Dairy Crest Regulatory News (DCG)

17 Jul 2008 07:00

17 July 2008

Dairy Crest Group plc ("Dairy Crest")

Interim Management Statement

Dairy Crest is issuing the following Interim Management Statement on current trading and sales performance for the three months ended 30 June 2008.

Dairy Crest has performed in line with our expectations in the first three months of the current financial year. The Group continues to achieve good brand growth, with price increases and cost savings broadly offsetting the well documented input cost inflation. Our expectations for the full year remain unchanged.

Foods division

In the Foods division, sales for the three months grew by 14% against the same period last year. This increase maintains the trends seen last year and has been driven by strong growth by our key brands and price rises.

In UK spreads, Clover is making good progress and is on track to recover strongly this year. The Group continues to focus on developing its range of products for the health conscious consumer. To this end Clover Lighter will be launched in August. Importantly we have secured very high levels of trade distribution for the Lighter variant. Utterly Butterly has maintained its high levels of growth as it continues to strengthen its listing position with the major retailers. The Country Life brand has started the year well and will benefit from increased marketing support this year.

In cheese, Cathedral City has again grown strongly. The brand is now worth around £173 million at retail sales value reinforcing its position as the UK's biggest cheese brand. This year we are increasing the level of marketing and promotional support behind Cathedral City Lighter. This has included a new pack design and new television advertising.

As demonstrated during a recent analyst site visit, St Hubert, our French and Italian spreads business, continues to make good progress and deliver on expectations. This performance largely results from continued good growth by St Hubert Omega 3. In line with the Group's focus on offering consumers choice around its most popular brands we are launching St Hubert Lighter with Omega 3 in the autumn.

Dairies division

In the Dairies division, sales for the quarter grew by 5% principally reflecting the impact of price increases to recover higher raw milk and commodity costs over the last year, offset by lower ingredients prices and volumes.

In line with our stated objective, we continue to focus on taking costs out of manufacturing and distribution in the Dairies division. Our first regional distribution centre in Aldridge in the West Midlands will open in September and we are progressing well with a solution in the South East. This project will reduce distribution costs, allow the dairy sites to improve efficiency and increase their overall production capacity.

Our retail milk business has continued to make progress in developing long-term partnerships with our major customers. In this respect, following a supplier review, we have recently extended our position as a key long-term supplier of fresh milk to Sainsbury's. This follows on from the previously announced long-term arrangement with Morrisons.

We have also worked closely with Sainsbury's to launch a trial of milk sold in an environmentally friendly bag. This bag uses 75% less packaging than in a standard polybottle. As part of this project, which has received wide publicity, Dairy Crest developed and patented the 'Jugit', a revolutionary new easy-to-use jug designed to work with the milk bag.

In Household, we have successfully implemented further price increases on both the doorstep and in the middle ground. Following the May price increase, the underlying milk volume decline on the doorstep has increased slightly. Conversely non-milk product sales are up year on year. Good progress is being made with development of the milk&more service, which enables customers to order and pay over the Internet. A further 26 depots are expected to go live on the system during July and August.

Milk supply

Overall UK production levels remain very tight and farmers are facing further rises in on-farm costs. These factors are continuing to put upward pressure on milk prices in the UK. Dairy Crest has continued to be supportive of our supplying farmers, and consequently since the start of the year we have increased prices paid for raw milk on cheese contracts (0.75 pence per litre on our Davidstow contract from May 2008), liquids contract (0.5 pence per litre from June) and on our dedicated milk pools for Waitrose, Marks & Spencer and Sainsbury's. In addition, to support farmers, Morrisons has increased its price to Dairy Crest. This has enabled Dairy Crest to pay a further regional premium of 0.3 pence per litre to all dairy farmers on our main liquids contract backdated to the start of June.

New bank facility

The Group is pleased to announce that it has agreed a new 5-year revolving credit facility of £85 million and €175 million with a syndicate of eight banks. This new facility will be used to refinance the existing £275 million facility, which was due to terminate in June 2009. The size of the facility has been reduced to reflect the Group's ongoing financing requirement. Financial covenants under the new facility agreement are unchanged.

Mark Allen, Chief Executive of Dairy Crest, commented:

"Overall we have made good progress in the first few months of the year and our key brands continue to perform well. We have successfully implemented price increases and reduced our cost base to offset oil related commodity cost inflation. Whilst the general market conditions remain difficult, we are confident that the Group is well placed to meet these challenges. Our expectations for the full year remain unchanged."

Dairy Crest's Annual General Meeting will be held today at 11.00am at the Chartered Accountants' Hall, Moorgate Place, London EC2P 2BJ.

The Group expects to issue a half-year trading update on 30 September 2008 and its Interim Results for the period ending 30 September 2008 on 11 November 2008.

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