Dairy Crest Regulatory News (DCG)

2 February 2010

Dairy Crest Group plc ("Dairy Crest")

Interim Management Statement 

STRONG THIRD QUARTER PERFORMANCE

Dairy Crest, the UK's leading dairy company, is issuing the following Interim Management Statement for the nine months ended 31 December 2009.

Trading Performance 

Dairy Crest's profit before tax for the nine months ended 31 December 2009 is slightly ahead of our expectations, buoyed by a strong performance in the last three months.

This strong performance has been achieved through our strategy of delivering growth by investing in our brands, controlling costs and generating cash.

As anticipated, sales for the nine months ended 31 December 2009, excluding joint ventures, are down 1% on the corresponding period last year due to lower sales of commodity ingredients and milk to non-major retail customers.

Growth

We have grown sales in three key areas of strategic importance to us.

Firstly, our five key brands (Cathedral City, Country Life, St Hubert Omega 3, Clover and Frijj) continued to perform strongly. We have supported these brands with high levels of television advertising and promotions and have also been pleased by strong non-promotional sales during December 2009. We have grown sales of these brands by 10% in the first nine months of the year against tough prior-year comparatives. Looking forward, we intend to continue to advertise, innovate and promote our key brands in order to maintain their impressive momentum.

Secondly, our sales of milk to supermarkets have continued to increase and we are delighted to have renewed our contract to supply fresh milk to Sainsbury's. The recent cold weather has increased demand for milk and our sales volumes were 17% over normal levels in the first week of January 2010. The great efforts of all our employees and our milk producers enabled us to meet the increased demand and provide excellent customer service.

Thirdly, we have maintained the momentum behind our doorstep delivery internet proposition milk&more and now have over 180,000 customers registered to use the service. We will continue to market this service to new customers during our fourth quarter and anticipate a further increase in milk&more registered customers by 31 March 2010.

Cost Control

Cost control remains a key part of our strategy and we continue to seek cost reductions on a daily basis across our business. For example, we have recently redesigned some of our spreads tubs to reduce packaging costs and we have completed the closure of our glass bottling operation at the Fenstanton dairy.

We also have the following new projects underway to drive significant cost savings:

At our Kirkby spreads factory we have identified potential efficiency savings and are in consultation with employees to reduce our cost base.

In our Household business, leveraging recent investment in systems gives us the opportunity to drive operational efficiencies as well as to increase sales. We have initiated a pilot programme to evaluate these improved methods of working.

Ongoing investment

We continue to invest in our facilities to ensure we can provide high quality dairy products at a competitive cost. Over the past eighteen months, investment has been focused on the cheese business, where following the opening of the new Nuneaton packing plant, we now have a world-class supply chain supporting our Cathedral City brand. We have also continued to invest in other parts of the business; for example, at Foston where we have created a modern greenfield dairy, readily capable of further expansion.

Looking forward we intend to increase capital investment in our Dairies Division in order to improve the efficiency and infrastructure of our liquid milk dairies and support our offering to key customers. We have earmarked £75 million over the next three financial years in addition to our normal replacement capital expenditure, to be funded from cash generated by the business. This will mean that total capital expenditure will run ahead of depreciation during the period.

Generating cash

We continue to focus on cash management and have achieved good results in the year to date. As a result we expect our year-end net debt to be below £350 million.  Further improvements in working capital remain possible as we continue to tighten our systems and processes across the business. We expect to be able to continue to make annual reductions in our net debt as well as meet the need for higher investment.

Reducing Risk and Increasing Focus

As previously announced, Dairy Crest is closing its defined benefit pension scheme to future accrual from April 2010. This process is on track and will significantly reduce long-term risk.

We announced on 14 January that we were in preliminary discussions to sell 50% of the shares in Wexford Creamery Limited, reducing our shareholding from 80% to 30%. Cash proceeds from this transaction are expected to be approximately €9 million.

Mark Allen, Chief Executive of Dairy Crest, commented:

"We are encouraged by the strong progress we have made so far this year and anticipate that we will maintain our momentum into the fourth quarter. Over the last two years our five key brands (Cathedral City, Country Life, St Hubert Omega 3, Clover and Frijj) have grown by 39%. We will continue to focus on the strategy that has helped us deliver this success. Cash generation remains key and we have identified opportunities to continue the drive that has delivered a significant reduction in our net debt.

"Looking forward, the increased investment in our liquid milk dairies will allow us to drive further cost efficiencies, remain competitive and maintain high levels of service to our customers.

"We remain cautious about the trading environment for 2010 but the improvements we have made to our business during 2009 leave us well positioned to cope with the challenges." 

Dairy Crest expects to issue its full-year trading update on 31 March 2010 and its Preliminary Results for the year ended 31 March 2010 on 18 May 2010.

There will be a conference call for analysts today at 08:30 GMT (UK time).