TRADING UPDATE FOR THE SIX MONTHS ENDING 30 SEPT

30 September 2010

Dairy Crest Group plc ("Dairy Crest")

TRADING UPDATE FOR THE SIX MONTHS ENDING 30 SEPTEMBER 2010

Dairy Crest is issuing the following pre-close trading update for the six months ending 30 September 2010 ahead of announcing its Interim Results on 11 November 2010.

Continuing good progress 

Dairy Crest has continued to make good progress in the first six months of the year. Trading in the first half of the year has been in line with our expectations and ahead of the same period last year. As anticipated, increased profits in our cheese business have underpinned this growth.

Sales of our key brands and of milk to major retailers have increased in the period and we have made operational efficiencies and achieved selling price increases to limit the impact of higher input costs.

The liquid milk market is currently very competitive. In this environment we are pleased that we have negotiated a new long-term fresh milk supply contract with Morrisons. Earlier this year we announced that we had secured a new contract with Sainsbury's and this commences early in October 2010. These successes reflect the improvements we have made to our quality, service and cost base and our customers' response to the investment we are making throughout our business.

Brands in good shape

Our five key brands (Cathedral City, Clover, Country Life, St Hubert Omega 3 and Frijj) have grown sales in the first half compared to the same period last year despite being up against tough comparatives. We continue to promote these brands strongly. We have been particularly pleased by the continued increase in sales of our lighter (reduced fat) brand variants. In addition strong growth in Cathedral City sales has been underpinned by good growth in sales of Extra Mature and Mild variants in line with our plans.

Increased milk sales to major retailers

As noted above sales of fresh milk to major retailers have continued to grow in line with our strategy. However this market is presently very competitive and in this context we are delighted to have renewed the two important supply agreements that we refer to above.

The middle ground liquid milk market also remains very competitive and has low barriers to entry. Our sales volumes in this market in the first half are lower than last year. 

We have extended the distribution of Jugit, our patented milk jug, and milk in environmentally friendly bags which aid recycling, and sales have grown. We are investing in new production equipment to ensure that we can meet demand going forward.

We also continue to make progress with our doorstep internet proposition, milk&more. We have consolidated our position during the first half of the year and are becoming increasingly confident that milk&more can address the long term sales decline in our doorstep delivery business. We are making important improvements to our systems, which will enhance our promotional capability and deliver customer behavioural analysis. We expect to resume customer recruitment and drive increased customer spend during the second half of the year when the systems improvements have been implemented.

No let up in drive for efficiency improvements

The planned investment in our liquid milk dairies is progressing well and will deliver benefits in line with our expectations.  We are also making good progress with the major project to simplify and centralise the administration in our Household depot network. This project will provide substantial savings going forward but will result in some exceptional costs this year. Other cost reduction initiatives, including labour cost savings at our UK Spreads manufacturing sites, are progressing to plan. We continue to expect to deliver annual efficiency savings of around £20 million this year.

Strong focus on cash

We have maintained the strong focus on our cash generation and anticipate that our borrowings at 30 September 2010 will be similar to those at 31 March 2010.

Mark Allen, Chief Executive, commented: 'This has been another good performance from the business. We are operating in extremely competitive markets. Input costs have increased and consumer confidence remains fragile. In the first half our broad base, high quality brands, strong programme of efficiency improvements and focus on cash generation have allowed us to balance these conflicting demands successfully. We are confident that we can deliver profits this year in line with our expectations.'

There will be a conference call for analysts today at 09.00 GMT (UK time).