Frutarom Reports Third Quarter Results

HAIFA, Israel, Nov 21, 2006 /PRNewswire-FirstCall via COMTEX/ -- Frutarom (UK:FRUT)
Further to recent years, during the third quarter of 2006 Frutarom achieved growth in sales and profits, 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. In line with this strategy, Frutarom acquired at the beginning of the year 70% of the issued and paid up share capital of Nesse, which develops, produces, markets and sells innovative, unique solutions that include savory flavors and unique functional ingredients, and in October acquired 100% of the share capital of the Acatris Health Group, which develops, produces and markets unique and innovative botanical ingredients possessing scientifically proven health properties.

Frutarom's sales for the third quarter of 2006 totaled US$ 71.3 million, showing growth of 20.0%, compared with the same quarter of 2005. Sales for the first three quarters totaled US$ 214.6 million, growing 12.2% compared with the same period last year.

The following factors were the main contributors to the growth in sales during the quarter:
-- The integration of the Nesse activity, which was acquired and
consolidated from January 2006 with Frutarom's global activity.
-- Growth in the sales of flavors produced and sold by the Company's
Flavors Division.
-- Growth in the sales of the Fine Ingredients Division, deriving mainly
from the introduction of new products with higher than average margin.
-- 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.
-- Strengthening of West European currencies (in which most of Frutarom's
sales are made) against the US dollar, which contributed 3% to the
sales growth.


The increase in sales during the third quarter was offset by the following factors:
-- A decrease in sales of the food systems activity due to planned
improvement to the product mix, which was achieved by shifting from
products with lower than average margin to unique, value added products
with higher than average margin.
-- A decrease, compared with the same period in 2005, in the prices of
several natural raw materials (mainly grapefruit and natural gums) that
are sold by the Fine Ingredients Division to the food, flavor and
fragrance industries, and of the selling prices of flavor compounds
produced by the Flavors Division using these natural raw materials.


Sales during the first three quarters of the year were also influenced by the weakening of the Western European currencies (in which most of Frutarom's sales are made) against the US dollar.

Gross profit for the third quarter rose 16.9% to total US$ 26.9 million compared with US$ 23.0 million in the same quarter last year. Gross margin for the third quarter reached 37.8% compared with 38.8% during the same quarter in 2005. The decrease in gross profit during the quarter derives mainly from the influences reported by the Company during the second quarter, and which Frutarom estimates are temporary in nature, of price fluctuations in raw materials used in Frutarom's production. These influences, seen mainly in the second quarter, weakened as expected in the third quarter.
Operating profit during the third quarter of 2006 rose 16.9% to total US$ 9.2 million compared with US$ 7.9 million in the same quarter of 2005. Operating margin for the quarter reached 13.0% compared with 13.3% in the third quarter of 2005.

Net profit for the third quarter rose 2.9% to US$ 7.0 million compared with US$ 6.8 million in the same quarter of 2005, and net margin reached 9.8% compared with 11.4%. The decline in net margin during the quarter results from a one time tax benefit of US$ 1.0 million recorded in the third quarter of 2005 for previous periods. Net profit for the first three quarters of 2006 rose 11.0% to reach US$ 24.4 million compared with US$ 22.0 million for the same period of 2005. Net margin reached 11.4% compared with 11.5% in the same period in 2005. The decline in the rate of taxes on income results from a one time reduction in the amount of US$ 1.5 million in the tax expenses of the Company recorded during the second quarter of the year, which derives from tax arrangements made recently in Germany following the Nesse acquisition at the beginning of the year.

Earnings per share for the third quarter maintained the same level as during the same quarter of 2005, at US$ 0.12. Earnings per share for the first nine months of the year totaled US$ 0.43 compared with US$ 0.40 during the same period last year.

Ori Yehudai, the Frutarom Group's President and Chief Executive Officer, commented: "We are satisfied with the Company's achievement during the third quarter. Our diligent activity to raise the selling prices of our products has already begun to yield results in the third quarter and, we estimate, will continue to contribute to improving profit margins in the coming quarters." Yehudai added that "As expected, the Nesse activity that we acquired at the beginning of the year continues to grow and contribute very nicely to Frutarom's activity. We estimate that extraction of the synergy and cross selling opportunities will continue next year and contribute to growing Frutarom's sales and profits." With regard to the Acatris Health acquisition made in October, Yehudai said "The Acatris Health acquisition is an important strategic move for Frutarom that matches the Company's vision, To be the Preferred Partner for Tasty and Healthy Success. This acquisition significantly strengthens the unique natural product portfolio offered to Frutarom's customers in the health field, particularly in the fast growing functional food and nutraceuticals markets. We are working to merge Acatris Health with our existing activities and to extract the extensive synergy inherent in these complementary activities. As of the fourth quarter of this year Acatris Health's activity is being merged into the global structure of Frutarom's Fine Ingredients Division and be combined with the natural health products activity of the Swiss company Flachsmann that was acquired by Frutarom in 2003."

Yehudai concluded by saying that "Frutarom today has an abundant and interesting pipeline of new projects and products under development by the Company's two divisions. These developments are being made in close cooperation with our customers, who include large multinational companies, with accent on the field of functional food ingredients, which is growing at a comparatively higher rate than the traditional food industry, and together with local mid size customers, with special emphasis on the field of private labels, which is expanding at double the rate of the global food industry. The R&D team of the Fine Ingredients Division is working to develop new products, mostly natural, that are expected to contribute to the rapid growth of Frutarom's activity in the coming years, as well as on joint projects with start up companies and leading research institutes. These activities will contribute to the continued successful implementation of our profitable and rapid growth strategy. At the same time, Frutarom continues 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 120 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, Belgium, Holland, 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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