DBRS Confirms Nestlé S.A. at AA (high), Nestlé Capital Canada at R-1 (high), Stable Trends

DBRS has today confirmed the AA (high) Issuer Rating of Nestle S.A. (Nestle or the Company) and the R-1 (high) Commercial Paper rating of Nestle Capital Canada Ltd. The trends are Stable.

Nestle continues to exceed its revenue growth targets and improve operating margins, based on the strength of its portfolio of leading brands, its ability to innovate and its superior product and geographic diversification. Nestle achieved overall sales growth of 9.2% in F2007, driven mainly by organic volume growth, pricing and, to a lesser extent, acquisitions. The Company realized solid growth across all business units and geographic regions during the year. Through pricing increases, production efficiencies and ongoing cost reduction initiatives, Nestle continued to increase operating margins (50 basis points in F2007, to 14.0%), despite the ongoing effects of rising raw material and energy costs.

Due to the impact of acquisitions and the Company’s three-year CHF 25 billion share repurchase program announced in 2007, Nestle’s financial profile, as expected, has adjusted to a level now commensurate with a AA (high) rating. Nestle’s gross total debt increased from CHF 22.5 billion to CHF 30.6 billion in F2007. Acquisitions totalled CHF 11.2 billion in F2007 and included the purchase of Gerber Products Company and Novartis Medical Nutrition. In addition, Nestle completed CHF 4.5 billion in net share repurchases during the year.

Over the near to medium term, DBRS believes Nestle will continue to realize its long-term target of 5% to 6% organic revenue growth through continued product innovation, marketing and ongoing focus on the Company’s growth drivers. That said, continued margin expansion will be more challenging over the near to medium term, as DBRS expects global economic conditions to worsen in F2009.

Despite the Company accelerating share repurchases (approximately CHF 13 billion of the CHF 25 billion to now be completed by FYE 2008), debt levels are expected to be lower at year-end compared with the prior year (i.e., below CHF 30.6 billion), as the Company has applied proceeds of USD 10.4 billion from the partial sale of Nestle’s stake in Alcon Inc. (completed in July 2008) toward reducing short-term borrowings. Although debt will increase again in F2009, leverage is expected to remain below F2007 levels (cash flow-to-net debt above 0.56 times), which will continue to support the Company’s current rating.

In the event of a large acquisition, DBRS continues to expect that the Company would finance it with funds that would otherwise be used for the share-repurchase program, thereby maintaining credit metrics within parameters for the AA (high) category.

The applicable methodology is Consumer Products which can be found on our website under Methodologies.

This is a Corporate (Consumer Products) rating.