Dairy Crest Maintains Expectations

Dairy Crest sold its 49% stake in Yoplait Dairy Crest Limited (YDC) for £63.5m. This is consistent with its strategy to focus on and invest in core brands owned outright.

30/03/09 Dairy Crest has issued a pre-close trading update for the full year ending 31 March 2009. Overall the Group's expectations for its performance to 31 March 2009 remain in line with its statements on 10 November 2008 and 3 February 2009. The Group's net debt position is substantially improved by the sale of its Yoplait Dairy Crest stake and net debt at the year-end is now expected to be around £435 million. As a result, calculated on a basis that is consistent with the Group's banking arrangements, the net debt to EBITDA ratio on 31 March 2009 will be approximately 3.0, well within the covenant limit of 3.5, and considerably improved from the forecast given on 3 February 2009 of 3.25.

“We remain focused on overall cost control and cash generation and believe this leaves us well placed to meet the challenges of an increasingly tough environment for UK consumers,” the company said.

Dairy Crest's key UK Foods brands of Cathedral City, Clover and Country Life have continued to grow. Advertising and promotional expenditure has been broadly maintained over the year and these brands have performed well against strong comparatives.

UK Foods sales remain strong and turnover will be around 10% higher than for the year ended 31 March 2008 on a like for like basis after adjusting for the sale of Dairy Crest's Stilton and speciality cheese business in August 2008. As anticipated, the retail environment remains tough and we are continuing to promote to encourage consumers to purchase our brands and to grow volume.

Cathedral City sales have increased approximately 10% by volume and 20% by value over the year. The brand has increased its market share and is worth over £190 million at retail value, making it now the 21st largest UK food and drink brand as measured by the Grocer trade magazine. It remains bigger than the next three largest competitor brands added together. Cathedral City Lighter sales have doubled year on year and this variant now has retail sales approaching £25 million.

Over the last year the company have also outperformed the total butters and spreads market. On both volume and value our two key brands, Country Life, which has benefited from the "Great British Butter" advertising campaign, featuring John Lydon, and Clover sales are both up between 25-30%. In addition Utterly Butterly, Vitalite and Willow continue to grow both volume and value.

The company’s new cheese packing operation at Nuneaton will complete full commissioning during the spring of 2009. This investment will enable us to benefit from greater productivity and reduced transport costs in the future.

The company has reported that their French spreads business, St Hubert, continues to deliver in line with expectations. The French market remains depressed but overall St Hubert has increased turnover (in local currency) by around 1% compared to the year ended 31 March 2008. “We have been particularly successful with St Hubert Omega 3 spreads in the year, which has gained 1.5 percentage points in market share, and have maintained our overall market share of the French spreads category,” Dairy Crest said .

Total Dairies turnover will be up 4% compared to the year ended 31 March 2008. Against a difficult backdrop overall for the UK dairy industry, and a particularly difficult global dairy commodity market, the company have made a real improvement to their retail milk business over the year. Volumes of liquid milk sold to major retailers have increased by around 4% by volume and the Frijj brand has also seen good growth.

Efficiency improvements arising from action taken in 2007/08 as well as 2008/09 have reduced costs and improved profitability.

Although the Group has been adversely affected by lower returns from ingredients sales, year-end stocks of ingredients at around £5 million will be significantly lower than at 30 September 2008 and actions have been put in place to minimise the amount of milk processed into ingredients during 2009/10.

The company’s doorstep delivery business is performing in line with expectations. Having been adversely affected by the increasingly tough consumer environment and the need to recover higher milk prices at the start of 2008/9, this business is now benefiting from actions taken to reduce our overall cost base. Trials of "milk&more", our online doorstep delivery service, continue to progress well with over 60,000 customers registered. The company’s plans are on track to roll out nationally over the summer.

As reported last week, Dairy Crest sold its 49% stake in Yoplait Dairy Crest Limited (YDC) for £63.5m. This is consistent with its strategy to focus on and invest in core brands owned outright. Cash proceeds will be used to repay debt, substantially increasing available headroom under banking covenants.

Mark Allen, Chief Executive of Dairy Crest, commented: "Despite the well-documented tough environment, we are pleased to report that we have traded in line with our expectations over recent months. Our key brands have benefited from our decision to continue to invest in advertising and promotions and we are well placed to deliver volume growth going forward. In addition we continue to reduce costs across the whole business with particular focus on our Dairies division. The sale of our stake in Yoplait Dairy Crest is consistent with our strategy to focus on and invest in core brands that we own outright. The sale also substantially reduces Group debt and provides us with more headroom under our banking arrangements."