Successful Integration of Acquisitions Leads Frutarom to Another Record Quarter

21 Aug 2013 --- Frutarom Industries Ltd., a top-ten company in the Flavors and Fine Ingredients markets, reports record quarterly revenues for Q2 2013 and for H1 2013 in terms of sales, gross profit, operating profit, EBITDA, net profit and earnings per share. Company sales grew, reaching US$168.6M, gross margin increased sharply to 39.6%, EBITDA and gross profit, net of one-time expenses, reached US$33.9M and US$19.1M, accordingly.

The eight acquisitions Frutarom made in 2011-2012 have already all been successfully integrated into Frutarom’s global activity, contributing to both an increase in sales and improved profit. Following these acquisitions, Frutarom continues to realize the many cross-selling opportunities and enhanced technological capacities and to actualize the savings resulting from the integration of R&D, sales, marketing, operations and purchase infrastructures. Streamlining activities for integration of production sites and activities and transfer of other activities to countries where production costs are lower will bring about significant savings in a yearly scope of some US$10 million. The impact of these activities will come to fruition during the second half of 2013 and mainly in 2014.

Frutarom also acts to strengthen its global purchase infrastructure, utilizing the significant added purchasing power acquired through its acquisitions and further expanding its pool of suppliers, with an emphasis on increased purchase in countries of origin for raw materials the Company uses in the development and manufacture of its products (especially natural raw materials). The global purchasing reinforcement is expected to further improve Frutarom’s gross margins.

Frutarom continues to successfully implement its rapid and profitable growth strategy, which is expected to continue to be reflected in Frutarom’s organic growth alongside focused performance of additional strategic acquisitions, accelerating its expansion in target markets with higher growth rates such as the emerging markets of China and South East Asia, Eastern Europe and Africa. Frutarom’s sales in these strategic markets increased from 27% of total sales in 2010 to 36% in 2012. As part of its continued strategy for acceleration of expansion into target markets with higher growth rates, in May of this year Frutarom acquired the South African flavors company JannDeRee (Pty) Limited, which has a research and development site located adjacent to Frutarom South Africa’s site. The growth trend in emerging markets has continued throughout the first half of 2013, and is expected to continue throughout the end of this year and into next year.

Ori Yehudai, Frutarom’s President and CEO, commented: "We are pleased with the second quarter and first half year results, which reflect the successful implementation of our rapid and profitable growth strategy. For years Frutarom has been successfully implementing its profitable organic growth strategy alongside acquisitions and successful utilization of the synergies resulting from these. All the acquisitions made in 2011 and 2012 have contributed to the increase in sales and significant improvement in profit. Our successful identification of the right companies and pinpointing of the growing markets, recognition and assimilation of leading innovative technologies, recruitment of the leading managers in the acquired companies and connecting them to Frutarom’s management team and taking advantage of business opportunities, while preforming acquisitions at attractive prices – all these strengthen our excellent growth platform and allow us to exploit the economy of scale we have achieved.

“It is our intention to continue to invest in expanding our activities and our market share in emerging markets, where we are successful in growing at a rate higher than market growth. Organic growth combined with the acquisitions have strengthened our presence in strategic markets, particularly in North America, Asia, Latin America and Africa, which today are considered the fastest growing food markets in the world. We will continue to invest great resources in accelerating growth in these markets, including by identifying and performing acquisitions, in order to utilize their great potential.

“The results of the quarter reflect another quantum leap in our operations - the significant improvement in the Company’s profitability is the result of the successful combination of organic growth with maximal utilization of business synergies, the many cross selling opportunities and of achieving cost savings. Improved gross margins this quarter are also the result of our launching innovative natural products with higher margins which contribute to an improved product mix. We are expanding our natural product offering with a special emphasis on natural foods and health foods, which have an increasing demand and higher margins.

“We continue to implement our projects for integration of production sites, transfer of activities to lower cost countries and improving supply chain and logistics. These projects will bring about significant savings in a yearly scope of US$10 million, which will begin to come to fruition starting in the second half of 2013 and mainly in 2014. In addition, we continue to strengthen our global purchasing infrastructure. The result of all of these actions will be continued strengthening of Frutarom’s competitiveness, while improving its cost structure and maximally utilizing all its sites throughout the world.

Frutarom today has strong infrastructures for continued growth and improved margins despite a challenging market conditions. Continued growth, stabilization of prices of the raw materials Frutarom uses in the manufacture of its products, together with the contribution of the successful integration of our latest acquisitions, continual streamlining and improvement of our cost structure, while maximally utilizing our sites throughout the world and strengthening our global purchase infrastructure will bring about improved future margins. Our capital structure and net debt level, which stands at US$131.3 million, supported by our strong cash flow, will allow us to successfully continue to realize our rapid and profitable growth strategy”.