Dairy Crest’s Strategy

2. Dairy Crest’s Strategy Mark Allen

3. Delivering a clear and consistent strategy…

4. Build market leading positions in branded and added value markets *AC Nielsen or IRI or TNS value growth **Dairy Crest sales growth by value

5. Build market leading positions in branded and added value markets

6. Focus on cost reduction and efficiency improvements

7. Reducing commodity risk and improving quality of earnings

8. Generate growth and focus the business through acquisitions

9. The strategy is delivering results Revenue (£m) Adjusted earnings per share (pence) Profit on operations (£m) Operating cash flow (£m) • Consistent top line growth • Increasing operating profits and eps organically and through acquisition • Strong cash flow

10. A compelling investment proposition • Well defined strategy • Sound, balanced customer base for both Liquid Products and Foods • 5 key brands with good growth record and further potential • Direct access to 1.3 million customers • 14 operational sites (7 Dairies and 7 Foods) • Sound finances and strong cash generation • Confirmed commitment to a progressive dividend policy • Experienced, well-motivated management team • Brand building • Innovation • Chilled distribution • UK and Continental retailers • Cost management • Milk buying • Corporate activity Underpinned by strong competencies

11. Delivering a clear and consistent strategy

12. Dairy Crest Milk Flows Alastair Murray

13. Introduction This presentation covers • Background to milk supply • Dairy Crest milk flows • Dairy Crest’s Ingredients business

14. Background • A sustainable supply of high quality milk is important to Dairy Crest • We sell packed milk across a broad spectrum of different customers • We also use a significant quantity of milk in our cheddar factory at Davidstow, Cornwall • Raw milk contains around 4% fat, but the most popular drinking milk is semi-skimmed with 1.6% fat • Cream, skimmed from packed liquid milk, is a major ingredient in our Spreads business • Milk is produced on a seasonal profile, with more in the Spring and less in the Autumn • Current milk purchase prices make it uneconomic to process milk into commodity ingredients

15. World milk supply World milk supply is around 540 billion litres Source DairyCo • UK is 9th largest milk producing country with 14 billion litres in 2007

16. UK milk supply • DairyCo provisionally estimates milk available for UK consumption in 2008 to be 13.1 billion litres • In addition UK imports around 4 billion litres of milk, mainly in the form of cheese, otherwise UK dairy balance sheet broadly neutral with imports matching exports

17. Dairy Crest milk flows Directs 1.35 bn litres Raw milk intake 2.1 bn litres Other 0.75 bn litres

18. Dairy Crest milk flows Directs 1.35 bn litres Raw milk intake 2.1 bn litres Other 0.75 bn litres Trough Balancing Demand Milk volume Annual cycle

19. Dairy Crest milk flows Directs 1.35 bn litres Raw milk intake 2.1 bn litres Other 0.75 bn litres Trough Balancing Demand Milk volume Peak Balancing Annual cycle

20. Dairy Crest milk flows Directs 1.35 bn litres Raw milk intake 2.1 bn litres Other 0.75 bn litres

21. Dairy Crest milk flows Directs 1.35 bn litres Raw milk intake 2.1 bn litres Other 0.75 bn litres DAIRIES Liquid milkprocessing 1.7 bn litres NRC Liquids NRC Household Cream Glass Household Organic NRC & Glass Frijj Flavoured milk

22. Dairy Crest milk flows Directs 1.35 bn litres Raw milk intake 2.1 bn litres Other 0.75 bn litres FOODS DAIRIES Liquid milkprocessing 1.7 bn litres Cheese manufacture 400 ml litres NRC Liquids Cheese NRC Household Cream Water Glass Household Whey powder Whey butter Organic NRC & Glass Frijj Flavoured milk

23. Dairy Crest milk flows Directs 1.35 bn litres Raw milk intake 2.1 bn litres Other 0.75 bn litres FOODS DAIRIES Liquid milkprocessing 1.7 bn litres Cheese manufacture 400 ml litres NRC Liquids Cheese MARKET TRANSFER PRICE NRC Household Cream Buttermaking (Crudgington) Water Retail butter Glass Household Whey powder Spreads manufacture Whey butter Organic NRC & Glass Buttermilk Packet spreads Vegetable oil Frijj Flavoured milk

24. Dairy Crest milk flows Directs 1.35 bn litres Raw milk intake 2.1 bn litres Other 0.75 bn litres FOODS DAIRIES Liquid milkprocessing 1.7 bn litres Cheese manufacture 400 ml litres NRC Liquids Cheese MARKET TRANSFER PRICE NRCHousehold Cream Buttermaking (Crudgington) Water Retail butter Glass Household Potting/ alcoholics Butter making (Severnside) Whey powder Spreads manufacture Whey butter Organic NRC & Glass Buttermilk Other cream (WDP/HH) Bulkbutter Packet spreads Vegetable oil Frijj Flavoured milk

25. Dairy Crest milk flows Directs 1.35 bn litres Raw milk intake 2.1 bn litres Other 0.75 bn litres FOODS DAIRIES Liquid milkprocessing 1.7 bn litres Severnside Creamery Cheese manufacture 400 ml litres Skim NRC Liquids Cheese MARKET TRANSFER PRICE NRC Household Cream Buttermaking (Crudgington) Water Retail butter Glass Household Potting/ alcoholics Butter making (Severnside) Whey powder Spreads manufacture Whey butter Organic NRC & Glass Buttermilk Buttermilk Other cream (WDP/HH) Bulkbutter Severnside dryer Clover Buttermilk Packet spreads Vegetable oil Frijj Flavoured milk Skimmed milk powder(SMP) Buttermilk powder Clover B’milkpowder(CBMP)

26. Key points from milk flow chart • We have a broadly based dairy business which uses all fractions of the milk • Cream is an important internal commodity. Our principle competitors have a different model • Balancing milk requires us to put some milk into ingredients…albeit we presently lose money on every litre • We are working hard to reduce our exposure to ingredients in the current year

27. Adapting to a changed environment • Until the boom in commodity prices in 2007 farmgate milk prices generally tracked in line with AMPE • Although dairy commodity prices have fallen back, farmgate milk prices have only fallen slightly, leaving them significantly higher than AMPE and making the production of dairy commodities unattractive Farmgate prices v ingredients returns 2003-2009

28. Minimising risk and exposure to commodity markets – Action taken • AMPE remains below farmgate prices so focus has been based on minimising the volume of milk into Ingredients • Milk Purchasing strategy moved from trough balancing to peak balancing • Alternative uses for surplus milk include additional cheese production, marginal middle ground liquid business, spot milk sales • Ensure ingredients product quality is optimised to guarantee access to blue-chip customers

29. Summary Our ‘broadly based dairy’ strategy allows us to maximise the value we get from our milk supply while mitigating market risk The primary role of our Ingredients business is to sell by-products. Our real focus is on consumer products….

30. milk&more Mike Sheldon

31. milk&more – a unique opportunity • We have 1.3 million doorstep customers, a large number of whom are young and affluent and have children at home • We know that our customers like what we do • Milkmen • Glass bottles • Electric vehicles • Regular deliveries – to keep the fridge full • But many also want to be able to operate their account with us in a more convenient and flexible way • Many of our customers are used to shopping on-line and over 65% have broadband access • We have taken the opportunity to retain the good, but to modernise and make our service more relevant to current and new customers

32. Offline = 13% Online = 26% Offline = 28% Online = 39% Offline = 16% Online = 5% Offline = 21% Online = 16% An affluent customer base with great potential Healthy futures Wealthy heartland Tight budget pensioners Golden years

33. milk&more – a compelling proposition • All the daily top-up essentials our customers need, delivered to their door by a friendly, local milkman with no delivery charge • Between 3 and 6 deliveries a week, most before 8am • The product range encompasses milk, other essentials such as bread and eggs, Dairy Crest brands and heavy products such as bottled water and pet food • Customers sign up onto a dedicated website and from then on can amend their orders 24/7 • The software accumulates orders to be loaded onto milk floats and electronic handsets enable milkmen to see changes and adjust delivery • Payment is made by credit card or direct debit, more convenient for customers and safer and easier for milkmen

34. Customer chooses between standing orders, one-off or both Use standing order for milk & products Product range online 24/7 at the click of a mouse Adding to order from product range possible with shopping list to hand Order online up to 9pm the night before next delivery Change order with note/shopping list – if milkman carrying item Pay by Direct Debit or auto debit/credit card – all online • Pay milkman by cheque, cash or paper direct debit Both traditional and digital marketing techniques to talk to our customers • Communicating promotions and news to customers via leaflets milk&more – impossible to replicate Offline Online

35. A well-planned national roll-out

36. milk&more now has 100,000 registered customers 30 depots launching 2008 Marketing investment 2008 Roll out 2009

37. milk&more customers spend more with us £4.54 £6.20 Source: DC, 6 months to July ‘09 Weekly expenditure

38. 2009/10 objectives • Drive acquisition to online service • Switch traditional customers onto milk&more • Recruit new customers • £2.6 million marketing support • 250k customers by 31 March 2010 • Increase customer spend using targeted, data-base marketing • Reduce debt and cost of cash-handling

39. Summary • milk&more can reverse the long-term decline in doorstep sales as it lets us retain existing customers, attract new customers and sell more to both groups • The trials we carried out showed a real demand for the milkman from an affluent customer base but a need to modernise some aspects of our proposition • We have developed a user-friendly, robust internet-based solution • Roll out of milk&more is complete • We have a marketing campaign planned which will make sure everyone has heard of milk&more

40. Dairy Crest Cheese – a world class supply chain Martyn Wilks

41. Dairy Crest cheese – a world class supply chain • Dedicated West Country milk pool • State of the art creamery creating high quality cheese for brands and premium retailer sub brands • Single site for cheese maturation, high speed cut and wrap and National Distribution Centre • A second, highly flexible facility where we cut, slice, grate and wrap • £100 million invested over the last 8 years • Together makes the UK’s favourite cheese brand

42. Dairy Crest - creating a world class cheese supply chain

43. From farm to fridge Farms Davidstow Nuneaton Nuneaton & Frome Nuneaton Consumers Retailers Davidstow Frome

44. West Country milk pool – dedicated to Davidstow The Davidstow pool consists of: - 406 farms in Devon & Cornwall Supplying 515 ml pa of milk - Average farm milk production 1.27 ml • Daily collection volume: • - 1.3ml from the milk field • 930,000 litres into creamery • daily Key partner: Gregory’s Distribution Ltd - 273 litres of milk collection per km travelled (industry average 150) - Also providing secondary haulage for finished goods Suppliers well supported by Dairy Crest - Premium price v competitors (+1.3ppl v Milk Link) - Field support team + White Gold (on farm consultancy) funded by DC

45. Redeveloped in 2003 for £55 millionCapacity > 50,000 tonnes Davidstow - state of the art cheesemaking • Redeveloped in 2003 for £55m • 100 employees • Capacity > 50,000 tonnes cheese • 09/10 42,000 tonnes cheese • 65% Cathedral City and 35% Davidstow brand • 25,000 tonnes whey

46. Nuneaton

47. Nuneaton – Cut and Wrap • £25 million invested to allow us to zip and portion pack in house • Reduced 1,500 outbound loads and 1,800 inbound loads • Saves 324,000 road miles / year • 3 new integrated packing lines using latest technology • Automated in feed and out feed • Fully automated deboxing and debagging • 150 packs per minute • Intelligent cutting halves off-cuts and giveaway • Annual capacity of 33,000 tonnes, possible to easily expand to 42,000 tonnes

48. Cathedral City – the nation’s favourite cheddar • Retail sales £195 million • £27 million from ‘Lighter’ • 83% weighted distribution • The UK’s 21st biggest grocery brand • In every other fridge in UK • But still only 13% of total UK cheddar

49. Looking forward…… • Dairy Crest has a world class cheese supply chain • Making the nation’s favourite cheddar • Efficient production allows us to • Pay a premium to our farmers • Invest in advertising and promotion • Innovate • Invest in the future • Continually innovating to drive growth • New TV advert • New packaging