Sales up for Frutarom but margins suffer

By Alex McNally

- Last updated on GMT

Related tags: Cent, Frutarom, Profit

Frutarom has announced an increase in sales in its second quarter
results issued this morning, which it says is down to reaping the
rewards of a strategy of buying smaller companies - but work is
needed to boost its profit margins.

The Israeli firm has made several company takeovers this year alone in its home country, England, and in America as part of a rapid expansion program, which helped see it sales second quarter sales increase year-on-year. Frutarom's sales in the second quarter grew by 26.8 per cent to $91.7m (€67.9m), which the company said was driven mostly by sales in the flavours division, followed by sales in the fine ingredients. Ingredients and flavours are the two parts which make up the company. While gross profit for the second quarter rose 25 per cent to reach $32.8m (€24.2m), gross margin reached 35.8 per cent compared to last year's 36.3 per cent. These were both influenced by a "continued global trend of rising prices for raw materials"​ the company said adding that it will "adjust the selling prices"​ of its products to improve its gross margin. This year has so far been good for the company which now claims to be in the top ten of the biggest global countries in its field. First half sales for this year grew by 20.1 per cent to total $172.2m (€127.5m) from last year. Second quarter growth profit rose 25 per cent to reach $32.8m (€24.3m), up from last year's $26.3m. On the other hand, however, operating profit was down slightly from last year's $9.7m to $8.5m, which it said was due partly to reorganization in the UK following the Belmay and Jupiter buyouts. Operating margin reached 9.3 per cent compared to 13.4 per cent. The company's strategic shopping spree saw it buy UK flavour's firm Belmay and Jupiter Flavours in the space of a month. The Belmay buy, for US$17.1m (c €12.8m), was said to propel Frutarom into the leading position in UK flavours. Fine ingredients firms have also caught the eye of Frutarom, which announced it will buy Adumim Food Additives in June and was approved by the Isreali Anti Trust Commissioner last week. The transaction is expected to be finalized in the next few days. The purchase of the US based firm Abaco for $4m in July marked the fifth buy this year alone. The latest acquisition for the firm is Raychan, which is centered on the domestic Israeli market, and are said to be synergistic with Frutarom's own operations in the country, as well as those of the Nesse company, which was acquired in early 2006. This takeover was given the green light by the Israeli Anti Trust Commissioner last week and the transaction is also expected to be complete within a few days. Frutarom plans to integrate Raychan into its flavours division, and has said that it expects the savoury and functional products portfolio to broaden its own offering to customers, both in Israel and worldwide. Raychan will also be Frutarom's thirteenth company buy-out in 15 years and there has been no sign of this slowing down. In particular, it plans to take the products into markets in which Frutarom is active but Raychan has not been, such as Eastern Europe and Turkey. Frutarom chief executive Ori Yehudai said: "Frutarom achieved accelerated organic growth in its core activities in line with the business strategy we have been implementing in recent years. This growth comes, among others, from utilizing the considerable synergy from our acquisitions in the last few years and it will grow as we realize the synergy of acquisitions made this year​. "We are working determinedly in order to complete within several months the integration of Belmay and Jupiter with Frutarom UK's existing activity at the Belmay site in order to achieve the greatest possible operational efficiency and savings, which are estimated at more than $3m​."

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