INTERNATIONAL FLAVORS & FRAGRANCES INC - FORM 8-K - EX-99.1

Attached files

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EX-99.2 - EX-99.2 - INTERNATIONAL FLAVORS & FRAGRANCES INC	d612999dex992.htm
8-K - FORM 8-K - INTERNATIONAL FLAVORS & FRAGRANCES INC	d612999d8k.htm

Exhibit 99.1

FRUTAROM INDUSTRIES LTD.

CONDENSED CONSOLDIATED STATEMENTS OF FINANCIAL POSITION

30 JUNE 2018


	30 June				31 December 2017
	2018		2017		31 December 2017
	(Unaudited)				(Audited)
	U.S. dollars in thousands
Assets
CURRENT ASSETS:
Cash and cash equivalents		119,807		108,317		118,214
Accounts receivable:
Trade		296,906		248,360		248,043
Other		24,891		30,750		23,647
Prepaid expenses and advances to suppliers		27,949		21,826		21,265
Inventory		338,881		290,901		308,891

		808,434		700,154		720,060

NON-CURRENT ASSETS:
Property, plant and equipment		369,517		292,221		312,876
Intangible assets		1,031,897		757,796		829,226
Investment in associates and available for sale assets		27,481		33,348		77,541
Deferred income tax assets		4,512		4,039		3,886
Other		13,573		2,514		3,599

		1,446,980		1,089,918		1,227,128

Total assets		2,255,414		1,790,072		1,947,188


Dr. John Farber		)
Chairman of the Board		)

Ori Yehudai		)
President and CEO		)

Alon Granot		)
Executive Vice
President and CFO		)

Date of approval of the interim financial information by the board of directors: August 22, 2018

F-1

FRUTAROM INDUSTRIES LTD.

CONDENSED CONSOLDIATED STATEMENTS OF FINANCIAL POSITION

30 JUNE 2018


	30 June						31 December 2017
	2018			2017			31 December 2017
	(Unaudited)						(Audited)
	U.S. dollars in thousands
Liabilities and equity
CURRENT LIABILITIES:
Short-term bank credit and loans and current maturities of long-term loans		397,601			359,626			372,135
Accounts payable:
Trade		104,565			96,526			98,813
Other		156,365			115,789			140,560
Leases		7,757			—			—

		666,288			571,941			611,508

NON-CURRENT LIABILITIES:
Long-term loans, net of current maturities		399,833			260,339			262,151
Retirement benefit obligations, net		33,690			38,007			34,006
Deferred income tax liabilities		66,234			58,093			58,306
Leases		25,322			—			—
Liability for shareholders of subsidiaries and other		142,627			92,836			102,304

		667,706			449,275			456,767

TOTAL LIABILITIES		1,333,994			1,021,216			1,068,275

EQUITY:
Equity attributable to owners of the parent:
Ordinary shares		17,094			17,064			17,086
Other capital surplus		116,132			118,200			120,288
Translation differences		(85,299	)		(71,018	)		(45,187	)
Retained earnings		872,640			700,477			783,029
Less—cost of company shares held by the company		(3,693	)		(2,702	)		(3,409	)

NON-CONTROLLING INTERESTS		4,546			6,835			7,106

TOTAL EQUITY		921,420			768,856			878,913

TOTAL EQUITY AND LIABILITIES		2,255,414			1,790,072			1,947,188

The accompanying notes are an integral part of these financial statements.

F-2

FRUTAROM INDUSTRIES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX AND THREE-MONTH PERIOD ENDED 30 JUNE 2018


	6 months ended 30 June					3 months ended 30 June				Year ended 31 December 2017
	2018			2017		2018		2017		Year ended 31 December 2017
	(Unaudited)									(Audited)
	U.S. dollars in thousands
	except for income per share data
SALES		786,110			646,120		401,305		343,589		1,362,396
COST OF SALES		466,928			398,243		237,861		211,426		837,271

GROSS PROFIT		319,182			247,877		163,444		132,163		525,125
Selling, marketing, research and development expenses—net		134,697			101,792		67,290		52,629		220,014
General and administrative expenses		51,179			45,601		24,278		23,718		92,155
Other expenses (income)—net		(315	)		385		34		665		3,392
Group’s share of earnings of companies accounted for at equity		1,326			444		636		45		1,402

INCOME FROM OPERATIONS		134,947			100,543		72,478		55,196		210,966
FINANCIAL EXPENSES—net		12,758			10,204		6,793		8,031		24,606

INCOME BEFORE TAXES ON INCOME		122,189			90,339		65,685		47,165		186,360
INCOME TAX		23,600			19,413		12,777		9,974		34,797

NET INCOME FOR THE PERIOD		98,589			70,926		52,908		37,191		151,563

PROFIT ATTRIBUTED TO:
Owners of the parent company		97,833			69,843		52,564		36,570		149,679
Non-controlling interest		756			1,083		344		621		1,884

TOTAL INCOME		98,589			70,926		52,908		37,191		151,563

EARNINGS PER SHARE:
Basic		1.64			1.17		0.88		0.61		2.52

Fully diluted		1.63			1.17		0.88		0.61		2.51

F-3

FRUTAROM INDUSTRIES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE SIX AND THREE-MONTH PERIOD ENDED 30 JUNE 2018


	6 months ended 30 June					3 months ended 30 June						Year ended 31 December 2017
	2018			2017		2018			2017			Year ended 31 December 2017
	(Unaudited)					(Unaudited)						(Audited)
	U.S. dollars in thousands
INCOME FOR THE PERIOD		98,589			70,926		52,908			37,191			151,563
Other Comprehensive Income:
Items that will not be reclassified subsequently to profit or loss—
Remeasurement of net defined benefit liability		—			—		—			—			2,716
ITEMS THAT COULD BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS:
Gain from available-for-sale financial assets		—			482		—			(471	)		—
Transfer of available-for-sale financial assets to profit and loss		—			—		—			—			(41	)
Translation differences		(40,194	)		38,399		(51,099	)		20,470			64,428

Total comprehensive income for the Period		58,395			109,807		1,809			57,190			218,666

ATTRIBUTABLE TO:
Owners of the parent		57,721			108,350		1,688			56,274			216,210
Non-controlling interest		674			1,457		121			916			2,456

TOTAL COMPREHENSIVE INCOME		58,395			109,807		1,809			57,190			218,666

The accompanying notes are an integral part of these condensed financial statements.

F-4

(Continued)—1

FRUTAROM INDUSTRIES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX AND THREE-MONTH PERIOD ENDED 30 JUNE 2018


	EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
	Ordinary Shares		Other capital surplus			Translation differences			Retained earnings			Cost of company shares held by the company			Total attributed to owners parent company			Non- controlling interests			Total
	U.S. dollars in thousands
BALANCE AT 1 JANUARY 2018 (audited)		17,086		120,288			(45,187	)		783,029			(3,409	)		871,807			7,106			878,913

CHANGES DURING THE 6 MONTH PERIOD ENDED 30 JUNE 2018 (unaudited):
Comprehensive income:
Income for the period		—		—			—			97,833			—			97,833			756			98,589
Other comprehensive income for the period		—		—			(40,112	)		—			—			(40,112	)		(82	)		(40,194	)

Total comprehensive income for the period		—		—			(40,112	)		97,833			—			57,721			674			58,395
Plans for allotment of company shares to employees of subsidiary:
Acquisition of the Company shares by the Company		—		—			—			—			(662	)		(662	)		—			(662	)
Receipts in respect of allotment of company shares to employees		—		(252	)		—			—			378			126			—			126
Allotment of shares and options to senior employees:
Recognition of compensation related to employee stock and options grants		—		857			—			—			—			857			—			857
Changes of ownership rights in subsidiary		—		(5,585	)		—			—			—			(5,585	)		(3,234	)		(8,819	)
Proceeds from issuance of shares to senior employees		8		824			—			—			—			832			—			832
Dividend		—		—			—			(8,222	)		—			(8,222	)		—			(8,222	)

		8		(4,156	)		—			(8,222	)		(284	)		(12,654	)		(3,234	)		(15,888	)

BALANCE AT 30 JUNE 2018 (unaudited)		17,094		116,132			(85,299	)		872,640			(3,693	)		916,874			4,546			921,420

The accompanying notes are an integral part of these condensed financial statements.

F-5

(Continued)—2

FRUTAROM INDUSTRIES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX AND THREE-MONTH PERIOD ENDED 30 JUNE 2018


	EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
	Ordinary Shares		Other capital surplus			Translation Differences			Retained earnings		Cost of company shares held by the company			Total attributed to owners parent company			Non- controlling interests			Total
	U.S. dollars in thousands
BALANCE AT 1 APRIL 2018 (unaudited)		17,093		115,794			(34,423	)		819,827		(3,833	)		914,458			4,425			918,883

CHANGES DURING THE 3 MONTH PERIOD ENDED 30 JUNE 2018 (unaudited):
Comprehensive income:
Income for the period		—		—			—			52,564		—			52,564			344			52,908
Other comprehensive income for the period		—		—			(50,876	)		—		—			(50,876	)		(223	)		(51,099	)

Total comprehensive income for the period		—		—			(50,876	)		52,564		—			1,688			121			1,809
Plans for allotment of company shares to employees of subsidiary:
Acquisition of the Company shares by the company		—		—			—			—		(1	)		(1	)		—			(1	)
Receipts in respect of allotment of Company shares to employees		—		(94	)		—			—		141			47			—			47
Allotment of shares and options to senior employees:
Recognition of compensation related to employee stock and options grants		—		432			—			—		—			432			—			432
Proceeds from issuance of shares to senior employees		1		—			—			—		—			1			—			1
Dividend		—		—			—			249		—			249			—			249

		1		338			—			249		140			728			—			728

BALANCE AT 30 JUNE 2018 (unaudited)		17,094		116,132			(85,299	)		872,640		(3,693	)		916,874			4,546			921,420

The accompanying notes are an integral part of these condensed financial statements.

F-6

(Continued)—3

FRUTAROM INDUSTRIES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX AND THREE-MONTH PERIOD ENDED 30 JUNE 2017


	EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
	Ordinary Shares		Other capital surplus			Translation Differences			Retained earnings			Cost of company shares held by the company			Total attributed to owners parent company			Non- controlling interests			Total
	U.S. dollars in thousands
BALANCE AT 1 JANUARY 2017 (audited)		16,997		114,396			(109,043	)		637,868			(3,765	)		656,453			8,151			664,604

CHANGES DURING THE 6 MONTH PERIOD ENDED 30 JUNE 2017 (unaudited):
Comprehensive income:
Income for the period		—		—			—			69,843			—			69,843			1,083			70,926
Other comprehensive income for the period		—		482			38,025			—			—			38,507			374			38,881

Total comprehensive income for the period		—		482			38,025			69,843			—			108,350			1,457			109,807
Plans for allotment of company shares to employees of subsidiary:
Acquisition of the Company shares by the Company		—		—			—			—			(707	)		(707	)		—			(707	)
Receipts in respect of allotment of company shares to employees		—		(1,180	)		—			—			1,770			590			—			590
Allotment of shares and options to senior employees:
Recognition of compensation related to employee stock and options grants		—		928			—			—			—			928			—			928
Proceeds from issuance of shares to senior employees		67		3,196			—			—			—			3,263			—			3,263
Changes of ownership rights in subsidiary		—		378			—			—			—			378			(2,773	)		(2,395	)
Dividend, including erosion		—		—			—			(7,234	)		—			(7,234	)		—			(7,234	)

		—		3,322			—			(7,234	)		1,063			(2,782	)		(2,773	)		(5,555	)

BALANCE AT 30 JUNE 2017 (unaudited)		17,064		118,200			(71,018	)		700,477			(2,702	)		762,021			6,835			768,856

The accompanying notes are an integral part of these condensed financial statements.

F-7

(Continued)—4

FRUTAROM INDUSTRIES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX AND THREE-MONTH PERIOD ENDED 30 JUNE 2017


	EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
	Ordinary Shares		Other capital surplus			Translation Differences			Retained earnings			Cost of company shares held by the company			Total attributed to owners parent company			Non- controlling interests			Total
	U.S. dollars in thousands
BALANCE AT 1 APRIL 2017 (unaudited)		17,027		116,817			(91,193	)		663,977			(3,791	)		702,837			8,692			711,529

CHANGES DURING THE 3 MONTH PERIOD ENDED 30 JUNE 2017 (unaudited):
Comprehensive income:
Income for the period		—		—			—			36,570			—			36,570			621			37,191
Other comprehensive income for the period		—		(471	)		20,175			—			—			19,704			295			19,999

Total comprehensive income for the period		—		(471	)		20,175			36,570			—			56,274			916			57,190
Plans for allotment of company shares to employees of subsidiary:
Receipts in respect of allotment of company shares to employees		—		(726	)		—			—			1,089			363			—			363
Allotment of shares and options to senior employees:
Recognition of compensation related to employee stock and options grants		—		473			—			—			—			473			—			473
Proceeds from issuance of shares to senior employees		37		1,729			—			—			—			1,766			—			1,766
Changes of ownership rights in subsidiary		—		378			—			—			—			378			(2,773	)		(2,395	)
Dividend, including erosion		—		—			—			(70	)		—			(70	)		—			(70	)

		37		1,854			—			(70	)		1,089			2,910			(2,773	)		137

BALANCE AT 30 JUNE 2017 (unaudited)		17,064		118,200			(71,018	)		700,477			(2,702	)		762,021			6,835			768,856

The accompanying notes are an integral part of these condensed financial statements.

F-8

(Concluded)—5

FRUTAROM INDUSTRIES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2017


	EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
	Ordinary shares		Other capital surplus			Translation differences			Retained earnings			Cost of Company shares held by the company			Total attributed to owners of parent Company			Non- controlling Interest			Total
	U.S. dollars in thousands
BALANCE AT 1 JANUARY 2017		16,997		114,396			(109,043	)		637,868			(3,765	)		656,453			8,151			664,604
CHANGES DURING THE YEAR ENDED 31 DECEBMBER 2017:
Comprehensive income:
Income for the year		—		—			—			149,679			—			149,679			1,884			151,563
Other comprehensive income		—		(41	)		63,856			2,716			—			66,531			572			67,103

Total comprehensive income for the year		—		(41	)		63,856			152,395			—			216,210			2,456			218,666
Plan for allotment of Company shares to employees of subsidiary:
Acquisition of the Company shares by the Company		—		—			—			—			(1,528	)		(1,528	)		—			(1,528	)
Receipts in respect of allotment of Company shares to employees		—		(1,256	)		—			—			1,884			628			—			628
Allotment of shares and options to senior employees-
Recognition of compensation related to employee stock and option grants		—		1,838			—			—			—			1,838			—			1,838
Proceeds from issuance of shares to senior employees		89		4,296			—			—			—			4,385			—			4,385
Changes of ownership rights in subsidiary		—		1,055			—			—			—			1,055			(3,450	)		(2,395	)
Dividend paid to the non-controlling interests in subsidiary		—		—			—			—			—			—			(51	)		(51	)
Dividend paid		—		—			—			(7,234	)		—			(7,234	)		—			(7,234	)

Non-controlling interest from business combination		89		5,933			—			(7,234	)		356			(856	)		(3,501	)		(4,357	)

BALANCE AT 31 DECEMBER 2017		17,086		120,288			(45,187	)		783,029			(3,409	)		871,807			7,106			878,913

The accompanying notes are an integral part of these condensed financial statements.

F-9

FRUTAROM INDUSTRIES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX AND THREE-MONTH PERIOD ENDED 30 JUNE 2018


	6 months ended 30 June						3 months ended 30 June						Year ended 31 December 2017
	2018			2017			2018			2017			Year ended 31 December 2017
	(Unaudited)						(Unaudited)						(Audited)
	U.S. dollars in thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash generated from operations (see appendix)		96,153			88,985			48,521			41,630			223,210
Income tax paid—net		(18,721	)		(13,596	)		(6,507	)		(8,775	)		(35,681	)

Net cash provided by operating activities		77,432			75,389			42,014			32,855			187,529

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(18,666	)		(14,160	)		(9,304	)		(7,288	)		(34,394	)
Purchase of intangibles		(881	)		(1,153	)		(173	)		(554	)		(2,890	)
Interest received		385			448			188			218			1,294
Acquisition of subsidiaries—net of cash acquired		(214,229	)		(68,254	)		(30,549	)		(48,799	)		(109,265	)
Prepayments due to acquisition of subsidiaries		(2,431	)		—			—			—			—
Purchase of available for sale securities		—			(5,606	)		—			(1,269	)		(40,169	)
Proceeds from sale of property and other assets		14,168			210			2,158			152			454

Net cash used in investing activities		(221,654	)		(88,515	)		(37,680	)		(57,540	)		(184,970	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend paid to the non-controlling interests in subsidiary		(802	)		—			(802	)		—			(51	)
Receipts from senior employees in respect of allotment of shares		831			3,263			—			1,766			4,385
Interest paid		(8,405	)		(3,965	)		(4,631	)		(2,282	)		(8,929	)
Receipt of long-term bank loans		257,016			59,406			415			5,014			133,373
Repayment of Put option to shareholders in subsidiary		(2,915	)		(40,226	)		(2,915	)		—			(42,227	)
Acquisition of non-controlling interests subsidiary		—			(2,395	)		—			(2,395	)		(2,395	)
Repayment of long-term bank and financial institutions Loans		(154,096	)		(89,842	)		(113,619	)		(47,428	)		(172,909	)
Receipt (repayment) of short-term bank loans and credit-net		73,279			82,412			94,490			65,052			88,455
Operating Lease payments		(4,444	)		—			(2,040	)		—			—
Acquisition of the Company shares by the Company— net of receipts in respect of the shares		(582	)		(117	)		—			363			(900	)
Dividend paid		(8,222	)		(7,234	)		(8,222	)		(7,234	)		(7,234	)

Net cash provided (used) in financing activities		151,660			1,302			(37,324	)		12,856			(8,432	)

INCREASE IN CASH, CASH EQUIVALENTS		7,438			(11,824	)		(32,990	)		(11,829	)		(5,873	)
Balance of cash and cash equivalents and bank credit at beginning of year and bank credit		118,214			113,528			161,359			116,261			113,528
Profits (losses) from exchange differences on cash and cash equivalents		(5,845	)		6,613			(8,562	)		3,885			10,559

BALANCE OF CASH AND CASH EQUIVALENTS AND AT END OF PERIOD		119,807			108,317			119,807			108,317			118,214

The accompanying notes are an integral part of these condensed financial statements.

F-10

FRUTAROM INDUSTRIES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX AND THREE-MONTH PERIOD ENDED 30 JUNE 2018

APPENDIX TO CONDENSED CONSOLIDATED STATEMENTS CASH FLOWS


	6 months ended 30 June						3 months ended 30 June						Year ended 31 December 2017
	2018			2017			2018			2017			Year ended 31 December 2017
	(Unaudited)						(Unaudited)						(Audited)
	U.S. dollars in thousands
Cash generated from operations:
Income before tax		122,189			90,339			65,685			47,165			186,360

Adjustments required to reflect the cash flows from operating activities:
Depreciation and amortization		34,913			21,169			17,361			11,230			46,797
Recognition of compensation related to employee stock and options grants		857			928			432			473			1,838
Liability for employee rights upon retirement—net		3,171			439			2,970			139			(641	)
Loss (gain) from sale and write-off of fixed assets and other assets		(1,546	)		247			(1,351	)		(30	)		1,934
Dividend received from companies accounted for at equity		—			2,250			—			—			2,250
Group’s share of losses (earnings) of companies accounted for at equity, net		(1,326	)		(444	)		(636	)		(45	)		(1,402	)
Erosion of long term loans		(1,648	)		4,866			(1,518	)		4,166			(1,247	)
Interest paid—net		8,020			3,517			4,443			2,064			7,635

		42,441			32,972			21,701			17,997			57,164

Changes in operating asset and liability items:
Decrease (increase) in accounts receivable:
Trade		(39,030	)		(29,333	)		(30,341	)		(15,005	)		(16,804	)
Other		(207	)		3,091			1,900			1,077			9,263
Increase in other long-term receivables		(47	)		(97	)		42			47			(1,223	)
Increase (decrease) in accounts payable:
Trade		(2,260	)		5,298			3,215			(3,382	)		2,036
Other		(15,507	)		(1,445	)		(13,873	)		(3,278	)		3,385
Increase (decrease) in other long-term payables		(2,039	)		14			511			(20	)		1,815
Increase in inventories		(9,387	)		(11,854	)		(319	)		(2,971	)		(18,786	)

		(68,477	)		(34,326	)		(38,865	)		(23,532	)		(20,314	)

Net Cash flows from operating activities		96,153			88,985			48,521			41,630			223,210

The accompanying notes are an integral part of these condensed financial statements.

F-11

FRUTAROM INDUSTRIES LTD.

EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION

30 JUNE 2018

(UNAUDITED)

NOTE 1—GENERAL:

Frutarom Industries Ltd. is a global company, founded in 1933. The Company operates through the consolidated company (hereafter—Frutarom Ltd.) and the companies under its control (hereafter – the Group). The Group has two main operations: the Flavours activity and the Fine Ingredients activity, which are considered as core business by management.

In addition, the Company imports and markets raw materials produced by others as part of its services and strive to provide complete solutions for customers. This activity is presented as part of trade and marketing operations.

The Group develops, manufactures, markets and sells flavours and fine ingredients used by producers of food and beverage, pharma-nutraceutical, flavours and fragrances, and personal care and cosmetics products as well as other products.

NOTE 2—BASIS OF PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The interim condensed consolidated financial information of the group as of 30 June 2018 and for the 6 and 3 month periods ended on that date (hereinafter—the interim financial information) was prepared in accordance with International Accounting Standard No. 34—“Interim Financial Reporting” (hereafter—“IAS 34”). The interim financial information should be read in conjunction with the audited annual financial statements as of 31 December, 2017 and for the year ended on that date and with the notes thereto, which were all prepared in accordance with International Financial Reporting Standards (hereafter—“IFRS”). The interim financial information is reviewed and is not audited.

Estimates

The preparation of interim financial statements requires management to exercise its judgment; it also requires the use of accounting estimates and assumptions that affect the application of the group’s accounting policy and the amounts of reported assets, liabilities, income and expenses. Actual results may differ from those estimates.

In preparation of these condensed consolidated interim financial statements, the significant judgments that were exercised by the management in applying the group’s accounting policy and the key sources of estimation uncertainty were similar to those applied in the consolidated annual financial statements for the year ended December 31, 2017.

NOTE 3—PRINCIPAL ACCOUNTING POLICIES:

The significant accounting policies and computation methods used in preparing the interim financial information are consistent with those used in preparing the 2017 annual financial statements, except for the following:

Income tax in interim periods is recognized based on management’s best estimate of the weighted average annual income tax rate expected.

In conjunction with Note 2 to the audited financial statements for the year ended December 31, 2017, the Company has elected to early adopt IFRS 16, commencing January 1, 2018.

F-12

FRUTAROM INDUSTRIES LTD.

EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION

30 JUNE 2018

(UNAUDITED)

NOTE 3—PRINCIPAL ACCOUNTING POLICIES (continued):

The main impact of adopting the standard early is the elimination of existing requirement on lessees to classify leases as operating lease (off-balance sheet) or finance lease, and they are now required to use a single accounting model for all leases, similarly to how finance leases are currently accounted for. Accordingly, before first-time adoption, under IAS 17 (the previous standard for leases), the Group classified leases where it served as lessee as operating, because it did not have substantially all risks and rewards incidental to ownership of the asset.

In agreements where the Group is the lessor, it applies IFRS 16 using a single accounting model under which it recognizes a right-of-use asset and a lease liability upon inception of the lease contract. It does so for all leases in which the Group has right to control the use of identified assets for a period of time in exchange for consideration. Accordingly, the Group recognizes depreciation and depreciation charges on the right-of-use asset and tests the need for recognizing impairment of the right-of-use asset in compliance with IAS 36 “Impairment of Assets”, and also recognizes finance expenses in relation to a lease liability. Therefore, beginning on first-time adoption, rent expenses relating to properties rented under operating leases, which were presented within administrative and general expenses in the income statement, are now presented as assets that are depreciated through depreciation and depreciation assets.

The Group adopted the standard using the cumulative effect method, without restatement of comparative information.

Regarding all leases, the Group applied the transitional provisions such that it initially recognized a liability at the commencement day at an amount equal to the present value of the lease payments during the lease, discounted using the effective interest rate as of that date, and concurrently recognized a right-of-use asset at an amount identical to the liability. As a result, the standard had no impact on equity and retained earnings of the Group as of initial application.

As part of initial application, the Group elected to adopt the following practical expedients, as permitted by the standard:

Use a single discount rate for a portfolio of leases with similar characteristics;

Not to separate lease and non-lease components of a contract and account for all components as a single lease;

Exclude initial direct costs from the measurement of the right-of-use asset as of initial application;

Use hindsight, such as determining the lease term if the contract contains options to extend or terminate the lease;

The new significant accounting policy for agreements in which the Group is the lessee as applied beginning on January 1, 2018 following initial application of the standard:

(1)

Leased assets and lease liabilities

Contracts conveying the Group a right to control an identified asset for a period of time in exchange for consideration, are accounted for as leases. Upon initial recognition, the Group recognizes a liability for the present value of the minimum future lease payments (those

F-13

FRUTAROM INDUSTRIES LTD.

EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION

30 JUNE 2018

(UNAUDITED)

NOTE 3—PRINCIPAL ACCOUNTING POLICIES (continued):

payments do not include variable lease payments that are not index-dependent or change in any interest rate or change in exchange rate) and concurrently, the Group recognizes a right-of-use asset at the amount of the liability, adjusted by the amount of any previously recognized prepaid or accrued lease payments plus direct costs incurred in the lease. Since the interest rate implicit in a lease is not readily determined, the effective interest rate of the Group is used (the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment). Subsequent initial recognition, an asset is accounted for using the cost model, and is depreciated over the earlier of the term of the lease or the useful life of the assets.

(2)

Lease term

The term of a lease is determined as the non-cancellable period for which a lessee has the right to use an underlying asset, together with both periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.

(3)

Depreciation of a right-of-use asset

Subsequent to the inception of the lease, a right-of-use asset is measured using the cost method, less accumulated depreciation and accumulated impairment losses, and is adjusted for remeasurements of the lease liability. Depreciation is measured using the straight-line method over the useful life or contractual lease term, whichever ends earlier.

On the date of initial application of IFRS 16, the Group recognized right-of-use assets and lease liabilities at $ 37,370 thousands.

The following tables present a summary of the impact on the consolidated condensed interim statement of financial position as of June 30, 2018 and the consolidated condensed interim income statement and consolidated condensed interim statement of cash flows for the six-month period then ended, assuming that the previous accounting policy of the Group for leases would have continued in that period.

The impact on the consolidated condensed interim statement of financial position as of June 30, 2018:


	Under previous policy		The change			Under IFRS 16
	(Unaudited)		(Unaudited)			(Unaudited)
	$ in thousands
Non-current assets:
Property, plant and equipment (net)		336,591		32,926			369,517
Current liabilities:
Liabilities for lease payment		—		(7,757	)		(7,757	)
Non-current liabilities:
Liabilities for lease payment		—		(25,322	)		(25,322	)

F-14

FRUTAROM INDUSTRIES LTD.

EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION

30 JUNE 2018

(UNAUDITED)

NOTE 3—PRINCIPAL ACCOUNTING POLICIES (continued):

The impact on the consolidated condensed interim income statement for the six-month period ended June 30, 2018:


	Under previous policy		The change			Under IFRS 16
	(Unaudited)		(Unaudited)			(Unaudited)
	$ in thousands
Operating expenses		155,092		(4,444	)		150,648
Depreciation and amortization charges		30,469		4,444			34,913
Operating income		134,947		—			134,947

The impact on the consolidated condensed interim statement of cash flows for the six-month period ended June 30, 2018:


	Under previous policy		The change			Under IFRS 16
	(Unaudited)		(Unaudited)			(Unaudited)
	$ in thousands
Net cash provided by operating activity		73,580		4,444			78,024
Net cash provided by financing activity		155,950		(4,444	)		151,506

NOTE 4—BUSINESS COMBINATIONS

a. Acquisition of Enzymotec

On January 11, 2018, Frutarom completed the acquisition of 100% of the share capital of Enzymotec Ltd., an Israeli public company whose shares were traded on NASDAQ (under the symbol ENZY) (“Enzymotec”) that upon the completion of the merger ceased from being a public company and became, an indirectly fully-owned subsidiary of Frutarom. The overall consideration that was paid by Frutarom for 100% of Enzymotec’s shares, stands at approx. $ 287 million (including cost of vested options RSU’s). On May 14, 2018, Frutarom received approval from the tax authorities in Israel to merge Enzymotec into Frutarom, and the company is taking action to merge the companies; the merger will be completed over the following months.

In order to finance the merger transaction with Enzymotec, the company entered into loan agreements with banking corporations for the extending of loans totaling USD 235 million. According to the agreements, the loans bear interest of Libor plus 1.52% per year and shall be repaid in up to 5 years by quarterly amounts. Half of the loan will be repaid after 12 months from receiving the loan by 16 quarterly installments and the rest will be repaid in the end of the period.

Enzymotec, which was founded in 1998, develops, produces and markets nutritional ingredients and medical foods based on cutting-edge, proprietary technologies Enzymotec has developed a unique technology for processing lipids (organic compounds which includes fat) that are an important nutritional element, supporting various biological functions. Enzymotec’s proprietary technology enables extraction of lipids from natural sources, separation and analysis of lipid molecules, and use enzymes to synthesize lipid

F-15

FRUTAROM INDUSTRIES LTD.

EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION

30 JUNE 2018

(UNAUDITED)

NOTE 4—BUSINESS COMBINATIONS (continued):

a. Acquisition of Enzymotec (continued):

molecules familiar to the human body. Enzymotec utilizes an innovative toolset that allows it to efficiently transform lipids from natural raw materials into those that have unique structural and functional characteristics, essential to the human body. Enzymotec, with approx. 127 employees, mainly in Israel and the United States, including 20 in R&D, has an advanced GMP certified factory in Migdal HaEmek, Israel which includes an R&D center, laboratories, a production plant and offices.

The cost of acquisition was allocated to tangible assets, intangible assets and liabilities which were acquired based on their fair value at the time of the acquisition. The intangible assets which were recognized include: product formulas, customer relations and goodwill. The product formulas and customer relations are amortized over economic useful lives of 20 years and 10 years, respectively. The determination of the fair value of the assets and liabilities is subject to a final appraisal of the allocation of the purchase prices to the fair value of the assets and liabilities; this appraisal has not yet been completed as of the date of approval of these financial statements.

Set forth below are the assets and liabilities of Enzymotec at date of acquisition:


	Fair value
	U.S. dollars In thousands
Current assets:
Cash and cash equivalents		76,291
Trade		12,426
Inventory		25,247
Others		1,843
Non-current assets:
Property, plant and equipment		23,019
Intangible assets		176,417
Other long-term assets		95
Investments		2,664
Current liabilities :
Trade payables		(8,753	)
Other payables		(19,370	)
Non-current liabilities:
Deferred taxes		(2,562	)

		287,317

From the date it was consolidated with the financial statements of the Company through June 30, 2018, the acquired operations have yielded revenues of $ 44,101 thousands and net profit of $ 8,159 thousands (net of acquisition costs).

F-16

FRUTAROM INDUSTRIES LTD.

EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION

30 JUNE 2018

(UNAUDITED)

NOTE 4—BUSINESS COMBINATIONS (continued):

b. Acquisition of IBR

On February 1, 2018, Frutarom purchased 100% of the share capital of the Israeli company I.B.R—Israeli Biotechnology Research Ltd. (“IBR”) in exchange for approx. $ 21 million. The transaction was completed upon signing and financed through bank debt.

Established in 1995, IBR researches, develops, manufactures and markets innovative and proprietary natural active ingredients for the cosmetics and dietary supplements industries, mainly for cellular anti-aging, skin protection from UV rays and air pollution, skin whitening and pigmentation prevention. IBR has R&D labs and a production facility in the town of Yavne, Israel and it employs approx. 30 employees. IBR’s activity has been added to Frutarom’s existing activities in the fields of algae-growth and active ingredients extraction, for skin care and protection.

Set forth below are the assets and liabilities of IBR at date of acquisition:


	Fair value
	U.S. dollars In thousands
Current assets:
Cash and cash equivalents		471
Trade		715
Inventory		2,316
Others		582
Non-current assets:
Property, plant and equipment		799
Intangible assets		17,631
Other long-term assets		24
Current liabilities :
Trade payables		(97	)
Other payables		(1,019	)
Non-current liabilities:
Deferred taxes		(422	)

		21,000

From the date it was consolidated with the financial statements of the Company through June 30, 2018, the acquired operations have yielded revenues of $ 3,057 thousands and net profit of $ 1,280 thousands (net of acquisition costs).

F-17

FRUTAROM INDUSTRIES LTD.

EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION

30 JUNE 2018

(UNAUDITED)

NOTE 4—BUSINESS COMBINATIONS (continued):

c. Acquisition of Bremil

On December 20, 2017 Frutarom signed an agreement for the purchase of 51% of the shares of the Brazilian company Bremil Indústria De Produtos Alimenticios Ltda. (“Bremil”). The purchase agreement includes a mutual option for the purchase of the balance of shares of Bremil to take effect starting five years from the date of the transaction’s completion at a price based on Bremil’s business performance during that period. On May 30, 2018, Frutarom completed the acquisition of 51% of Bremil’s shares in exchange for approx. US$ 21 million (BRL 78 million) and a future consideration based on Bremil’s future business performance in 2017 and 2018, which as of the date of the transaction amounted approx. US$ 9 million. The transaction was financed through bank debt.

Bremil was established in 1987 in Brazil and operates in Brazil’s savory solutions market, with an emphasis on convenience foods, prepared foods and processed meats. Bremil, which employs about 250 workers, serves about 450 customers in Brazil and countries of the region, with substantial presence among top processed meat producers, and has two production sites, in southern and central Brazil, with significant excess production capacity which Frutarom intends to utilize towards raising output and growth in Brazil and neighboring countries.

Set forth below are the assets and liabilities of Bremil at date of acquisition:


	Fair value
	U.S. dollars In thousands
Current assets:
Cash and cash equivalents		262
Trade		8,272
Inventory		3,790
Others		1,329
Non-current assets:
Property, plant and equipment		11,140
Intangible assets		74,325
Other long-term assets		117
Current liabilities :
Trade payables		(1,929	)
Other payables		(9,604	)
Non-current liabilities:
Other non-current payables		(55,913	)
Deferred taxes		(11,036	)

		20,753

F-18

FRUTAROM INDUSTRIES LTD.

EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION

30 JUNE 2018

(UNAUDITED)

NOTE 4—BUSINESS COMBINATIONS (continued):

c. Acquisition of Bremil (continued)

From the date it was consolidated (May 30, 2018) with the financial statements of the Company through June 30, 2018, the acquired operations have yielded revenues of $ 4,327 thousands and net profit of $ 701 thousands (net of acquisition costs).

d. Acquisition of Mighty

On October 18, 2017 Frutarom signed an agreement for the purchase of 60% of the shares of the Thai company The Mighty CO. LTD. (including the activity of Maharaj Food Co. Ltd. and Mighty International Co. Ltd., and hereinafter collectively: “Mighty”) for approx. $ 12 million (approx. THB 393 million) (not including debt). All, according to value of approx. $ 20 million (net of debt) (approx. THB 655 million).

In the framework of the transaction Frutarom initially acquired 49% of Mighty and, subject to a number of conditions precedent and regulatory approvals in Thailand, will raise its holdings to 60%.

The transaction includes a mechanism for future consideration subject to Mighty’s future performance and a mutual option for the purchase of the balance of holdings in Mighty in two stages in periods beginning three years and five years from the date the transaction is completed, at a price based on Mighty’s future business performance.

In February 2018, the conditions of the first part were met, hence the Company holds, as of the date of this report 49% of the share capital of Mighty. According to the Company expectation, raising the holdings to 60% will be completed in several months. The transaction will be financed through bank debt and by the Company own means.

On a proforma basis—assuming that the companies acquired in 2017 has been consolidated as from 1.1.2017 and the companies acquired in 2018 had been consolidated in the corresponding period in 20 17—the H1 2017 sale would have amounted to approx. $ 708.0 million. This figure is based on unaudited data provided by the owners of the acquired activities in accordance with the pre-acquisition accounting policies of the acquired activities.

NOTE 5—DIVIDEND:

On March 19, 2018 the Company’s Board of Directors announced the distribution of dividend in the amount of NIS 0.50 per share, the dividend was paid to the shareholders on 7 of May, 2018 in the total amount of approx. $ 8,222 thousands.

NOTE 6—SEGMENT REPORTING

For management purposes, the Group is organized on a worldwide basis into two major operating activities: Flavour and Fine Ingredients. Another operating activity is Trade and Marketing.

Results of operation of the segments are being measured based on operating profit.

F-19

FRUTAROM INDUSTRIES LTD.

EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION

30 JUNE 2018

(UNAUDITED)

NOTE 6—SEGMENT REPORTING (continued):

Segment data provided to the President and the CEO in respect of the reported segments is as follows:


	Flavors operations		Fine ingredients operations		Trade and marketing operations		Eliminations			Total consolidated
	U.S. dollars in thousands
6 months ended 30 June 2018: (unaudited):
Revenues		577,524		175,486		40,054		(6,954	)		786,110

Segment results		101,410		33,229		308		—			134,947

6 months ended 30 June 2017: (unaudited):
Revenues		473,612		133,157		44,304		(4,953	)		646,120

Segment results		81,656		18,037		880		(30	)		100,543

3 months ended 30 June 2018 (unaudited):
Revenues		296,044		88,777		20,947		(4,463	)		401,305

Segment results		55,071		17,109		298		—			72,478

3 months ended 30 June 2017 (unaudited):
Revenues		254,260		66,404		25,259		(2,334	)		343,589

Segment results		45,707		9,099		378		12			55,196

Year ended 31 December 2017 (audited):
Revenues		1,025,359		260,122		90,962		(14,047	)		1,362,396

Segment results		177,680		31,638		1,664		(16	)		210,966

The reconciliation of the reported profits and total profits before taxes for the reported periods is described below:


	6 months ended 30 June				3 months ended 30 June				Year ended 31 December 2017
	2018		2017		2018		2017		Year ended 31 December 2017
	(Unaudited)				(Unaudited)				(Audited)
	U.S. dollars in thousands
Reported segment profits		134,947		100,543		72,478		55,196		210,966
Financing expenses		12,758		10,204		6,793		8,031		24,606

Profit before taxes on income		122,189		90,399		65,685		47,165		186,360

F-20

FRUTAROM INDUSTRIES LTD.

EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION

30 JUNE 2018

(UNAUDITED)

NOTE 7—SUBSEQUENT EVENTS:

a.	Termination of agreement to acquire Meroar

On July 1, 2018 the company announced that following its entering into an agreement to acquire 70% of the Argentinean companies Meroar S.A. and Meroaromas S.A. (“Meroar”) on March 13, 2018, the parties have reached a mutual consent to terminate the agreement without costs due to significant changes in the business environment in Argentina, including a significant devaluation of the local currency.

b.	Shareholders’ approval of the merger agreement with IFF:

Following the signing of the agreement, on May 7, 2018, with IFF (the “Merger Agreement”), an international public company whose securities are listed for trading on the New York Stock Exchange (the “Purchaser”) and Icon Newco Ltd., a private company incorporated under the laws of the State of Israel that is wholly-owned by the Purchaser (“Merger Sub”), the general meeting of the shareholders approved the merger with IFF on August 6, 2018, according to the merger agreement and all transactions and actions related to the merger agreement.

Under the Merger Agreement, a reverse triangular merger (the “Merger”) shall take place, pursuant to which, upon closing, the Merger Sub shall be merged with and into Frutarom (as a result of the merger, Frutarom will turn into a subsidiary (100%) of the purchaser), such that for each Ordinary Share, par value NIS 1.00, of the Company immediately prior to the consummation of the Merger, the Purchaser shall (a) pay a cash amount of US$ 71.19; and (b) issue 0.249 shares of the Purchaser’s common stock.

The Merger Consideration reflects a Company valuation of approximately US$ 6.37 billion, on a fully-diluted basis, and an enterprise value (taking into account estimated amount of the Company’s net debt) of approximately US$ 7.1 billion.

F-21

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