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Trading Update for the six months ending 30 September 2017

18/09/2017

Dairy Crest is issuing the following pre-close trading update for the six months ending 30 September 2017, ahead of announcing its Interim Results on 9 November 2017.

Trading update

In the first half of the financial year we expect that combined volumes of our four key brands - Cathedral City, Clover, Country Life and Frylight - will be ahead of last year. Combined value growth of these brands is expected to be higher than volume growth. Cathedral City, the UK’s leading cheese brand, is expected to deliver double-digit volume growth in the first half.

Cathedral City, Clover and Frylight continue to show strong volume growth. As previously stated, as a result of higher cream prices, which determine input costs for the butter business, we have reduced promotional activity on Country Life. Whilst this has impacted sales volumes, it has partly mitigated the adverse impact on margins.

In conjunction with our partner, Fonterra, we continue to make good progress developing the customer base for our demineralised whey and galacto-oligosaccharide. We will start to benefit from this in the second half of the year.

Pension fund

As previously announced on 8 September, the 2016 actuarial valuation for the Dairy Crest Group Pension Fund (the “Pension Fund”) is now agreed and incorporates a change in indexation from RPI to CPI. This change in indexation will result in an exceptional gain in 2017/18 estimated to be approximately £125 million.

The actuarial deficit of £100 million at March 2016 represents a reduction of £45 million compared to the March 2013 valuation, despite significantly lower gilt yields. Furthermore, deficit reduction contributions will be £10 million and £15 million in 2017/18 and 2018/19 respectively; a reduction of £12 million across these two years compared to the 2013 contributions schedule. They will revert to £20 million in 2019/20 although March 2019 is the date of the next full actuarial valuation and schedule of contributions.

Profit and financial position

We expect profit for the half year to be ahead of the same period last year. Our expectations for the full year remain unchanged.
As normal, we anticipate that Dairy Crest’s net debt at the half year will be higher than at the year-end in March 2017 as the first half is characterised by increased stock levels due to the seasonality of milk supply and the payment of the final dividend. However, we remain on track to deliver a reduction in net debt for the full year.

Mark Allen, Chief Executive, commented:

“Cathedral City has had a strong first half of the year, delivering good volume and value growth and strengthening its position as the nation’s favourite cheese. This performance has more than offset the impact of further input cost inflation in the butter business.

“Overall, first half profits are expected to be ahead of last year. Our profit expectations for the full year are unchanged despite input costs remaining high. The strength of our brands and focus on quality, innovation and efficiencies mean that we remain well positioned to deal with market conditions.

“We continue to focus on cash generation and on reducing net debt in the full year. The agreement reached with the Trustee of the Pension Fund is an important development and significantly reduces future funding liabilities.”

Dairy Crest is hosting a site visit for analysts and investors to its National Distribution Centre in Nuneaton on Monday 18 and Tuesday 19 September 2017. The management team will make presentations on this trading update, key brands, innovation and our supply chain.

These will be made available on Dairy Crest’s website at www.dairycrest.co.uk/investors.

No material new information will be disclosed in these presentations.

Dairy Crest expects to issue its Interim Results for the six months ending 30 September 2017 on 9 November 2017.

For further information:

Investors/Analysts
Tom Atherton Group Finance Director
Dairy Crest
01372 472264

Media
Tim Danaher / Oliver Hughes
Brunswick
020 7404 5959