Chairman’s statement

Delivering against our strategy

I was delighted to take over as Chairman on 1 January 2010 and want to thank my predecessor, Simon Oliver, for all he did to transform the business. The Group has progressed enormously under Simon’s leadership over the last ten years, and he leaves the business very well positioned for the future. In his role as Honorary Group President following his retirement from the Board, he helps us to continue to develop our key relationship with the 1,350 dairy farmers who supply milk directly to the Group, providing us with his extensive knowledge and experience of the dairy industry. We can demonstrate strong progress in this area over recent years and Simon’s involvement will help maintain the momentum that we and Dairy Crest Direct, our suppliers’ representative group, now have.

This has been a good year for Dairy Crest in which we have delivered against the strategy that we put in place eighteen months ago. At that time, in an extremely uncertain and challenging environment, we set out the following priorities: to continue to develop market-leading positions in branded and added value markets; to focus on cost reduction and efficiency improvements; and to drive cash generation in order to reduce our debt. Eighteen months on, it gives me great pleasure to be able to report that we have delivered against all these strategic objectives. The strong performance seen last year places the business in a good position, and fit for future growth opportunities, both organically and by acquisition if suitable opportunities arise.

Dairy Crest is a broadly based dairy business and the Group’s performance in 2009/10 demonstrates the benefits of this. Our Dairies division performed particularly well last year. This division has bounced back from a difficult 2008/09 and is benefiting from a series of efficiency projects and higher cream prices. In 2008 we made a conscious decision to combat the effects of the economic recession on the consumer by increasing our investment in our brands. This additional expenditure on marketing and promotions has contributed to lower profits in our Spreads and Cheese divisions.

Overall, Group adjusted profit before taxation* increased 5% to £83.5 million. However, as expected, a higher tax charge led to reduced adjusted basic earnings per share* of 44.5 pence compared to 45.0 pence last year. Reported Group profit before taxation fell 25% to £77.8 million (2009: £103.2 million). This reduction is principally due to the £50.4 million exceptional gain on the sale of our stake in Yoplait Dairy Crest last year.

Importantly, we have generated cash ahead of our forecasts and this has allowed us to reduce our debt by more and sooner than we anticipated when we made our last major acquisition, that of St Hubert in France in 2007. As a result the Group’s financial position is much stronger than it was eighteen months ago. This underpins our ability to invest for the future.

The strong financial performance of the business and our confidence in its future prospects has allowed the Board to recommend a final dividend of 13.6 pence per share, an increase of 5%. As a result, the total dividend for the financial year 2009/10 will be 18.9 pence per share. The Board intends to maintain its progressive dividend policy and will seek to maintain dividend cover of 2.0 to 2.5 times.

We have also made good progress in addressing the pension scheme issues that face us. The Board has approved the payment of additional cash contributions of £20 million per annum to the pension fund. These started in October 2009. We have also now closed the defined benefit pension scheme to future accrual. This significantly reduces future risk to the business. It is a credit to all concerned that the pension scheme changes were achieved with little adverse effect on the relationship with our employees.

Alongside the delivery of a strong financial performance, we have developed a corporate vision and set of core values that give everyone working in and with our business a clear and aligned sense of purpose. One of our core values is ‘we care’ which takes in our corporate responsibility programme. This programme has gathered pace over the past year during which time we have made real progress on environmental improvements.

Apart from Simon Oliver’s departure, there has been one other change to the Board this year. On 1 August 2009 Andrew Carr-Locke was appointed as Non-executive Director and Chairman of the Audit Committee. In this role he succeeded David Richardson who left the Board on the same date. We welcome Andrew to the Board and thank David for his contribution to the business.

Finally, the improvements we continue to make 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. We greatly value the work they have done and I would like to thank all employees for their contribution to the ongoing success of the Group.

Overall I am pleased by the strong progress the Group has made over the past year, and am optimistic and excited about our future prospects. In summary, we are a broadly based dairy business with a clear strategy, a strong vision, robust values and good people. We are fit for the future.

Anthony Fry
Chairman

17 May 2010

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