Dairy Crest Regulatory News (DCG)

19 May 2016

Dairy Crest Group plc ("Dairy Crest")

Preliminary Results Announcement for the year ended 31 March 2016

Highlights

· Combined volumes of four key brands up 2%

· Cathedral City grows revenue and volumes in a period of continuing, significant price deflation

· Improved Clover and Country Life performance in the second half of the year; Frylight continues to grow strongly

· Profit margins from continuing operations maintained after a strong second half of the year

· Production and sales of demineralised whey and galacto-oligosaccharide have commenced

· Transformational sale of Dairies business completed on 26 December 2015

· Strong underlying cash generation from the continuing business

· Proposed final dividend up 1.9% to 16.0 pence

1 From continuing operations

2 Before exceptional items, amortisation of acquired intangibles and pension interest

Commenting on the results, Mark Allen, Chief Executive, Dairy Crest Group plc said:

"This is an exciting time to be leading Dairy Crest. Although we expect food price deflation to persist in the short term, the business is well positioned to deliver profitable and sustainable growth.

We are making progress with all of our four key brands and the continued investment we are putting behind them this year gives me confidence that we can continue to grow their market share.

The other focus for 2016/17 will be on accelerating sales of demineralised whey and GOS, the new infant formula ingredients and continuing to explore further applications for GOS.

Future cash generation will improve as the sale of our Dairies business and completion of the investment at Davidstow removes a significant drain on cash"

A video interview with Mark Allen and Tom Atherton is available from the investor section of the Group's website www.dairycrest.co.uk/investors. There will be an analyst and investor meeting at 11:00 (UK time) today at The Lincoln Centre, 18 Lincoln's Inn Fields, London, WC2A 3ED, following which an audiocast of the presentation will be available from the investor section of the Group's website www.dairycrest.co.uk/investors.

Chief Executive's Review

Summary: well positioned for growth

2015/16 has been a significant year for Dairy Crest. We successfully sold our Dairies business and completed a programme of significant investment in functional ingredients manufacture at our Davidstow facility in Cornwall. These initiatives have transformed the Group. Dairy Crest is now a simpler business focussed on growth and innovation in branded and value-added products. The business is well positioned to generate cash and deliver attractive margins that should improve in the future.

Dairy Crest's continuing business posted a solid financial performance in 2015/16 despite continued deflation in dairy markets. Against this background, I am particularly pleased by the improved profitability in the second half of the year. Our key brands have performed well and have good prospects. We will continue to focus on growing brands and establishing our functional ingredients business. This gives us access to new, higher-growth markets and a range of new customers. This will ensure that the company is well positioned for the future despite current market conditions which are expected to remain challenging in the short term.

Market background: another year of deflation

In the past year we have once again seen significant price deflation in the cheese, whey and butter categories. Another year of strong UK and global milk production has resulted in downward price pressure across all dairy products. This showed no signs of slowing in the second half of the year. Regrettably, in this environment, we have had to reduce the price paid to our farmers for their milk; a reduction of about 17% over the course of the last year. We continue to pay farmers a fair, competitive price for milk and have recently introduced a new, innovative milk contract for our farmers. This will promote more stable and transparent pricing for core milk volumes that support our cheese business' requirements.

Inevitably, the market environment has put downward pressure on selling prices. Our cheese margins have been pressured because the benefit of lower input costs take up to 12 months to be reflected in the income statement. This is the average maturation time for our cheese. This effect is compounded by lower realisations from whey sales. We therefore are particularly pleased to have delivered margins slightly ahead of last year given this background.

The major food retailers, our principal customers, have had to deal with both food deflation and continued intense competition. We expect these tough conditions to continue. In this environment it is crucial that we continue to work with our customers innovatively to help grow the categories in which we operate in ways that are mutually beneficial. Our "Dairy for Life" initiative continues to play an important role in helping to grow dairy categories in partnership with our retailer customers. It is a framework to grow the categories in which we operate and guides plans for future innovation, marketing and category merchandising.

Key brands perform robustly in deflationary environment

* Dairy Crest volume and value sales 12 months to 31 March 2016 vs 12 months to 31 March 2015

In line with our expectations, overall revenue from our four key brands was down by 2.3% over the financial year. This was a good performance in a deflationary marketplace. Key brand sales volumes increased by 1.7% with all four brands growing volumes year on year in the second half despite very challenging conditions in the butters and spreads market.

Cathedral City outperforms again

IRI data for the 52 weeks ended 26 March 2016 compared to the same period last year show that the total cheese market (excluding discounters) grew by 6.1% in volume but fell by 0.4% in value. Within this, the everyday cheese market fell by 3.6% in value. Cathedral City outperformed the market with volumes increasing by 6.4% and revenue increasing by 0.8%. It now accounts for 55% of branded everyday cheese sales in the UK.

Cathedral City market penetration over a 12 month period is now 58%. Almost three fifths of households bought Cathedral City in the last year and this is a measure of how the brand has grown over recent years. We are determined to continue building on this success. In April 2016 we began to roll out updated and refreshed branded packaging across the Cathedral City portfolio. This brand evolution simplifies and standardises the master brand; it will also improve Cathedral City's prominence on the shelf. The brand refresh will be supported by a new advertising campaign and promotional activity.

Spreads and Butters performance improves over the year

IRI data for the 52 weeks ended 26 March 2016 show that butters volumes grew by 6.4% but spreads volumes declined by 8.6%, leaving combined volumes down 2.2%. Selling prices fell in both markets resulting in retail sales down 2.1% for butters, 13.1% for spreads and 6.5% combined.

Retail sales of Clover moved broadly in line with the market over the 52 weeks ended 26 March 2016. The performance improved in the second half following the re-launch of Clover in September 2015. This launch was the culmination of a two-year project that removed all artificial ingredients from Clover and was supported by marketing and promotional activity in the autumn.

Since the re-launch, over 500,000 more customers have bought Clover. In the second half of the year Clover volumes increased by 1.2% compared to the same period last year despite market volume declines overall. IRI data for the last quarter of the year shows Clover has gained 1.7% share volume versus the previous year.

Country Life delivered volume growth of 3.9% in the year with a step change in performance in the second half. This was helped by new British themed packaging which, we know from consumer research, plays to the brand's strengths. Volumes and revenue grew by 20% and 3% respectively in the last six months of the year compared to the second half of 2014/15. This gives us strong momentum as we move into the new financial year.

Frylight delivers strong growth

Frylight, our 1 Calorie cooking spray, has once again delivered strong growth; volumes were up 29.1% year on year and revenue was up 27.9%. Based on Kantar data for the 52 weeks to 27 March 2016, the retail oils market is worth £330 million at retail and has grown in both volume and value by 4% over the last 12 months. Frylight is now the number one brand in this market with household penetration of over 20%.

The brand has benefitted both from increased listings and product innovation. 2015/16 saw the introduction of both coconut oil and rapeseed oil variants. This continued pace of innovation will be crucial to growing the brand in the future.

Infant formula ingredients on track

We have successfully completed our investment programme at Davidstow to manufacture ingredients for the infant formula market. This unique UK facility is now producing both demineralised whey and galacto-oligosaccharide ('GOS'). Following successful food and infant formula quality audits, these products are being sold to our partner, Fonterra. Final commissioning took somewhat longer than expected although we started production in March 2016. We will get a full year benefit from the investment in the financial year to 31 March 2017.

This is an important step for our business as it delivers a premium on all of our whey by-product. It also allows us to grow a profitable GOS infant formula business while researching further GOS applications and uses. It gives Dairy Crest access to important business-to-business ingredients customers and an ability to develop in emerging markets. In December 2015 we acquired the outstanding 50% of Promovita Ingredients Limited ("Promovita") our GOS joint venture. This has allowed us to control the direction and pace of our GOS development.

Whey, along with other dairy products, has experienced steep falls in price during the last 12 months. However, demineralised whey continues to deliver a price premium compared to the sweet whey powder that we produced previously. This uplift will deliver a project payback in line with our expectations despite short-term weakness in the market.

Innovation at the heart of what we do

The retained business is much more focussed following the sale of the Dairies operations and pace of innovation is, and needs to be, an important point of difference. Future growth is underpinned by innovation.

In December 2015, our research and development and technical teams moved into our new Dairy Crest Innovation Centre on the Harper Adams University campus. This state-of-the-art facility will help drive our ambitious target of 10% of sales each year coming from innovation in the previous three years. This year, helped by the re-launch of Clover we achieved 11% of sales from recent innovation across our four key brands.

The Innovation Centre consolidates all of our technical and research expertise and equipment in one place and allows us to benefit from cross-fertilisation of people and ideas with the University which is a leading centre of food and agricultural research.

Innovation continues to drive our business forward in other ways. In the year ended 31 March 2016, we:

· successfully launched Clover Simple with no artificial ingredients;

· brought two new Frylight products to market - coconut and rapeseed spray oils;

· introduced a new milk purchasing contract for our Davidstow supplying farmers that aligns our growth ambitions with theirs; and

· agreed a partnership with Fowler Welch, a logistics specialist, to maximise the throughput at our Nuneaton distribution and warehousing site.

We continue to carry out research with universities and commercial trials with partners into the effect of GOS on animal development. The laboratory data seen to date is encouraging and work will continue in this area during 2016. To this end we have allocated an increase of over £2 million in the GOS research budget for 2016/17. We intend to validate laboratory findings with field trials and find additional commercial applications for GOS.

A simpler business

Dairy Crest is a simpler, leaner and more responsive business following the Dairies sale. We now have five well-invested manufacturing sites and fewer than 1,200 employees. There are opportunities to further simplify procedures and support structures within the business. Over time this will allow us to reduce overheads and increase efficiency. We are currently embarking on a change to our core IT systems which will roll out over the next three years. This will deliver a more appropriate and cost effective IT infrastructure for a business of our scale. It will also be the catalyst for us to simplify the processes that sit alongside these IT systems.

We continue to drive operational efficiency improvements and following the successful consolidation of butters and spreads production into one site at Kirkby in early 2015, we will continue to focus on improving line performance efficiency. We have already seen improvements in efficiency measures over the year to March 2016.

Future prospects

This is an exciting time to be leading Dairy Crest. Although we expect food price deflation to persist in the short term, the business is well positioned to deliver profitable and sustainable growth.

We are making progress with all of our four key brands and the continued investment we are putting behind them this year gives me confidence that we can continue to grow their market share.

The other focus for 2016/17 will be on accelerating sales of demineralised whey and GOS, the new infant formula ingredients and continuing to explore further applications for GOS.

Future free cash generation will improve as the sale of our Dairies business and completion of the investment at Davidstow removes a significant drain on cash.

Mark Allen

Chief Executive

18 May 2016

Financial Review

Overview

Dairy Crest has continued to make progress in difficult trading conditions and in 2015/16 the Group took two important steps in delivering against its long-term strategy.

Firstly, on 26 December 2015 we completed the sale of our Dairies business to Müller UK & Ireland Group ("Müller") LLP. This transformational sale allows us to focus on a significantly simplified branded and value-added business with growth potential through both branded sales and new functional ingredients business streams.

Secondly, following investment at our Davidstow facility, we are now producing demineralised whey and GOS for sale into international infant formula markets with strong growth characteristics. Furthermore, we continue to research uses of GOS beyond infant formula in order to provide further growth opportunities in the future.

These initiatives leave us well placed for the future despite price deflation in dairy markets that persisted throughout 2015 and has continued into 2016.

Overall, the financial performance of the continuing Group during the year has been robust despite price deflation which has reduced revenues by 5.8% to £422.3 million. Product group profit margins have been increased to 15.6% despite the delayed margin benefit of milk input cost deflation due to the average one year's cheese maturation time. However, the very difficult conditions in the liquid milk market persisted throughout 2015 and our discontinued Dairies business made pre-exceptional operating losses of £33.3 million in the nine months before its sale.

Underling cash generation from the retained business was strong and this will continue in the future. However, overall net debt increased by £30 million in the year due to significant losses in the Dairies business, pre-completion separation and transactional costs as well as the demineralised whey and GOS investment at Davidstow. However, these costs will not be incurred in future.

Continuing operations

Revenue

We continue to provide product group analysis consistent with prior years to assist the users of the Financial Statements although the Group operated as one segment throughout 2015/16.

Revenue decreased by 5.8% to £422.3 million. Despite sales volumes across our four key brands increasing by 1.7% the Group faced price deflation throughout the year across cheese, whey and butter. Cheese and whey revenues fell by £10.7 million (3.9%) despite increased sales volumes. Revenue in Butter, Spreads and Oils fell by £17.4 million (10.2%) as volume declines in spreads and butter price deflation more than offset volume growth in Country Life and strong volume and value growth in Frylight. Other revenue comprised warehousing and distribution services provided to third parties.

Profit on continuing operations

Overall Group product group profit (before interest, acquired intangible amortisation and exceptional items) fell by £0.9 million to £66.0 million although this represents an improved margin of 15.6% (2015: 14.9%). This margin is after charging all central corporate costs and includes the £3.6 million benefit of the sale of closed depots that were not disposed of as part of the sale of the Dairies business to Muller. These depot sales will continue beyond 2015/16 but are finite. Their treatment as operating income is consistent with the treatment in previous years of the related closure costs. Future sales of ex-manufacturing sites such as Fenstanton in Cambridgeshire will be classified as exceptional consistent with the historical treatment of the related closure costs.

Cheese and whey product group profits increased by 10.0% with a margin recovery to 13.8% (2015: 12.1%). This is despite lower revenue which continued to reflect falling milk input costs during the year. These falling costs were not fully reflected in cost of sales in 2015/16 due to the 12 month average cheese maturation cycle which means the cost benefit of a price cut in milk is not recognised in the income statement until a year later.

Managing deflation will continue to be a feature of the cheese and whey business throughout 2016 as it has been for the last two years. During deflationary periods, the lag effect described above results in lower reported profit margins but it results in working capital reductions and improved cash margins ahead of profit margins.

Butters, Spreads and Oils product group profits were lower following a strong 2014/15 albeit profit margins were broadly maintained at 19.4% (2015: 19.9%). Cream input costs remained low during the year and this has helped to fund the relaunch of Clover as well as increased second half advertising and promotional activity across the brand portfolio while maintaining margins.

Exceptional items

Pre-tax exceptional charges from continuing operations reduced to £11.3 million (2015: £19.8 million) and are likely to result in a net credit in 2016/17 as we sell previously closed manufacturing sites.

The Group realised a gain of £6.0 million on its investment in Promovita at the point that it acquired 100% control in December 2015. The carrying value of the GOS business is now represented by £12.1 million of goodwill and over £20 million of tangible fixed assets.

The Group incurred £16.2 million of exceptional costs in relation to the building and commissioning of the demineralised whey and GOS facilities at the Davidstow creamery in Cornwall (2015: £3.4 million). The principal elements of spend were duplicate running costs, commissioning expenses and project management.

An exceptional provision of £1.8 million has been provided for dilapidation costs for leased properties in the retained business albeit crystallised by the sale of the Dairies business (2015: nil) and provisions relating to the closure of the Crudgington site totalling £0.7 million were released.

Finance costs

Finance costs of £8.3 million increased by £0.2 million in the year as levels of borrowings increased. The average cost of borrowing will fall in 2016/17 following the issuance of £76 million Sterling equivalent of new loan notes in March 2016 at a fixed effective coupon of 3.3%. These notes replace £80 million (swapped Sterling equivalent) of 10-year loan notes issued in April 2006 at an effective fixed rate of 5.3% which matured in April 2016.

Although the cost of borrowing will fall in 2016/17, reported interest costs will increase due to a reduction in the amount of capitalised interest following the completion of the Group's investment in Davidstow. Capitalised interest costs in 2015/16 amounted to £3.8 million (2015: £2.4 million). Interest cover excluding pension interest, calculated on total product group profit was 8.1 times (2015: 8.3 times).

Other finance expenses, which comprise the net expected return on pension scheme assets after deducting the interest cost on the defined benefit obligation, decreased to £0.6 million (2015: £1.8 million). These costs are dependent upon the pension scheme position at 31 March each year and are volatile, being subject to market fluctuations. We therefore exclude this item from headline adjusted profit before tax.

Profit before tax - continuing operations

Adjusted profit before tax (before exceptional items and amortisation of acquired intangibles) decreased by 1.9% to £57.7 million. This is management's key Group profit measure. Reported profit before tax of £45.4 million represents a £8.6 million (23.4%) increase from 2015 predominantly due to the lower level of exceptional items incurred.

Taxation

The Group's effective pre-exceptional tax rate on continuing operations reduced to 17.5% (2015: 20.1%). The effective tax rate is slightly below the headline rate of UK corporation tax as we continue to sell a small number of properties the profits on which are offset by brought forward capital losses or roll over relief.

Earnings per share

The Group's adjusted basic earnings per share from continuing operations increased by 0.6% to 34.5 pence (2015: 34.3 pence) as a lower effective rate of tax offset a marginal decrease in profit before tax. Basic earnings per share from continuing operations, which includes the impact of exceptional items, pension interest expense and the amortisation of acquired intangibles, amounted to 27.9 pence (2015: 21.5 pence).

Discontinued operations

The Group completed the sale of its Dairies operations on 26 December 2015 having had the transaction cleared by the Competition and Markets Authority ("CMA") on 19 October 2015.

Conditions in the UK dairy sector remained extremely challenging throughout 2015 and worsened significantly from March 2015. The Group's dairy operations were further impacted by the uncertainty surrounding the CMA review which affected commercial relationships and our employees during the period of review. Operating losses in the nine months to December 2015 amounted to £33.3 million (12 months to 31 March 2015: £1.8 million profit).

These losses also impacted the proceeds received for the business which were subject to a number of adjusting items compared to the headline consideration of £80 million. Final consideration is estimated at £28.6 million although this amount remains subject to agreement on levels of working capital and EBITDA, both of which are in the process of being determined by an independent expert.

Certain of the reductions in headline consideration are due to the fact that the Group had already received the cash in the period between the announcement of the sale (November 2014) and completion of the transaction (December 2015). This is true for property sale adjustments and to some extent working capital being below target.

Consideration was further reduced by the requirement for an undertaking in lieu to be agreed with the CMA in order to facilitate a phase 1 review clearance. The Group paid £15 million to Muller to contribute to the cost of delivering this undertaking.

The post-tax loss on disposal, taking into account the best current estimate of the final consideration and including costs of the transaction, is £110.7 million. Following the sale, the Group has a deferred tax asset of £19.5 million having judged that brought forward trading losses and balancing charges will be utilised in future years. The final amount of consideration remains subject to determination by an independent expert and any adjustment will be recorded in the year ending 31 March 2017.

In addition to the loss on disposal, the Group incurred post-tax exceptional items totalling £14.4 million as the operations to be sold were carved out of the Dairy Crest Group and site restructuring continued in the Dairies business. Full details of discontinued operations are set out in the notes to the financial statements.

Group result for the year

The reported Group profit for the year from continuing operations was £38.5 million (2015: £29.4 million). The loss for the year attributable to equity shareholders was £113.0 million (2015: £20.5 million profit).

Dividends

We remain committed to a progressive dividend policy and have continued to deliver against that policy by increasing our proposed final dividend by 1.9%. The proposed final dividend of 16.0 pence per share represents an increase of 0.3 pence per share. Together with the interim dividend of 6.1 pence per share (2015: 6.0 pence per share) the total proposed dividend is 22.1 pence per share (2015: 21.7 pence per share). The final dividend will be paid on 11 August 2016 to shareholders on the register on 8 July 2016.

Dividend cover of 1.6 times is within the Board's target range of 1.5 to 2.5 times (2015: 1.7 times).

Pensions

During the year ended 31 March 2016 the Group paid £20.8 million cash contributions into the closed defined benefit pension scheme, including an £8.3 million prepayment of future agreed cash contributions in relation to lease payments on three properties owned by the pension scheme. These properties were repurchased from the scheme in November 2015 in order to facilitate the completion of the sale of the Dairies business. This upfront buyback of leases will reduce the current agreed level of cash contributions as agreed at the March 2013 valuation by £2.8 million per annum.

The current schedule of contributions agreed as part of the March 2013 valuation has a revised level of cash contribution for 2016/17 of £13.2 million now that property leases have been prepaid.

The reported deficit under IAS 19 at 31 March 2016 was £42.5 million; an increase of £1.1 million from March 2015. However, this methodology values liabilities by reference to high quality corporate bond yields. The full actuarial valuation, which will be based on March 2016 conditions and from which a new Schedule of Contributions will be agreed, is valued by reference to UK gilt yields which remain very low by historical standards. We would therefore expect the actuarial deficit at March 2016 to be significantly greater than the IAS 19 deficit at the same date, although the final valuation will not be determined until later in 2016.

Cash flow

Our aim is for the business to generate strong free cash flows in future years and 2015/16 saw good progress as drags on cash generation in the form of dairies losses, restructuring costs and high levels of capital expenditure all either fell away or moved towards completion.

In the year ended 31 March 2016 cash generated from operations was £31.3 million (2015: £35.3 million). Excluding discontinued operations, cash generated from continuing operations amounted to £82.9 million (2015: £56.8 million). This demonstrates a substantially stronger cash generation for the Group following the sale of the Dairies business.

Operating cash flow benefitted from a £14.0 million reduction in working capital. The reduced cost of milk for our cheese business has reduced the value of maturing cheese stocks by £20 million during the year as older, more expensively made cheese is sold and released to the income statement. This working capital reduction offsets the cheese margin squeeze described earlier. Overall the continuing business benefitted from a £31.7 million reduction in working capital partly offset by an increase in Dairies working capital which was influenced by its deteriorating business performance and the timing of the disposal versus the usual March year end.

Exceptional cash costs of £17.6 million (2015: £19.8 million) are due to significant costs associated with the separation of the Dairies business before sale and the commissioning of the demineralised whey and GOS plants at Davidstow.

Cash interest payments amounted to £12.8 million (2015: £10.5 million) due to the payment of fees in relation to the refinancing of the Group's revolving credit facility. There were no net tax payments due to the high level of dairies losses, pension contributions and significant levels of capital expenditure incurred during the year (2015: nil).

Capital expenditure of £66.8 million represents a £13.3 million or 17% fall from last year's £80.1 million. Capital expenditure in the continuing business amounted to £56.4million (2015: £63.9 million) with the majority having been incurred at our Davidstow site as we built the demineralised whey and GOS facilities. Commissioning started in the final quarter and finished in the first quarter of 2016/17. The Group now has well invested facilities and, following the new project expenditure at Davidstow, future levels of capital expenditure will fall further.

Proceeds from property disposals were £5.4 million (2015: £22.5 million) and the sale of our Dairies operations resulted in initial cash proceeds of £54.5 million - comprising headline proceeds of £80.0 million less £15.0 million for the cost of the undertaking in lieu, £7.5 million of property sales from which the Group had already received the cash proceeds and £3.0 million in relation to pre-sale capital expenditure in Dairies falling below an agreed target. Against this, the Group paid £5.5 million in related fees reflecting the extended review undertaken by the CMA. A balancing payment of £25.9 million was made to Muller in April 2016. The Group paid £6 million for the outstanding 50% of the share capital of Promovita.

Overall, the high level of Dairies losses, restructuring and separation costs and investment at Davidstow resulted in a £30.3 million increase in net debt during the year (2015: £56.5 million increase). In the two financial years ended 31 March 2016, discontinued operations generated £100 million of operating cash outflows (being cash used in operations less capital expenditure). However, the continuing business is strongly cash generative and the level of restructuring and capital expenditure will reduce significantly in 2016/17.

Borrowing facilities

In October 2015, the Group agreed a new five year multi-currency revolving credit facility for £240 million which reduces by £80 million in October 2018. This reducing facility had the benefit of reduced fees compared to a flat £240 million facility but also reduces the level of unused facility headroom for a Group that expects to reduce levels of net debt in future years.

At 31 March 2016 the Group had a swapped Sterling equivalent of £220 million of loan notes outstanding having issued £76 million of notes in March 2016. However £80 million of these notes matured on 4 April 2016 leaving £140 million of notes outstanding maturing between 2017 and 2026.

Total facilities now comprise £380 million Sterling equivalent.

Treasury Policies

The Group operates a centralised treasury function, which controls cash management and borrowings and the Group's financial risks. The main treasury risks faced by the Group are liquidity, interest rates and foreign currency. The Group only uses derivatives to manage its foreign currency and interest rate risks arising from underlying business and financing activities. Transactions of a speculative nature are prohibited. The Group's treasury activities are governed by policies approved and monitored by the Board.

Post balance sheet events

In the year ended 31 March 2012, the Group recorded an exceptional bad debt provision of £4.3 million as a result of Quadra Foods Limited ("Quadra") and Farmright Limited ("Farmright") going into administration. The bad debt provision related to Quadra and disputed amounts owed to Farmright continued to be held as a liability. At 31 March 2016, amounts owed to the Group by Quadra had been fully provided for and the Group carried a creditor balance of £3.1 million for potential future liabilities in relation to Farmright. On 9 May 2016, the Group paid £1.0 million in full and final settlement of claims arising out of the amount originally owed to Farmright. Claims between the Group, Farmright and Quadra are now resolved. Following settlement, £2.1 million will be released as an exceptional item in the year ending 31 March 2017.

On 4 April 2016, the Group repaid $123 million (£70 million sterling equivalent) and £10 million of 2006 fixed coupon loan notes on their maturity.

Tom Atherton

Finance Director

18 May 2016

Consolidated income statement

Year ended 31 March 2016

The prior year comparatives have been restated to reclassify the Dairies operation sold during the year ended 31 March 2016 as a discontinued operation (see Note 8).

* Adjusted earnings per share from continuing operations calculations are presented to give an indication of the underlying operational performance of the Group. The calculations exclude exceptional items, amortisation of acquired intangibles and pension interest in relation to the Group's defined benefit pension scheme, being dependent upon market assumptions at 31 March each year.

Consolidated statement of comprehensive income

Year ended 31 March 2016

All amounts are attributable to owners of the parent.

Consolidated balance sheet

At 31 March 2016

Consolidated statement of changes in equity

Year ended 31 March 2016

Consolidated statement of cash flows

Year ended 31 March 2016

Notes to the preliminary announcement

1 Basis of preparation

The consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority, International Financial Reporting Standards ("IFRS") and International Financial reporting Interpretation Committee ("IFRIC") interpretations as endorsed by the European Union, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2015, as described in those financial statements.

The following accounting standards and interpretations became effective for the current reporting period:

IAS 19 'Defined Benefit Plans: Employee Contributions - Amendments to IAS 19'

IFRS 2 - Improvement to IFRS 2 Share-based Payment - Definitions of vesting conditions

IFRS 3 - Improvement to IFRS 3 Business Combinations - Accounting for contingent consideration in a business combination

IFRS 8 - Improvement to IFRS 8 Operating Segments - Aggregation of operating segments and Reconciliation of the total of the reportable segments assets to the entity's assets

IAS 16 & IAS 38 - Improvement to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets - Revaluation method

IAS 24 - Improvement to IAS 24 Related Party Disclosures - Key management personnel

IFRS 3 - Improvement to IFRS 3 Business Combinations - Scope exceptions for joint ventures

IFRS 13 - Improvement to IFRS 13 Fair Value Measurement - Scope of paragraph 52

IAS 40 - Improvement to IAS 40 Investment Property - Interrelationship between IFRS 3 and IAS 40 (ancillary services)

The application of these standards has had no material impact on the net assets, results and disclosures of the Group in the year ended 31 March 2016.

The financial information set out in this document does not constitute the statutory accounts of the Group for the years ended 31 March 2016 or 31 March 2015 but is derived from the 2016 Group Annual Report and Financial Statements. The Group Annual Report and Financial Statements for 2016 will be delivered to the Registrar of Companies in due course. The auditors have reported on those accounts and have given an unqualified report, which does not contain a statement under Section 498 of the Companies Act 2006.

2 Segmental analysis

IFRS 8 requires operating segments to be determined based on the Group's internal reporting to the Chief Operating Decision Maker ("CODM"). The CODM has been determined to be the Company's Board members as they are primarily responsible for the allocation of resources to segments and the assessment of performance of the segments.

Following the creation of a standalone Dairies operation and before its disposal, the CODM's primary focus for review and resource allocation in the year has been between the continuing business and the Dairies operation which is classified as a discontinued operation and whose results are disclosed in Note 8 rather than in this note.

The continuing business is managed centrally by functional teams (Demand, Supply, Procurement and Finance) that have responsibility for the whole of the continuing Group's product portfolio. Although some discrete financial information is available to provide insight to the management team of the key performance drivers, the product group profit is not part of the CODM's review. Management has judged that the continuing Group comprises one operating segment under IFRS 8. As such, disclosures required under IFRS 8 for the financial statements are shown on the face of the consolidated income statement and balance sheet.

To assist the readers of the financial statements, management considers it appropriate to provide voluntary disclosure on a basis consistent with historical reporting of the cheese and spreads product group results included within the consolidated income statement. In disclosing the product group profit for the year, certain assumptions have been made when allocating resources which are centralised at a group level for the continuing business and property income.

The 'Other' product group comprises revenue earned from distributing products for third parties and certain central costs net of recharges to the other product groups. Generally, central costs less external 'Other' revenue is recharged back into the product groups such that their result reflects the total cost base of the Group. 'Other' operating profit therefore is nil.

Notes to the preliminary announcement

2 Segmental analysis (continued)

The results under the historical segmentation basis for the continuing business included in the financial information are as follows:

* Profit on operations before exceptional items and amortisation of acquired intangibles.

** Before exceptional items, amortisation of acquired intangibles and pension interest.