Frutarom reports record Q2, updates on takeover by IFF
24 Aug 2018 --- Frutarom, one of the world’s 10 largest companies in the field of flavors and specialty fine ingredients, reports another record-breaking quarter and half-year, in sales, profit, and earnings per share. The accelerated increase in revenues this quarter stems from a combination of the rapid internal growth in Frutarom’s core activities – the Flavors Division and Specialty Fine Ingredients Division – and the acquisitions it has made.
In May 2018, International Flavors & Fragrances Inc. (IFF) agreed to acquire Frutarom in a cash and stock transaction valued at approximately US$7.1 billion. Ori Yehudai, President and CEO of Frutarom Group updated on the progress and strategy in a conference call.
Frutarom sales in Q2 2018 rose 16.8 percent to a record of US$401.3 million, compared with US$343.6 million in Q2 2017, reflecting a growth on a pro-forma and constant currency basis of 4.5 percent compared with Q2 2017. Sales for Frutarom’s core activities (Flavors Activity and Specialty Fine Ingredients Activity) rose 19.5 percent in Q2 2018, to a record level of approx. US$380.4 million, compared with approx. US$318.3 million in Q2 2017, reflecting a growth of approx. 6.1 percent on a pro-forma and constant currency basis, compared with Q2 2017. Changes in exchange rates boosted sales by approx. 3.0 percent in pro forma terms.
Sales for Flavors rose 16.4 percent to a record of approx. US$296.0 million, compared with approx. US$254.3 million in Q2 2017, reflecting a growth of approx. 6.1 percent on a pro-forma and constant currency basis, compared with Q2 2017. Changes in exchange rates boosted sales by 3.1 percent in pro forma terms. Sales for Specialty Fine Ingredients rose 33.7 percent to approx. US$88.8 million in Q2 2018, compared with US$66.4 million in Q2 2017, reflecting a growth of approx. 8.9 percent on a pro-forma and constant currency basis, compared with Q2 2017. Changes in exchange rates boosted sales by approx. 2.3 percent in pro forma terms.
Yehudai commented: “We are pleased with our significant step forward and the results achieved in the second quarter and first half of 2018, in which we once again set new records in the sales, profits, and margins of our core activities. The quarterly and half-year 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, and which have led us to achieve our EBITDA margin target of 23 percent in core activities, originally set for 2020, in the first half of the year.”
“Frutarom started 2018 at peak performance: with a broad and innovative product portfolio that places an emphasis on natural products at the interesting cross section of flavor, nutrition and health, with a focus on local, medium-sized customers as well as private label manufacturers, which gives Frutarom a substantial competitive edge. We consider our strategic focus as a significant growth engine for Frutarom’s business in the years to come and we intend to continue and accelerate measures conducive to further rapid growth in our core activities – Flavors and Specialty Fine Ingredients. Frutarom’s Flavors activity has grown since 2000 at an average annual rate (CAGR) of 24 percent, and the Specialty Fine Ingredients continues to grow rapidly, with an emphasis on specialty solutions in the areas of nutrition and 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.”
Commenting on the merger, he notes: “We are excited to combine Frutarom with IFF and together create global leadership in natural flavor solutions, fragrances, and fine ingredients for health and nutrition, and are delighted with the vote of confidence from our shareholders, who supported the merger in a majority of 94.6 percent. We are working in full collaboration with IFF management on preparing the integration plan, merging these two great companies, which complement each other, to ensure a successful commercial, operational, technological and organizational merger, while capitalizing on the abundant cross-selling opportunities. I am certain that the growth potential for the combined company is substantial and our shareholders will continue to enjoy this upside in the future.”
In a conference call Yehudai said that that the integration with IFF will significantly boost the cross-selling opportunity with additional product, technology etc. that IFF brings to the table for Frutarom customers and all the unique products and offering of Frutarom to IFF customer.
“Continued improvement in our geography mix, higher share in growing emerging market and the US. Here again, the integration with IFF will contribute to even better geography spread while we combine Frutarom’s strength with IFF’s strength that are much more complementary than really competing business,” he says.
“The last one is really the successful integration and the efficiency program that we are implementing in the last few years. Here again, we are expecting a very, very significant contribution while integrating Frutarom business with IFF, expecting US$145 million savings – additional savings from the integration with IFF,” he adds. A significant part of them will come from the global purchasing organization, where IFF is much, much stronger than Frutarom, he notes.
“The fast internal growth, supported by 14 acquisitions that we made since the beginning of 2017, bring our turnover to a run rate of around US$1.6 billion and we have no doubt that 2018 will be again a record year for Frutarom. And we are on the right way to achieve our sales target for 2020, $2.250 billion,” he says.
Yehudai notes that there are two conditions to the closing of the deal with IFF. One of them was achieved, the approval of the Shareholder Meeting of Frutarom with a majority of 95 percent. A very significant progress was made with achieving the approval of the antitrust commissioners in several jurisdictions.
“We already got the approval in Israel, in the US, in Turkey, in Mexico, and Ukraine and we are expecting to achieve the approval from the European antitrust, from the Russian, and the South African one. We believe that these will be achieved in the coming near future so that we will be able to finalize the closing of the deal sooner than what we anticipate when we announced the signing of the deal,” he explains. He noted no difficulties are foreseen in achieving the approval from the antitrust commissioner.
By Robin Wyers
