland) and
EUR (European Union). Nestlé Holdings, Inc., USA had issued 23 bonds, total CHF 9993 million in year
2017 and 21 bonds, total CHF 7940 million in year 2016. The term of the bonds among this few
currency is around 4 years to 11 years.

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Australia Bond
For AUD bonds, there are 5 bonds issued by Nestlé Holding, Inc, USA and the period was around year
2013 to year 2020. Company had issued total AUD 1200 million with different effective interest rate
in term of 5 years or 6 years. The average effective interest rate for AUD bonds is 4.09 %. In year 2017,
company had pay the amount with the interest rate of CHF 924 million that it represent 9.24% of
Nestlé Holding, Inc, USA total amount of bonds.
Norway Bond
Other than that, Nestlé Holding, Inc, USA had issued one NOK bonds on year 2014, worth NOK 1000
million with 2.85% effective interest rate in term of 6 years. The total amount that Nestlé Holding, Inc,
USA need to pay with the interest in year 2017 is CHF 122 million, which it represent 1.22% of Nestlé
Holding, Inc, USA total amount of bonds.
United States Bond
USD is the major currency used by Nestlé Holding, Inc, USA in the capital market. Nestlé Holding, Inc,
USA had issued 11 bonds of currency United States Dollar since year 2012. The total amount of bonds
issued are USD 5850 million with different effective interest rate in term of 5 years or 6 years. The
average effective interest rate is 1.94%. Besides, the amount that company need to pay with the
interest for USD bonds in year 2017 is CHF 5692 million. It consider as 56.95% of the Nestlé Holding,
Inc, USA total amount of bond in year 2017.
United Kingdom Bond
Nestlé Holding, Inc, USA had issued 2 bonds, worth GBP 500 million from United Kingdom in year 2015
and year 2017. Compare with these few country bonds’ term during these few years, the United
Kingdom has the giving Nestlé Holdings, Inc., USA the shortest term which is issued GBP 500 million
bond with 1.17% effective interest rate in term of 4 years. This bond was issued during year 2017 until
year 2021 which it was given lower interest rate and shorter term compare with previous bonds in
year 2015. In year 2015, Nestlé Holdings, Inc., USA issued the same amount of GBP 500 million bond
but higher effective interest rate, 1.79% in term of 5 years. The total amount that Nestlé Holding, Inc,
USA need to pay with the interest in year 2017 is CHF 1314 million, which represent 13.14% of Nestlé
Holding, Inc, USA total amount of bonds. The average effective interest rate of the both bonds is 1.48%.
Switzerland Bond
Otherwise, Nestlé Holding, Inc, USA had issued 3 bonds from Switzerland. The first bond has issued
on year 2007, worth CHF 250 million bond with 2.66% effective interest rate in term of 11 years. The
second and third bond was also issued on year 2017 with different term. The second bond was issued
CHF 550 million with 0.24 % effective interest rate in term of 10 years. While the third bond had issued
CHF 150 million with 0.54% effective interest rate in term of 15 years. All of these figure show the first

15
bond that issued in year 2017 was more expensive with the high effective interest rate which means
company need to pay more on the interest rate. The average effective interest rate of the three bonds
is 1.14%. The total amount that Nestlé Holding, Inc, USA need to pay with the interest in year 2017 is
CHF 952 million that is 9.52% of the total amount of Nestlé Holding, Inc, USA’s bond.
European Union Bond
In year 2017, Nestlé Holding, Inc, USA had issued one Euro bonds, worth EUR 850 million with 0.92%
effective interest rate in term of 8 years. The total amount that Nestlé Holding, Inc, USA need to pay
with the interest in year 2017 is CHF 989 million, which represent 9.89% of Nestlé Holding, Inc, USA
total bonds’ amount.

3.1.4 Bonds - Nestlé Finance International Ltd., Luxembourg

Figure 3.5 : Nestlé Finance International Ltd., Luxembourg’s bonds in millions of CHF
Based on the above figure, Nestlé Finance International Ltd., Luxembourg had issued 10 bonds on
different currency such as GBP (United Kingdom) and EUR (European Union) in year 2017. This
subsidiary company had issued 10 bonds, total CHF 6762 million in year 2017 and total CHF 4216
million in year 2016. The term of the Nestlé Finance International Ltd., Luxembourg’s bonds is quite
longer than Nestlé Holding, Inc, USA such as minimum 7 years to maximum 20 years.
United Kingdom Bond
Nestlé Finance International Ltd., Luxembourg had issued one GBP bonds on year 2012, worth GBP
400 million with 2.34% effective interest rate in term of 11 years. The total amount that Nestlé Finance
International Ltd., Luxembourg need to pay with the interest in year 2017 is CHF 549 million, which it
represent 8.11% of company total amount of bond.

16
European Union Bond
Euro is the major currency used by Nestlé Finance International Ltd., Luxembourg in the capital market.
Nestlé Holding, Inc, USA had issued 9 bonds of Euro currency since year 2012. The total amount of
bonds issued are EUR 5350 million with different effective interest rate in term of minimum 7 years
to maximum 20 years. The average effective interest rate is 1.39 %. Besides, the amount that company
need to pay with the interest for Euro bonds in year 2017 is CHF 6213 million. It consider as 91.88% of
the Nestlé Finance International Ltd., Luxembourg total amount of bond in year 2017.

3.1.5 Overall bonds in year 2017

2% 5% Nestlé Bonds In Year 2017

AUD
USD
42% 33%
NOK
GBP
CHF
1%
EUR
6% 11% Other Bonds

Figure 3.6: Nestlé Bonds in Year 2017

Overall in year 2017, Nestlé had issued at least 33 bonds on different currency such as AUD, NOK, USD,
GBP, CHF, EUR and other currency in year 2017. Only 2 subsidiary company had issued bonds did
mention in the Nestlé annual report 2017 like Nestlé Finance International Ltd., Luxembourg and
Nestlé Holding, Inc, USA. Nestlé had issued bonds, worth total CHF17009 million in year 2017 and total
CHF 12435 million in year 2016. The term of the bonds among this few currency is around minimum
4 years to maximum 20 years.
Nestlé had issued 5 AUD bonds, worth total AUD 1200 million with average effective interest rate,
4.09 %. AUD bonds consider as 5.43% of Nestlé total amount of bonds in year 2017. Besides that,
Nestlé only issued one NOK bonds, worth NOK 1000 million with the effective interest rate of 2.85%.
NOK bonds had represent percentage of 0.71 of Nestlé total amount of bonds in year 2017. Next,
there are 11 USD bonds (total USD 5850 million) issued by Nestlé in year 2017. The average effective
rate for USD bonds is 1.94%. USD bonds can consider as 33.46% of Nestlé total amount of bonds in
year 2017. On behalf, Nestlé had issued 3 GBP bonds (total GBP 1400 million) with average effective
interest rate of 1.76% which represent 10.95% of Nestlé total amount of bonds in year 2017. Next,

17
Nestlé issued 3 CHF bonds, worth CHF 950 million with average effective interest rate of 1.14%. It
represent 5.59 % of Nestlé total amount of bonds in year 2017. Apart from this, Nestlé did issued Euro
bonds, worth EUR 6200 million with average interest rate of 1.34%. It consider as 42.34% of Nestlé
total amount of bonds in year 2017. Lastly, Nestlé also issued other bonds, worth CHF 254 million
which consider as 1.49 % of Nestlé total amount of bonds in year 2017.
Conclusion, USD and EUR are the major currency use by Nestlé in the capital market.

3.1.6 Nestlé S.A. shares and stock information

Figure 3.7: Nestlé S.A. Data per Share in past five years(2013 – 2017)
Based on the figure above, the market capitalisation in year 2017 having the highest amount which is
256 223 compare with the past five years. The stock prices of Nestlé S.A. in year 2017 is the highest
(CHF 86.40) during year 2017 to year 2013. Besides, the lowest stock prices of Nestlé S.A. in the past
five year is year 2013, CHF 59.20 while the lowest stock prices is CHF 71.45, year 2017. The average
of the stock prices in year 2017 is CHF 78.93 ({CHF 86.40 + CHF 71.45}/2). On the other hand, the
wighted average number of shares outstanding in year 2017 is 3092 millions of units. In year 2017, the
basic earning per share is the lowest in the past five year, 2.32 and year 2014 is the highest in the past
five year, 4.54. Nestlé S.A. had the highest of underlying earning per share during year 2017(CHF 3.55
per share) and highest dividend during year 2017 – 2013. Nestlé S.A.’s Board of Director proposed the
dividend of CHF 2.35 per share in year 2017. The pay-out ratio which based on earnings per share in
year 2017 had above 100% which the accurate amount is 101.3%.

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3.1.7 Nestlé share capital

Figure 3.8: Number of Share Outstanding in Year 2017

Nestlé S.A. had authorized and issued the ordinary share capital of 311 216 000 registered shares with
a nominal value of CHF 0.10 each share. When company need more capital to run the business in order
to increase the company capital, Nestlé S.A. have right to increase the ordinary share capital. For an
example, Nestlé S.A. can issue maximum of 100 000 000 registered shares with a nominal value of CHF
0.10 each shares. Otherwise, Nestlé also can raised other financial market instrument and debentures
with the purpose of increase company capital. Besides, Nestlé also had issued treasury shares which
it represent 1.8% of the Nestlé Group share capital at the end of year 2017. Their market value
amounts to CHF 4576 million in year 2017. At the end of year 2017, there is 54.6 million shares of units
treasury shares in market. The outstanding shares in year 2017 is 3057.6 million shares of units. In
additional knowledge of shareholder right, every shareholders have their right to receive dividend.
Every shareholder which hold below of five percentages of share capital, have no right to vote. Nestlé’s
Board of Directors did approved the share buy-back programme of Nestlé which CHF 20 billion will be
need to completed by the end of June year 2020.

Figure 3.9: Nestlé Share Capital

In year 2017, Nestlé’s share capital had distributed by geograrphy. Swizterland represent 34.5 % of
Nestlé’s total share capital while Unites States represent 32.3% of Nestlé’s total share capital. The rest

19
of countries represent percentages of 33.2 of Nestlé’s total share capital. Besides, the share capital in
Nestlé had divided to two investor type which is instituitions and private shareholders. In end of year
2017, institutions represent 80% of the total number of registered shares and the rest of 20% are
belong to private shareholders. The figure 3.9 show in year 2001, the private shareholder has hold
more registered shares in market with compare in year 2017. In addition, the registered shares
represent 57.2% of the total share capital.

3.1.8 Nestlé invested capital in product category

Figure 3.10: Invested Capital in Product Category In Year 2017

Nestlé launched many type of products in human living goods and foods such as powdered, liquid
beverages, water, milk product, ice cream, nutrition, health science, prepared dishes, cooking aids,
confectionery and pet care. To produces Nestlé products may need much capital to run the business
activities so Nestlé need to invest capital. Nestlé had invest capital around CHF 30353 million in Nestlé
product category during year 2017. Goodwill and intangible assets did not calculate in Nestlé invested
capital but it also costs CHF 51931 million. In year 2019, the powdered and liquid beverages products
represent 18.26% (CHF 5544 million) of Nestlé’s total invested capital in product. Nestlé also invested
capital in water product around CHF 2590 million, while the capital which invested in milk and ice
cream products are CHF 3491 million. Besides, the nutrition and health science product category being
invested capital of CHF 7073 million. Nestlé invested capital in prepared dishes and cooking aids
products, which represents percentage of 10.22 in total of invested capital in product category. Other
else, confectionary and pet care products will be invested capital by Nestlé with CHF 6966 million.
Nestlé also invest capital in unallocated items and intra-group eliminations for CHF 1584 million in
year 2017.

20
3.1.9 Nestlé invested capital in operating segment

Figure 3.11: Invested Capital in Operating Segment In Year 2017

To run the business may need to invest much capital in order to make the business run and operates
in efficiency. Nestlé had invested capital in operating segment in total of CHF 29426 million in year
2017. The goodwill and intangible asset will cost CHF 50363 million in operating segment during year
2017. Zone EMENA had being invested capital around CHF 5762 million while Zone AMS need to invest
more capital than Zone EMENA, which is CHF 8001 million. Zone AOA had being invested capital less
capital compare with Zone EMENA and Zone AMS. Nestlé invested capital in this zone about CHF 3848
million in year 2017. During year 2017, Nestlé also invested much capital in Nestlé Waters, Nestlé
Nutrition and other business (Nespresso, Nestlé Health Science and Nestlé Skin Health), which is CHF
10353 million. Unallocated items and inter-segment elimination had being invested capital by Nestlé
during year 2017 with the amount of CHF 1462 million.

3.1.10 Return on invested capital

Figure 3.12: Return On Invested Capital

Return on invested capital (ROIC) calculate the efficiency of capital allocation and the ability of a
company to make profitable investments (Will, 2018).. Invested capital can be a measurement on a
company value creation. Nestlé’s ROIC did not includes the goodwill and intangible asset because of
the amounts recognised are not comparable between segment. The ROIC of Nestlé which without
goodwill and intangible assets had being decreased by 10 basis point to 31.6%

21
3.2 Foreign Exchange Exposures and Management

Figure 3.13: Consolidated income statement for the year ended 31 December 2017
3.2.1 Cost and Revenue.
3.2.1.1 Cost
Based on the figure above, Nestlé had few expenses in year 2017 which including the cost of goods
sold, distribution expenses, marketing and administration expenses, research and development costs,
other operating expenses, financial expenses and non-controlling interest. The total cost in all of the
expenses in year 2017 is CHF 84404 million which the expenses had increase of 2.18% in year 2017.
As the expenses in year 2016 are CHF 82599 million and there is a different of CHF1805 million among
this 2 year.
Since Nestlé is a globalization company in food and beverage so it may need much money to operate
the company especially in producing and promoting the product. The cost of goods sold, CHF 44923
million had represent the highest rates, 53.22% of the total cost and expenses in year 2017. The
distribution expenses will be spend in year 2017 is CHF 8205 million. The marketing and administration
also being important part in Nestlé, so these expenses represent 24.33% of the total expenses in year
2017. Besides, the research and development (R&D) also important for a company to survive. The cost
for R&D in year 2017 is CHF 1724 million. The other trading expenses in year 2017 is CHF 1607 million.
Operating a company also has it costs which Nestlé had spent money in the operating expense around
CHF 3500 million in year 2017, which it has a rise of 295.92% compare with year 2016, CHF 884 million.
Besides, the financial expenses in year 2017 is CHF 771 million. Every company must need to pay taxes
every year. Nestlé had pay the taxes around CHF 2779 million in year 2017, which it was a decrease of
37.02% (CHF 1634 million) compare with year 2016. Every year Nestlé also have to pay the non-
controlling interest and Nestlé had spent around CHF 355 million in year 2017.

22
3.2.1.2 Revenue
Nestlé has sales in globally business. In year 2017, Nestlé sales has definetly rise 0.35% (CHF 322
million) compare to year 2016. Nestlé total sales in year 2017 is CHF 89 791 million while in year 2016,
the total sales of Nestlé is CHF 89469 million.
According to the Consolidation income statement for the year ended 31 December 2017, it show the
other revenue and other income in total is CHF 1796 million in year 2017. CHF 1796 million is adding
up the all the total amount of other trading income (CHF 111 million), other operating income (CHF
379 million), financial income (CHF 152 million), income from associates and joint venture (CHF 824
million) and other revenue (CHF 330 million). It also show the other revenue and other income in year
2017 had being increase of 8.12 % due to the amount in year 2016 is CHF 1661 million.
In conclude, the net profit (for year attribute to shareholder of the parents) in year 2017 represent 8%
(CHF 7183 million) of the sales in Nestlé which it was fall 1.5% compare with year 2016. Besides that,
net profit also show decreased by 15.8% to CHF 7.2 billion. The trading operating profit in year 2017
is CHF 13233 million, while in year 2016 is CHF 13693. Trading operating profit represent 14.7% of
sales in year 2017 and it was a decrease of 0.6% compare with year 2016.

3.2.1.3 Nestlé geographic area sales based on zone in percentages

Figure 3.14: Total Sales Based On Geographic Region

Based on the Nestlé Annual Review 2017, Nestlé organised divided clearly into different geographic
zone which is Zone Americas (AMS), Zone Europe, Middle East and North Africa (EMENA) and Zone
Asia, Oceania and sub-Saharan Africa (AOA). The Group has sales in 189 countries. AMS represent
44.9 % of the Nestlé total sales in year 2016 but it was a rise of 0.4% in year 2017 (45.3%). Besides
that, EMENA represent 29.1 % of the Nestlé total sales in year 2017. It shows an decrease of the
EMENA total sales in year 2017 compare with year 2016. AOA represent 25.1 % of the Nestlé total
sales in year 2016 but it was a rise of 0.5% in year 2017 (25.6%).

23
3.2.1.4 Nestlé geographic sales and revenue

Figure 3.15: Nestlé Geographic Sales and Revenue In Year 2017

Based on the annual report 2017, Nestlé total sales in year 2017 is CHF 89 791 million. The underlying
trading operating profit of Nestlé in year 2017 is CHF 14 729 million and it was a different of CHF 1496
million with comparing the trading operating profit. The net trading expense in year 2017 is CHF 1496
million. In year 2017, the total amount of expenses in impairment of property, plant, equipment,
restructuring costs, depreciation and amortisation are CHF 4266 million.
Nestlé had run their business and having sales in 189 countries so Nestlé organised into 3 different
geographic zones and several globally managed business (Nestle, 2018). The sales in Switzerland and
countries represent 10% of the Group sales. Zone EMENA had represent 18% (CHF 16535 million) of
Nestlé geographic sales. There will be the highest sales form Zone AMS which it represent 31.71%
(CHF 28479 million) of the Nestlé geographic sales. Nestlé geographic sales on Zone AOA is CHF 16224
million, which represent 18.06 % of the Nestlé geographic sales. On the other hand, sales in Nestlé
Waters and Nestlé Nutrition which individually represent 8.85% (CHF 7955 million) and 11.53% (CHF
10361 million) of geographic sales are disclosed separately. Others business sales which mention in
geographic sales are mainly Nespresso, Nestlé Health Science and Nestlé Skin Health. Nespresso,
Nestlé Health Science and Nestlé Skin Health had represent 11.40%, CHF 10237 million of the
geographic sales.

3.2.1.5 Nestlé sales based on product category

Figure 3.16: Nestlé Sales Record Based on Product Category In year 2017

24
 Nestlé Sales Based On Product Category

Powdered and Liquid Beverages

14% Water
23%
10% Milk product and Ice cream

Nutrition and Health Science

8%
13% Prepared dishes and cooking aids
15% Confectionery
17%
PetCare

Figure 3.17: Nestlé Sales Percentages Based on Product Category In year 2017
Nestlé had sell many type of product in people living product such as powdered, liquid beverages,
water, milk product, ice cream, nutrition, health science, prepared dishes, cooking aids, confectionery
and pet care. The powdered and liquid beverages showing a good sales result in report due to these
products had represent 22.72% of the total sales. Water is a necessary for human living, so the sales
result shows water had sales in CHF 7455 million. Prepared dishes and cooking aids products also
represent 13.31% (CHF 11957 million) of total sales in year 2017. Nestlé had launched many type of
snack and dessert in market such as milk products, ice cream and confectionery. These three type of
products category had total sales amount of CHF 22252 million (CHF 13447 million plus CHF8805
million). It represent 24.77% of the total sales in year 2017. Nutrition and health science product
category had sales amount of CHF 15257 million which consider as 16.99% of the total sales in year
2017. People in this generation will be more show loving care about their pet. So, PetCare product
had represent a good sales result in 13.87% of the total sales in year 2017.

25
3.2.1.6 Nestlé shareholding ownership information

Figure 3.18: Nestlé holding companies (MarketScreener, 2019)

Although Nestlé had running business in 189 countries but Nestlé only owned few listed holding
company’s shareholding ownership in different country which are Nestlé S.A., L’Oréal S.A., Nestlé Côte
d’Ivoire, Nestlé Nigeria Plc, Nestlé India Ltd, Nestlé (Malaysia) Sdn. Bhd., Nestlé Pakistan Ltd and Nestlé
Lanka PLC. All of the listed companies were belong to the Issuer Group. And all holding companies
which Nestlé having ownership are not wholly owned subsidiary by Nestlé.
Switzerland - Nestlé S.A. (Headquartered)
According to the page 3 of Nestlé Corporate Governance Report 2017, it shows the headquartered of
Nestlé S.A. is in Vevey, Switzerland. Nestlé S.A. was listed on the SIX Swiss Exchange in Switzerland
with the quotation (ISIN) code is CH0038863350. During the end of the year 2017, the Nestlé S.A.’s
market capitalisation was CHF 256 223 004 000. Nestlé had 3.04% of Nestlé S.A. ultimate capital
shareholdings with the equities of 93 053 585 (Nestle, 2018) (MarketScreener, 2019).
France - L’Oréal S.A.

Figure 3.19: L’Oréal S.A. Company Information

L’Oréal S.A. had the two biggest shareholders which are Nestlé and Bettencourt Family. Nestlé had
owned the 23.2% of the capital shareholdings of L’Oréal S.A. since February 11, year 2014
(MarketScreener, 2019). Besides, Nestlé has the 23.2% ultimate capital shareholdings of the L’Oréal
S.A. and also having capital of 112 103 818 and equity of 129 881 021 (MarketScreener, 2019) (Nestle,
2018). It was listed on the Paris Stock Exchange and the market capitalisation is EUR 103.7 billion. The
quotation code (ISIN) for L’Oréal S.A. is FN 0000120321 (Nestle, 2018) (MarketScreener, 2019).
Côte d’Ivoire - Nestlé Côte d’Ivoire

26
 Figure 3.20: Nestlé Côte d’Ivoire Company Information
Nestlé Côte d’Ivoire was listed on the Abidjan Stock Exchange with the quotation code of
CI0009240728. The market capitalisation of Nestlé Côte d’Ivoire is XOF 41.9 billion. There are 79.6%
of Nestlé Côte d’Ivoire’s capital shareholdings are owned by Nestlé. Nestlé had 86.5% of Nestlé Côte
d’Ivoire’s ultimate capital shareholdings with the capital of 5 517 600 000 and equities of 19 090 900
(Nestle, 2018) (MarketScreener, 2019).

Nigeria - Nestlé Nigeria Plc

Figure 3.21: Nestlé Nigeria Plc Company Information

Nestlé Nigeria Plc was located at IIupeja, Nigeria. It listed on the Nigerian Stock Exchange with the ISIN
code of NGNESTLÉ0006. The market capitalisation is NGN 1233.0 billion. Nestlé Nigeria Plc has 66.2%
of capital shareholdings by Nestlé. Nestlé Nigeria Plc also has the 66.2 % ultimate capital shareholdings
with the capital of 396 328 126 and equities of 524 559 457 (Nestle, 2018).
India - Nestlé India Ltd

Figure 3.22: Nestlé India Ltd Company Information

Nestlé India Ltd was located on New Delhi, India. It was listed on Bombay Stock Exchange with the
quotation code of INE239A1016. The market capitalisation of Nestlé India Ltd is INR 756.4 billion.
Nestlé India Ltd also has the 62.8 % ultimate capital shareholdings with the capital of 964 157 160 and
equities of 60 515 079. Nestlé India Ltd has 34.3% of capital shareholdings by Nestlé (Nestle, 2018)
(MarketScreener, 2019).
Malaysia - Nestlé (Malaysia) Sdn. Bhd

Figure 3.23: Nestlé (Malaysia) Sdn. Bhd Company Information

Nestlé (Malaysia) Sdn. Bhd was listed on Kuala Lumpur Stock Exchange with the quotation code of
MYL4707OO005. Nestlé (Malaysia) Sdn. Bhd was located on Petaling Jaya. The market capitalisation
of Nestlé (Malaysia) Sdn. Bhd is MYR 24.2 billion. There are 72.6% of Nestlé (Malaysia) Sdn. Bhd’s

27
capital shareholdings and 72.6% of ultimate capital shareholdings are owned by Nestlé with the capital
of 234 500 000 and equities of 170 276 563 (Nestle, 2018) (MarketScreener, 2019).
Pakistan - Nestlé Pakistan Ltd

Figure 3.24: Nestlé Pakistan Ltd Company Information

Nestlé Pakistan Ltd was located on Lahore, Pakistan. Nestlé Pakistan Ltd was listed on the Pakistan
Stock Exchange with the quotation code of PK0025101012. The market capitalisation of Nestlé
Pakistan Ltd is PKR 522.0 billion. There are 59% of Nestlé Pakistan Ltd’s capital shareholdings and 59 %
of ultimate capital shareholdings owned by Nestlé with the capital of 453 495 840 and equities of 26
778 229 (Nestle, 2018) (MarketScreener, 2019).
Sri Lanka - Nestlé Lanka PLC

Figure 3.25: Nestlé Lanka PLC Company Information

Nestlé Lanka PLC was listed on Colombo Stock Exchange with the quotation code of LK0128N00005.
The market capitalisation of Nestlé Lanka PLC is LKR 87.4 billion. Nestlé also has the 90.8 % ultimate
capital shareholdings in Nestlé Lanka PLC with the capital of 537 254 630 and equities of 48 793 746.
Nestlé Lanka PLC has 90.8% of capital shareholdings owned by Nestlé (Nestle, 2018) (MarketScreener,
2019).

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3.2.1.7 Types of currency used

Figure 3.26: Foreign Exchange Rate In Nestlé

Base on above figure, there are twelve type of currency used for transaction by Nestlé which are
Confoederatio Helvetica Franc (CHF) US Dollar, Euro, Chinese Yuan Renminbi, Brazilian Reais,
Philippine Pesos, Pound Sterling, Mexican Pesos, Canadian Dollar, Japanese Yen, Australian Dollar and
Russian Rubles. Nestlé decides to uses these eleven of the currency as the transaction currency with
change into CHF. As Nestlé’s headquartered is in Switzerland, so Nestlé uses CHF as the main
transaction currency. Nestlé had use others eleven currency as the transaction currency because
Nestlé has business transaction with those countries.
The exchange rate for 1 US Dollar to CHF in the year 2017 ending rate is CHF 0.977 and it show an
increase with the end up weighted average annual rates which is CHF 0.984. Besides, in year 2017 the
ending rates of 1 Euro equal to CHF 1.168 and the weighted average annual rates is CHF 1.113. Next,
the ending rates of year 2017, 100 Chinese Yuan Renminbi can exchange to CHF 15.001 and the
weighted average annual rates will be CHF 14.593. In the ending rates of year 2017, 100 Brazilian Reais
can change to CHF 29.531 which the weighted average annual rates is 100 Brazilian Reais equal CHF
30.796. Exchange rate for 100 Philippine Pesos to CHF in the year 2017 ending rate is CHF 1.957 and
it show an little decrease with the end up weighted average annual rates which is CHF 1.953. On the
other hand, 1 Pound Sterling can exchange to CHF 1.316 as the year 2017 ending rates and the
weighted average annual rates will be CHF 1.271 with the exchange of 1 Pound Sterling. Otherwise,
the ending rates of year 2017, 100 Mexican Pesos can exchange to CHF 4.957 and the weighted
average annual rates will be CHF 5.212. Exchange rate for 1 Canadian Dollar to CHF in the year 2017
ending rate is CHF 0.778 and it show an little fall with the end up weighted average annual rates which
is CHF 0.759. In year 2017 the ending rates of 100 Japanese Yen equal to CHF 0.867 and the weighted
average annual rates is CHF 0.878. Apart from that, 1 Australian Dollar can exchange to CHF 0.761 as
the year 2017 ending rates and the weighted average annual rates will be CHF 0.754 with the exchange
of 1 Australian Dollar. The ending rates of year 2017, 100 Russian Rubles can exchange to CHF 1.694
and the weighted average annual rates will be CHF 1.688.

29
3.2.2 Nestlé’s practices of conducting foreign exchange risk management

Figure 3.27: Nestlé’s Market Risk

From the above figure, it is clearly stated that Nestlé is expose to the foreign exchange risk, interest
risk, and market prices risk. All of the fluctuations in the foreign exchange rates will impact Nestlé’s
operation management.

Figure 3.28: Nestlé’s Foreign Currency Risk

Nestlé is using the currency forward, futures, swaps and options to manage the currency risk that
possible occur. Nestlé need to hedge according to the company’s Hedging Policy, which consist of
Nestlé’s Standard Operation Procedure (SOP) in order to support the specific business needs. Since
Nestlé cannot predict future movements in the exchange rates, Value at Risk (VaR) is used that is
based on previous data for 250 days period. VaR help Nestlé to predict the future movement of the
exchange rate based on the previous trend.
Nestlé used currency forwards where the company signs a binding contract with the bank where to
lock the exchange rates for the purchase or sale of a currency on the future date.
Future contracts are also used by Nestlé. The future contracts allow Nestlé to lock future investment
rate but not the borrowing rate. When the interest rates become lower, the bank will compensate
Nestlé for the lower interest rate at the due date.
Nestlé also used currency swaps to control the exchange rate risks. Nestlé will set an agreement
between another company, which allows Nestlé to reduce the foreign exchange risk by half. For
example, Nestlé to buy raw materials from suppliers Nestlé may use currency swaps where the
suppliers has to honour a range of the exchange rate that if the rate goes above the maximum rate
then supplier has to bare the balance of above the maximum rate.
Besides that, Nestlé also used currency options. Currency options give Nestlé the rights but not
obligation to buy or sell a certain currency at a specific exchange rate on or before the specific date.

30
 Figure 3.29: Nestlé’s Interest Rate Risk
Interest rate is also one of the main concerns of Nestlé, where Nestlé use twelve types of currencies
and the main currencies are USD and EUR. The fluctuations of USD and EUR interest rate will effect on
Nestlé’s financial debt. Therefore Nestlé has used fixed rate debt and interest rate swaps. Nestlé has
fixed the rate of debt in order to control the fluctuations of the currencies where some of the debt
need to pay in different currencies. On the other hand, Nestlé also agrees to exchange one stream of
future interest payments for another company based on the principal amount and it is based on fixed
interest rate for a floating rate.

Figure 3.30: Nestlé’s Price Risk

The commodity price will impact directly to Nestlé manufacturing cost. In order to reduce the
commodity price risk, Nestlé has hedge according to the company’s policy and the Globsl Procurement
Organization is responsible for managing commodity price risk based on internal directions, centrally
determined limits, and exchange trade commodity derivatives. All this price risk, Nestlé is mostly used
currency future and currency options to control the foreign exchange risk. There is also equity price
risk, where Nestlé diversifies the portfolios according to the guidelines set by Board of Directors.

31
 Figure 3.31: Nestlé’s Consolidated Cash Flow Statement
Nestlé has used currency retranslation, where the company is open to operating exposure and
translation exposure. Nestlé has convert the foreign subsidiaries profits into CHF, where it is different
currency.

Figure 3.32: Nestlé’s Principal Exchange Rate

From the above figure, it is shown that Nestlé has open firms and plantation at different country.
Nestlé has use self-sustaining foreign entity to reduce the foreign exchange risk that Nestlé will collect
different currencies by each host country will use the host country’s currency. In case of any down fall
of a particular country’s economy, it will not has a huge impact towards Nestlé’s operation due to
Nestlé has diversify the funds and there are other strong country’s currency in hand.

Figure 3.33: Nestlé’s Capital Risk Management

Capital risk management protect Nestlé from translation risk where it also effect company’s operation
during the currency translation.

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 Figure 3.34: Nestlé’s Derivative Assets and Liabilities and Hedge Accounting
Based on the above figure, Nestlé has fair value hedges, cash flow hedges, and undesignated
derivatives. All the hedges has been separated by Nestlé into Contractual or notional amounts, Fair
value assets, and Fair value liabilities.
In Fair value hedges, Contractual or notional amounts has a total of 7631 million of CHF. Fair value
assets has total of 152 million of CHF and Fair value liabilities has total of 292 million of CHF.
Cash flow hedges, Contractual or notional amounts has a total of 9503 million of CHF. Fair value assets
has total of 74 million of CHF and Fair value liabilities has total of 212 million of CHF.
However in undesignated derivatives, it has a total amount of 735 million of CHF of Contractual or
notional amounts. Fair value assets has total of 5 million of CHF and Fair value liabilities has total of 3
million of CHF.

As conclusion, Nestlé manage risk first before the company’s profit.

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4.0 Limitation and Recommendation
There are many factors that lead Nestlé towards success. However, they have some weaknesses that
became their limitations. One of the major weakness of Nestlé is that it is Nestlé do not have direct
market outlets and this can be one of the weaknesses as it can cause difference in the profit made.
Besides that, the day’s inventory of Nestlé is high compare to the competitors as Nestlé is not very
good at demand forecasting thus end up keeping higher inventory both in-house and in channel. Thus,
this can impact the long term growth of Nestlé which will cause their new manufactured product
cannot fully sell out before new launching, therefore the distributor reduce the price in order to turn
the stock into cash.
In addition, the weakness is Nestlé entering into the markets that are already mature and can have
tough competition between competitors in the market. The marketing of the products left a lot to be
desired. Even though the product is a success in terms of sale but its positioning and unique selling
proposition is not clearly defined which can lead to the attacks in this segment from the competitors.
Also, Nestlé is inability to produce consistent quality and nutrition in their food products.
For the recommendations, since Nestlé does not have any direct market and outlets, so it can be a
disadvantage. Therefore, they should facilitate their customers through pricing strategies and can
start direct market or open outlets. This can make the price of the products to reduce, as the
customers do not need to pay extra money to the suppliers. Besides, Nestlé also must prepare and
analyse their inventory data properly to avoid high inventory both in-house and in channel.
Moreover, Nestlé can repositioning the product or providing better promotional offers, so that Nestlé
can spark an interest in this segment by their customer base. Also, with a growing interest in the health
segment by everyone, Nestlé need to produce more products that are suitable for older people such
as protein milk and cereal with necessary nutrition where every older people can make it as their daily
use and also they should produce some organic product to whom are very health conscious so it can
be a healthy snack. And also since children obesity is increasing, Nestlé can produce a chocolate bar
with less sugar so that obesity will not increase.

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5.0 Conclusion
As a conclusion, there are some factors will have impact on Nestlé, which are politic, legal, technology,
economic, environment and social. As for political factor, the soda tax imposed by government is one
of the risk that will affect Nestlé. Besides, legal factors such as child and forced labor used by Nestlé
in their supply chain and the issue of illegally bottling California water will have major impact on Nestlé.
The following factor is the economic, which is the issue of trade war between United State and China.
However, technology will also have a great impact on Nestlé, the internet become common and cause
the viral of the scandals of Nestlé. Environment factor has bring huge negative impact to Nestlé. Lastly,
social factor such as people are highlighted on the healthy lifestyle has impact on Nestlé as well.
Furthermore, Nestlé create value through their human capital which benefiting their local economies.
Secondly, Nestlé create value through Foreign Direct Investment. Moreover, Nestlé create value
through a combination of core competencies and cost leadership in a diversified market. Lastly, Nestlé
also create value from their Research and development.
On the other hand, capitals of Nestlé are mainly sources through liabilities and equity. As for the total
liabilities and equity in year 2017 is CHF 130 380 million. Financial debt in non-current account of
Nestlé is CHF 15 932 millions in year 2017, whereas, the loan, receivable and liabilities at amortised
cost for financial liabilities is CHF 47 842 million and the derivative liabilities amount is CHF 507 million.
Moreover, Nestlé has the total equity was CHF 62777 million in year 2017. The amount of non-
controlling interest has a result of CHF 1273 million in year 2017. In the meantime, USA had issued 23
bonds on different currency. However, Nestlé Finance International Ltd., Luxembourg had issued 10
bonds on different currency as well. Overall in year 2017, Nestlé had issued at least 33 bonds on
different currency such as AUD, NOK, USD, GBP, CHF, EUR and other currency in year 2017. As for
share capital, Nestlé S.A. had authorized and issued the ordinary share capital of 311 216 000
registered shares with a nominal value of CHF 0.10 each share. On top of that, Nestlé had invest capital
around CHF 30353 million in Nestlé product category during year 2017. The ROIC of Nestlé which
without goodwill and intangible assets had being decreased by 10 basis point to 31.6%.
As for the cost of Nestlé, the total cost in all of the expenses in year 2017 is CHF 84404 million while
Nestlé total sales in year 2017 is CHF 89 791 million. The powdered and liquid beverages showing a
good sales result in report due to these products had represent 22.72% of the total sales. Other than
that, Nestlé owned listed holding company’s shareholding ownership in different country which are
Nestlé S.A., L’Oréal S.A., Nestlé Côte d’Ivoire, Nestlé Nigeria Plc, Nestlé India Ltd, Nestlé (Malaysia)
Sdn. Bhd., Nestlé Pakistan Ltd and Nestlé Lanka PLC. There are twelve type of currency used for
transaction by Nestlé. Hence, Nestle are using many strategies such as forward contract swap to
reduce the exchange rate risk.

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Last but not least, the major weakness of Nestle is that it is Nestle do not have direct market outlets.
Therefore, they should facilitate their customers through pricing strategies and can start direct market
or open outlets Moreover, the other weakness is Nestle entering into the markets that are already
mature and can have tough competition between competitors in the market. Hence, Nestle can
repositioning the product or providing better promotional offers, so that Nestle can spark an interest
in this segment by their customer base.

36
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