Parmalat Hungary getting back on track

Parmalat Hungaria, the Hungarian arm of the disgraced Italian dairy
group, will receive a HF500m loan from the Hungarian government to
help the plant reach a higher level of output and, in turn, clear
its debts. The site is currently working at 35 per cent of its
capability, but the group said that production is slowly climbing,
writes Danny Vincent.

The company said the loan will help it cover its increase in operating costs. In order for the company to pay its debtors it must increase its daily milk production to pre-scandal levels.

According to the company's receiver, Ferenc Somogyi, the plant now processes in the region of 110,000-120,000 litres of milk a day but it plans to increase production to 300,000 litres daily, the company said.

The company is trying to attract new suppliers and rebuild relationships with existing suppliers that terminated their contracts when the group failed to pay them after the Italian parent company defaulted on a number of bond payments, triggering revelations of widespread fraud.

It was reported earlier in the year that some farmers had not been paid by the company for around 60 days. Although in February the company set up a daily payment scheme for its suppliers, many farmers simply took their milk business elsewhere and terminated their contracts.

It is estimated that the company has debts of HF7 billion, having made a loss of around HF2 billion in 2003 alone.

Once one of the leading dairy producers in Hungary, the company has lost its grip on the market in recent months, but Somoyi stressed that it was still doing business and that no wholesalers had stopped handling its products.

The group's receiver said that keeping the Parmalat name alive in Hungary was essential for the company's survival. Somogyi has approached Parmalat's chairman, government-appointed turnaround expert Enrico Bondi, about retaining the brand name which is still owned by the Italian parent company.

Somogyi claims that Parmalat Hungary bore the cost of marketing the brand name in Hungary and said that if the talks with Bondi were unsuccessful he would take the matter to court.

The receiver said that the main aim for the current year was simply to keep the dairy plant in business and implement the reorganisation programme launched at the start of April. Next year the receiver will focus on making the company ready for sale, expected sometime in 2006.

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