Italian dairy-to-bakery group Parmalat has reported first half profits severely affected by the growing strength of the euro against a number of other currencies.
Group sales were down 11.2 per cent to €3.4 billion, with organic growth of 3.5 per cent more than offset by the 14.1 per cent negative impact of currency translation. Operating profit was 10 per cent lower at €270 million, while pre-tax profit of €120 million was 38 per cent lower than in 2002, largely due to a sharp increase in extraordinary items related to the group's restructuring.
In Europe, where the exchange rate effect was less noticeable, turnover during the first half was up 1.2 per cent to €1.3 billion. Despite the stagnating market, Parmalat achieved growth as a result of its increasing focus on high value added products. The company is the market leader in Italy in almost all of the sectors where it does business, and also has strong positions in Spain, Portugal, the UK and Hungary.
The strength of the euro against the US and Canadian dollars meant that sales from North and Central America were down 15.6 per cent to €1.1 billion. A similar situation was seen in South America, where sales were some 27.7 per cent lower at €630 million as the euro strengthened against currencies such as the Brazilian real.
In Brazil, where food consumption remained stable, the group focused on investment in high margin products, exploiting the strength of the Parmalat brand there. The company's performance in other South American markets (Argentina, Colombia, Chile, Ecuador, Uruguay, Venezuela and Paraguay) was roughly in line with the year before, with the exception of Venezuela (where the general strike had a major impact on volumes) and Argentina, where earnings were described as 'satisfactory'.
In the rest of the world, sales totalled €338 million during the first half, an increase of 1.2 per cent. Sales, which came primarily from Australia and South Africa, were affected by the depreciation of the Australian dollar. In both countries, however, turnover and operating margins in local currency terms were in line with the same period of 2002.
The group's milk division was also badly affected by the exchange rate fluctuations, with turnover down 10.7 per cent to €1.96 billion. Fresh food sales also fell - dropping 10.6 per cent to €789 million - as did bakery revenues - down 22.7 per cent to €357 million. Only the vegetable products arm registered an improvement on the first half of 2002 with sales increasing 0.9 per cent to €323 million.
Parmalat said it was pleased with its performance in the tough first half, maintaining its market share and posting volume increases in line with expectations. This modest performance is likely to continue into the second half, the company said, although the continued impact of exchange rates made it impossible to predict likely sales and profits.