On the Street -- Parmalat Takes National's Dairy Assets

May 23/Business Monitor International Ltd. -- In its largest acquisition since the $18 billion accounting scandal which put the dairy giant into administration in 2003, recuperated Italian giant Parmalat has agreed to buy a band of dairy assets from Kirin-owned National Foods in a deal worth A$70 million ($54.6 million U.S.). National Foods is required to sell the assets due to competition concerns arising from its A$910 million ($709.4 million U.S.) takeover of Dairy Farmers, and Parmalat - who missed out in its bid for the latter - looks set to benefit after all.

Parmalat will acquire Dairy Farmers' manufacturing facilities in New South Wales and Australian Capital Territory, while it will also secure some licensing and distribution deals in these states as well as in South Australia. It is estimated that the units that Parmalat will acquire generated revenues of A$200 million ($156 million U.S.) in the 12 months to June 2008, which will give around a 25% boost to Parmalat's Australian revenues (A$796 million [$620.6 million U.S.] in 2008).

On missing out on the Dairy Farmers deal, rumours had circulated that Parmalat might consider quitting the Australian market, where rapid consolidation and fierce competition has put producers under considerable pressure. This acquisition, coupled with reasonable first quarter results for its Australian operation, should put these rumors to bed.

Strong flavored milk and yogurt sales contributed to first quarter Australian revenue growth of 2.9% year-on-year (y-o-y) to A$183 million ($142.7 million U.S.), while earnings before interest, taxes, depreciation and amortization (EBITDA) increased 31.9%. However, on a reported basis, revenues actually fell by 14.4% y-o-y due to the ongoing appreciation of the euro against the Australian dollar. The strength of the euro relative to the Australian dollar will continue to weigh on the operation's performance throughout the full-year; however, having inorganically built up its market share in three key states, Parmalat will be confident of an improved performance for this division in 2010 and beyond.

In addition to expansion, Parmalat has another reason to approach the remainder of the year with optimism; while negative currency movements weighed on its reported revenues, turnover on a constant currency basis actually climbed by 5.4%, while EBIDTA on a reported basis climbed 13.3%, primarily due to lower input costs.  

From the May 26, 2009, Prepared Foods E-dition