Lausanne, Switzerland (GenevaLunch) – In
a year when financial losses and crises seem to be the norm,
GenevaLunch editor Ellen Wallace decided to play shareholder for a day
and see what it is really like to join 2,500 other owners of stock in Swiss multinational Nestlé for the company’s annual general meeting (AGM) 10 April. Chocolate was never far from mind, always close at hand, but  business carried the day. Her personal observations:

Rain poured down and shareholders were soggy as they shook out their
umbrellas at the entrance to the Beaulieu congress centre in Lausanne where the
world’s largest food and drink company was holding it AGM (Ed. note: photos will be added Monday afternoon). This
certainly did not reflect a damp mood: the company’s positive results,
announced in February, had already set the tone, and around the stands
offering Nescafe and wine and beer, voices were cheerful. They would be
voting to accept the 2007 accounts, and arguments are not likely when you have net
sales up more than 9% to CHF107 billion and net profits up 16%,
to CHF10.6 billion.

EBIT (earnings before interest and taxes): CHF 15b. CEO Peter Brabeck-Letmathe had already announced an increase in
dividends from CH10.40 to 12.20, a 17% rise, and a stock split. Shareholders would be voting on this, too.

Peter Brabeck, CEO and board chairman at Nestlé until Thursday, when he gave up the CEO title

But surely, in this day of banks crashing, world food prices rising
and shareholder groups demanding an end to exorbitant management pay in Swiss companies, we
could expect to see some drama.

Not here. From the word go, the Nestlé
meeting was upbeat, with barely a whisper of world crises in the wings.
There were no echoes of the past where where protestors cried out that
the company’s baby milk was killing Third World (they weren’t yet
called developing countries) children. Chastened shareholders in a more
frightening financial world, or a shift to warmer corporate-shareholder
relationships, I wondered.

My first thought as I watched people streaming in, slowed at the
main door by a series of security checks, was that this group did not
look like it had a total worth of several billion francs. These people
represented 53.3% of shareholders’ capital and with the company’s sales
at CHF107 billion, they are indeed worth a good deal of money.
Gray hair and bald heads, sombre dark coats predominated. There was
nothing flamboyant here. If anything the setting reminded me of my
Catholic church in Iowa in
the US, circa 1950s. At 14:30 the giant screen in the press room lit up
(we didn’t have this in Iowa). We
journalists did not mingle with shareholders, with the exception of
some TV crews, during the meeting itself. There at the front of the
crowd sat a row of men in suits, spread
across a wide stage, all of them looking solemn. There, facing them,
was the congregation, or rather, a sea of shareholders.

It brought back childhood memories of men in special garb, with the lights
turned on them, clearly in charge of an important part of our lives. A
solemn man explained how to vote, using a little beeper device called a tele-voter. He gave instructions for
those who wanted to ask questions. Only people with voting rights can ask to speak. One by one we were introduced to the "scrutateurs,"
the people who assure that voting is done correctly. Zimbabwe came to mind, a country with major vote-counting problems, where these people would surely be useful. Presentations
would be in French and headphones for translations would be available.

Here, at least, were some women. I wondered if I was the only person in
the crowd to feel astonished that in this age where women lead
companies, play a key role in management and make up a large part of
the workforce, there is not a single woman on the Nestlé board, not
even a token one. Given the role of women in health and nutrition, which is the
company’s focus, this struck me as extremely odd.

I had never thought of myself as a Nestlé shareholder, but as CEO and
chairman Peter Brabeck’s face lit up the screen I suddenly realized I
was: if you have a Swiss-based company pension plan, chances are
excellent you have invested in Nestlé, even if indirectly, for it is
one of Switzerland’s most continually successful companies. Investment
funds love it, including my husband’s pension plan.

Brabeck gave his speech, one bit of good news after the other, all
of it the predictable bumpf that the workers have worked hard, the
managers have managed well and – suddenly, this did seem rather
special: the company managed strong growth despite a very tough market. Brabeck praised the company’s "ability to sail
through the difficulties
facing a number of players in our industry." He pointed to the increase
in the prices of raw materials "to an extent rarely seen," with the
price of powdered milk worldwide climbing from $1,800 to $5,400 per ton
during the year and similar price rises for cereal, coffee and cocoa.

He cited clearly defined strategy, flexible structures and the
strength of
brands as playing key roles in the company’s success in 2007. The
Nestlé model of 5-6% annual organic growth plus regular growth in
profits was serving the company well, he said.

There were no surprises and the International Herald Tribune assessment of the company’s situation in February still held. Nothing had changed since the Guardian
in the UK published a positive report in mid-March mentioning that
Nestlé’s foresight about the rise in food prices had helped it weather
the increases. There was also no mention of the company’s credit being downgraded in 2007, but analysts have been fairly positive about the strategy that led to this.

Photo: Petrea Heynike, 2008, Nestle

And then we had the unannounced speaker of the day, Petraea Heynike,
head of the company’s worldwide chocolate strategy. She took up the
post in late 2006 and people craned to get a look at Madame Chocolate.
She looks like everyone’s favourite grandmother albeit more attractive
and sophisticated than many grannies. She talked fast and threw out
numbers. She had the crowd’s rapt attention, for while the company
insists that its focus is increasingly on health and nutrition, even
Brabeck says the public’s perception never strays far from the idea
that Nestlé equals chocolate.

The strength of its chocolate business shows why. To start, the
company is the world’s largest buyer of cocoa beans, the primary
ingredient in chocolate. Heynike used these numbers to point to
Nestlé’s efforts in the area of social responsibility as well as to its
research and development work, a point Brabeck had emphasized as well.
Nestlé has invested heavily in research in Ecuador and Venezueal, which
together account for half of the world’s cocoa beans.

More than CHF100 billion of the total Nestlé sales of CHF104b in
2007 were in food and beverages. The company’s chocolate, confectionary
and biscuits business accounted for CHF12b, CHF4.4b of which came from
its premium
chocolate business. The company launched 200 new high-end dark
chocolate products in the past two years.

Heynike presided over the opening in March of the Nestlé Chocolate
Centre for Excellence at Broc, near Gruyere, a research and development
laboratory for premium dark chcoclate products. The move sent a clear
signal that the company is investing heavily in this area. Heynike told
shareholders Thursday that recent but also future success in the
chocolate market are closely tied to these high-end products. "The
Nestlé appoach is local, local, local and that is our force," she said:
70% of Nestlé’s turnover in chocolate comes from local brands, of which
Cailler
in Switzerland is just one. She echoed Brabeck’s earlier remarks that
while the media focused on Cailler’s slip in sales in 2006-2007, the
Swiss label is only CHF104 million of total company sales of CHF12
billion.

The reason high-end chocolate is selling well, she said, is that
people appreciate the smaller portions, and healthier properties of
dark chocolate. She told GenevaLunch after the meeting "We believe that
chocolate, especially dark chocolate, has many nutritional ingredients
such as antioxidants and polyphenols." Even in the "popularly
positioned products," known as PPP, the company is increasingly
health-conscious. "We have some products such as Kit Kat and Aero which
are ‘lighter’ than regular chocolate products."

And Cailler is making a comeback, with sales up, and expectations at
Nestlé that it will regain its slot as the top Swiss chocolate brand.

The shareholders loved it. The journalists in the press room nibbled
their way through the small dishes of chocolate sitting on their
worktables.

Photo: Paul Bulcke, new Nestlé CEO

The meeting moved on to serious business, voting approval of the
2007 accounts and meeting, on the giant screen, Paul Bulcke, before
voting him in as the new CEO. The increase in dividends and stock split
were approved. But here at last, before the votes, came a bit of
theatre. Those who had asked to speak were brought to the podium but
most lacked the polish and dynamic voice of CEO Brabeck and Nestlé
managers, and their messages were often unclear. Democracy may prevail
in a shareholder meeting, but we are not all created equal when it
comes to public speaking. One person was asked to step down after it
became clear that she was there to promote her street children
programme. Another began to make an emotional and presumably long
speech about how she felt the sanitary quality of products had gone
downhill in the past 20 years. She shuffled dozens of pieces of paper
and said she planned to go through a list, one by one, of flawed
products she’d found. There was a groan from the crowd and she was
kindly thanked but encouraged to take her complaints to the department
that handles those. "Do you think about our children?" she cried out to
Peter Brabeck. There were whistles from the crowd as she was
accompanied off the stage.

A comment that the shareholders appeared to appreciate more came
from a speaker who suggested that rather than a stock split the company
should keep the money in Switzerland by offering UBS a loan to keep the
troubled bank from raising capital in Asia.

The meeting swung back to a more business-like affair when Dominique Biedermann took the podium. He is president of Ethos
and a well-known speaker at annual meetings because his group
represents an important shareholder block, pension funds. Biedermann commended the board
for separating the CEO and chairman duties, for reducing terms for
board officers from five to three years and for improving corporate
governance. Some of these are moves Ethos and pension funds have been
pushing for, for some time. He insisted that the board should
reconsider its stand on allowing shareholders a say in executive pay packages. Brabeck took the microphone after, to disagree firmly.

This, then, was the height of the day’s drama and the meeting
adjourned to what looked like general satisfaction. Most votes had been
98% or more in favour of board recommendations, the sun had come out
and the view of the French Alps in the distance was magnificent. Beer,
coffee, chocolate and more were offered in an upstairs hall by waiters
and waitresses. Shareholders were a bit richer than the previous year.

In my born-again state, as a newly awakened indirect shareholder, I
too had a final chocolate and enjoyed a moment of feeling like I was on
the winning side. I reflected that Nestlé has come a long way since I
arrived in Switzerland in 1985. A few months before that I reported a
story for Time magazine because Nestlé had bought out Carnation.
At $3 billion it was the largest non-oil buyout in corporate history at
that point. I’d interviewed local people who said the company was doing
well, but it was far too insular, employees stayed in the company for
years and they rarely mingled with the outside world. Many lived in a
kind of compound in Vevey.

To some extent, these grumblings from the outside world still hold true. Heynike has been with the company for 35 years and Bulke, for 29 years.
Google either of them and you won’t find much because their careers
have been mainly inside the company, which publishes little internal
news. But Nestlé has learned some hard lessons thanks in part to its
critics, about the importance of building local ties and being more
open about its management and governance, for example.

Personally, I’m considering buying shares and becoming a direct
shareholder. If I do, I’ll practice public speaking, ask for a slot on
the podium and get up to say my short piece, without notes: "Why on
earth does the board not see that all your good work is undermined by
the old-fashioned notion that a board without women is acceptable?" I’m
giving them a year’s forewarning so they don’t come back with the weak
rejoinder that there aren’t any qualified women out there, which would
imply that the company is still too insular. Let’s see what they say in
2009.

They do make some very good chocolate. Here is the latest, in the Swiss
market: Cailler’s Frigor hazelnut chocolate, just a small bite of it, a
nice addition when admiring the Swiss Alps (click to view larger, or
see photo above).

Background reading:

• "Then there will be nothing left to eat," translation of an NZZ interview with Peter Brabeck
• La Gruyere article on the opening of the new Nestlé chocolate Centre for Excellence
• Bloomberg article on new chocolate research centre

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