Frutarom: Reports Q3-2017 Results

Herzliya / IL. (fa) Frutarom Industries Limited announced its financial results for Q3/2017 – another record quarter for the company. Following the acceleration of internal growth and acquisitions since the beginning of the year, Frutarom’s sales run-rate is approaching 1.5 billion USD (1). The company raises its sales target for 2020 to 2.25 billion USD and target Ebitda margin from core activity to 23 percent (2). Third quarter summary:

  • Sales grew by 19.6 percent to a record USD 358.8 million.
    Constant currency pro-forma growth of 6.0 percent.
  • Sales from core activities grew by 20.2 percent to a record USD 336.6 million.
    Constant currency pro-forma growth of 7.4 percent.
  • Sales from Flavor activities grew by 21.3 percent to a record USD 272.9 million,
    Constant currency pro-forma growth of 6.0 percent.
  • Sales from the Natural Specialty Fine Ingredients activities grew by 19.4 percent to a record USD 67.1 million. Constant currency pro-forma growth of 17.8 percent.
  • Record-level quarterly profits and cash flow:
    • Gross profit grew by 21.5 percent to USD 138.4 million; 38.6 percent gross margin
    • Ebitda grew by 27.2 percent to USD 71.1 million; 19.8 percent Ebitda margin
    • Net income grew by 26.7 percent to USD 40.8 million; 11.4 percent net margin
    • Earnings per share grew by 26.5 percent;
    • Cash flow from operating activity grew by 52.7 percent and reached a record USD 63.5 million.
  • Profits adjusted for non-recurring effects in the third quarter3:
    • Gross profit grew by 19.6 percent to USD 140.0 million; 39 percent gross margin
    • Ebitda grew by 23.3 percent to USD 73.8 million; 20.6 percent Ebitda margin
    • Net income grew by 22.3 percent to USD 43.0 million; 12 percent net margin
    • Earnings per share grew by 22.0 percent.

Commentary

Ori Yehudai, President and CEO of Frutarom: «We are pleased with the results achieved in the third quarter and the first nine months of 2017 in which we again set ourselves new records in sales, profits and cash flows. The results reflect the successful implementation of the rapid and profitable growth strategy in our core businesses, Flavors and Natural Specialty Fine Ingredients, combining profitable internal growth at higher growth rates than those of the markets in which we operate, together with the successful merger of the strategic acquisitions we have made which are contributing to the continuing and consistent improvement in our results.

«Following the accelerated internal growth and ten acquisitions made since the beginning of 2017, Frutarom’s run rate in sales is approaching USD 1.5 billion. After examining our strong competitive position, accelerated rate of internal growth, our latest acquisitions, our pipeline for future acquisitions and the contribution of the streamlining and global procurement activity, we are raising our target sales for 2020 to USD 2.25 billion and Ebitda margin from our core businesses to 23 percent.

«The accelerated internal growth rates in recent years and our optimism concerning the continued realization of high future profitable growth is due to the continuing implementation of our strategic plan which includes continuing focus on six key areas: (1) continued improvement in the product mix with continued rapid growth in both our flavors activity and our specialty fine ingredients activity, while focusing on unique and innovative natural products that combine taste and health and address the current and future preferences of billions of consumers throughout the world; (2) developing and furnishing unique added value solutions to our large multinational customers while providing our local, medium-sized and private label customers a full and comprehensive portfolio of solutions in the areas of taste and health; (3) capitalizing to the utmost on the many cross-selling opportunities between our varied activities to which are also contributing the acquisitions we have and will carry out; (4) continued improvement to margins and profits by exploiting our resources to the fullest, following the acquisitions as well, with the generating of significant operational savings and the strengthening of our global procurement and supply chain platform; (5) continued improvement of our geographic sales mix by significantly increasing the percentage of sales in North America and in the growing emerging markets; and (6) building global market leadership in natural herbal extracts while adopting a vision that includes global collaborations with research institutes and growers for developing strains and crops of strategic natural raw materials in taste and health to ensure quality and competitive supply of raw materials and supporting the stepping up among our customers in switching from the use of raw materials that are synthetic to those that are natural.

«We are convinced that the rapid and profitable internal growth and the strategic acquisitions we have made, combined with continued improvement in our product mix, our progress with natural and healthy products in step with demand from billions of consumers throughout the world, the geographic expansion in North America and in the emerging markets with high growth rates, the moves we are making to optimize our resources while capitalizing on the abundant cross-selling opportunities and the operational savings brought about by the acquisitions, the building of a global procurement platform and the strong pipeline of further synergetic strategic acquisitions, will support our continuing journey of profitable growth also in the years ahead, and attaining our strategic goals.»

Frutarom Industries Limited, one of the world’s 10 largest companies in the field of flavors and specialty fine ingredients, reports another record-breaking results for the third quarter and first nine months of the year in sales, gross profits, operating profits, Ebitda, net income, earnings per share and cash flow.

The increase in revenues in the third quarter and first nine months of 2017 stems from a combination of the accelerated internal growth in Frutarom’s core activities – the Flavors Division and Specialty Fine Products Division – and the acquisitions it has performed.

Sales

Frutarom’s sales in the third quarter of 2017 rose 19.6 percent to a record USD 358.8 million compared with USD 300.1 million in the parallel quarter, reflecting year-over-year internal growth of 6.0 percent in pro-forma terms on a constant currency basis. Changes in the exchange rates of currencies in which the Company operates as against the US dollar boosted sales by 2.8 percent.

Sales for Frutarom’s core activities (its Flavors activity and Specialty Fine Ingredients activity) rose 20.2 percent in Q3 2017 to reach a record level USD 336.6 million compared with USD 280.0 million in the same quarter last year, reflecting 7.4 percent year-over-year growth in pro-forma terms on a constant currency basis. Changes in exchange rates boosted results by 2.6 percent.

Sales from the Flavors activity rose 21.3 percent to reach USD 272.9 million in Q3 2017 as against USD 225.0 million in Q3 2016, reflecting 6.0 percent year-over-year growth in pro-forma terms on a constant currency basis. Currency effects boosted results by 2.8 percent.

Sales from Specialty Fine Ingredients activity rose 19.4 percent to USD 67.1 million in Q3 2017 compared with USD 56.1 million in Q3 2016 and reflect 17.8 percent year-over-year growth in pro-forma terms on a constant currency basis. Currency effects boosted results by 1.6 percent.

Sales from Trade + Marketing (which does not constitute part of Frutarom’s core activities) rose by 10.8 to USD 22.2 million in Q3 2017 compared with USD 20.0 million in Q3 2016. Contributing to the increase were the added sales of trade + marketing goods by Piasa in Mexico which was acquired in December 2016 and currency effects which boosted trade and marketing activity sales by 4.8 percent. In constant currency and pro-forma terms, trade + marketing activity sales declined 12.5 percent from the same period last year.

Frutarom’s sales in the first nine months of 2017 rose 17.1 percent to a record USD 1’004.9 million compared with USD 858.0 million in the same period last year, reflecting 6.0 percent year-over-year growth in pro-forma terms on a constant currency basis. Changes in the exchange rates of currencies in which the Company operates as against the US dollar boosted sales by 0.6 percent.

Sales for Frutarom’s core activities (its Flavors activity and Specialty Fine Ingredients activity) rose 17.2 percent in the first nine months of 2017 to reach a record USD 938.4 million compared with USD 800.6 million in the same period last year, reflecting 7.2 percent year-over-year growth in pro-forma terms on a constant currency basis. Changes in exchange rates boosted results by 0.3 percent.

Sales from the Flavors activity rose 18.2 percent to reach USD 746.5 million in the first nine months of 2017 as against USD 631.7 million in the same period last year, reflecting 6.2 percent year-over-year growth in pro-forma terms on a constant currency basis. Currency effects boosted results by 0.4 percent.

Sales from Specialty Fine Ingredients activity rose 15.1 percent to USD 200.2 million in the first nine months of 2017 compared with USD 174.0 million in the same period last year, reflecting 13.0 percent year-over-year growth in pro-forma terms on a constant currency basis. Currency effects negatively impacted sales by 0.5 percent.

Sales from Trade and Marketing (which does not constitute part of Frutarom’s core activities) rose 15.8 percent to reach USD 66.5 million in the first nine months of 2017 compared with USD 57.4 million in the same period last year, Contributing to the increase were the added Trade and Marketing product sales of Piasa of Mexico which was acquired in December 2016 and the currency effects which boosted sales by 4.8 percent, In constant currency and pro-forma terms, Trade and Marketing sales decreased by 8.9 percent.

Profits and margins

In the third quarter and the first nine months of 2017 record results were achieved in sales and in gross and operating profit, Ebitda, net income, earnings per share and cash flow.

Record results were also achieved in profits of core businesses which include the Flavors activity and the natural Specialty Fine Ingredients activity:

In Q3 2017, adjusted for non-recurring expenses, gross profit for the core businesses rose 21.1 percent to reach USD 135.7 million (gross margin of 40.3 percent) compared with USD 112.1 million (gross margin of 40.0 percent) in the parallel quarter last year, operating profit for the core businesses rose 22.7 percent to reach USD 60.0 million (17.8 percent operating margin) compared with USD 48.9 million (17.5 percent operating margin) in Q3 2016, and Ebitda for the core businesses rose 23.4 percent to reach USD 73.4 million (21.8 percent Ebitda margin) compared with USD 59.4 million (21.2 percent Ebitda margin) in Q3 2016.

In the first nine months of 2017, adjusted for non-recurring expenses, gross profit for the core businesses rose 16.8 percent to reach USD 376.5 million (gross margin of 40.1 percent) compared with USD 322.3 million (gross margin of 40.3 percent) in the same period last year, operating profit for the core businesses rose 22.8 percent to reach USD 161.7 million (17.2 percent operating margin) compared with USD 131.7 million (16.4 percent operating margin) in the same period last year, and Ebitda for the core businesses rose 20.7 percent to reach USD 196.8 million (21.0 percent Ebitda margin) compared with USD 163.1 million (20.4 percent Ebitda margin) in the same period last year.

In Q3 2017 non-recurring expenses were recorded in connection with acquisitions and for measures that Frutarom is taking to attain optimization and efficiency mainly in the natural extracts operations of the Specialty Fine Ingredients Division. These non-recurring expenses diminished gross profit by USD 1.6 million (by USD 2.9 million in the first nine months of 2017), operating profit and Ebitda by USD 2.7 million (by USD 4.8 million in the first nine months of 2017), and net income by USD 2.2 million (by USD 3.7 in the first nine months of 2017).

In the parallel quarter last year non-recurring expenses were recorded for measures taken to optimize resources, combine plants and attain maximum operational efficiency, and in connection with acquisitions, which in Q3 2016 diminished gross profit by USD 3.1 million (by USD 7.2 million in the first nine months of 2016), operating profit and Ebitda by USD 4.0 million (operating profit and Ebitda respectively by USD 15.4 million and USD 13.9 million in the first nine months of 2016), and net income by USD 2.9 million (by USD 11.2 million in the first nine months of 2016)..

Successfully moving ahead are the processes of merging the companies acquired in recent years and the actions being taken by Frutarom to optimize the administrative, R+D, sales and marketing, production resource, operations, purchasing and logistics platforms. These are bringing significant operational savings and strengthen Frutarom’s competitive proficiency through maximum utilization of its sites around the world.

Following the acquisition of Wiberg, Frutarom has combined and streamlined its management, R+D, marketing, sales, procurement and production platforms in Germany and various countries to strengthen its market leadership position and achieve maximum operational efficiencies and savings, estimated at over USD 12 million (on an annual basis), most of which have already gradually taken effect over the first nine months of 2017 with the balance taking effect in the coming months.

Also, in the framework of the overall drive towards optimization and operational efficiency in the herbal extracts activities, which has included the significant growth in production capacity for natural extracts following the acquisition of Vitiva, Ingrenat, Nutrafur and Extrakt-Chemie and the optimization of production between the various plants according to their various expertise in extract technology accompanied by substantial improvement in their operational efficiency,  Frutarom’s plant in Wädenswil, Switzerland will be shut down. These actions, which will contribute to significant improvement in cost structure and competitive ability in the field of natural plant extracts, which is at the heart of Frutarom’s growth strategy, are expected to bring about savings estimated at over USD 6 million (on an annual basis) which will begin to take effect starting in the first quarter of 2018

Also continuing according to plan are actions to build up and strengthen the global procurement platform for raw materials used by Frutarom in the manufacture of its products which will capitalize on the purchasing power, which has increased considerably in recent years, while switching to direct purchasing from producers in source countries, particularly for natural raw materials (which make up over 80 percent of the raw materials used by Frutarom). The global procurement platform will contribute as well to further improvement in purchasing costs and gross margins.

Net income

Net income in the third quarter of 2017 climbed 26.7 percent to USD 40.8 million (net margin of 11.4 percent) compared with USD 32.2 million (net margin of 10.7 percent) in Q3 2016. Net income in Q3 2017 adjusted for the non-recurring expenses grew by 22.3 percent to USD 43.0 million (12.0 percent net margin) compared with USD 35.1 million (11.7 percent net margin) in Q3 2016.

Earnings per share in the third quarter of 2017 climbed 26.5 percent to USD 0.68 compared with USD 0.54 in the same quarter last year. Earnings per share in Q3 2017 adjusted for the non-recurring expenses rose 22.0 percent to reach USD 0.72 compared with USD 0.59 for the same quarter last year.

Net income in the first nine months of 2017 climbed 33.0 percent to reach USD 111.8 million (net margin of 11.1 percent) compared with USD 84.0 million (net margin of 9.8 percent) in the same period last year. Net income in the first nine months of 2017 adjusted for the non-recurring expenses grew by 21.2 percent to reach USD 115.5 million (11.5 percent net margin) compared with USD 95.3 million (11.1 percent net margin) in the same period last year.

Earnings per share in the first nine months of 2017 climbed 32.3 percent and reached USD 1.86 compared with USD 1.41 in the same period last year. Earnings per share in the first nine months of 2017 adjusted for the non-recurring expenses rose 20.4 percent to reach USD 1.92 compared with USD 1.60 in the same period last year.

Cash flow from operating activity

In the third quarter of 2017 Frutarom achieved a record net cash flow from operating activities of USD 63.5 million, a 52.7 percent increase compared with USD 41.6 million in the same quarter last year.

In the first nine months of 2017 Frutarom achieved a record net cash flow from operating activities of USD 138.9 million, a 44.0 percent increase compared with USD 96.4 million in the same period last year.

(1)Including the Mighty and Enzymotec acquisitions on which agreements were signed in October 2017 and have not yet been completed.
(2)Assuming the current product mix.
(3)Net non-recurring expenses were recorded in the third quarter and the first three quarters of the year concerning optimization and combining of plants, and for costs tied to transacting the acquisitions, which in the third quarter reduced gross profit by USD 1.6 million, operating profit by USD 2.7 million and net income by USD 2.2 million. In the first three quarters of the year these net non-recurring expenses reduced gross profit by USD 2.9 million, operating profit by USD 4.8 million and net income by USD 3.7 million.

Frutarom is a fast growing global producer of flavors and fine ingredients for a range of consumer goods industries including food and beverages, fragrances, pharmaceuticals and nutraceuticals, cosmetics, and personal care. Now one of the top 10 companies in its field worldwide, Frutarom maintains production facilities in North and South America, Europe, Asia and Africa. It provides more than 60’000 products to over 28’000 customers spanning the globe in more than 150 countries.

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