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Trading Update for the Six Months ending 30 September 2014

22/09/2014

Dairy Crest is issuing the following pre-close trading update for the six months ending 30 September 2014, ahead of announcing Interim Results on 6 November 2014.

In a challenging trading environment Dairy Crest expects to report overall first half Group profits broadly in line with last year. As previously reported, property profits from the sale of surplus delivery depots will make up a greater proportion of profits than in the same period last year.

Sales of our four key brands, Cathedral City, Clover, Country Life and FRijj, together grew by 4% in the first quarter compared to the first quarter of the year ended 31 March 2014 and we expect to report a similar growth rate for the first half. Cathedral City, the largest of the four, has had another good six months and continues to grow market share. This is a strong performance in an environment where consumer expenditure on food is falling.

Our Dairies operations have been loss making in the period despite the increase in property profits. We continue to make progress with FRijj and sales are growing. We also continue to reduce costs in line with our £20 million annual target. However there is downward pressure on fresh milk selling prices and returns from dairy commodity markets have fallen steeply in recent weeks. As a consequence we have regrettably cut the prices we pay to our farmers for their milk in line with the rest of the market.

We continue to seek new ways to simplify our Dairies operations and reduce their cost base and have today announced that we are starting consultation with employees regarding the closure of our glass bottling dairy in Hanworth, West London and at our specialist cream potting facility in Chard, Somerset. Together these two sites currently employ around 260 people. The resulting cost savings will contribute to our £20 million annual target in future years.

The exceptional cash costs associated with the closure of these sites, which will be charged over the next two years, will be around £15 million. However we anticipate that proceeds from the sale of these and other previously closed processing sites will exceed this amount. There will also be non-cash asset write-downs associated with the closure of Hanworth and Chard of around £10 million this year and £5 million in subsequent years.

We expect to close our Crudgington butter and spreads factory early in the second half of the year.

Our demineralised whey and galacto-oligosaccharide projects, which will enable us to manufacture products for the growing, global infant formula market for the first time, are on track to boost profits in the year ending 2015/16. As expected, the investment in these projects along with the usual first half outflow of working capital will result in higher net debt at 30 September 2014 than at 31 March 2014.

Dairy markets have recently been extremely volatile. For example cream prices are currently down around 40% from their peak last autumn and both cream and skimmed milk powder prices fell nearly 15% in the month of August 2014 alone. This volatility makes them difficult to predict at this time. However, our overall profit expectations for the full year ending 31 March 2015 remain unchanged.

Mark Allen, Chief Executive, commented:

"I am pleased that in the current challenging trading environment overall we continue to perform in line with our expectations. Taken together our key brands have performed strongly and the improvements we have made to our Dairies operations in recent years have made them more resilient. We continue to take the difficult decisions that are necessary to drive the business forward.”

Dairy Crest is hosting a visit for analysts and investors at its Head Office on the afternoon of Monday 22 September. The management team will make presentations on consumers, cost saving initiatives and our whey projects. 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.