Frutarom Reports Second Quarter Results

HAIFA, Israel, August 22, 2006 /PRNewswire-FirstCall via COMTEX/ -- Frutarom (FRUTF) - Further to recent years, during the second quarter of 2006 Frutarom achieved growth in sales, while continuing to implement its growth strategy, combining organic growth in core activities (at rates above the industry average), with strategic acquisitions of activities and know-how in the Company's main fields of business and in strategic geographic regions.

Frutarom's sales for the second quarter of 2006 totaled US$ 72.3 million, showing growth of 7.9%, compared with the same quarter of 2005 (sales increased by 7.3% excluding currency effect). Sales for the first half totaled US$ 143.3 million, growing 8.7% compared with the first half of last year (sales increased by 11.1% excluding currency effect).

The following factors were the main contributors to the growth in sales during the quarter:
- Nesse, whose acquisition was completed at the beginning of the year, contributed about US$ 8.9 million to second quarter sales; the integration of Frutarom's and Nesse's activities is proceeding very successfully, and Frutarom continues working to realize the considerable synergy included in this strategic acquisition, while utilizing the many cross selling opportunities resulting from it.
- Growth in the sales of flavors produced and sold by the Company's Flavors Division.
- Utilization of the synergy and cross selling opportunities between Frutarom's Divisions and between customers and products, both existing and those added through the acquisitions made in recent years.

The increase in sales was offset by the following factors:
- A sharp price decrease, compared with the same period in 2005, in several natural raw materials (mainly grapefruit, vanilla and natural gums) that are sold by the Fine Ingredients Division to the food, flavor and fragrance industries. This decrease in prices also influenced the selling prices of flavor compounds produced by the Flavors Division using these natural raw materials. The prices of these raw materials rose sharply last year due to severe weather conditions in their growing regions. The drop in the prices of these raw materials and their return to normal levels derives from their steady supply this year.

- The ongoing, planned improvement in the product mix of the food systems activity, which began during the second half of 2005 and will be achieved by shifting from low margin products to unique products with high added value and higher margin than average.

Sales during the first half of the year were also influenced by:
- Weakening of the Western European currencies (in which most of Frutarom's sales are made) against the US dollar.
- The relatively long, cold European winter, which continued until May, leading to postponed demand for Frutarom products used in the manufacture of beverages, ice cream, yogurt and other summer products. In the last few months this trend has reversed and Europe is having relatively hot weather.
- A decline in the Trade & Marketing activity of products which are not manufactured by Frutarom in the Israeli market (this activity is not a core business for the Company).

Gross profit for the second quarter totaled US$ 26.3 million compared with US$ 26.9 million, a decline of 2.4%. Gross margin for the second quarter reached 36.3% compared with 40.1% during the same quarter in 2005. The main influence on gross profit and gross margin during the quarter comes from the decline in selling prices of the natural raw materials mentioned above, which are sold by Frutarom's Fine Ingredients Division to the food, flavor and fragrance industries, and from the increase in the prices of synthetic raw materials used by both Divisions for their production, due to the rising prices of energy and fuel in the world. Frutarom estimates that the influence of the lower natural raw materials prices is temporary in nature, and that the recent stability in raw materials prices will contribute to improving the Company's profit margins during the coming quarters. Further, Frutarom works assiduously to raise the selling prices of its products to achieve improvement in its profit margins in the near future. Gross profit grew during the first half of the year to reach US$ 53.3 million compared with US$ 51.9 million in the first half of 2005. During the first half of the year gross margin reached 37.2% compared with 39.4% in the same period last year.

Operating profit during the second quarter of 2006 totaled US$ 9.7 million compared with US$ 11.6 million in the same quarter of 2005. Operating profit during the first half of 2006 totaled US$ 20.0 million compared with US$ 20.8 million in the first half of 2005. Operating margin for the quarter reached 13.4% compared with 17.2% in the second quarter of 2005, and to 14.0% during the first half of 2006 compared with 15.8% during the first half of 2005. The decline in gross profit and in gross profitability resulted in a decline in operating profit and operating margin.

Net profit for the second quarter rose 2.2% to US$ 8.6 million compared with US$ 8.4 million in the same quarter of 2005, and net margin reached 11.8% compared with 12.5%. A one time reduction of US$ 1.5 million in the Company's taxes on income, resulting from tax arrangements made recently in Germany following the Nesse acquisition in January 2006, contributed to the Company's net profit. Net profit for the first half of 2006 rose 14.4% to reach US$ 17.4 million compared with US$ 15.2 million for the first half of 2005. Net margin also rose, reaching 12.1% compared with 11.5% in the same half in 2005.

Earnings per share for the second quarter maintained the same level as during the same quarter of 2005 reaching US$ 0.15. Earnings per share for the first half of the year totaled US$ 0.31 compared with US$ 0.28 during the first half last year.
Ori Yehudai, Frutarom Group's President and Chief Executive Officer commented: "Frutarom's management continually seeks to find and execute strategic acquisitions. Frutarom is in contact with several companies that are interesting candidates for potential acquisition, mainly in countries and markets where we already have significant activity." With regard to the war in the north, Yehudai said that "Frutarom's two sites in the north-in Haifa and in Acco-which employ some 300 people, operated on a regular basis and supplied the orders of the Company's customers in Israel and worldwide. Frutarom's Board of Directors and management express their appreciation and thanks to the Company's employees in Israel for their extraordinary efforts."

Yehudai concluded by saying that "Frutarom will continue to invest considerable resources in realizing its rapid growth strategy, combining profitable organic growth of core activities with strategic acquisitions of activities and know-how in its main fields of business and in strategic geographic regions with the aim of achieving our ambitious goals while creating value for our shareholders."

Background on the Company
Frutarom is a global company active in global flavor and fine ingredients markets. Frutarom has significant production and development centers on three continents and markets its products on five continents to over 5,000 customers in more than 100 countries. Frutarom's products are intended for the food and beverage, flavor and fragrance, pharmaceutical, nutraceutical, functional food, food additive and cosmetic industries.

Frutarom operates through two Divisions:
- The Flavors Division, which develops, produces and markets flavor compounds and food systems.

- The Fine Ingredients Division, which develops, produces, markets and sells natural flavor extracts, natural functional food ingredients, natural pharma/nutraceutical extracts, specialty essential oils and citrus products, and aroma chemicals.

Frutarom's products are produced at its plants in the United States, England, Switzerland, Germany, Israel, Denmark, China, and Turkey. The Company's global marketing organization includes branches in Israel, the United States, England, Switzerland, Germany, Denmark, France, Hungary, Romania, Russia, Ukraine, Kazakhstan, Belarus, Turkey, Brazil, Mexico, China, Japan, Hong Kong, India and Indonesia. The Company also works through local agents and distributors worldwide. Frutarom employs about 1,100 people worldwide.

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