May 14 - 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. A breakdown of revenues and EBITDA by geographic region is as follows:
A review of the Group’s performance in the main countries in which it operates is provided below:
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.
In Canada, first-quarter revenues totaled 295.4 million euros, for a gain of 3.7% compared with the 284.7 million euros booked in 2007.
EBITDA grew to 23.7 million euros, or 1.2 million euros more than the 22.5 million euros reported at March 31, 2007. Compared with the first quarter of 2007, the ratio of EBITDA to net revenues improved by 0.1 percentage points, rising to 8.0%.
The local currency (Canadian dollar) increased in value by an average of 2.1% compared with the exchange rate applied in the same period last year. During the first three months of 2008, the impact of this change on revenues and EBITDA was 6.1 million euros and 0.5 million euros, respectively. The SBU’s positive performance was made possible by the launch of a series of new products, which began in the fourth quarter of 2007 and continued during the first three months of 2008. Overall, rising sales of proprietary functional products have strengthened Parmalat Canada’s leadership position in the Canadian dairy market. Lastly, key industrial investment projects that were completed during the first quarter of 2008 will provide a foundation for further growth in the area of functional products and will increase operating efficiency, benefiting the SBU’s operating performance throughout the rest of the year.
In Australia, revenues increased to 107.5 million euros, up from 101.8 million euros in the first three months of 2007.
EBITDA amounted to 1.9 million euros in the first quarter of 2008, decreasing by 5.6 million euros compared with the 7.5 million euros reported at March 31, 2007.
Unit sales were down compared with the first three months of 2007 The cancellation, in January, of a contract to produce pasteurized milk for private labels was the main reason for this decrease.
The SBU’s performance in the first quarter of 2008 was affected to a significant extent by the impact of the higher prices paid for dairy ingredients. These increases were particularly significant for raw milk, the cost of which rose beyond all expectations, due to unexpected step-up prices paid by the largest cooperatives (who could draw on the high margins they earn on exports, which are a significant part of their business) and which Parmalat was forced to match to keep its suppliers. These developments will require list price increases in the coming months to re-establish adequate profit margins. Moreover, Parmalat is focusing on investment projects that will support the development and launch of new products, so that new sources of profit may help rebalance the results for the year.
In Africa, revenues totaled 81.4 million euros, or 3.7% less than the amount booked in the first three months of 2007 (84.5 million euros). EBITDA was also down, decreasing to 6.6 million euros (8.9 million euros at March 31, 2007).
The main reporting currency of the African Business Unit (South African rand) decreased in value by 19.3% compared with the exchange rate applied in the same period last year. The negative impact of this change on revenues and EBITDA for the first three months of 2008 was 14.0 million euros and 1.0 million euros, respectively.
All the countries within this region implemented major programs designed to increase production capacity and improve efficiency, in anticipation of continuing growth over the medium and long term. Stated in the local currency , the revenues reported by the main Business Unit (South Africa) show an increase of 13.4%, rising from 723.2 million rand to 820.4 million rand. However, unit sales were 11.7% lower than in the first quarter of 2007, due to the impact of the high level of inflation in the local economy.