Frutarom on the look-out for acquisitions by end 2008

President and CEO Ori Yehudai told FoodNavigator.com that the first half of 2008 was planned for consolidation and integration of the seven acquisitions made by the firm last year. But now that the Q2 results are out, it is seeking more opportunities to bring into the fold.

“We have an interesting pipeline of future deals,”​ he said – and a new slate of deals would help propel Frutarom towards its goal of being a $1bn firm by 2012.

The Israeli flavour and fine ingredients firm reported sales of $368m in full year 2007. For the most recent quarter, reported today, it saw a 45 per cent increase in sales to almost US$133m, and a 110 per cent increase in operating profit to almost $18m.

The impressive figures are explained by a combination of accelerated rapid growth in the company’s core activities, and the contribution of the seven businesses it bought last year, which have now been fully merged into global operations.

Last year Frutarom splashed out on UK flavour firms Belmay and Jupiter, fellow Israeli firm Raychan Food Industries, US ingredients maker Abaco, plant extract and vitamin firm Adumim, German-based Gewurzmuller Group, and Israel's RAD Natural Technologies.

The results communication does not give a like-for-like sales figure that would indicate organic growth, without the impact of the new acquisitions taken into account. But Yehudai said internal growth was “double digit”​, excluding currency effect.

He said that his company has a strong balance sheet and a strong credit line with which to fund new acquisitions this year. Small- to mid-sized companies could be bought off the balance sheet, while larger ones would need external money, he said.

Cost pressures​

Rapid as its growth strategy may be, Frutarom has not been immune to the cost pressures that have been besetting all players in the food industry in the last year, as a result (direct or knock-on) of commodity and energy prices.

It has taken judicious measures to increase the prices of its products, in line with the price rise of raw materials used in their production.

This, Yehudai said, is a secondary factor underlying the impressive set of results – and it forms part of an ongoing plan to keep a close eye on cost going forward.

Two-thirds of Frutarom’s portfolio is based around natural products, and natural ingredients have felt the cost pressures more keenly than synthetics. For instance, food-based sources like corn, sugar, milk, soy and potatoes are causing problems – and spices and marine-derived materials, too.

According to Yehudai, customers have been “reasonably accepting”​ of the price increases in the current climate.

Exchange rates and synergies ​

Frutarom is also at something of an advantage in reporting its financial results in US dollars, since the dollar has fallen against the Euro and other Western European currencies this year.

Although it is listed in Tel Aviv and London, Frutarom reports in US dollars since, historically, its main business has been conducted in dollars.

Now it has businesses that bring in revenue in a whole range of currencies, including Swiss francs, new shekels, and British pounds.

“At the moment it is beneficial [to report in dollars],”​ said Yehudai – but it has not always been the case.

“We do not play with currencies,”​ he added.

Other elements of Frutarom’s activity that have helped contribute to the ongoing positive glow are the identification of synergies and cross selling opportunities between its divisions, customers, and products; and increased trade and marketing activity in its home country of Israel.