Frutarom Reports Third Quarter Sales Results

HAIFA, Israel, November 21, 2005 /PRNewswire-FirstCall via COMTEX/ -- Frutarom (UK:FRUT)(FRUTF) today presented its third quarter results for 2005.

During the third quarter of 2005, Frutarom continued its trend of increased sales, profitability and profits for the twenty-fourth consecutive quarter. This growth in Frutarom's financial results is the result of the successful implementation of Frutarom's rapid 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.

Ori Yehudai, the Frutarom Group's President and Chief Executive Officer, said, "Frutarom achieved good results, and profitability continued to improve despite the relatively weak period experienced by processed food manufacturers in Western Europe. The results were achieved due to the integration of the Food Systems activity, acquired from IFF during the second half of 2004, with the Frutarom Group's global activity. Frutarom continued to focus on identifying and leveraging the synergy and cross-selling opportunities between the new customers and products added by the acquisition, and Frutarom's existing customers and products. The main impact of the cross-selling will materialize over the next two years. The growth in the Fine Ingredient Division's sales and profitability, mainly due to the successful introduction of new products and expansion in the global sales and R&D global infrastructure, also contributed to the growth in Frutarom's results."

Frutarom invests considerable efforts and resources in implementing its growth strategy and achieving its goals, which will significantly strengthen Frutarom's position as a leading global company. Yehudai noted, "Frutarom's management invests considerable resources in finding and executing strategic acquisitions. Frutarom is in contact with several very interesting potential candidates for acquisition, mainly in countries and markets where we already have substantial activity. The US$ 76 million UK offering carried out by the Company in February 2005, allow Frutarom to leverage it's solid equity structure in order to execute future strategic acquisitions ".

Yehudai added, "Frutarom will continue to focus on both large multinational customers and on mid-size and local customers, providing superior, high quality and tailor-made products and service. We will persevere in strengthening our presence in developed markets, such as Western Europe and the United States, and in intensifying our activities in the fast growing emerging markets where we currently operate, as well as entering new emerging markets where the growth rate is higher than the global average. We will continue to invest in developing new products and offering our customers a broad product portfolio consisting largely of natural products and new innovative products such as functional food ingredients. We believe that the imminent addition to our management team of Mr. Kobi Levy, who comes to us from Strauss, a leading dairy producer and member of the renowned worldwide Danone Group and will become an Executive Vice President at Frutarom and the Manager of the Global Flavors Division, will also contribute to the execution of our growth strategy."

Frutarom's sales in the third quarter of 2005 totaled US$ 59.4 million, a 15.6% increase compared with the same quarter of 2004. Sales during the first three quarters of the year totaled US$ 191.2 million, a 36.7% increase compared with the same period of 2004. The integration of the food systems activity acquired from IFF in Switzerland, Germany, and France with the Frutarom Group's global operations contributed to the growth in sales. Furthermore, growth in the fine ingredients division's sales, mainly due to the introduction of new products, expansion and development of global sales infrastructure and the successful integration and utilization of the synergy existing between its research and development and production sites worldwide. And the utilization of the synergy and cross selling opportunities between Frutarom's Divisions, existing customers and products and those added through the acquisitions made in recent years.

The increase in sales was slightly offset by the relatively weak period of processed food manufacturers in Western Europe; the weakening of the Western European currencies (in which most of Frutarom's sales are conducted) against the US dollar; the significant erosion in selling prices of natural extracts and flavors compounds containing natural vanilla, due to the significant decline in the raw materials costs required for their manufacture; and the decline in ArtChem sales due to lower demand by the main customer.

Gross profit for the third quarter of 2005 rose 18.3% to reach US$ 23 million compared with US$ 19.5 million in the same quarter last year. During the first three quarters of the year, gross profit grew 38.5% to reach US$ 75 million compared with US$ 54.1 million during the same period in 2004. Gross margin during the third quarter reached 38.8% compared with 37.9% during the same quarter in 2004, and during the first three quarters reached 39.2% compared with 38.7% during the same period in 2004. Operating profit grew by 21.1% during the third quarter of 2005 to US$ 7.9 million compared with the same period in 2004, while during the first three quarters of 2005 operating profit continued the growth seen in previous years and reached US$ 28.8 million, up 62.2% compared with the same period in 2004. In parallel with the growth in operating profit,operating margin continued to rise, reaching 13.3 % in the third quarterof 2005 compared with 12.7% for the same quarter in 2004, and to 15% in the first three quarters of 2005 compared with 12.7% in the same period in 2004.

Taxes on income in the third quarter of 2005 totaled US$ 1.1 million (13.9% of profit before tax) compared with US$ 1.5 million (24.7% of profit before tax) during the same period in 2004. This decrease was due to the higher profit achieved in regions with lower than average tax rates and the tax benefits received due to sales growth and increase investments in R&D. Net profit for the third quarter grew by 45.2%, reaching US$ 6.8 million compared with US$ 4.7 million during the same quarter last year. Net margin reached 11.4% in the third quarter of 2005 compared with 9.1% during the same quarter in 2004. Net profit for the first three quarters of 2005 rose sharply by 72.7% to reach US$ 22 million compared with US$ 12.7 million in the first three quarters in 2004. Net margin also grew and reached 11.5% compared with 9.1% during the first three quarters of last year.

Earnings per share continued to grow during the third quarter of the year and reached US$ 0.12 compared with US$ 0.11 in the third quarter of 2004. Earnings per share for the first three quarters of the year totaled US$ 0.40 per share compared with US$ 0.28 during the same period of 2004.

During the third quarter of 2005, Frutarom achieved cash flow from operating activities of US$ 13.2 million, compared with US$ 7.1 million in the third quarter of 2004. During the first three quarters of 2005, Frutarom achieved cash flow from operating activities of US$ 26.8 million, compared with US$ 15.5 million in the first three quarters of 2004.

Yehudai concluded by saying, "Frutarom continues to be focused on realizing its rapid growth strategy, combining organic growth of core activities at rates above the industry average with strategic acquisitions of activities and knowhow in its main fields of business and in strategic geographic regions. The proceeds from the London offering, together with the successful integration of the activities acquired by Frutarom, form an even more solid base than previously for realizing our rapid growth strategy and ensuring future growth. Our management will continue to invest substantial efforts and resources in identifying and executing potential acquisitions, and in continuing to achieve growth targets in our core activities, which will ensure that we reach 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 3,500 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, Norway, France, Spain, Italy, 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 1,000 people worldwide.

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