Frutarom Q2 Profit Rises, Sales Growth Held Back By Stronger Dollar
28 Aug 2015 --- Frutarom Industries Ltd., one of the top ten companies in the world for flavors and specialty fine ingredients, reports another record quarter in sales reaching US$412.7 million, in operating profit reaching US$62.4 million, in EBITDA reaching US$77.6 million, in net income reaching US$47.5 million, and in earnings per share. The second quarter of 2015 was also a record-setting quarter for sales reaching US$218.5 million, for net income reaching US$26.1 million, and for earnings per share, which were the highest ever in Frutarom history.
Continued successful integration of acquisitions performed in recent years with Frutarom's global activity is also a contributing factor towards both the growth in sales and improvement in profits and margins. From the beginning of 2015 until the date of this report, Frutarom has executed nine acquisitions, five of which during the second quarter – Vitiva, (Slovenia), FoodBlenders (UK), Ingrenat (Spain), Taiga (Belgium), Sonarome (India, with activity also in Africa), BSA (Canada with activity also in India) Taura (Australia, with product sites in New Zealand and Belguim and activity in Europe), F&J (USA) and is working on successfully integrating them and making the most of the great potential they bring. Following the date of the report on the financial status Frutarom reported on the ninth acquisition for the year, of the business operations and assets of Scandia Flavors in the US state of Florida which engages in specialty citrus solutions. Frutarom believes that in the nine acquisitions it has carried out lies a great deal of synergetic potential and operational savings that can be expected to start coming into play in its results in upcoming quarters.
Frutarom sales in Q2 2015 reached a quarterly record high of US$218.5 million in the second quarter, reflecting year-over-year constant currency growth of 3.4% in pro-forma terms2. These results were achieved against a particularly strong parallel quarter in 2014.
Frutarom sales and profits were affected during the second quarter by the significant strengthening of the US dollar against most other world currencies. Since about 70% of Frutarom's sales are conducted in currencies other than the US dollar (mainly the Euro, Pound Sterling, Swiss Franc, Russian Ruble, New Israeli Shekel, Chinese Yuan, Brazilian Real, Peruvian Nuevo Sol and South African Rand), changes in exchange rates affect Frutarom's results as reported in US dollars.
However, exposure to currency fluctuations is reduced by the fact that Frutarom’s raw materials purchases and operational expenditures in various countries in which it operates are also paid for in most cases in the various currencies so that most of the effect applies to the translation of sales revenues and profits into dollar terms.
The effect of currencies on Frutarom sales was 14.4% in the second quarter and 14.0% in the first half of 2015.
It should be noted that the trend of the strengthening dollar mainly began manifesting itself in the fourth quarter of 2014, and therefore it is expected that the currency effect on Frutarom's reported dollar-based results will diminish beginning in the fourth quarter of this year if exchange rates remain at their current levels.
Growth in sales from Flavors activity in Q2 2015 (in pro-forma terms and on a constant currency basis) reached 4.8% vs. prior year. Currency effects unfavorably impacted sales by 15.1%. Sales from the Flavors activity as reported in US dollars reached US$155.5 million in Q2 2015 as against US$156.7 million in Q2 2014.
Sales from Specialty Fine Ingredients activity in Q2 2015 (in pro-forma terms and on a constant currency basis) declined 4.9% vs. prior year, with currency effects having a 7.8% unfavorable impact on results. Frutarom sales from Specialty Fine Ingredients activity as reported in US dollar terms amounted to US$41.4 million compared with US$42.6 million in Q2 2014. After undergoing internal growth averaging 4.4% in 2014 and 5.3% in Q1 2015, sales of Specialty Fine Ingredients were affected this quarter by some stockpiling of inventory among a number of customers who temporarily reduced their purchases. These customers have recently resumed placing orders and the Company estimates that their rate of purchases will grow in the upcoming months.
Frutarom sales from its Trade and Marketing activities in Q2 2015 (in pro-forma terms and on a constant currency basis) grew 7.0% vs. prior year. Currency effects negatively impacted sales by 20.2%. Sales from Trade and Marketing as reported in US dollar terms reached US$23.1 million compared with US$20.7 million in Q2 2014.
Frutarom sales reached a reached a half-year record high of US$412.7 million in the first half of 2015, reflecting year-over-year constant currency growth of 5.4% in pro-forma terms2. Substantial changes, as mentioned, to the exchange rates of currencies in which the Company operates as against the US dollar negatively impacted sales growth in pro-forma terms by 14.0% such that Frutarom sales as reported in US dollars grew in H1 2015 by 1.5%.
H1 2015 sales growth for Flavors activity in pro-forma terms on a constant currency basis reached 6.1% vs. prior year. Currency effects negatively impacted sales by 14.7%. The sales from Flavors activity in H1 2015 as reported in US dollars totaled US$285.2 million as opposed to US$290.9 million the previous year.
Sales for Specialty Fine Ingredients in the first half of 2015 in pro-forma terms on a constant currency basis rose 0.2% from the previous year, with currency effects having a 7.4% negative impact on results. The sales from Specialty Fine Ingredients activity as reported in US dollars reached US$88.3 million compared with US$83.5 million in H1 2014.
Frutarom's Trade and Marketing sales grew in H2 2015 by 6.8% vs. prior year on a constant currency basis in pro-forma terms. Currency effects had a negative impact of 21.0% on sales. Frutarom sales from Trade and Marketing as reported in US dollars reached US$41.7 million compared with US$36.4 million the year before.
Ori Yehudai, President and CEO of Frutarom: “We continue our rapid profitable growth journey and achieve record results despite the considerable effect of changes in the exchange rates of the various currencies that affected unfavorably our Q2 2015 results by 14.4%. We are very pleased with the ongoing trend of profitable growth and sustained improvement in Frutarom's performance which have contributed to achieving another record setting quarter in revenues and net profit. The quarter results reflect the continued successful implementation of our rapid and profitable growth strategy, a strategy combining profitable internal growth - at rates above the growth rates in markets where we operate - with strategic acquisitions. We continue growing our market share in desired regions and countries, along entering new fields such as of natural colors and natural food preservation and protection solutions and further strengthened our activity in the field of specialty citrus. Continued organic growth and the contribution from the acquisitions, along with the measures we are taking to optimize the utilization of our resources, have propelled Frutarom in another major leap forward in its competitive positioning as a leading global player in the fields of Flavors and Specialty Fine Ingredients.
"As part of the implementation of this strategy, we are continuing to work at expanding our scope of sales and market share considerably. Frutarom's sales growth in the first half of 2015 reached 5.4% on a currency-neutral pro-forma2 basis. Successful integration of the six acquisitions we carried out in 2013-2014, expansion of our activity recurring expenses.-On a constant currency basis and adjusted for non 3 and market share in emerging markets exhibiting higher growth rates, as well as deepening our activity in the United States combined with our product mix, with emphasis on a natural and healthy product portfolio, contribute to the acceleration of growth.”
"Since the beginning of the second quarter we acquired 5 companies with cumulative annual sales of US$97 M. They are already fully included in the balance sheet, but their full contribution to sales and profits will start showing only in the third quarter. Those acquisitions, combined with the organic growth, contribute to the expansion of our activities, while balancing our geographic spread between growing emerging markets and developed markets, with emphasis on Western Europe and the US (the world's largest market for flavors).
"As part of the action we are taking to expand our global presence, we strengthen our activity in Asia-Pacific by the acquisition of Taura and accelerated our penetration to the growing markets of India and Africa by the acquisitions of Sonarome and the Indian activity of BSA. Construction of Frutarom's new state-of-the-art plant in China, which features sophisticated laboratories for research, development and applications, has been completed. For the first time Frutarom will have the ability to develop and produce savory flavors solutions locally. The plant is currently in its run-in stages and we are convinced it will contribute to the growth of our activities in China and South East Asia, important key target markets for growth and for leveraging our competitive advantages.”
"The organic growth and acquisitions, together with continuing improvement in our product mix, geographic expansion in emerging markets and the United States, and measures being taken to optimize the utilization of resources at our disposal, combined with the many inherent cross-selling opportunities and operational savings they present, along with the building of a global purchasing platform, and future strategic synergetic acquisitions pipe line, will support the continuation of our campaign for profitable growth in the years to come as well, and attaining the goals we recently set of reaching at least US$1.5 billion in sales and an EBITDA margin in our core activities of over 22% by 2020.”
