3rd Feb 2009 07:00
3 February 2009
Dairy Crest Group plc ("Dairy Crest")
Interim Management Statement
Dairy Crest is issuing the following trading update covering its third quarter ended 31 December 2008 and subsequent period to 3 February 2009. Overall the Group's expectations for the full year remain in line with our Statement dated 11 November 2008.
Group sales for the nine months ended 31 December 2008 have grown by 4% against the same period last year. Sales of our branded dairy products and retail liquid milk have grown strongly, but have been offset by reduced ingredients volumes and realisations, lower doorstep sales, and reduced cheese volumes following the sale of our Stilton and speciality cheese business in August 2008.
In the Foods division, sales for the nine months grew by 4% against the same period last year. This reflects the continued excellent performance of our key brands.
Cathedral City performed strongly in the quarter with sales growing by 14% and the brand is now worth £190 million at retail sales value. Cathedral City Lighter now accounts for over 10% of total Cathedral City sales and has over 90% share of the reduced-fat cheddar category.
Our new packing facility at Nuneaton has successfully started operating on a trial basis and we remain on track to complete full commissioning during the spring of 2009. This will provide efficiency and distribution benefits and lessen our environmental impact in the future. We have also been awarded an increased share of Marks & Spencer's cheese category, which will contribute to profits next year.
We had a very strong performance from our butter and spreads brands. St Hubert Omega 3, Clover, Country Life, Willow and Vitalite all achieved double-digit percentage growth, while Utterly Butterly grew at 8% against strong comparatives last year. Brand highlights include the success of the Country Life "Great British Butter" advertising campaign with John Lydon, which has delivered increased brand awareness and, along with strong promotions, has led to an 85% increase in spreadable volume sales for the quarter. Clover Lighter has performed strongly following its launch in August 2008 and has provided good incremental sales. As part of our campaign to increase awareness of our lighter variants of key brands, we are currently advertising Clover Lighter on television.
Yoplait Dairy Crest has performed satisfactorily during the period.
In the Dairies division our sales for the nine months ended 31 December 2008 are also up 4% against the same period last year.
Our retail liquid business had a strong third quarter with milk volumes up 5%. We have an ongoing programme to roll out new products and packaging to our major retail customers to stimulate further growth.
The Dairies division continues to focus on efficiency improvements. In line with our previous announcement, the Nottingham dairy has now closed. Together with our completed investment in Regional Distribution Centres, this will help us reduce our costs next year and deliver high levels of service to our customers.
Although milk sales to doorstep customers have continued to decline, trials of "milk&more", our online doorstep delivery service are ahead of expectations. We now have over 40,000 customers registered (around 10% of the available customer base in the trial depots), with 86% of customers rating the service as "good or excellent". Average weekly spend of participating customers is over 50% higher than other customers. The implementation of our new customer system is progressing well and our intention remains to roll out nationally in the first quarter of 2009/10.
We remain focused on ensuring that the overall cost base of the business is kept to a minimum. The head office reorganisation that was announced in November has now been completed and will provide significant cost savings next year.
Dairy Ingredients markets remain challenging with an unprecedented difference between farmgate milk prices and commodity realisations and this continues to have a negative effect on Group profits. However, farmgate milk prices have started to fall, and as a result, we have agreed price reductions of 1.75ppl with our Direct liquid milk suppliers and 1ppl with our Direct suppliers of milk for cheese from 1 February 2009.
Debt reduction and cash generation remain key priorities. The Group's cashflow remains in line with expectations. As announced on 17 December 2008, we have reduced the effect of future currency movements on the Group's net debt by changing €200 million of Euro denominated debt into Sterling denominated debt. We continue to anticipate that the Group's net debt at 31 March 2009 will be approximately £500 million. As a result, calculated on a basis that is consistent with the Group's banking arrangements, the net debt to EBITDA ratio on this date is expected to be approximately 3.25. This continues to provide acceptable headroom against the covenant limit of 3.50.
As previously announced, we have taken steps to decrease risk in our pension scheme by purchasing a £150 million bulk annuity policy. This policy will insure approximately half the Fund's liability for pensions in payment.
Mark Allen, Chief Executive of Dairy Crest, commented:
"We have traded in line with our expectations set out in our Statement dated 11 November 2008. Our strategy of investing in marketing has enabled our key brands to continue with their strong performance. We are particularly pleased by the lighter variants, which not only offer consumers increased choice, but have also led to incremental sales for the Group.
Profits in our Dairies business have been impacted over the past year because commodity returns have been far below farmgate milk prices. However, the lower raw milk costs we are now seeing will help to rectify this position going forward."
The Group expects to issue a full year trading update on 27 March 2009 and its Preliminary Results for the year ending 31 March 2009 on 19 May 2009.
For further information, please contact:
Dairy Crest Group plc
Arthur Reeves 01372 472236
Brunswick
Simon Sporborg 020 7404 5959
Jayne Rosefield
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