Parmalat Q1 Profit Drops 18%

16/05/08 Shares in Italy's Parmalat SpA plunged to their lowest since the food group's 2005 relaunch, hit by an 18 percent drop in first-quarter profit and a lower outlook on Thursday.

Parmalat S.p.A. announced that its Board of Directors, meeting under the chairmanship of Raffaele Picella, approved the First Interim Report on Operations at March 31, 2008.

Net revenues totaled 926.9 million euros in the first quarter of 2008, or 58.2 million euros more (+6.7%) than the 868.7 million euros reported at March 31, 2007. Restated to eliminate the impact of the appreciation of the euro versus other currencies (18.4 million euros), net revenues total 945.3 million euros, for a gain of 76.6 million euros (+8.8%). The higher list prices implemented in response to a sharp rise in the cost of raw milk and a further improvement in the product mix achieved through plans that focus efforts and investments on products with a higher value added account for this positive performance.

EBITDA totaled 69.5 million euros in the first three months of 2008 that, taking into consideration the foreign exchange rate effect and holding company costs (non-recurring costs), decreased to 63.9 million euros. The result is lower than that of 2007 not only due to the abovementioned reasons but also due to the negative impact in unit sales, the higher fixed production costs and the, marketing expenses, only partially offset by a positive sales mix effect and favorable price effect.

In Italy, revenues increased to 302.6 million euros, or 10.1% compared that the 274.8 million euros reported at March 31, 2007. EBITDA amounted to 24.7 million euros, compared with 28.0 million euros earned in the first quarter of 2007 (-3.2 million euros). Overall, unit sales were comparable with those achieved during last year’s opening quarter, but the Group’s performance varied widely in the different market segments, as the beneficial impact of growth in functional milks, yogurt and fruit juices was offset by a sharp drop in sales of fresh milk. The main reason for this decrease was the competitive pressure exercised by retailers, who chose to invest heavily in advertising to promote their house brands and priced them very aggressively, compared with branded products, using this daily staple to attract consumers to their stores by positioning themselves as offering bargain basement prices.

After January 1, 2008, the cost of raw milk continued to rise in Italy, increasing by about 13%, but this increase could not be passed on to retailers and consumers immediately, due to the fixed sales terms that were in effect until new 2008 sales contracts were executed.