Parmalat continues financial recovery

Operating profit increased 3.6 per cent to €163m during the six-month period ending 30 June as the company moved to divest operations such as its Parmalat Espana and tomato operations as part of a drive for greater cost efficiency. Operating margins improved slightly by 0.1 percentage points. The performance marks the continued turnaround for the group, which under its previous ownership had filed for bankruptcy in 2004 due to its alleged involvement in one of Europe's largest financial scandals. The group hit the headlines in December 2003, when a €3.95bn hole in its acounts was revealed. A US bank allegedly discovered that a Parmalat bank account, supposedly in the Cayman Islands, was non-existent. Under the current leadership of administrator Enrico Bondi, Parmalat has subsequently worked to stave off efforts by an Italian banking conglomerate to disintegrate the group. This has led to the company pursuing various legal proceedings in Europe and the US against banks allegedly involved in the fraud. Parmalat said that posted financial assets totalling €58.9m during the half year as a result of these proceedings. In its 2006 full year results, the company reported net debts of €170m. Net gains of €237m from legal settlements with financial institutions allegedly linked to its bankruptcy were highlighted as the key factor in this turnaround. Outside of the group's legal dealings, Italy and Canada dominated the company's international sales during the first half of the year. Revenues for Parmalat in Italy totalled €558.9m compared to €499m over the same period the previous year. Operating profit was also up to €55.9m from €48.1m in 2006. The company attributed its expanded portfolio of higher value brands, which included products like fruit juice, as well as increased operating efficiency to the growth. Continued hikes in the price for raw milk still proved detrimental to the group's operations despite its improved profitability, the company said. In Canada, revenues declined by 3.5 per cent to €625m, though operating profits improved by four per cent on an organic basis for the half. Parmalat said that increased shipments of its cheese products, a greater focus on marketing, and higher prices for its brands had helped to offset increased raw material costs. Sales for the group in Australia totalled €209m for the period, remaining unchanged from last year. Unit sales had declined due to increased competition from lower priced private label brands of ultra heat treatment (UHT) and pasteurized milk, according to the company. Parmalat said it would concentrate on further development of higher value goods to turnaround the performance during the full year and onwards. Half-year revenues were also down in the group's African division, falling to €168.2m for the period from €175.9m in the first six months of 2006. Operating profit for the region also fell to €17.9m from €19.4m. The group said that besides the core markets in the region like South Africa, it had also recorded improved sales in Mozambique, Botswana, Zambia and Swaziland. Unit sales of its UHT milk, fruit juices, cheese and yoghurt products were all higher than the previous year, according to Parmalat. Outside of its Italian operations, there was strong sales growth for Parmalat's brands throughout Europe, increasing 16.3 per cent to €72.4m. This was mainly due to the group's expansion into emerging markets in the east of the region including Russia and Romania. Parmalat said that its plans to modernise production and distribution of its products in the countries had resulted in strong returns. Elsewhere, despite improving sales of its flavoured milk in Portugal, the company posted notable declines in sales of its soft drink brands in the country. Double-digit sales growth was also recorded by the company through its Central and South American operations, up 11.4 per cent to €179.4m. Operating profit fell to €15.5m from €22.7m from the same period in 2006. Parmalat said that higher raw milk and manufacturing costs were to blame for the decline, particularly in markets like Venezuela, where the government traditionally has a system of setting fixed higher prices.