Chairman's statement

This year has been an important one for Dairy Crest in our journey from commodity processor to added value food manufacturer. We have shown ourselves capable of developing our business in a difficult economic environment by growing brands and improving operational efficiency.

In these circumstances I am able to report a sound financial performance. Our Foods division benefited from brand growth and delivered strong margins. Our Dairies division faced a more challenging environment and its profits were adversely affected by high milk purchase prices and weak dairy commodity markets. Overall Group profit before taxation increased 56% to £103.2 million and earnings per share increased 41% to 56.8 pence. However Group adjusted profit before taxation * fell 8% to £79.5 million and adjusted basic earnings per share* fell 13% to 45.0 pence.

We made good progress on a number of fronts. In addition to the ongoing growth we have seen in all our key brands, we continue to reduce our costs and become more efficient. Structurally, we made two disposals and we continue to invest to improve our asset base. Importantly in the current market we renewed our main bank facility for five years and now have no debt facilities maturing before November 2011.

The Board remains confident that the business is well positioned to deliver in the year ahead and, following the disposal of its stake in Yoplait Dairy Crest, the Group’s net debt position has improved considerably and the Group is operating comfortably within its banking covenants. However, in light of additional cash contributions to the pension fund and the dilutive effect of the Yoplait Dairy Crest disposal on 2009/10 earnings the Board has reviewed the Group’s dividend policy. The Board has concluded that it is sensible to conserve cash and ensure that the business is well funded to invest in its brands and into efficiency-driven capital projects. Accordingly, it has decided to rebase this and future dividends by 25% and is recommending a final dividend of 13.0 pence per share. As a result, the total dividend for the 2008/9 financial year will be 20.1 pence. Looking forward, the Board will seek to resume its progressive dividend policy from the rebased level whilst seeking to maintain dividend cover of 2.0 to 2.5 times.

The strong performance by our brands this year was very encouraging. Clover has recovered from its product recall in May 2007 and both Country Life and FRijj have responded to increased marketing activity. Cathedral City goes from strength to strength and is a key element of the improvement we have made to our cheese business over the past ten years. We now have a very well invested cheese supply chain, which has been completed this year with our new packing facility at Nuneaton. There is still a significant opportunity to develop branded cheese sales further and we are well placed to lead this. Our French spreads acquisition has lived up to the high expectations we had when we purchased this business in 2007 and provides a valuable platform into Continental markets which over time will enable us to develop our overseas business further.

Our Dairies division has made real improvements in its manufacturing and distribution cost base. Coupled with savings from restructuring our head office we have improved our competitive position.

During the year we chose to sell our Stilton and speciality cheese business and the 49% share in Yoplait Dairy Crest. Looking forward this will allow us to increase the Group’s focus on brands which we own outright.

There has been one change to the Board this year; the departure of Martin Oakes from his position of Executive Managing Director, Dairies division. We chose not to replace Martin on the Board. Mike Sheldon and Toby Brinsmead, who are the Managing Directors of our Household and Liquids businesses respectively, now report directly to Mark Allen. This structure is working well. Since the end of the year David Richardson has announced that he will leave the Board when a suitable replacement has been found. That process is underway. We thank Martin and David for their contributions.

I continue to value the relationship we have with our dairy farmers who have supplied us with milk during the year. They play a key role in our business. It is important that we continue to take their views into account as we move forward and I believe we have the right structure in place to do this.

The improvements we have made this year would not have been possible without the hard work of all our employees. We have a strong workforce, led by an experienced and well-motivated leadership team. In the tough trading environment we failed to achieve the demanding targets we had set ourselves and as a result our employees have not received discretionary bonuses this year. However we value the work they have done and I would like to thank all employees for their contribution to the success of the Group.

Overall I am pleased by the progress the Group has made and that our business is becoming increasingly robust. We remain a broadly based dairy business and I am happy that this model offers a strong base from which we can continue to grow.

Simon Oliver Chairman
18 May 2009

* Excludes exceptional items, amortisation of acquired intangibles and the interest credit in respect of defined benefit pension schemes.