07ANNUAL REPORT 2007 To Be The Prefered Partner For Tasty And Healthy Success Dear Shareholder, We are pleased to report Frutarom’s results and achievements for 2007, a year in which we continued the implementation of our rapid growth strategy, combining strong organic growth in core activities with acquisitions, while realizing our ambitious goals. In accordance with a strategic plan presented three years ago, we have succeeded in again doubling Frutarom's revenues. Frutarom's sales exceeded the US$ 300 million threshold to total US$ 368 million for 2007. In proforma terms (assuming the acquisitions made during the year had been entirely consolidated with Frutarom's results as of January 1, 2007), our Proforma sales, on an ongoing basis, total US$ 431 million. Frutarom is now firmly established as one of the top ten flavor and fragrance companies in the world. Sales grew by 28.2% to US$ 368 million while Frutarom continued to achieve double digit organic internal growth, substantially higher than the rate experienced by our industry. Gross profit rose by 23.5% to US$ 131 million. Operating profit was US$ 34.5 million and net profit US$ 24.2 million. These excellent results were achieved in a challenging business environment which, as opposed to the past, has been characterized by continued price rises in raw materials used in Frutarom’s production. Price increases have been much greater for many natural ingredients, which make up the majority of ingredients used by Frutarom. To ensure further improvement in future margins, Frutarom continually seeks to raise the selling prices of our products to ensure our future profitability. The industry trend of mergers and acquisitions of companies in our field, reducing the number of players, continued in 2007. Frutarom is one of the most active companies in making acquisitions. Our management devotes considerable resources to identifying and realizing acquisitions that fit our rapid growth strategy and ensure that we continue to create value for you, our shareholders. In 2007 Frutarom made seven acquisitions. These were: the Gewurzmuller Group in Germany, which established Frutarom's standing as a world leader in the field of savory solutions; Belmay and Jupiter Flavours in England, which established Frutarom's standing as the leading flavor producer in the British market; Raychan, Adumim and Rad in Israel; and Abaco in the United States. All of the acquisitions are synergetic and complement Frutarom's activity in flavors and unique ingredients and further the realization of Frutarom’s vision: “To be the Preferred Partner for Taste and Healthy Success.” Frutarom has extensive successful experience in merging and integrating acquired companies with its existing activity while capitalizing on commercial and operational synergies to achieve optimal advantage from cross selling opportunities, expense reductions and, thereby, improvement to profitability and profit. The 2007 acquisitions were made in locations where we already had activity, which allowed us to merge sites and benefit in the future from significant operational savings. The results of our activity were strongly influenced this year by the acquisitions, which expanded sales and temporarily reduced profitability, as expected. It is our view that the acquisitions will contribute, from the first quarter of 2008, to the continued growth trend in sales as well as to the growth of profit, while improving margins. While investing in growth through mergers and acquisitions, Frutarom continues striving for rapid, profitable organic growth in core activities at rates that surpass those of the industry. We continue to concentrate both on our large multinational customers and on mid sized and local customers, providing all with the same excellent, quality service in accordance with their individual and special needs. We will persist in strengthening Frutarom’s presence in developed markets such as Western Europe and the United States, and in augmenting and intensifying our activity in Asia and in the emerging markets through further penetration of additional markets that have higher growth rates than the global average. Frutarom continues to offer its customers a varied and expansive product range consisting mainly of natural products, along with new, innovative products, created with advanced technologies, with a special emphasis on functional and organic food ingredients. The food market in recent years is developing in the direction of natural, tasty and healthy. We are witnessing increased consumer demand for natural products that have health and dietary values, reduced calories, fat, salt, cholesterol, and other health benefits, and for organic products with attributes proven to assist in disease prevention and strengthening of the immune system, known as functional foods. We also see growing consumer demand for products with ‘clean labels.’ Frutarom identified these trends some time ago and took strategic actions to position the Company at a unique crossroads, integrating our varied capabilities by combining the complementary activities of our two Divisions with the acquisitions made in recent years. Together, these initiatives enable us to provide our customers with advanced, unique solutions that blend excellent taste and health benefits. We regard our research, development, technology and innovation as core competencies, a significant advantage, and as one of our internal growth engines. Our research centers continue to invest resources in developing new and innovative added-value products that yield high profit margins, and to partner with leading research institutes, academic institutions and start-ups worldwide. Our research and development efforts will constitute the basis for our continued growth in the coming years and allow us to persevere in providing high added value to our customers. As part of realizing our strategy, this year we launched a new innovation center in Switzerland, which is among the most unique in the field. It will enable us to create, together with our customers, the most advanced solutions in the field of taste and health. This year we also established a new Internet site that is an additional platform for continuing to improve the relationship with our customers and shareholders. To further strengthen Frutarom, we have continued expanding and deepening the managerial infrastructure and team to allow us to sustain our accelerated growth and achieve our ambitious goals. Frutarom’s augmented management is working to realize the synergy and many cross selling opportunities within and between the Divisions and our customers and products, whether existing or added through future acquisitions, while extracting the full range of advantages each acquisition brings with it. To strengthen our global management and infrastructure for activity expansion, in 2007 we continued the implementation of an advanced ERP (Enterprise Resource Planning) system. The process was completed this year at our sites in Switzerland and Israel. To conclude on a personal note, our continued success could not have been achieved without the dedication and work of all of Frutarom’s employees throughout the world and their ongoing quest for creativity and excellence. For this, we would like to acknowledge and thank them. The initiative and excellence of Frutarom’s employees, under the guidance of our experienced global management team, constitute a strong foundation for our continued growth and future success. We are confident that, with the continued contribution of our employees and management and the ongoing support of our board members and our shareholders, we will continue to develop and grow our Company. We will continue to supply innovative, quality, tasty and healthy products to our many loyal customers throughout the world, provide them with excellent service and successfully meet the ambitious goals and challenges ahead of us. Sincerely, Dr. John J. Farber Ori Yehudai Chairman President & CEO The Board of Directors March 17, 2008 TABLE OF CONTENTS SECTION A DESCRIPTION OF THE COMPANY’S BUSINESS SECTION B DIRECTORS REPORT FOR THE PERIOD SECTION C FINANCIAL REPORTS FOR THE PERIOD ENDED DECEMBER 31, 2007 SECTION D ADDITIONAL INFORMATION SECTION A DESCRIPTION OF THE COMPANY'S BUSINESS FORWARD-LOOKING STATEMENTS This report includes statements that are “forward-looking statements.” Forward-looking statements, as defined in the Securities Law – 1968, include forecast estimates or other information relating to future events or circumstances whose occurrence is not certain and which are not solely in the Company’s control. These forward-looking statements can be identified, among others, by the use of terms such as, “believes,” “estimates,” “intends,” “expects,” “plans,” “will” or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. By their nature, forward-looking statements involve risk and uncertainty. Forward-looking statements are not guarantees of future performance and the actual results of the Company’s operations, financial conditions and its development, including the realization of its strategy and goals, may be materially different from those described or discussed in this report. Important factors that could cause the actual results of the Company’s activity, financial status and development, including realization of its strategy and goals, to differ materially from those described in this report, include,