Market Overview

Another Record Quarter for Frutarom: Continues to Successfully Implement Its Rapid & Profitable Growth Strategy

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DOUBLE DIGIT GROWTH IN SALES AND PROFITS AND RECORD MARGINS:
OVER 23% EBITDA IN ITS CORE ACTIVITIES
A 42.3% INCREASE IN NET INCOME TO A RECORD US$ 52.9 MILLION

In Q2 2018:

  • Sales grew by 16.8% to a record US$ 401.3 million; constant currency growth on a  pro forma basis of 4.5%

  • Sales from Core Activities grew by 19.5% to a record US$ 380.4 million; constant currency growth on a pro forma basis of 6.1%

  • Sales from Flavors activity grew by 16.4% to a record US$ 296.0 million; constant currency growth  on a pro forma basis of 6.1%

  • Sales from Specialty Fine Ingredients grew by 33.7% to a record US$ 88.8 million; constant currency growth on a pro forma basis of 8.9%  

  • Record profits from operating activities:
         • Gross profit rose 23.7% to US$ 163.4 million;
          EBITDA rose 34.9% to US$ 90.3 million;
          EBITDA Margin of core activities1 reached a record level of 23.8%;
          Net income rose 42.3% to US$ 52.9 million;
          Cash flow from operating activity rose 28.3% to US$ 42.0 million;

HERTZELIA, Israel, Aug. 23, 2018 (GLOBE NEWSWIRE) --

ON MAY 7, 2018 FRUTAROM ANNOUNCED THAT IT SIGNED A MERGER AGREEMENT WITH IFF, A LEADING COMPANY IN THE FLAVORS AND FRAGRANCES INDUSTRY, TO CREATE A GLOBAL LEADING COMPANY IN THE FIELD OF FLAVORS, FRAGRANCES AND SPECIALTY FINE INGREDIENTS FOR HEALTH AND NUTRITION

ON AUGUST 6, 2018 A SPECIAL GENERAL MEETING OF FRUTAROM'S SHAREHOLDERS WAS CONVENED AND A MAJORITY OF 94.6% APPROVED THE MERGER WITH IFF. THE TRANSACTION IS EXPECTED TO CLOSE IN THE FOURTH QUARTER OF 2018.

In H1 2018

  • Sales grew by 21.7% to a record US$ 786.1 million; constant currency growth on a  pro forma basis of 6.0%
  • Sales from Core Activities grew by 24.0% to a record US$ 746.1 million; constant currency growth on a pro forma basis of 7.2%
  • Sales from Flavors activity grew by 21.9% to a record US$ 577.5 million; constant currency growth on a pro forma basis of 7.0%
  • Sales from Specialty Fine Ingredients grew by 31.8% to a record US$ 175.5 million; constant currency growth on a pro forma basis of 8.7%
  • Record profits from operating activities:
          Gross profit rose 28.8% to US$ 319.2 million;
          EBITDA rose 39.2% to US$ 170.7 million;
          EBITDA margin of core activities2 reached a record level of 23.0%
          Net income rose 39.0% to US$ 98.6 million;

Ori Yehudai, President and CEO of Frutarom Group, Said Today:

"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% 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%, 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.   

"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%. 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."

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.

Sales

Frutarom sales in Q2 2018 rose 16.8% 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% compared with Q2 2017.

Sales for Frutarom's core activities (Flavors Activity and Specialty Fine Ingredients Activity) rose 19.5% 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% on a pro-forma and constant currency basis, compared with Q2 2017. Changes in exchange rates boosted sales by approx. 3.0% in pro forma terms.

Sales for Flavors rose 16.4% 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% on a pro-forma and constant currency basis, compared with Q2 2017. Changes in exchange rates boosted sales by 3.1% in pro forma terms.

Sales for Specialty Fine Ingredients rose 33.7% 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% on a pro-forma and constant currency basis, compared with Q2 2017. Changes in exchange rates boosted sales by approx. 2.3% in pro forma terms.

Sales for Trade and Marketing (not a core activity of Frutarom) dropped 17.1% to approx. US$ 20.9 million in Q2 2018, compared with approx. US$ 25.3 million in Q2 2017. On a pro-forma and constant currency basis, trade and marketing activity sales dropped by approx. 18.1%, compared with Q2 2017. Changes in exchange rates boosted sales by approx.1.0% in pro forma terms.

Frutarom sales in H1 2018 rose 21.7% to a half-year record of US$ 786.1 million, compared with US$ 646.1 million in H1 2017, reflecting a growth on a pro-forma and constant currency basis of 6.0% compared with H1 2017. Exchange rate fluctuations in the currencies Frutarom operates in versus the US Dollar, boosted sales growth in pro-forma terms by 5.1% compared to H1 2017.

Sales for Frutarom's core activities (Flavors Activity and Specialty Fine Ingredients Activity) rose 24.0% in H1 2018, to a record level of approx. US$ 746.1 million, compared with US$ 601.8 million in H1 2017, reflecting a growth of approx. 7.2% on a pro-forma and constant currency basis, compared with H1 2017. Changes in exchange rates boosted sales by 5.2% in pro forma terms.

Sales for Flavors rose 21.9% to a record of approx. US$ 577.5 million, compared with approx. US$ 473.6 million in H1 2017, reflecting a growth of approx. 7.0% on a pro-forma and constant currency basis, compared with H1 2017. Changes in exchange rates boosted sales by approx. 5.7% in pro forma terms.

Sales for Specialty Fine Ingredients rose 31.8% to approx. US$ 175.5 million in H1 2018, compared with approx. US$ 133.2 million in H1 2017, reflecting a growth of approx. 8.7% on a pro-forma and constant currency basis, compared with H1 2017. Changes in exchange rates reduced sales by approx. 3.5% in pro forma terms.

Sales for Trade and Marketing (not a core activity of Frutarom) dropped 9.6% to approx. US$ 40.1 million in H1 2018, compared with approx. US$ 44.3 million in H1 2017. Changes in exchange rates boosted sales by approx. 2.9% in pro forma terms. On a pro-forma and constant currency basis, trade and marketing activity sales dropped by approx. 12.5%, compared with H1 2017.

Profits and margins

In Q2 2018, Frutarom achieved record results in sales, gross profit and margin, operating profit and margin, EBITDA, net profit and margin, and earnings per share. These record results were achieved thanks to the profitable internal growth combined with the acquisitions made and the contribution from merger activities and efficiency measures.    

Gross profit of all Frutarom activities in Q2 2018 rose approx. 23.7% to reach approx. US$ 163.4 million (approx. 40.7% of total revenues), compared with approx. US$ 132.2 million (approx. 38.5% of total revenues) in Q2 2017. Operating profit rose approx. 31.3% to reach approx. US$ 72.5 million (operating margin of approx. 18.1%) compared with approx. US$ 55.2 million (operating margin of approx. 16.1%) in Q2 2017. EBITDA rose approx. 34.9%, to reach approx. US$ 90.3 million (EBITDA margin of approx. 22.5%) compared with approx. US$ 66.9 million (EBITDA margin of approx. 19.5%) in Q2 2017.

Gross profit for core businesses (Flavors activity and Specialty Fine Ingredients activity) rose approx. 24.7% in Q2 2018, to reach approx. US$ 159.7 million with a gross margin of approx. 42.0%, compared with approx. US$ 128.0 million in Q2 2017 and a gross margin of approx. 40.2%. Operating profit for core businesses rose approx. 31.7% in Q2 2018, to reach approx. US$ 72.2 million (operating margin of approx. 19.0%) compared with approx. US$ 54.8 million (operating margin of approx. 17.2%) in Q2 2017. EBITDA for core businesses rose approx. 35.2% to approx. US$ 89.7 million (EBITDA margin of approx. 23.6%), compared with approx. US$ 66.4 million (EBITDA margin of approx. 20.9%) in Q2 2017. 

Net nonrecurring expenses were recorded in Q2 2018 for acquisitions and measures taken by Frutarom to attain optimization and efficiency, mainly in the natural extracts operations of the Specialty Fine Ingredients Division, mostly due to the planned shut-down of the natural extracts plant in Wädesnwil, Switzerland, scheduled for Q3 2018, which is expected to bring about savings estimated at over USD 6 million (on an annual basis). These nonrecurring expenses diminished reported gross profit, operating profit and EBITDA by US$ 0.7 million, and net income by approx. US$ 0.5 million. Nonrecurring expenses were recorded in Q2 2017 for measures taken by Frutarom to attain optimization and efficiency in the natural extracts operations of the Specialty Fine Ingredients Division, diminishing for that quarter reported gross profit by approx. US$ 0.5 million, reported operating profit and EBITDA by approx. US$ 1.2 million, and reported net income by approx. US$ 0.9 million.

Adjusted for non-recurring expenses, EBITDA for core businesses rose approx. 33.7% to reach approx. US$ 90.4 million (approx. 23.8% EBITDA margin) compared with approx. US$ 67.6 million (approx. 21.2% EBITDA margin) in the same period last year.

In the first half of 2018 gross profit for all Frutarom activity rose by approx. 28.8% to reach approx. US$ 319.2 million (approx. 40.6% of total revenues) compared with approx. US$ 247.9 million (approx. 38.4% of total revenues) in H1 2017.  Operating profit in H1 rose by approx. 34.2% to reach approx. US$ 134.9 million (operating margin of 17.2%), compared with approx. US$ 100.5 million (operating margin of approx. 15.6%) in H1 2017. EBITDA in H1 2018 grew by approx. 39.2% to reach approx. US$ 170.7 million (EBITDA margin of approx. 21.7%) compared with approx. US$ 122.6 million (EBITDA margin of approx. 19.0%) in H1 2017.

In the first half of 2018, gross profit for the core businesses (Flavors activity and Specialty Fine Ingredients activity) rose by approx. 30.3% to reach approx. US$ 312.3 million (gross margin of approx. 41.9%), compared with approx. US$ 239.6 million (gross margin of approx. 39.8%) in H1 2017. Operating profit for the core businesses rose by approx. 35.1% to reach approx. US$ 134.6 million (operating margin of 18.0%), compared with approx. US$ 99.7 million (operating margin of approx. 16.6%) in H1 2017. EBITDA for the core businesses grew by approx. 39.1% to reach approx. US$ 169.9 million (EBITDA margin of approx. 22.8%) compared with approx. US$ 121.5 million (EBITDA margin of 20.2%) in H1 2017.

Net nonrecurring expenses were recorded in H1 2018 for acquisitions and measures taken by Frutarom to attain optimization and efficiency, mainly in the natural extracts operations of the Specialty Fine Ingredients Division, mostly due to the planned shut-down of the natural extracts plant in Wädesnwil, Switzerland, scheduled for Q3 2018, which is expected to bring about savings estimated at over USD 6 million (on an annual basis). These nonrecurring expenses diminished reported gross profit by approx. US$ 1.4 million, reported operating profit and EBITDA by approx. US$ 1.6 million, and reported net income by approx. US$ 1.3 million. Nonrecurring expenses were recorded in H1 2017 for measures taken by Frutarom to attain optimization and efficiency in the natural extracts operations of the Specialty Fine Ingredients Division, diminishing for that quarter reported gross profit by approx. US$ 1.3 million, reported operating profit and EBITDA by approx. US$ 2.0 million, and reported net income by approx. US$ 1.6 million.

Adjusted for non-recurring expenses, EBITDA for core businesses rose approx. 38.9% to reach approx. US$ 171.6 million (approx. 23.0% EBITDA margin) compared with approx. US$ 123.5 million (approx. 20.5% EBITDA margin) in the first half of 2017.

Net Income

Net income in Q2 2018 rose approx. 42.3% to a record of approx. US$ 52.9 million (net margin of 13.2%) compared with US$ 37.2 million (net margin of 10.8%) in Q2 2017.

Net income adjusted for nonrecurring expenses in Q2 2018 rose approx. 40.2% to reach approx. US$ 53.5 million (net margin of 13.3%) compared with US$ 38.1 million (net margin of 11.1%) in Q2 2017.

Net income in H1 2018 rose approx. 39.0% to reach approx. US$ 98.6 million (net margin of 12.5%) compared with US$ 70.9 million (net margin of 11.0%) in H1 2017.

Net income adjusted for nonrecurring expenses in H1 2018 rose approx. 37.8% to reach approx. US$ 99.9 million (net margin of 12.7%) compared with approx. US$ 72.5 million (net margin of 11.2%) in H1 2017.

Earnings per share

Reported earnings per share in Q2 2018 rose approx. 44.1% to reach approx. US$ 0.88, compared with approx. US$ 0.61 in Q2 2017.

Earnings per share adjusted for nonrecurring expenses rose by 42.0% to reach approx. US$ 0.89, compared with US$ 0.63 in Q2 2017.

Earnings per share in H1 2018 rose 40.0% to reach US$ 1.64, compared with US$ 1.17 in H1 2017.

Earnings per share adjusted for nonrecurring expenses rose in H1 by approx. 38.7% to reach US$ 1.66, compared with US$ 1.20 in H1 2017.

Cash flow from operating activities:

Net cash flow from operating activities in Q2 2018 totaled US$ 42.0 million (an increase of approx. 28.3%), compared with approx. US$ 32.9 million in Q2 2017.

In H1 2018 Frutarom achieved a cash flow from operating activities of approx. US$ 77.4 million (an increase of approx. 2.9%), compared with approx. US$ 75.4 million in H1 2017.

Profit and profit margin tables for Q2 2018

Reported results in US dollars:

 

In millions of

 US dollars
Core businesses

Flavors and Specialty Fine Ingredients
Total Frutarom Group
Q2 2017 Q2 2018 Growth % Q2 2017 Q2 2018 Growth %
 

Sales

 

318.3

   

380.4

   

19.5%

   

343.6

   

401.3

   

16.8%

 
Gross profit

Margin
128.0

40.2%
  158.7

42.0%
   

24.7%
  132.2

38.5%
  163.4

40.7%
   

22.7%
 
Operating profit

Margin
54.8

17.2%
  72.2

19.0%
  31.7%   55.2

16.1%
  72.5

18.1%
   

31.3%
 
EBITDA

Margin
66.4

20.9%
  89.7

23.6%
  35.2%   66.9

19.5%
  90.3

22.5%
  34.9%  
Net Income

 

Margin
  37.2

10.8%
  52.9

13.2%
  42.3%  

Adjusted for nonrecurring expenses:

In millions of
US dollars
Core Businesses Total Frutarom Group
Flavors and Specialty Fine Ingredients
Adjusted for non-recurring
expenses
% increase
adjusted for
non-
recurring
expenses
  Adjusted for non-recurring
expenses
%
increase

adjusted
for non-
recurring
expenses
 
Q2 2017   Q2 2018         Q2 2017   Q2 2018      
Gross profit 128.5   160.4   24.8%   132.6   164.1   23.8%  
Margin 40.4%   42.2%     38.6%   40.9%    
Operating profit 56.0   72.9   30.0%   56.4   73.2   29.7%  
Margin 17.6%   19.2%     16.4%   18.2%    
EBITDA 67.6   90.4   33.7%   68.1   91.0   33.5%  
Margin 21.2%   23.8%     19.8%   22.7%    
Net income       38.1   53.5    

40.2%
 
Margin       11.1%   13.3%    

Profit and profit margin tables for H1 2018

Reported results in US dollars:

 

In millions of

 US dollars
Core businesses

Flavors and Specialty Fine Ingredients
Total Frutarom Group
H1 2017   H1 2018   Growth %   H1 2017   H1 2018   Growth %  
 

Sales
 
 

601.8

   

746.1

   

24.0%

   

646.1

   

786.1

   

21.7%

 
Gross profit

Margin
239.6

39.8%
  312.3

41.9%
   

30.3%
  247.9

38.4%
  319.2

40.6%
   

28.8%
 
Operating profit

Margin
99.7

16.6%
  134.6

18.0%
  35.1%   100.5

15.6%
  134.9

17.2%
   

34.2%
 
EBITDA

Margin
121.5

20.2%
  169.9

22.8%
  39.9%   122.6

19.0%
  170.7

21.7%
  39.2%  
Net Income


Margin

            70.9

11.0%

  98.6

12.5%

  39.0%



 

Adjusted for nonrecurring expenses:

In millions of
US dollars
Core Businesses Total Frutarom Group
Flavors and Specialty Fine Ingredients
Adjusted for non-recurring
expenses
% increase
adjusted for
non-
recurring
expenses
Adjusted for non-recurring
expenses
%
increase

adjusted
for non-
recurring
expenses
 
H1 2017   H1 2018     H1 2017   H1 2018      
Gross profit 240.9   313.7   30.2%   249.1   320.6   28.7%  
Margin 40.0%   42.1%     38.6%   40.8%    
Operating profit 101.7   136.3   34.0%   102.6   136.6   33.2%  
Margin 16.9%   18.3%     15.9%   17.4%    
EBITDA 123.5   171.6   38.9%   124.7   1724.   38.3%  
Margin 20.5%   23.0%     19.3%   21.9%    
Net income

      72.5   99.9   37.8%  
Margin       11.2%   12.7%    

Investor Conference Call

On Thursday, August 23, 2018 at 2:00pm GMT (3:00pm CET), 9:00am EDT  Frutarom will host a conference call in which management will review and discuss the results and will be available to answer investor questions.

To participate, please call one of the following teleconferencing numbers. Please begin placing your calls at least 5 minutes before the conference call commences. If you are unable to connect using one of the toll-free numbers, please try the international dial-in number.

USA Dial-in Number: 1-888-281-1167

UK Dial-in Number: 0-800-917-9141

SWITZERLAND Dial-in Number: 0-800-834-878

ISRAEL Dial-in Number: 03-9180610

INTERNATIONAL Dial-in Number: +972-3-9180610

A replay of the call will be available by telephone, starting from Thursday, August 23, 2018 until Saturday, August 25, 2018 and on Frutarom's investor relations website, starting on August 27 2018, 2018. To access the replay please dial: 1-888-295-2634 (USA), 0-800-028-2634 (UK), 0-800-837-191 (Switzerland), or +972-3-9255936 (Israel).  

About Frutarom

Frutarom (LSE: FRUT, TASE: FRUT) is a leading global company operating in the global flavors and natural fine ingredients markets. Frutarom has significant production and development centers on all six continents and markets and sells over 70,000 products to more than 30,000 customers in over 150 countries. Frutarom's products are intended mainly for the food and beverages, flavor and fragrance extracts, pharmaceutical, nutraceutical, health food, functional food, food additives and cosmetics industries.

Frutarom, which employs approx. 5,400 people worldwide, has 2 main core activities:

  • The Flavors Activity which develops, produces and markets flavor compounds and food systems;
  • The Specialty Fine Ingredients Activity, which develops, produces and markets natural flavor extracts, natural functional food ingredients, natural pharma/nutraceutical extracts, natural algae-based biotechnical products, natural food colors, natural antioxidants that provide solutions for natural food protection, aroma compounds, essential oils, unique citrus products and specialty ingredients for infant formula and elderly clinical nutrition. The Specialty Fine Ingredients products are sold primarily to the food and beverages, flavor and fragrance, pharmaceutical /nutraceutical, cosmetics and personal care industries.

Frutarom's products are produced at its plants in the US, Canada, the UK, Ireland, Switzerland, Germany, Belgium, Italy, Spain, France, Slovenia, Poland, Russia, Turkey, Israel, South Africa, Morocco, China, India, Mexico, Guatemala, Peru, Chile, Brazil and New Zealand. The Company's global marketing organization encompasses branches in Israel, the US, Canada, the UK, Ireland, Austria, Switzerland, Germany, Slovenia, Belgium, the Netherlands, Denmark, France, Italy, Spain, Hungary, Romania, Russia, Ukraine, Poland, Kazakhstan, Belarus, Turkey, Brazil, Mexico, Guatemala, Costa Rica, Peru, Chile, South Africa, China, Japan, Hong Kong, India, Indonesia and New Zealand. The Company also works through local agents and distributors throughout the world. For further information, please visit the Company's website at: www.frutarom.com.

Rmeltzer@frutarom.com 

________________________________________

1 Net of a nonrecurring expense of US$ 0.7 M

2 Net of a nonrecurring expense of US$ 1.6 M

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