Frutarom profits dip as raw material costs rise

18-Aug-2011 - Last updated on 19-Aug-2011 at 10:54 GMT

Israel-based flavours, botanicals and speciality ingredients player Frutarom has reported lower profits in Q2, with raw material hikes cited as the principal cause.

Q2 net profit drop from $13m (€9.08m) to $12.3m (€8.6m) as Frutarom dealt with cost increases in many of its manufacturing materials, although it has in turn also raised prices on its own outputs.

But President and chief executive officer Ori Yehudai said the company remained on track to double revenue in four years with emerging markets increasingly important to deliver the highest growth.

"We have a stronger than ever pipeline of acquisitions to support our expansion strategy, in addition to internal growth," Yehudai said. “We intend to further expand our activity in the main areas in which we operate and accelerate growth and increase market share in emerging markets including: Asia, Central and South America, Eastern Europe and Africa, in which growth rates are higher."

Revenue jumped 14.3% to $130.6m (€91.25m) as Frutarom added three acquisitions to its stable which lifted European sales substantially, as did favourable currency shifts between the euro, the shekel and the US dollar.

The three acquisitions were Christian Hansen Italia, UK firm EAFI and Norway-based Rieber & Søn.

"Frutarom proved throughout the years its ability to incorporate and integrate successfully acquired activities within its own global activity,” he said.

“Thus it estimates that in the following quarters those acquisitions will contribute to improved profit and profitability. Those actions, along with continued optimization processes, strict management of expenses structure and continued adjustment of sale prices, will allow us to better utilize the diverse abilities of our production sites around the world, our innovation and the growing demand for health products.”

Price moderation

Yehudai spoke of the raw materials pricing issue.

"In recent quarters, we have witnessed a significant global trend of raw materials prices increase, including in many of the raw materials used by Frutarom in the manufacture of its products," he said.

"This trend seems to have moderated somewhat in recent weeks. The actions that we took to protect our profitability, the pricing update that we performed, and our continuous efforts to improve our efficiency, have enabled us to maintain the profitability level that characterized our activity in the recent years.”

Over the first half-year revenue jumped 10.5% to $251.6m (€175.79) compared to $227.7m (€159.09) in H1 2101.