Interim Management Statement - 7 February 2013


Dairy Crest, the leading UK-owned dairy foods company, issues an Interim Management Statement for the nine months ended 31 December 2012.

Dairy Crest continues to cope well in a challenging environment and overall trading remains in line with our expectations. We remain focused on growing added value sales and improving efficiency across the business. Our four key brands continue to grow, aided by good performances from the innovative new products launched in recent years. We are on track to exceed our annual cost savings target by delivering savings of around £23 million this year. We have already identified several meaningful projects for next year that should enable us to maintain our track record in this area.

The sale of St Hubert has significantly strengthened Dairy Crest's financial position, and has provided a strong foundation for the future. Our aim in deploying the cash from the transaction is to make targeted acquisitions. We are determined that any acquisition must deliver strong returns for shareholders but, to date, we have not identified any such acquisition. Our short-term focus is on improving our debt structure in order to reduce future interest costs, improve earnings and underpin our dividend. We also continue to work on providing appropriate long-term funding for the pension fund.

Third quarter trading in line

Taken together, our four key brands (Cathedral City, Country Life, Clover and FRijj) continue to grow, with sales volumes up by 4% and sales values by 5% over the nine month period.

As expected this represents a slowdown from the double digit increases seen in the first six months of the year, given the tougher comparatives we have been trading against in the third quarter. While we also face strong comparatives in our fourth quarter we still anticipate mid-single digit volume and value sales growth for the year as a whole. In our Dairies business we have continued with initiatives designed to restore profitability to our medium-term target of 3% on sales.

This year has been a tough one for dairy farmers with poor weather and high animal feed costs making production difficult and expensive. With the support of our customers we have paid more to our farmers to help them overcome the challenges they have faced, and to encourage them to continue to provide us with high quality British milk. From 1 April 2013 we expect to introduce a new formula-based pricing structure for some of our milk purchases, linking future milk prices to on-farm costs and market returns.

Focus on cash

We recognise the ongoing importance of cash management and, subject to any one-off cash costs associated with restructuring the balance sheet or relating to the pension fund, we expect our net debt to reduce in the second half of the year, in line with previous forecasts.

Capital expenditure will remain relatively high next year as we invest in our Kirkby Spreads facility and initiate other projects with attractive returns, such as adding further value to the whey that is produced as a by-product of cheesemaking, but we expect it to drop back to more normal levels in subsequent years.

Mark Allen, Chief Executive of Dairy Crest, commented:

"Dairy Crest has delivered a solid performance in the third quarter. I would like to thank our 5,000 employees for their hard work and dedication, particularly over recent months where they have shown great commitment to the long term success of the business."

"The sale of St Hubert has significantly strengthened Dairy Crest's financial position, and has provided a strong foundation for the future. We still hope to use some of the proceeds to supplement the organic growth that our brands continue to deliver, but we are determined that any acquisition must deliver strong returns for shareholders. We do not currently anticipate that any significant acquisition will be made in the near future, and accordingly we have identified a number of internal capital projects to support the continued growth of the business. We also intend to restructure our balance sheet."

Dairy Crest expects to issue its Preliminary Results for the year ending 31 March 2013 on 23 May 2013. It does not expect to provide a full year trading update before the end of its financial year.