Sales slump fails to cloud Frutarom’s ambitions

By Jess Halliday

- Last updated on GMT

Related tags: United states dollar

The stronger US dollar and ongoing inventory destocking has led to a drop in sales for Frutarom, but the flavour and specialty ingredients supplier remains uncowed about the long term.

Israel-based Frutarom reported sales of US$106.7m in the first quarter of the year, and $205.1m in the first six months, representing a decrease of 5.5 per cent in local currencies compared to last year’s record results.

But since it reports in US dollars but the majority of its sales are in Euros and New Israeli Shekels, the actual reported sales are down 19.5 per cent for Q1, 19.4 per cent for H1.

Like many, Frutarom has been affected by the economic slow down this year, as its customers have preferred to use up their existing inventories of ingredients rather than buy in new stocks.

However the company, which has a rapid growth strategy in place, is positive despite the dip. It has managed to keep its operating marking at 12.7 per cent in Q2 (from 12.8 per cent last year), excluding non-recurring expensed. Net margin actually improved from 8.5 to 10 per cent.

And the inventory story is expected to improve in the coming months. Indeed, even in the early part of H2 customers are said to be re-stocking their inventories once more.

The long term plan, according to president and CEO Ori Yehudai, is to double turnover again in the next four years to reach $1bn by 2012.

Yehudai sees strength in the fact that Frutarom’s main customer base is in the “stable and defensive”​ food industry.

“Analysing previous economic crises tells us that the food industry and its derived industries usually demonstrate relatively low sensitivity to the effects of slowdown and instability in the macro-economic environment, especially in comparison to other industries,”​ he said.

Staying in the black

According to the company, it has stayed profitably thanks to more focused and profound reduction of expenses and bringing about maximum efficiencies.

It is also keeping an eye on the future, building its R&D and sales infrastructure for long term growth.

Acquisitions

Frutarom’s growth plan involves both organic growth and acquisitions. In 2007 it acquired no less than seven businesses. Following this, 2008 was a year of consolidation, but president and CEO Ori Yehudai signalled that he was ready to snap up opportunities thrown up by the recession.

In 2009 so far there have been three acquisitions so far: UK flavour group Oxford, Flavor Specialties Inc in the US, and Chr Hansen’s savoury division in Germany. Together these have contributed $9.1m over first 6 months of the year.

The Hansen division only contributed to this in a small way, however, as the deal was finalised only in the second half of June.

Related topics: Market Trends, Flavours and colours

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