Frutarom Industries : Reports Q2/2018 Result

August 23, 2018

ANOTHER RECORD QUARTER FOR FRUTAROM: CONTINUES TO

SUCCESSFULLY IMPLEMENT ITS RAPID & PROFITABLE GROWTH

STRATEGY

DOUBLE DIGIT GROWTH IN SALES AND PROFITS AND RECORD MARGINS:

OVER 23% EBITDA IN ITS CORE ACTIVITIES

A 42.3%INCREASE IN NET INCOME TO A RECORD US$ 52.9 MILLION

In Q2 2018:

• Salesgrew by16.8%toa recordUS$401.3million; constant currency growth on a pro forma basis of4.5%

• Sales from Core Activitiesgrew by19.5%toa recordUS$380.4million; constant currency growth on a pro forma basis of6.1%

• Sales from Flavors activitygrew by16.4% toa recordUS$296.0million; constant currency growth on a pro forma basis of6.1%

• Sales from Specialty Fine Ingredientsgrew by33.7%toa recordUS$88.8million; constant currency growth on a pro forma basis of8.9%

• Record profits from operating activities:

  • oGross profitrose23.7%to US$163.4million;

  • oEBITDArose34.9%to US$90.3million;

  • oEBITDA Marginof core activities1reacheda recordlevel of23.8%;

  • oNet incomerose42.3%to US$52.9million;

  • oCash flow from operating activityrose28.3%to US$42.0million;

  ON MAY 7, 2018 FRUTAROM ANNOUNCED THAT IT SIGNED A MERGER AGREEMENT WITH IFF, A LEADING COMPANY IN THE FLAVORS AND FRAGRANCES INDUSTRY, TO CREATE A GLOBAL LEADING COMPANY IN THE FIELD OF FLAVORS, FRAGRANCES AND

  SPECIALTY FINE INGREDIENTS FOR HEALTH AND NUTRITION

ON AUGUST 6, 2018 A SPECIAL GENERAL MEETING OF FRUTAROM'S SHAREHOLDERS WAS CONVENED AND A MAJORITY OF 94.6% APPROVED THE MERGER WITH IFF. THE TRANSACTION IS

EXPECTED TO CLOSE IN THE FOURTH QUARTER OF 2018.

In H1 2018

• Salesgrew by21.7%toa recordUS$786.1million; constant currency growth on a pro forma basis of6.0%

• Sales from Core Activitiesgrew by24.0%toa recordUS$746.1million; constant currency growth on a pro forma basis of7.2%

• Sales from Flavors activitygrew by21.9%to a record US$577.5million; constant currency growth on a pro forma basis of7.0%

• Sales from Specialty Fine Ingredientsgrew by31.8%toa recordUS$175.5million; constant currency growth on a pro forma basis of8.7%

• Record profits from operating activities:

  • oGross profitrose28.8%to US$319.2million;

  • oEBITDArose39.2%to US$170.7million;

  • oEBITDA marginof core activities2reacheda recordlevel of23.0%

  • oNet incomerose39.0%to US$98.6million;

Ori Yehudai, President and CEO of Frutarom Group, Said Today:

"We are pleased with our significant step forward and the results achieved in the second quarter and first half of 2018,in which we once again set new records in the sales, profits, and margins of our core activities. The quarterly and half-year results reflect the successful implementation of our rapid and profitable growth strategy, combining profitable internal growth at higher growth rates than those of the markets in which we operate, together with our strategic acquisitions, which contribute to the ongoing consistent improvement in our results, and which have led us to achieve our EBITDA margin target of 23% in core activities, originally set for 2020, in the first half of the year.

"Frutarom started 2018 at peak performance: with a broad and innovative product portfolio that places an emphasis on natural products at the interesting cross section of flavor, nutrition and health, with a focus on local, medium-sized customers as well as private label manufacturers, which gives Frutarom a substantial competitive edge. We consider our strategic focus as a significant growth engine for Frutarom's business in the years to come and we intend to continue and accelerate measures conducive to further rapid growth in our core activities - Flavors and Specialty Fine Ingredients.

Frutarom's Flavors activity has grown since 2000 at an average annual rate (CAGR) of 24%,and the

Specialty Fine Ingredients continues to grow rapidly, with an emphasis on specialty solutions in the areas of nutrition and natural herbal extracts, while embracing a vision which includes global collaborations with research institutions and farmers, for the development of species and crops ofstrategic fine ingredients used for flavor, color, health and in the cosmetics industry, while supporting our customers' accelerated switch from synthetic to natural fine ingredients.

"We are excited to combine Frutarom with IFF and together create global leadership in natural flavor solutions, fragrances, and fine ingredients for health and nutrition, and are delighted with the vote of confidence from our shareholders, who supported the merger in a majority of 94.6%. We are working in full collaboration with IFF management on preparing the integration plan, merging these two great companies, which complement each other, to ensure a successful commercial, operational, technological and organizational merger, while capitalizing on the abundant cross-selling opportunities. I am certain that the growth potential for the combined company is substantial and our shareholders will continue to enjoy this upside in the future."

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Frutarom, one of the world's 10 largest companies in the field of flavors and specialty fine ingredients, reports another record-breaking quarter and half-year, in sales, profit, and earnings per share.

The accelerated increase in revenues this quarter stems from a combination of the rapid internalgrowth in Frutarom'score activities-the Flavors Division and Specialty Fine Ingredients Division - and the acquisitions it has made.

Sales

Frutarom sales inQ22018 rose 16.8% to a record of US$ 401.3 million, compared with US$ 343.6 million in Q2 2017, reflecting a growth on a pro-forma and constant currency basis of 4.5% compared with Q2 2017.

Sales forFrutarom'score activities(Flavors Activity and Specialty Fine Ingredients Activity) rose 19.5% in Q2 2018, to a record level of approx. US$ 380.4 million, compared with approx. US$ 318.3 million in Q2 2017, reflecting a growth of approx. 6.1% on a pro-forma and constant currency basis, compared with Q2 2017. Changes in exchange rates boosted sales by approx. 3.0% in pro forma terms.

Sales forFlavorsrose 16.4% to a record of approx. US$ 296.0 million, compared with approx. US$ 254.3 million in Q2 2017, reflecting a growth of approx. 6.1% on a pro-forma and constant currency basis, compared with Q2 2017. Changes in exchange rates boosted sales by 3.1% in pro forma terms.

Sales forSpecialty Fine Ingredientsrose 33.7% to approx. US$ 88.8 million in Q2 2018, compared with US$ 66.4 million in Q2 2017, reflecting a growth of approx. 8.9% on a pro-forma and constant currency basis, compared with Q2 2017. Changes in exchange rates boosted sales by approx. 2.3% in pro forma terms.

Sales forTrade and Marketing(not a core activity of Frutarom) dropped 17.1% to approx. US$ 20.9 million in Q2 2018, compared with approx. US$ 25.3 million in Q2 2017. On a pro-forma and constant currency basis, trade and marketing activity sales dropped by approx. 18.1%, compared with Q2 2017. Changes in exchange rates boosted sales by approx.1.0% in pro forma terms.

Frutarom sales inH1 2018rose 21.7% to a half-year record of US$ 786.1 million, compared with US$ 646.1 million in H1 2017, reflecting a growth on a pro-forma and constant currency basis of 6.0% compared with H1 2017. Exchange rate fluctuations in the currencies Frutarom operates in versus the US Dollar, boosted sales growth in pro-forma terms by 5.1% compared to H1 2017.

Sales for Frutarom'score activities(Flavors Activity and Specialty Fine Ingredients Activity) rose 24.0% in H1 2018, to a record level of approx. US$ 746.1 million, compared with US$ 601.8 million in H1 2017, reflecting a growth of approx. 7.2% on a pro-forma and constant currency basis, compared with H1 2017. Changes in exchange rates boosted sales by 5.2% in pro forma terms.

Sales forFlavorsrose 21.9% to a record of approx. US$ 577.5 million, compared with approx. US$ 473.6 million in H1 2017, reflecting a growth of approx. 7.0% on a pro-forma and constant currency basis, compared with H1 2017. Changes in exchange rates boosted sales by approx. 5.7% in pro forma terms.

Sales forSpecialty Fine Ingredientsrose 31.8% to approx. US$ 175.5 million in H1 2018, compared with approx. US$ 133.2 million in H1 2017, reflecting a growth of approx. 8.7% on a pro-forma and constant currency basis, compared with H1 2017. Changes in exchange rates reduced sales by approx. 3.5% in pro forma terms.

Sales forTrade and Marketing(not a core activity of Frutarom) dropped 9.6% to approx. US$ 40.1 million in H1 2018, compared with approx. US$ 44.3 million in H1 2017. Changes in exchange rates boosted sales by approx. 2.9% in pro forma terms. On a pro-forma and constant currency basis, trade and marketing activity sales dropped by approx. 12.5%, compared with H1 2017.

Profits and margins

In Q2 2018, Frutarom achieved record results in sales, gross profit and margin, operating profit and margin, EBITDA, net profit and margin, and earnings per share. These record results were achieved thanks to the profitable internal growth combined with the acquisitions made and the contribution from merger activities and efficiency measures.

Gross profit of all Frutarom activities in Q2 2018 roseapprox. 23.7% to reach approx. US$ 163.4 million (approx. 40.7% of total revenues), compared with approx. US$ 132.2 million (approx. 38.5% of total revenues) in Q2 2017.Operating profitrose approx. 31.3% to reach approx. US$ 72.5 million (operating margin of approx. 18.1%) compared with approx. US$ 55.2 million (operating margin of approx. 16.1%) in Q2 2017.EBITDArose approx. 34.9%, to reach approx. US$ 90.3 million (EBITDA margin of approx. 22.5%) compared with approx. US$ 66.9 million (EBITDA margin of approx. 19.5%) in Q2 2017.

Gross profit for core businesses(Flavors activity and Specialty Fine Ingredients activity) rose approx. 24.7% in Q2 2018, to reach approx. US$ 159.7 million with a gross margin of approx. 42.0%,compared with approx. US$ 128.0 million in Q2 2017 and a gross margin of approx. 40.2%.Operating profitforcore businessesrose approx. 31.7% in Q2 2018, to reach approx. US$ 72.2 million (operating margin of approx. 19.0%) compared with approx. US$ 54.8 million (operating margin of approx. 17.2%) in Q2 2017.EBITDAfor core businesses rose approx. 35.2% to approx.US$ 89.7 million (EBITDA margin of approx. 23.6%), compared with approx. US$ 66.4 million (EBITDA margin of approx. 20.9%) in Q2 2017.

Net nonrecurring expenses were recorded in Q2 2018 for acquisitions and measures taken by Frutarom to attain optimization and efficiency, mainly in the natural extracts operations of the Specialty Fine Ingredients Division, mostly due to the planned shut-down of the natural extracts plant in Wädesnwil, Switzerland, scheduled for Q3 2018, which is expected to bring about savings estimated at over USD 6 million (on an annual basis). These nonrecurring expenses diminished reported gross profit, operating profit and EBITDA by US$ 0.7 million, and net income by approx. US$ 0.5 million. Nonrecurring expenses were recorded in Q2 2017 for measures taken by Frutarom to attain optimization and efficiency in the natural extracts operations of the Specialty Fine Ingredients Division, diminishing for that quarter reported gross profit by approx. US$ 0.5 million, reported operating profit and EBITDA by approx. US$ 1.2 million, and reported net income by approx. US$ 0.9 million.

Adjusted for non-recurring expenses, EBITDA for core businesses rose approx. 33.7% to reach approx. US$ 90.4 million (approx. 23.8% EBITDA margin) compared with approx. US$ 67.6 million (approx. 21.2% EBITDA margin) in the same period last year.

In the first half of 2018 gross profit for all Frutaromactivity rose by approx. 28.8% to reach approx. US$ 319.2 million (approx. 40.6% of total revenues) compared with approx. US$ 247.9 million (approx. 38.4% of total revenues) in H1 2017.Operating profitin H1 rose by approx. 34.2% to reach approx. US$ 134.9 million (operating margin of 17.2%), compared with approx. US$ 100.5 million (operating margin of approx. 15.6%) in H1 2017.EBITDAin H1 2018 grew by approx. 39.2% to reach approx. US$ 170.7 million (EBITDA margin of approx. 21.7%) compared with approx. US$ 122.6 million (EBITDA margin of approx. 19.0%) in H1 2017.

In the first half of 2018, gross profit for thecore businesses(Flavors activity and Specialty Fine Ingredients activity) rose by approx. 30.3% to reach approx. US$ 312.3 million (gross margin of approx. 41.9%), compared with approx. US$ 239.6 million (gross margin of approx. 39.8%) in H1 2017.Operating profitfor the core businesses rose by approx. 35.1% to reach approx. US$ 134.6 million (operating margin of 18.0%), compared with approx. US$ 99.7 million (operating margin of approx. 16.6%) in H1 2017.EBITDAfor the core businesses grew by approx. 39.1% to reach approx. US$ 169.9 million (EBITDA margin of approx. 22.8%) compared with approx. US$ 121.5 million (EBITDA margin of 20.2%) in H1 2017.

Net nonrecurring expenses were recorded in H1 2018 for acquisitions and measures taken by Frutarom to attain optimization and efficiency, mainly in the natural extracts operations of the Specialty Fine Ingredients Division, mostly due to the planned shut-down of the natural extracts plant in Wädesnwil, Switzerland, scheduled for Q3 2018, which is expected to bring about savings estimated at over USD 6 million (on an annual basis). These nonrecurring expenses diminished reported gross profit by approx. US$ 1.4 million, reported operating profit and EBITDA by approx. US$ 1.6 million, and reported net income by approx. US$ 1.3 million. Nonrecurring expenses were recorded in H1 2017 for measures taken by Frutarom to attain optimization and efficiency in the natural extracts operations of the Specialty Fine Ingredients Division, diminishing for that quarter reported gross profit by approx. US$ 1.3 million, reported operating profit and EBITDA by approx. US$ 2.0 million, and reported net income by approx. US$ 1.6 million.

Adjusted for non-recurring expenses, EBITDA for core businesses rose approx. 38.9% to reach approx. US$ 171.6 million (approx. 23.0% EBITDA margin) compared with approx. US$ 123.5 million (approx. 20.5% EBITDA margin) in the first half of 2017.

Net Income

Net income in Q2 2018rose approx. 42.3% to a record of approx. US$ 52.9 million (net margin of 13.2%) compared with US$ 37.2 million (net margin of 10.8%) in Q2 2017.

Net income adjusted for nonrecurring expensesin Q2 2018 rose approx. 40.2% to reach approx. US$ 53.5 million (net margin of 13.3%) compared with US$ 38.1 million (net margin of 11.1%) in Q2 2017.

Net income in H1 2018rose approx. 39.0% to reach approx. US$ 98.6 million (net margin of 12.5%) compared with US$ 70.9 million (net margin of 11.0%) in H1 2017.

Net income adjusted for nonrecurring expensesin H1 2018 rose approx. 37.8% to reach approx. US$ 99.9 million (net margin of 12.7%) compared with approx. US$ 72.5 million (net margin of 11.2%) in H1 2017.