Frutarom reports “record-breaking” quarter amid IFF merger plans

30 May 2018 --- As Frutarom strides forward with its growth strategy, the Israel-based flavor and fragrance specialist has reported another record quarter with double-digit growth in sales and profits alongside improved margins. The first quarter 2018 results come when Frutarom is in the midst of being merged into International Flavors & Fragrance Inc (IFF) which recently agreed to acquire Frutarom in a cash and stock transaction valued at approximately US$7.1 billion, including the assumption of Frutarom’s net debt. The deal will create a “global leader” in the flavors, fragrances and specialty fine ingredients for health and nutrition field, according to both companies.

IFF’s takeover will also be the second largest of an Israeli company after Intel’s US$15 billion acquisition of Mobileye and demonstrates how consumer preferences for smaller brands featuring natural products that tap into health and wellness trends are driving the flavor and fragrance market.

The two companies are projected to have combined revenue of US$5.3 billion in 2018.

Sales grew by 27.2 percent to a record US$384.8 million; constant currency growth on a pro forma basis of 7.6 percent, while sales from Core Activities grew by 29.0 percent to a record US$365.7 million; constant currency growth on a pro forma basis of 8.3 percent.

Sales from Flavors activity grew by 28.3 percent to a record US$281.5 million, constant currency growth on a pro forma basis of 8.1 percent, sales from Specialty Fine Ingredients increased by 29.9 percent to a record US$ 86.7 million and steady currency growth on a pro forma basis of 8.5 percent.

Frutarom reports record profits from operating activities: Gross profit rose 34.6 percent to US$155.7 million; EBITDA increased 44.3 percent to US$80.4 million; EBITDA Margin of core activities reached a record level of 22.2 percent and net income rose 35.4 percent to US$45.7 million.

Reported earnings per share in Q1 2018 rose 35.4 percent to reach US$0.76, compared with US$0.56 in Q1 2017. Earnings per share adjusted for non-recurring expenses rose by 35.1 percent to reach US$0.77, compared with US$0.57 in Q1 2017.

Ori Yehudai, President and CEO of Frutarom Group, is pleased with the company’s significant step forward and the results achieved in Q1 2018 which have set new records in sales, profits and core activities' profitability.

“These quarterly results reflect the successful implementation of our rapid and profitable growth strategy, combining profitable internal growth at higher growth rates than those of the markets in which we operate, together with our strategic acquisitions, which contribute to the ongoing, consistent improvement in our results,” he says.

“Frutarom started 2018 at peak performance: growing at a rate higher than the growth rate of the market it operates in,” he adds.

Yehudai points out that the company has a strong and experienced management team, and is a global organization operating in more than 150 countries, based on a production infrastructure of 74 plants, 93 research and development labs, and 111 marketing and sales offices with around 5,400 employees.

“More than 1,200 of them in marketing and sales, and over 800 in R&D who cater to, and maintain close daily contact with, over 30,000 customers (12,000 of which have joined us through the 39 acquisitions we've made in the past five years), with a broad and innovative product portfolio that places an emphasis on natural products at the interesting cross-section of flavor and health, with a customer focus that gives Frutarom a substantial competitive edge,” he adds.

“We have significantly expanded our capabilities into the field of fine specialty ingredients for infant nutrition and elderly clinical nutrition through the Enzymotec acquisition, and its merger into Frutarom is completed and is already contributing to our margins this quarter.”

“We proceed to accelerate the measures aimed at establishing global market leadership in natural herbal extracts, while embracing a vision which includes global collaborations with research institutions and farmers for the development of species and crops of strategic fine ingredients used for flavor, color, health and in the cosmetics industry, while supporting our customers' accelerated switch from synthetic to natural fine ingredients.”

During the first quarter, Frutarom has also expanded its activity in the growing category of natural specialty fine ingredients for the cosmetics and personal care industries, through the acquisition of IBR.

Frutarom gaining momentum
Over the last few years, Frutarom has been on an acquisitions streak, completing a series of deals that mark significant growth for the flavors and fragrances specialists.

Last December, Frutarom Industries signed an agreement for the purchase of 51 percent of the shares of the Brazilian company Bremil Indústria Ltda, the top producer of savory solutions in Brazil, at a company value of approximately US$73 million.

This was the twelfth acquisition for Frutarom in 2017 and came just one day after the company signed a deal to acquire Polish flavors & fragrances company Pollena-Aroma.

But the biggest consolidation news came just a few weeks ago with the deal with New York city-headquartered IFF. All eyes are on the flavors and fragrances space as the takeover is expected to shake up the sector when the company goes up against the current market leader, Swiss manufacturer Givaudan.

Consolidation had been expected since Givaudan agreed to acquire 40.6 percent of the shares of Naturex, the global leader in specialty plant-based natural ingredients in March.

“We are very excited to combine Frutarom with IFF and together create a global leader in natural solutions for flavors, fine specialty ingredients for health and nutrition and fragrances,” continues Yehudai.

“We are certain that the rapid and profitable organic growth and the strategic acquisitions we have made, combined with continuous improvement in our product mix will support the merged company's ongoing journey of profitable growth.”

Frutarom says its accelerated increase in revenues this quarter stems from a combination of the rapid internal growth in core activities – the Flavors Division and Specialty Fine Ingredients Division – and the acquisitions it has made.

Gross profit of all Frutarom activities rose approximately 34.6 percent to reach around US$ 155.7 million (roughly 40.5 percent of total revenues) in Q1 2018, compared with US$115.7 million (roughly 38.2 percent of total revenues) in Q1 2017.

Operating profit rose approximately 37.8 percent to reach US$62.5 million (operating margin of roughly 16.2 percent) compared with about US$ 45.3 million (operating margin of approximately 15.0 percent) in Q1 2017.

EBITDA rose approximately 44.3 percent, to reach US$ 80.4 million (EBITDA margin of approx. 20.9 percent) compared with approximately US$ 55.7 million (EBITDA margin of approximately 18.4 percent) in Q1 2017.

Gross profit for core businesses (Flavors activity and Specialty Fine Ingredients activity) rose approx. 36.8 percent in Q1 2018, to reach US$152.6 million with a gross margin of approximately 41.7 percent, compared with US$111.6 million in Q1 2017 and a gross margin of approximately 39.4 percent.

Operating profit for core businesses rose approximately 39.3 percent in Q1 2018, to reach approximately US$ 62.5 million (operating margin of approximately 17.1 percent) compared with approx. US$44.8 million (operating margin of approximately 15.8 percent) in Q1 2017.

EBITDA for core businesses rose approximately 45.5 percent to US$ 80.2million (EBITDA margin of approximately 21.9 percent), compared with US$ 55.1million (EBITDA margin of approx. 19.4 percent) in Q1 2017.

In addition to Frutarom’s completions of mergers of companies acquired and all the measures it has taken to strengthen its operations, the company says it is “proceeding according to plan” and will bring significant operational savings and strengthen its competitiveness through the maximum utilization of its sites worldwide.

On top of this, activities are on track to plan for building and reinforcing the global platform for purchasing raw materials used by Frutarom in the manufacturing of its products which will capitalize on the purchasing power that has grown significantly in recent years, along with switching to purchasing directly from producers in source countries, primarily of natural raw materials (which constitute more than 75 percent of the raw materials used by Frutarom).

The global purchasing platform will also contribute to additional improvement in purchasing costs and gross margins in the years to come.

Frutarom also notes that in recent years, due to the company’s internal growth and acquisitions, seasonal effects on its results have diminished. Nonetheless, increased demand for beverages, yogurts, ice cream and other food products during the summer months brings about higher sales and some degree of improvement in Frutarom’s profitability margins in the second and third quarters of the year.

By Gaynor Selby

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