ITALY: Parmalat Finanziaria: positive trend continues into Q3 of 2001

– During the first nine months of the year sales rose + 8.2% to ITL 11,251 billion
– Gross operating profit rose 10.9% to ITL 1,352 billion (12% of sales)
– Net operating profit rose 9% to ITL 836 billion (7.4% of sales)

Today’s meeting of the Board of Directors, chaired by Cav. Lav. Calisto Tanzi, examined the Report on Operations for the third quarter of 2001 (July 1 to September 30).

Operating results for the first nine months of 2001, corresponding to the period from January 1 to September 30

In the first nine months of the year the Parmalat Group achieved satisfactory overall growth and reported a 8.2% increase in sales, compared with the same period in 2000, accompanied by rises of 10.9% in gross operating profit and of 9% in net operating profit.

Organic volume growth amounted to 3.4%, equal to the increase reported for all of 2000 and essentially in line with the 3.5% reported during the first nine months of 2000. Sales rose by almost ITL 851 billion during the first three quarters.

Moreover, net of disposals relating to 2000, the Group benefited from the consolidation of acquisitions made during the previous year and at the start of the current year. On the other hand, sales were negatively affected by the recession in Argentina, the weakness of the Brazilian economy and the exchange performances of some of the Group’s key operating currencies, especially the Brazilian real, the Australian dollar and the South African rand.

A breakdown of sales during the first nine months of the year by geographical area compared with comparative data for the same period of 2000 (figures shown in brackets) reveals the following:  32% in Europe (31%), 35% North and Central America (32%), 25% South America (28%) and 8% in the rest of the world (9%).

The EBITDA margin (gross operating profit of ITL 1,352 billion on sales) settled at 12%, an improvement compared to the 11.7% posted for the same period of the previous year and the 11.8% reported for all of 2000.

Due to greater charges for amortisation and depreciation, the EBIT margin (net operating profit of ITL 836 billion on sales) stood at 7.4%, unchanged from the same period of the previous year and entire 2000. Amortisation and depreciation accounted for 4.6 % of sales during the first nine months of the year compared with 4.3% for the same period of the previous year and 4.4% in 2000 as a whole.
Total interest expense for the first nine months of 2001, net of interest income and after negative exchange differences (totalling around ITL 20 billion), due to the negative trend in the exchange rates reported during the third quarter for some of the Group’s operating currencies, amounted to ITL 195 billion, compared with ITL 168 billion for the same period of the previous year.

The impact of interest expense on sales, net of negative exchange differences, was 1.6%, in line with the corresponding period of 2000.

Operating performance for the third quarter of 2001, corresponding to the period July 1 to September 30

During the third quarter of 2001, consolidated sales grew by ITL 116 billion, or 3.1%, with respect to the ITL 3,712 billion reported for the corresponding period in 2000 to reach ITL 3,828 billion.

Gross operating profit increased by 5.8% from the ITL 434 billion posted for the third quarter of 2000 to reach ITL 459 billion. In contrast, net operating profit rose by 5.0% from ITL 270.6 billion to ITL 284.2 billion.

The positive trend of operating profitability reported in 2000 and during the first six months of this year continued, due to ongoing rationalisation, the constant improvement of production and distribution processes and the contribution of new products, providing greater added value. The EBITDA margin (gross operating profit of ITL 459 billion on sales) settled at 12%, an improvement compared to the 11.7% for the same period in 2000 and the 11.8% reported for the whole of 2000. The EBIT margin (net operating profit of ITL 284 billion on sales) stood at 7.4%, essentially in line with the 7.3% reported during the third quarter of 2000 and unchanged with respect to the previous year.

During the third quarter of 2001, amortisation and depreciation accounted for 4.6% of sales compared with 4.4% during the corresponding period in 2000.
Total interest expense during the third quarter, net of interest income and after exchange differences, amounted to ITL 81 billion compared with the ITL 51 billion posted during the corresponding period of 2000. A significant amount of this increase, around ITL 20 billion, was due to negative exchange differences which, during the third quarter of 2001, had a significant impact due to the weakness of some of the Group’s main operating currencies.

Operating results during the third quarter of the year

Financial position

Net debt decreased from ITL 4,398 billion as of December 31, 2000 to ITL 3,991 billion as of September 30 2001. A portion of the operating cash flow was utilised to cover financial needs arising from investment and working capital requirements.

Net financial position

Total consolidated shareholders’ equity of Parmalat Finanziaria as of September 30, 2001, including pre-tax profit for the first nine months of the year, amounts to ITL 5,465 billion, equal to 2,822 million euros, compared with ITL 5,118 billion as of December 31, 2000. It should be noted that the change in consolidated shareholders’ equity was in part due to the negative performance of a number of key operating currencies which was charged to the “Consolidation reserve”. Such movements may, of course, be subject to future fluctuations in exchange rates.

Principal rates of exchange

The principal rates of exchange used to convert the balance sheets and profit and loss accounts of the various Group companies were the following:

Average rates of exchange

End of period rates of exchange

Operating performance and significant events during the third quarter of 2001.

The positive trend in sales volumes reported during the first part of the year continued into the third quarter.

From July 1 to the date of this report 360,000 “Warrants on the ordinary shares of Parmalat Finanziaria 2003” were subscribed. As foreseen in the relevant regulations approved by the Extraordinary General Meeting of December 19, 1995, subsequently updated by the resolutions passed by the Extraordinary General Meeting of April 30, 2001 regarding the re-denomination of the share capital in euro and the consolidation of the shares, this resulted in the subscription of a total of 187,200 Parmalat Finanziaria ordinary shares with a par value of 1 euro. The shares were allocated in return for payment of a unit price of 1.39443 euros each.

Following the above transactions, the Company’s subscribed, paid-in share capital as of the present date amounts to 796,803,367 euros, equal to ITL 1,542,826,455,421, represented by 796,803,367 ordinary shares with a par value of 1 euro each.

Significant subsequent events

In October an agreement was reached for the purchase of the assets of the Kraft Group’s Brazilian milk operations. The purchase will require an outlay of 33 million Brazilian reals and involves assets producing annual turnover of around 175 million Brazilian reals.

Moreover, a new organisational structure has been set up this month in order to integrate and strengthen the Group’s activities in North America. The new structure is already operational and is designed to promote synergies amongst the Company’s various activities in the area. The structure will allow all business units operating throughout North America to take full advantage of their know-how and professional skills.

Operating outlook

Forecasts indicate that the Group’s sales during 2001 will benefit from the consolidation of the acquisitions made during the previous year and not consolidated across the full financial year, and from the acquisitions made at the beginning of the current year, net of disposals during 2000. Organic volume growth is expected to remain in step with the trend seen during the first nine months of the year, whilst it is not possible to predict the performance of consolidated revenues, expressed in the Group’s unit of currency, given that this will depend on exchange rates over the year.

Continuation of the restructuring programme should result in confirmation of the consolidated operating profit margins seen during the first nine months of the year.

Milan, November 14, 2001

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