Page 8 - PARMALAT 2017 ANNUAL REPORT

A Letter to Shareholders

Dear Shareholders:

This past September I was named Chief Executive Officer and General Manager of Parmalat S.p.A. and I wish to take
this opportunity to bring to your attention the salient events that characterized 2017, while outlining the Group’s
growth perspectives for the coming years.

In 2017, the macroeconomic context was characterized by a consolidation of global growth, bolstered by expansive
monetary and fiscal policies.
On the currency front, while the context remained volatile, the foreign exchange effect on the Group’s result was
essentially neutral. Specifically, the strengthening of the euro versus the US dollar in the second half of the year, which
is continuing today, eroded to a significant extent the positive effect recorded in the first half of the year.

In 2017, the dairy market experienced rising consumption compared with the previous year, with different trends in
the various geographic regions: up in Asia, the Middle East and Africa, down in Western Europe and North America a
stable in Latin America.
As for the cost of raw milk, there was an increase in 2017 compared with the previous year, with varying trends in the
course of the year.
The first half was characterized by higher raw material costs, as the excess supply recorded in 2016 mitigated and
China’s milk purchases on the international markets resumed. This trend, at the consolidated level, gradually
diminished in the second half of the year, due mainly to a surplus of raw milk in the areas that are net milk exporters,
Europe, North America and Oceania in particular.

Turning now to the Group’s performance, 2017 has been a difficult year for Parmalat, with a decrease in profitability,
mainly in the second half of the year.

The original growth projections, which called for a significant acceleration in the fourth quarter compared with
previous quarters did not materialize because, despite the commercial policies implemented starting in the first half of
the year, the Group was unable in some areas to fully offset the higher cost of production components in addition to
suffering a deterioration of its sales mix.

More specifically, in Canada, the increases in the cost of some production components that could not be offset by
adjustments to sales prices, nonrecurring costs in the second half of the year and difficulties with the process of fine
tuning some production facilities strongly deteriorated profitability compared with the previous year.
The situation remains challenging for the local subsidiary in Zambia, due to an increase in the cost of production
components, a reduction in sales volumes and critical issues that arose mainly in the second half of the year in the
industrial and logistics areas.
Lastly, the we faced challenges in Latin America due to highly competitive markets, mainly Mexico and Brazil, coupled
with the higher costs of production components that made it impossible to benefit from the results of the
reorganization of industrial activities and logistics and the revamping of the product line.

In 2017, we acquired in Italy the business operations of Silac, a company active in the pasteurized milk market in the
region of Apulia with the aim of relaunching its historic regional brand by strengthening and broadening its portfolio
of local products.
We also strengthened our position in the United States of America with the acquisition of an organization active in the
ethnic dairy specialty segment with the Karoun brand, and in Chile where we acquired some companies specializing in
the cheese segment with the La Vaquita and Kümey brands.

Looking at the growth prospects for Parmalat in the coming years, I am convinced that that the Group has great
potential, deriving from an important portfolio of products and brands, a strong industrial capacity, consolidated
competitive positions and the valuable competencies of its teams, and will be able to recover and increase its
profitability.

6 A Letter to Shareholders