Trading Update for the year ending 31 March 2010

Dairy Crest Group plc ("Dairy Crest")

Trading Update for the year ending 31 March 2010

CONTINUED STRONG PROGRESS AGAINST CLEAR AND CONSISTENT STRATEGY

In line with its normal practice Dairy Crest issues the following pre-close trading update for the full year ending 31 March 2010 ahead of the publication of its preliminary results on 18 May 2010.

Overview

After another strong quarter, Dairy Crest's profit before tax for the year ending 31 March 2010 remains in line with our latest expectations and ahead of the prior year. This demonstrates that our strategy of brand investment, cost reduction and cash generation continues to deliver value for shareholders.

We are very pleased to confirm a significant reduction in our debt position. Over the past eighteen months Dairy Crest has reduced its borrowings by £140 million or nearly 30%. We continue to anticipate that our year-end debt will be below £350 million, £65 million lower than at 31 March 2009.

Trading Performance

The performance of our Dairies division, which has benefited from lower costs during the year, remains very strong. This has been partly offset by lower profits in our Spreads and Cheese divisions where, in line with our strategy to continue to grow our key brands, we have spent more on advertising and promotions during the year. As previously reported our Cheese business profits will be lower than those for the year ended 31 March 2009 due to the absence of stock profits this year.

We anticipate that a reduced interest charge this year will completely offset the 2008/09 contribution from our 49% stake in Yoplait Dairy Crest which we sold in March 2009.

Progress against strategy

Growth

We continue to grow sales in three areas of strategic importance.

1. Our five key brands (Cathedral City, Country Life, St Hubert Omega 3, Clover and Frijj) have continued to perform strongly against very tough prior year comparatives. Over recent years we have driven consistent growth in these brands and continue to outperform the market.

2. We have maintained good year on year growth in milk sales to retailers. Alongside a steady increase in conventional milk volumes to these customers, sales of organic and flavoured milk have grown particularly strongly. During the year we have also made good progress in developing sales of milk in bags. Sainsbury's is the first retailer to launch national distribution of this innovative product, which contains 75% less packaging than a standard 2 pint plastic milk bottle and we expect to gain listings with other major retailers. We have also trialled this concept successfully with our doorstep customers and expect to increase distribution of milk in bags through this channel next year.

3. Our doorstep delivery internet proposition, milk&more, continues to show strong momentum. We are delighted that we now have over 250,000 registered customers, which is in line with the challenging target we set when we fully launched this service last September.

Cost reduction

Cost reduction remains a key part of our strategy and we continue to seek efficiency improvements across our business. Since our update on 2 February we have further developed our plans to support our offering to key customers by investing £75 million over the next three years upgrading our liquid milk dairies. We are confident that this investment will provide a good payback from improved efficiencies.

We have also completed redundancy consultations with staff at our Kirkby spreads factory and at our warehouse at Nuneaton.

We also announced on 2 February that we had identified an opportunity to drive operational efficiencies in our Household business and this project is progressing to plan. We will provide a more detailed update when we report our preliminary results in May.

Debt reduction

We continue to make progress in reducing our borrowings as a result of our strong focus on cash generation. As noted above we expect our year-end borrowings to be below £350 million. This excludes the cash proceeds from the sale of 50% of the shares in Wexford Creamery Limited which is now expected to be completed early in the new financial year.

Risk reduction

As well as driving profits we continue to reduce risk in order to stabilise and simplify the business. During 2009/10 we have processed less than half the milk into commodity ingredients that we did in 2008/09 and are confident we can maintain this in the future.

We have also offered new longer term, fixed price contracts to some of our milk suppliers whose milk is bottled for doorstep customers. Milk purchased under these contracts will be used to meet milk&more sales demand and will increase stability for our suppliers and for us.

Finally, we confirm that we have closed our defined benefit pension scheme to future accrual with effect from today, further significantly reducing long-term risk.

Mark Allen, Chief Executive of Dairy Crest, commented:

"This has been a year of strong progress for Dairy Crest in which we have consistently delivered on our strategy. Increased investment in innovation and marketing, paid for by efficiency improvements, has contributed to another year of encouraging growth in added value sales, which in turn has underpinned higher profits.

"In addition, we have reduced our borrowings and made important steps towards reducing risk in our business.

"Stronger brands, a lower cost base and increased focus leave us much better placed than a year ago. Looking forward to 2010/11, while we expect the trading environment to remain challenging, we intend to continue with our strategy and deliver additional improvements which will further enhance long-term shareholder value."

Dairy Crest expects to issue its Preliminary Results for the year ended 31 March 2010 on 18 May 2010.

There will be a conference call for analysts today at 11:30 (UK time).