Interim Management Statement

4 February 2011

Dairy Crest Group plc ("Dairy Crest")

Interim Management Statement 

Dairy Crest, the UK's leading dairy foods company, is issuing the following Interim Management Statement for the nine months ended 31 December 2010.

Dairy Crest has traded strongly over its third quarter. Despite a difficult economic environment, profit before tax for the nine months ended 31 December 2010 is in line with our expectations. We continue to invest in our brands and other added value products, control our costs and generate cash.

Improved sales mix

Overall Group sales in the first nine months of the year were broadly unchanged from last year after excluding the effect of the disposal of our majority stake in Wexford Creamery Limited.

We have grown added value sales in three key areas. Our five key brands (Cathedral City, Country Life, St Hubert Omega 3, Clover and Frijj) continued to perform well. Third quarter sales of these brands are up 11% compared to last year, leading to value growth for the first nine months of the year of 7%.

Secondly, in line with our strategy we have continued to increase our sales of milk to major supermarkets. As planned, we have commenced supply of fresh milk to Tesco. Sales volumes to other large retail customers have also remained buoyant. Increased volumes to these customers have been offset by reduced sales to the middle ground milk market which remains very competitive.

Finally, we have maintained the momentum behind our doorstep delivery internet proposition milk&more. The system improvements that we implemented in the autumn have increased capacity and improved the website for shoppers. In January 2011 we started a television advertising campaign and this has accelerated customer recruitment. Weekly milk&more sales are currently close to £1 million (from just under £800k in September 2010). 

Cost Control

Along with much of the food manufacturing sector we are experiencing upward pressure on input costs. These include milk, vegetable oil and other oil-related costs. Although we are making progress to recover these from our customers we remain determined to control costs wherever possible and have commenced a programme of internet tenders to assist in this process. 

In our Dairies division, the project to optimise supply chain costs at our depots is on track. We also continue to invest in our dairies to drive efficiencies. This year we have installed new processing and end of line equipment at Chadwell Heath and Severnside. We have also commissioned a new milk bag filler and upgraded the Frijj production line in order to provide a strong platform for added value growth going forward. 

At Davidstow we are on track to be using our new biomass boilers in April. This will reduce our costs by replacing heavy fuel oil with biomass fuel and also significantly reduce Group carbon emissions next year. We continue to control the cost of spreads manufacture by ensuring that our manufacturing plants have the optimum staffing levels.

Generating cash

We remain focussed on cash management and are confident that we can continue to improve our asset base, increase dividends and reduce borrowings going forward. We expect our net debt at 31 March 2011 to be below that at 31 March 2010.

Outlook

We anticipate that profit before tax for the year ended 31 March 2011 will be in line with our expectations. This is supported by the anticipated delivery of over £20 million of operational cost savings. 

Mark Allen, Chief Executive of Dairy Crest, commented:

"We are encouraged by the progress we have made so far this year and anticipate that we will maintain our momentum through the fourth quarter."

"Our employees, dairy farmers and hauliers had to face challenging weather conditions during much of the quarter. We would like to take this opportunity to thank them for their outstanding efforts that helped ensure that there was no significant effect on the business."

"We remain cautious about the economic environment for next year but we are well positioned to meet the challenges. Our strong range of products and broad customer base will help with this. In addition we will continue to innovate, control our costs and support our brands. "

Dairy Crest expects to issue its full-year trading update on 31 March 2011 and its Preliminary Results for the year ended 31 March 2011 on 19 May 2011.

There will be a conference call for analysts today at 08:30 GMT (UK time).