Marel — Interim / Quarterly Report 2018

Apr 23, 2018

cmarel

Condensed Consolidated Interim Financial Statements

31 March 2018

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Cmarel

Contents Consolidated Financial Statements

The Board of Directors' and CEO's Report 1
Consolidated Statement of Income 3
Consolidated Statement of Comprehensive Income 4
Consolidated Statement of Financial Position 5
Consolidated Statement of Changes in Equity 6
Consolidated Statement of Cash Flows 7

Notes to the Condensed Consolidated Interim Financial Statements 8

1 General information 8
2 Basis of preparation and use of judgements and estimates 8
3 Accounting policies 9
4 Financial management 12
5 Business combinations 13
6 Segment information 14
7 Revenue 15
8 Expenses by nature and Adjusted result from operations 16
9 Net finance costs 16
10 Income tax 17
11 Earnings per share 17
12 Property, plant and equipment 18
13 Right of use assets 19
14 Goodwill 20
15 Intangible assets 21
16 Deferred income tax 22
17 Inventories 23
18 Equity 23
19 Bank borrowings and lease liabilities 25
20 Provisions 26
21 Financial instruments and risks 26
22 Contingencies 27
23 Related party transactions 27
24 Subsequent events 27
25 Quarterly results 28

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The Board of Directors' and CEO's Report

Marel is a leading global provider of advanced equipment, systems and services for the Poultry, Meat and Fish industries. Marel has offices and subsidiaries in 32 countries and a global network of more than 100 agents and distributors.

The Condensed Consolidated Interim Financial Statements for the three-month period ended 31 March 2018 comprise the financial statements of Marel hf. ("the Company") and its subsidiaries (together "the Group" or "Marel"). The Condensed Consolidated Interim Financial Statements are prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the Group's Annual Consolidated Financial Statements as at and for the year ended 31 December 2017. The Condensed Consolidated Interim Financial Statements do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to understand the changes in the Group's financial position and performance from year end 2017.

Operations in the three-month period ended 31 March 2018

The consolidated revenues for Marel for the first quarter 2018 are EUR 288.4 million (2017: EUR 252.5 million). The adjusted result from operations for the same period is EUR 43.8 million or 15.2% of revenues (2017: EUR 37.7 million or 14.9% of revenues).

The bridge between Adjusted result from operations and Result from operations as shown in the Consolidated Statement of Income is as follows:

	Q1 2018	Q1 2017
Adjusted result from operations	43.8	37.7
Adjustment amortization of acquisition-related (in) tangible assets	(2.3)	(6.2)
Result from operations	41.5	31.5

At 31 March 2018 the Company's order book amounted to EUR 529 million (at 1 January 2018: EUR 488 million).

On 31 August 2017, Marel closed an agreement to acquire 100% of the shares of Sulmaq Industrial e Comercial S.A. ("Sulmaq") from a consortium of shareholders. Further information is provided in note 5 of the Condensed Consolidated Interim Financial Statements.

Based on the decision taken at the Company's 2018 Annual General Meeting, a dividend was declared to shareholders for the operational year 2017 amounting to EUR 28.7 million, EUR 4.19 cents per share, corresponding to approximately 30% of net result for the year 2017 (2017: a dividend of EUR 15.3 million, EUR 2.14 cents per share, was declared and paid out to shareholders for the operational year 2016).

In Q1 2018, Marel purchased 10.0 million treasury shares for a total amount of EUR 30.3 million to be used as a payment for potential future acquisitions.

Condensed Consolidated Interim Financial Statements 31 March 2018

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Statement by the Board of Directors and the CEO

According to the Board of Directors' and CEO's best knowledge, the Condensed Consolidated Interim Financial Statements give a true and fair view of the consolidated financial performance of the Group for the three-month period ended 31 March 2018, its assets, liabilities and consolidated financial position as at 31 March 2018 and its consolidated cash flows for the three-month period ended 31 March 2018.

Furthermore, in our opinion the Condensed Consolidated Interim Financial Statements and the endorsement of the Board of Directors and the CEO give a fair view of the development and performance of the Group's operations and its position and describe the principal risks and uncertainties faced by the Group.

The Board of Directors and the CEO have today discussed the Condensed Consolidated Interim Financial Statements of Marel hf. for the three-month period ended 31 March 2018 and ratify them with their signatures.

Garðabær, 23 April 2018

Board of Directors

Ásthildur Margrét Otharsdóttir
Chairman of the Board

Arnar Þór Másson
Ann Elizabeth Savage

Ástvaldur Jóhannsson
Helgi Magnússon

Margrét Jónsdóttir
Ólafur S. Guðmundsson

Chief Executive Officer

Árni Oddur Þórðarson

Condensed Consolidated Interim Financial Statements 31 March 2018

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Consolidated Statement of Income

In EUR million unless stated otherwise	Notes	Q1	Q1
		2018	2017
Revenues	6 7	288.4	252.5
Cost of sales	8	(176.9)	(153.0)
Gross profit		111.5	99.5
Selling and marketing expenses	8	(32.6)	(31.0)
Research and development expenses	8	(17.4)	(13.9)
General and administrative expenses	8	(17.7)	(16.9)
Adjusted result from operations*)		43.8	37.7
Amortization of acquisition-related (in)tangible assets	5	(2.3)	(6.2)
Result from operations		41.5	31.5
Finance costs	9	(6.4)	(4.6)
Finance income	9	0.4	0.8
Net finance costs	9	(6.0)	(3.8)
Result before income tax		35.5	27.7
Income tax	10	(7.2)	(6.4)
Net result		28.3	21.3
Of which:
- Net result attributable to non-controlling interests	18	0.0	0.0
- Net result attributable to Shareholders of the Company	11	28.3	21.3
Earnings per share for result attributable to Shareholders of the Company during the period (expressed in EUR cent per share):
- basic	11	4.11	2.99
- diluted	11	4.09	2.98

*Adjusted result from operations: result has been adjusted for amortization of acquisition-related (in)tangible assets.

The notes on pages 8-28 are an integral part of the Condensed Consolidated Interim Financial Statements.

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Consolidated Statement of Comprehensive Income

		Q1	Q1
In EUR million	Notes	2018	2017
Net Result		28.3	21.3
Items that are or may be reclassified to profit or loss:
Currency translation differences	18	(2.0)	(0.0)
Cash flow hedges	18	0.6	0.8
Income tax relating to cash flow hedges	16 18	(0.1)	(0.1)
Other comprehensive income / (loss) for the period, net of tax		(1.5)	0.7
Total comprehensive income for the period		26.8	22.0
Of which:
Comprehensive income attributable to non-controlling interests	18	0.0	0.0
Comprehensive income attributable to Shareholders of the Company		26.8	22.0

The notes on pages 8-28 are an integral part of the Condensed Consolidated Interim Financial Statements.

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Consolidated Statement of Financial Position

In EUR million	Notes	31/03	31/12
		2018	2017
ASSETS
Property, plant and equipment	12	146.5	144.7
Right of use assets	13	31.1	-
Goodwill	14	643.0	643.9
Intangible assets (excluding goodwill)	15	259.5	262.7
Trade and other receivables		3.8	4.0
Derivative financial instruments	21	1.5	0.9
Deferred income tax assets	16	0.2	4.4
Non-current assets		1,085.6	1,060.6
Inventories	17	129.4	124.4
Contract assets		35.4	48.2
Trade receivables		146.8	128.9
Other receivables and prepayments		49.4	46.6
Cash and cash equivalents		19.1	31.9
Current assets		380.1	380.0
TOTAL ASSETS		1,465.7	1,440.6
EQUITY AND LIABILITIES
Share capital	18	6.3	6.3
Share premium reserve	18	199.8	229.6
Other reserves	18	(9.7)	(8.2)
Retained earnings	18	309.0	313.9
Shareholders' equity		505.4	541.6
Non-controlling interests	18	0.2	0.3
Total equity		505.6	541.9
LIABILITIES
Borrowings	19	381.5	370.5
Lease liabilities	13 19	24.1	0.2
Deferred income tax liabilities	16	54.1	61.3
Provisions	20	7.5	8.6
Other liabilities		3.4	3.6
Derivative financial instruments	21	2.7	2.7
Non-current liabilities		473.3	446.9
Contract liabilities		240.3	209.6
Trade and other payables		192.6	195.9
Current income tax liabilities		12.6	11.0
Borrowings	19	24.3	26.2
Lease liabilities	13 19	7.4	-
Provisions	20	9.6	9.1
Current liabilities		486.8	451.8
Total liabilities		960.1	898.7
TOTAL EQUITY AND LIABILITIES		1,465.7	1,440.6

The notes on pages 8-28 are an integral part of the Condensed Consolidated Interim Financial Statements.

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Consolidated Statement of Changes in Equity

In EUR million	Share capital	Share premium reserve 1)	Other reserves 2)	Retained earnings	Share-holders' equity	Non-controlling interests	Total equity
Balance at 31 December 2017	6.3	229.6	(8.3)	313.9	541.5	0.3	541.8
Impact IFRS 9 & 15				(4.8)	(4.8)		(4.8)
Balance at 1 January 2018	6.3	229.6	(8.3)	309.1	536.7	0.3	537.0
Net result for the period				28.3	28.3	0.0	28.3
Total other comprehensive income			(1.5)		(1.5)		(1.5)
Transactions with owners of the Company
Treasury shares purchased	(0.0)	(30.3)			(30.3)		(30.3)
Value of services provided		0.5			0.5		0.5
Dividend				(28.7)	(28.7)	(0.0)	(28.8)
	(0.0)	(29.8)	(1.5)	(0.4)	(31.7)	(0.1)	(31.8)
Balance at 31 March 2018	6.3	199.8	(9.8)	308.7	505.0	0.2	505.2
Balance at 1 January 2017	6.5	288.7	(2.1)	232.2	525.3	0.2	525.5
Net result for the period				21.3	21.3	0.0	21.3
Total other comprehensive income			0.7		0.7		0.7
Transactions with owners of the Company
Treasury shares purchased	0.0	(6.8)			(6.8)		(6.8)
Value of services provided		0.1			0.1		0.1
Other movements			(0.1)	0.1	-		-
Dividend				(15.3)	(15.3)	(0.0)	(15.3)
	0.0	(6.7)	0.6	6.1	(0.0)	0.0	(0.0)
Balance at 31 March 2017	6.5	282.0	(1.5)	238.3	525.3	0.2	525.5
Net result for the period				75.5	75.5	0.1	75.6
Total other comprehensive income			(6.8)		(6.8)		(6.8)
Transactions with owners of the Company
Treasury shares purchased	(0.2)	(56.4)			(56.6)		(56.6)
Treasury shares sold		3.7			3.7		3.7
Value of services provided		0.3			0.3		0.3
Other movements				0.1	0.1		0.1
	(0.2)	(52.4)	(6.8)	75.6	16.2	0.1	16.3
Balance at 31 December 2017	6.3	229.6	(8.3)	313.9	541.5	0.3	541.8

1) Includes reserve for share based payments as per 31 March 2018 of EUR 1.7 million (31 December 2017: EUR 1.4 million).
2) For details on Other reserves refer to note 18.

The notes on pages 8-28 are an integral part of the Condensed Consolidated Interim Financial Statements.

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Consolidated Statement of Cash Flows

In EUR million	Notes	Q1	Q1
		2018	2017
Cash flows from operating activities
Result from operations		41.5	31.5
Adjustments to reconcile result from operations to net cash provided by / (used in) operating activities:
Depreciation of property, plant and equipment and right of use assets	12 13	5.0	2.7
Amortization and impairment of intangible assets	15	8.8	11.8
Changes in non-current receivables and payables		-	0.1
Working capital provided by / (used in) operating activities		55.3	46.1
Changes in working capital:
Inventories and contract assets and liabilities		30.4	12.9
Trade and other receivables		(19.8)	(20.9)
Trade and other payables		(7.3)	2.4
Provisions		(3.0)	(2.6)
Changes in operating assets and liabilities		0.3	(8.2)
Cash generated from operating activities		55.6	37.9
Taxes paid		(9.5)	(1.4)
Interest and finance income		0.3	0.2
Interest and finance costs		(2.2)	(4.0)
Net cash from operating activities		44.2	32.7
Cash flows from investing activities
Purchase of property, plant and equipment	12	(5.4)	(4.6)
Investments in intangibles	15	(6.2)	(5.3)
Proceeds from sale of property, plant and equipment		0.4	0.2
Net cash provided by / (used in) investing activities		(11.2)	(9.7)
Cash flows from financing activities
Purchase of treasury shares		(30.3)	(6.8)
Proceeds from borrowings		72.0	5.0
Repayments of borrowings		(57.4)	(22.1)
Payments lease liabilities		(2.0)	-
Dividends paid	18	(25.9)	(13.9)
Net cash provided by / (used in) financing activities		(43.6)	(37.8)
Net increase (decrease) in net cash		(10.6)	(14.8)
Exchange (loss) / gain on net cash		(2.2)	(1.2)
Net cash at beginning of the period		31.9	45.5
Net cash at end of the period		19.1	29.5

The notes on pages 8-28 are an integral part of the Condensed Consolidated Interim Financial Statements.

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Notes to the Condensed Consolidated Interim Financial Statements

1 General information

Reporting entity

Marel hf. ("the Company") is a limited liability company incorporated and domiciled in Iceland. The address of its registered office is Austurhraun 9, Gardabaer.

The Condensed Consolidated Interim Financial Statements of the Company as at and for the three-month period ended 31 March 2018 comprise the Company and its subsidiaries (together referred to as "the Group" or "Marel").

The Group is a leading global provider of advanced equipment, systems and services for the Poultry, Meat and Fish industries and is involved in the manufacturing, development, distribution and sales of solutions for these industries.

The Condensed Consolidated Interim Financial Statements for the three-month period ended 31 March 2018 have not been audited nor reviewed by an external auditor.

All amounts are in millions of EUR and have been rounded to the nearest million, unless otherwise indicated.

These Condensed Consolidated Interim Financial Statements have been approved for issue by the Board of Directors and CEO on 23 April 2018.

The Company is listed on the Nasdaq OMX Nordic Iceland exchange.

2 Basis of preparation and use of judgements and estimates

Basis of preparation

These Condensed Consolidated Interim Financial Statements of the Company and its subsidiaries are for the three-month period ended 31 March 2018 and have been prepared in accordance with IAS 34 as adopted by the European Union.

The Condensed Consolidated Interim Financial Statements should be read in conjunction with the Group's Annual Consolidated Financial Statements for the year ended 31 December 2017. The Consolidated Financial Statements for the Group for the period ended 31 December 2017 are available upon request from the Company's registered office at Austurhraun 9, Garðabær, Iceland or at www.marel.com.

These Condensed Consolidated Interim Financial Statements do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual financial statements.

This is the first set of the Group's financial statements where IFRS 9, IFRS 15 and IFRS 16 have been applied. Changes to significant accounting policies are described in note 3.

These Condensed Consolidated Interim Financial Statements have been prepared under the historical cost convention, except for the valuation of available-for-sale financial assets and financial assets and liabilities (including derivative instruments) which are valued at fair value through the Consolidated Statement of Comprehensive Income.

Items of each entity in the Group, as included in the Condensed Consolidated Interim Financial Statements, are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity ("the functional currency"). The Condensed Consolidated Interim Financial Statements are presented in Euro (EUR), which is the Group's reporting currency.

Use of judgements and estimates

In preparing these Condensed Consolidated Interim Financial Statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

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The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last Group's Annual Consolidated Financial Statements for the year ended 31 December 2017, except for new significant judgements and key sources of estimation uncertainty related to the application of IFRS 9, IFRS 15 and IFRS 16, which are described in note 3.

3 Accounting policies

Except as described below, the accounting policies applied in these Condensed Consolidated Interim Financial Statements are the same as those applied and described in the Annual Consolidated Financial Statements for the year ended 31 December 2017.

The changes in accounting policies are expected to be reflected in the Group's Consolidated Financial Statements as at and for the year ending 31 December 2018.

The Group has initially adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers, both with an effective date of 1 January 2018 and has early adopted IFRS 16 Lease which has an effective date of 1 January 2019.

Impact of the adoption of new standards on the opening Retained earnings

The effect of initially applying IFRS 9 and IFRS 15 on the group's Consolidated Financial Statements is described below.

	31
	December 2017 1)	IFRS 9 2)	IFRS 15 3)	1 January 2018 4)
Retained earnings	313.9	4.1	(8.9)	309.1

1) Retained earnings as presented in the Consolidated Statement of Financial Position.
2) Adjustments due to adoption of IFRS 9.
3) Adjustments due to adoption of IFRS 15.
4) Adjusted opening balance at 1 January 2018.

The total adjustment, net of tax, to the opening balance of the Group's equity at 1 January 2018 amounts to EUR 4.8 million (decrease of Retained earnings). The principal components of the estimated adjustments are as follows:

• IFRS 9: An increase in Retained earnings of EUR 3.7 million relating to modifications in the

Group's loan facilities and an increase in Retained earnings of EUR 0.4 million as a result of a reduction in the impairment of Trade receivables.

• IFRS 15: A decrease in Retained earnings of EUR 3.0 million due to later recognition of revenues (and some associated costs) for standard equipment and a decrease in Retained earnings of EUR 5.9 million due to alignment of margins for all phases of the complete solutions or systems.

The Group has initially applied IFRS 9 and IFRS 15 at 1 January 2018. Under the transition methods chosen, comparative information is not restated.

Marel adopted IFRS 16 Leases as well on 1 January 2018. The transition approach for IFRS 16 is the cumulative catch up approach, as a result there is no impact on Retained earnings as at 1 January 2018.

IFRS 9 Financial instruments

IFRS 9 contains a new classification and measurement approach for financial assets and liabilities that reflects the business model in which assets are managed and their cash flow characteristics.

IFRS 9 contains three principal classification categories for financial assets: measured at Amortized cost, Fair Value Through Other Comprehensive Income ("FVOCI") and Fair Value Through Profit and Loss ("FVTPL"). The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale.

Based on its assessment, the Group does not believe that the new classification requirements will have a material impact on its accounting for trade receivables. The new classification requirements will affect the carrying amount of borrowings as modifications of financing facilities will be accounted for differently under IFRS 9.

The Group has adopted IFRS 9 using the exemption which allows it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes.

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Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 have been recognized in Retained earnings as at 1 January 2018.

Amendments made by IFRS 9 to paragraph 82 of IAS 1 introduced additional line items that are required to be presented in the Consolidated Statement of Income (Impairment loss on trade and other receivables). The Group has not presented them because during the interim period it did not have events or transactions to be reflected in those line items.

Hedge accounting

When initially applying IFRS 9, the Group may choose as its accounting policy to continue to apply the hedge accounting requirements of IAS 39 instead of the requirements in IFRS 9. The Group has chosen to continue to apply the requirements of IAS 39.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.

The Group has adopted IFRS 15 using the cumulative effect method (with practical expedient: completed contract method), with the effect of 1 January 2018, being the date of initial application. Accordingly, the information presented for 2017 has not been restated and is presented, as previously reported, under IAS 18, IAS 11 and related interpretations.

The following tables summarize the impacts of adopting IFRS 15 on the Group's interim Consolidated Statement of Financial Position as at 31 March 2018 and its Consolidated Statement of Income and Consolidated Statement of Comprehensive Income for the three months then ended for each of the line items affected. There was no material impact on the Group's interim Consolidated Statement of Cash Flows for the three month-period ended 31 March 2018.

Condensed Consolidated Statement of Financial Position	As		Amounts without adoption of IFRS 15
In EUR million	Reported	Adjustments
ASSETS
Other non-current assets	1,085.4	-	1,085.4
Deferred income tax assets	0.2	(4.0)	(3.8)
Non-current assets	1,085.6	(4.0)	1,081.6
Contract assets	35.4	15.3	50.7
Other current assets	344.7	-	344.7
Current assets	380.1	15.3	395.4
TOTAL ASSETS	1,465.7	11.3	1,477.0
EQUITY AND LIABILITIES
Share capital	6.3	-	6.3
Share premium reserve	199.8	-	199.8
Other reserves	(9.7)	-	(9.7)
Retained earnings	309.0	11.3	320.3
Shareholders' equity	505.4	11.3	516.7
Non-controlling interests	0.2	-	0.2
Total equity	505.6	11.3	516.8
LIABILITIES
Non-current liabilities	473.3	-	473.3
Current liabilities	486.8	-	486.8
Total liabilities	960.1	-	960.2
TOTAL EQUITY AND LIABILITIES	1,465.7	11.3	1,477.0
Condensed Consolidated Statement of Income	As		Amounts without adoption of IFRS 15
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In EUR million	Reported	Adjustments
Revenues	288.4	3.8	292.2
Cost of sales	(176.9)	(0.5)	(177.4)
Gross profit	111.5	3.3	114.8
Adjusted result from operations*)	43.8	3.3	47.1
Result from operations	41.5	3.3	44.8
Result before income tax	35.5	3.3	38.8
Income tax	(7.2)	(0.8)	(8.0)
Net result	28.3	2.5	30.8
Comprehensive income	26.8	2.5	29.3

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The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Group's various goods and services are set out below. Under IFRS 15, revenue is recognized when a customer obtains control of the goods or services. Determining the timing of the transfer of control – at a point in time or over time – requires judgement.

Sales of goods

Revenues were recognized under IAS 18 and IAS 11 when the related risks and rewards of the goods or services were transferred to the customer. Hence, revenues were recognized at a point in time or over time depending on the contractual arrangement with the customer.

In Marel's business model, sales of goods relate to sales of standard equipment and sales of complete solutions or systems.

Standard equipment requires no or minor modifications as requested by customers. Sales of complete solutions or systems require significant modifications either requested by the customer or required to fulfill the customer's needs. Under IFRS 15 revenue will be recognized when or as the customer obtains control of the goods or services.

Revenues for standard equipment, under IAS 11 accounted for by the percentage of completion method, are since 1 January 2018 recognized later, as the IFRS 15 criteria for revenue recognition over time are not met. The impact on Retained earnings at 1 January 2018 as a result of changes for standard equipment at that date is a decrease of EUR 3.0 million.

For the sale of complete solutions or systems, revenue was under the previous accounting standards, IAS 11 and IAS 18, recognized over time. Revenue was recognized as the Group manufactures the equipment. Under IFRS 15, the recognition of revenue for these categories will not change. Under IFRS 15, all these complete solutions or systems are deemed to not have an alternative use and Marel has an enforceable right to payment and therefore related revenues will be recognized over time.

Based on the Group's assessment, the previous accounting practice of the Group for complete

solutions or systems is in line with IFRS 15 guidance. Therefore, the application of IFRS 15 does not result in differences in the timing of revenue recognition for such solutions or systems. Under IFRS 15, complete solutions or systems should have a similar margin for all components of the solution or system. As a result of the adoption of IFRS 15, Marel aligned the margins for all phases of the solution or systems, which resulted in deferral of margins. The impact on Retained earnings at 1 January 2018 as a result of alignment of margins is a decrease of EUR 5.9 million.

As a result of the above adjustments the opening order book as at 1 January 2018 increased to EUR 488 million.

Rendering of services

The Group is involved in manufacturing of equipment, as well as performing related maintenance services to the equipment. If the services under a single arrangement are rendered in different reporting periods, then the consideration is allocated on a relative fair value basis between the different services. Under the previous accounting standards, revenue is recognized using the percentage of completion method.

Under IFRS 15, the total consideration in the service contracts will be allocated to all services based on their stand-alone selling prices. The stand-alone selling prices will be determined based on the list prices at which the Group sells the services in separate transactions. Revenue relating to maintenance services is recognized over time although the customer pays up-front in full for these services. A contract liability is recognized for revenue relating to the maintenance services at the time of the initial sales transaction and is recognized as revenue over the service period.

The Group does not expect the application of IFRS 15 to result in significant differences in the timing of revenue recognition for these services.

Commissions

The Group will apply the practical expedient in relation to the incremental costs of obtaining a contract. The Group will recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one

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year or less. Costs for obtaining a contract for which the contract exceeds one year will be capitalized and amortized over the contract period. Based on the Group's assessment, the accounting of commissions under IFRS 15 is not expected to result in significant differences in recognition of revenues or costs.

IFRS 16 Lease

IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items.

The Group has completed a detailed assessment of the potential impact on its consolidated financial statements. The most significant impact identified is that the Group will recognize new assets and liabilities for its operating leases of office buildings and vehicles.

Application of the new standard is mandatory for financial years beginning on or after 1 January 2019. The Group has early adopted IFRS 16 and started reporting as of 1 January 2018.

The current requirement to differentiate between finance leases and operating leases under IAS 17 will therefore no longer apply for lessees. Under IFRS 16 for all leases the lessee must recognize a lease liability on the Statement of Financial Position in the present value of future lease payments of the respective lease plus directly allocated costs and at the same time recognize a corresponding right of use to the underlying asset. Over the term of the lease, the lease liability is adjusted using financial mathematics methods – similar to the rules for finance leases under the current IAS 17 – and the right of use is depreciated.

As at 1 January 2018, the additional assets and liabilities on the Statement of Financial Position amount to EUR 33.2 million. In addition, the nature of expenses related to those leases will now change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. The Group does not expect the adoption of IFRS 16 to impact its ability to comply with the revised maximum leverage threshold loan covenants.

Transition

As a lessee, the Group has applied IFRS 16 on 1 January 2018, using the cumulative catch up approach and measuring the amounts equal to liability at adoption, with no restatement of comparative information.

4 Financial management

The Company's policy is to finance its operations in its revenue currencies. More than 99% of Marel's revenues originate outside of Iceland and there is a good currency balance between the Company's revenues and costs. Efforts have been made to systematically reduce currency risk in the Company's financing and to reduce interest cost.

The Group has a 640 EUR million equivalents facilities agreement with seven international banks, led by ING bank, Rabobank and ABN AMRO. The terms and conditions are generally in line with Loan Market Association corporate standards. It is an all senior facility, which matures in 2022.

The key elements of the financing are:

• A five-year all senior loan and revolver, consisting of a EUR 243 million and a USD 75 million term loan and EUR 325 million revolving credit facility, all with final maturity in May 2022.
• Initial interest terms are EURIBOR/LIBOR + 185 bps, which will vary in line with Marel's leverage ratio (Net debt/EBITDA) at the end of each quarter.

The Group has a financing structure which can accommodate the Group's financing requirements until 2022 with USD and EUR borrowings matching the Group's exposure in these currencies to a large extent.

The facility has an embedded 0% floor in the EURIBOR and LIBOR rates. At the date of utilization of the loans (5 May 2017) the 5 year EURIBOR curve was negative and consequently the floor has intrinsic value at the date of inception. In accordance with IFRS 9 Financial Instruments, Marel has separated the embedded derivative from the facility and reports the intrinsic value on a fair value basis as a financial derivative on the Consolidated Statement of Financial Position.

Condensed Consolidated Interim Financial Statements 31 March 2018

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5 Business combinations

Sulmaq Industrial e Comercial S.A.

On 25 July 2017, Marel signed an agreement to acquire 100% of the shares of Sulmaq Industrial e Comercial S.A. ("Sulmaq") from a consortium of shareholders. Sulmaq is domiciled in Brazil. The closing of the acquisition of Sulmaq took place on 31 August 2017.

Sulmaq is involved in development of projects and supply of complete slaughtering, deboning and industrialized equipment lines for hog, cattle and sheep processors according to customer's needs and operates in Brazil and internationally. The acquisition enhances Marel's position as a leading global provider of advanced equipment and solutions to the Poultry, Meat and Fish industries and is fully in line with the Company's previously announced growth strategy. This step supports Marel's full line offering in the meat processing industry.

In accordance with IFRS 3, Business Combinations, the purchase price of Sulmaq was allocated to identifiable assets and liabilities acquired. Provisional goodwill amounted to EUR 12.6 million and is allocated to the Meat segment. The resulting goodwill from this acquisition is primarily related to the strategic (and cultural) fit of Sulmaq and Marel with highly complementary product portfolios and geographic presence, new customers and synergies. The goodwill is, under certain conditions, expected to be deductible for income tax purposes.

Sulmaq contributed EUR 6.5 million to revenues in the first quarter of 2018 and affected Result from operations positively.

Under IFRS 3, up to one year from the acquisition date, the initial accounting for business combinations needs to be adjusted to reflect new information that is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date. As a result of such adjustments the values of assets and liabilities recognized may change in the one-year period from the acquisition date.

The Purchase Price Allocation of Sulmaq has not yet been finalized as we are still in the process of finalizing the valuation of Property, plant and equipment. Expectation is that the Purchase Price Allocation will be finalized in the first half of 2018.

The following table summarizes the consideration paid for Sulmaq, the recognized provisional amounts of assets acquired and liabilities assumed at the acquisition date being 31 August 2017.

31 August 2017
Property, plant and equipment	6.5
Other intangible assets	3.7
Inventories	6.1
Trade and other receivables, current and non-current	5.5
Other receivables and prepayments	0.5
Cash and cash equivalents	5.8
Assets acquired	28.1
Long-term debt, current and non-current	5.0
Deferred and other tax liabilities	1.7
Provisions, current and non-current	0.6
Trade and other payables	7.4
Liabilities assumed	14.7
Total net identified assets	13.4
Consideration paid in cash for the transaction on 31 August 2017	26.0
Consideration transferred	26.0
Provisional goodwill on acquisition	12.6

Amortization of acquisition-related (in)tangible assets relate to the following lines in the Consolidated Statement of Income:

	Q1 2018	Q1 2017
Cost of sales	0.0	-
Selling and marketing expenses	0.1	-
Research and development expenses	0.0	-
	0.1	-

Condensed Consolidated Interim Financial Statements 31 March 2018

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6 Segment information

Operating segments

The identified operating segments comprise the three industries, which are the reporting segments. These operating segments form the basis for managerial decision taking. The following summary describes the operations in each of the Group's reportable segments:

• Poultry processing: Our poultry processing product range offers integrated systems for processing broilers, turkeys and ducks;
• Meat processing: Our Meat Industry specializes in the key processes of slaughtering, deboning and trimming, case ready food service and bacon processing;
• Fish processing: Marel provides advanced equipment and systems for salmon and whitefish processing, both farmed and wild, onboard and ashore;
• The 'Others' segment includes any revenues, result from operations and assets which do not belong to the three core industries.

The reporting entities are reporting their revenues per operating segment based on the industry for which the customer is using Marel's product range. Therefore inter-segment revenues do not exist, only intercompany revenues within the same segment.

Results are monitored and managed at the operating segment level, up to the Adjusted result from operations. The Group's CEO reviews the internal management reports of each segment on a monthly basis. Fluctuations between quarters are mainly due to timing of receiving orders and completion of orders. Decisions on tax and financing structures including cash and cash equivalents are taken at a corporate level, therefore no financial income and expenses nor tax are allocated to the operating segments. The profit or loss per operating segment is the Adjusted result from operations (before amortization of acquisition-related (in)tangible assets); finance costs and taxes are reported in the column Total.

Intercompany transactions are entered into at arm's length terms and conditions comparable to those available to unrelated parties. Information on assets per operating segment is reported; however, decisions on liabilities are taken at a corporate level and as such are not included in this disclosure.

31 March 2018	Poultry	Meat	Fish	Others	Total
Third Party Revenues	157.4	88.8	38.5	3.7	288.4
Adjusted result from operations	29.3	10.7	3.3	0.5	43.8
Amortization of acquisition-related (in)tangible assets					(2.3)
Result from operations					41.5
Net finance costs					(6.0)
Result before income tax					35.5
Income tax					(7.2)
Net result for the period					28.3
Assets	677.5	628.7	138.7	20.8	1,465.7
Depreciation and amortization	(3.5)	(5.1)	(0.9)	(4.3)	(13.8)
Of which Impairments		(1.1)		-	(1.1)

Condensed Consolidated Interim Financial Statements 31 March 2018

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31 March 2017	Poultry	Meat	Fish	Others	Total
Third Party Revenues	135.0	85.1	30.2	2.2	252.5
Adjusted result from operations	22.3	12.6	2.0	0.8	37.7
Amortization of acquisition-related (in)tangible assets					(6.2)
Result from operations					31.5
Net finance costs					(3.8)
Result before income tax					27.7
Income tax					(6.4)
Net result for the period					21.3
Assets	620.0	621.1	106.4	41.5	1,389.0
Depreciation and amortization	(4.7)	(8.5)	(1.3)	-	(14.5)

7 Revenue

Revenue

The Group's operations and main revenue streams are those described in the last annual Consolidated Financial Statements. The Group's revenue is derived from contracts with customers. The nature and effect of initially applying IFRS 15 on the Group's Condensed Consolidated Interim Financial Statements are disclosed in note 3.

Disaggregation of revenue

In the following table, revenue is disaggregated by primary geographical markets.

31 March 2018	Poultry	Meat	Fish	Others	Total
Primary geographical markets
Iceland	0.3	0.0	1.0	0.0	1.3
The Netherlands	3.9	4.3	0.5	0.2	8.9
Europe other	57.4	33.2	23.4	1.4	115.4
North America	52.8	26.1	6.9	0.6	86.4
Other countries	43.0	25.2	6.7	1.5	76.4
	157.4	88.8	38.5	3.7	288.4
31 March 2017	Poultry	Meat	Fish	Others	Total
Primary geographical markets
Iceland	0.0	0.1	1.5	0.0	1.6
The Netherlands	3.3	3.2	0.3	0.4	7.2
Europe other	48.7	40.8	14.3	1.2	105.0
North America	50.7	25.0	9.1	0.3	85.1
Other countries	32.3	16.0	5.0	0.3	53.6
	135.0	85.1	30.2	2.2	252.5

Condensed Consolidated Interim Financial Statements 31 March 2018

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8 Expenses by nature and Adjusted result from operations

The table below shows the Expenses by nature.

	Q1 2018	Q1 2017
Cost of goods sold	101.3	87.4
Employee benefits	99.8	92.0
Depreciation and amortization	13.8	14.5
Maintenance and rent of buildings and equipment	3.9	3.9
Other	28.1	23.2
	246.9	221.0

Management has presented Adjusted result from operations as performance measure in the Consolidated Statement of Income and believes that this measure is relevant to an understanding of the Group's financial performance. The definition of Adjusted result from operations is the same as in the 2017 Consolidated Financial Statements. Adjusted result from operations is calculated by adjusting Result from operations to exclude the impact of amortization of acquisition-related (in)tangible assets. No other adjustments are included in Adjusted results from operations.

The table below shows the amortization of acquisition-related (in)tangible assets for the acquisition of MPS Holding III B.V. in 2016 and Sulmaq in 2017, which relate to the following lines in the Consolidated Statement of Income.

	Q1 2018	Q1 2017
Cost of sales	0.0	4.1
Selling and marketing expenses	1.6	1.4
Research and development expenses	0.7	0.7
General and administrative expenses	0.0	-
	2.3	6.2

Adjusted result from operations is not a defined performance measure in IFRS. The Group's definition of Adjusted Result from operations may not be comparable with similarly titled performance measures and disclosures by other companies.

9 Net finance costs

	Q1 2018	Q1 2017
Finance costs:
Interest on borrowings	(2.5)	(3.8)
Interest on leases	(0.2)	-
Other finance expenses	(1.6)	(0.8)
Net foreign exchange transaction losses	(2.1)	-
Subtotal Finance costs	(6.4)	(4.6)
Finance income:
Interest income	0.4	0.2
Net foreign exchange transaction gains	-	0.6
Subtotal Finance income	0.4	0.8
Net finance costs	(6.0)	(3.8)

Condensed Consolidated Interim Financial Statements 31 March 2018

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10 Income tax

Income tax recognized in the Consolidated Statement of Income	Q1 2018	Q1 2017
Current tax	(8.3)	(7.0)
Deferred tax	1.1	0.6
	(7.2)	(6.4)

Income tax expense is recognized at an amount determined by multiplying the profit (loss) before tax for the interim reporting period by management's best estimate of the weighted-average annual income tax rate expected for the full financial year, adjusted for the tax effect of certain items recognized in the interim period. As such, the effective tax rate in the interim financial statements may differ from the effective tax rate for the annual financial statements.

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows:

Reconciliation of effective income tax	Q1		Q1
	2018	%	2017	%
Result before income tax	35.5		27.7
Income tax using Icelandic rate	(7.1)	20.0	(5.5)	20.0
Effect of tax rates in other jurisdictions	(1.7)	4.8	(2.2)	7.7
Weighted average applicable tax	(8.8)	24.8	(7.7)	27.7
Foreign exchange effect Iceland	0.3	(0.8)	(0.2)	0.6
Research and development tax incentives	1.5	(4.2)	1.0	(3.5)
Permanent differences	(0.1)	0.3	(0.2)	0.7
Tax losses (un)recognized	(0.0)	0.0	(0.0)	0.0
(Impairment)/reversal of tax losses	-	-	0.0	0.0
Effect of tax rate changes	(0.1)	0.3	0.1	(0.2)
Others	-	-	0.6	(2.5)
Tax charge included in the profit or loss for the period	(7.2)	20.4	(6.4)	22.9

The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax laws and prior experience.

11 Earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to Shareholders by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by the Company and held as treasury shares.

	Q1	Q1
Basic earnings per share (EUR cent per share)	2018	2017
Net result attributable to Shareholders	28.3	21.3
Weighted average number of outstanding shares in issue (millions)	689.3	713.4
Basic earnings per share (EUR cent per share)	4.11	2.99

The diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.

The Company has one category of dilutive potential ordinary shares: stock options. For the stock options a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding stock options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the stock options.

	Q1	Q1
Diluted earnings per share (EUR cent)	2018	2017
Net result attributable to Shareholders	28.3	21.3
Weighted average number of outstanding shares in issue (millions)	689.3	713.4
Adjustments for stock options (millions)	3.8	3.5
Weighted average number of outstanding shares for diluted earnings per share (millions)	693.1	716.9
Diluted earnings per share (EUR cent per share)	4.09	2.98

Condensed Consolidated Interim Financial Statements 31 March 2018

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12 Property, plant and equipment

	Land & buildings	Plant & machinery	Under construction	Vehicles & equipment	Total
At 1 January 2018
Cost	146.4	96.8	19.7	42.2	305.1
Accumulated depreciation	(50.6)	(73.2)	-	(36.6)	(160.4)
Net book value	95.8	23.6	19.7	5.6	144.7
Three months ended 31 March 2018
Opening net book value	95.8	23.6	19.7	5.6	144.7
Divestments	(0.1)	(0.0)	-	0.0	(0.1)
Effect of movements in exchange rates	(0.5)	(0.2)	(0.0)	0.0	(0.7)
Additions	0.3	0.5	4.1	0.5	5.4
Transfer between categories	0.4	1.2	(1.8)	0.2	-
Depreciation charge	(0.9)	(1.4)	-	(0.5)	(2.8)
Closing net book value	95.0	23.7	22.0	5.8	146.5
At 31 March 2018
Cost	144.8	92.0	22.0	42.5	301.3
Accumulated depreciation	(49.8)	(68.3)	-	(36.7)	(154.8)
Net book value	95.0	23.7	22.0	5.8	146.5
	Land & buildings	Plant & machinery	Under construction	Vehicles & equipment	Total
At 1 January 2017
Cost	130.1	93.4	1.6	41.0	266.1
Accumulated depreciation	(41.8)	(69.8)	-	(35.5)	(147.1)
Net book value	88.3	23.6	1.6	5.5	119.0
Year ended 31 December 2017
Opening net book value	88.3	23.6	1.6	5.5	119.0
Divestments	(0.1)	0.0	-	(0.3)	(0.4)
Effect of movements in exchange rates	(1.4)	(0.7)	(0.1)	(0.3)	(2.5)
Additions	2.6	5.3	23.3	2.8	34.0
Business combinations, note 5	6.5	-	-	-	6.5
Transfer between categories	4.2	0.9	(5.1)	-	-
Depreciation charge	(4.3)	(5.5)	-	(2.1)	(11.9)
Closing net book value	95.8	23.6	19.7	5.6	144.7
At 31 December 2017
Cost	146.4	96.8	19.7	42.2	305.1
Accumulated depreciation	(50.6)	(73.2)	-	(36.6)	(160.4)
Net book value	95.8	23.6	19.7	5.6	144.7

Condensed Consolidated Interim Financial Statements 31 March 2018

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Depreciation of property, plant and equipment and amortization of acquisition-related tangible assets analyzes as follows in the Consolidated Statement of Income:

	Q1 2018	Q1 2017
Cost of sales	1.4	1.5
Selling and marketing expenses	0.1	0.2
Research and development expenses	0.1	0.1
General and administrative expenses	1.2	0.9
	2.8	2.7
Amortization of acquisition-related tangible assets	0.0	-
	2.8	2.7

13 Right of use assets

The Group has early adopted IFRS 16 and started reporting as of 1 January 2018. As a consequence, the Group recognizes a Right of use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments.

The following table shows the Right of use assets:

	Land & buildings	Plant & machinery	Vehicles & equipment	Total
At 1 January 2018
Cost	22.4	1.0	9.8	33.2
Net book value	22.4	1.0	9.8	33.2
Three months ended 31 March 2018
Divestments	(0.0)	-	(0.1)	(0.1)
Effect of movements in exchange rates	(0.0)	0.0	0.0	(0.0)
Additions	-	-	0.2	0.2
Depreciation charge	(1.0)	(0.1)	(1.1)	(2.2)
Closing net book value	21.4	0.9	8.8	31.1
At 31 March 2018
Cost	22.4	1.0	9.9	33.3
Accumulated depreciation	(1.0)	(0.1)	(1.1)	(2.2)
Net book value	21.4	0.9	8.8	31.1

Condensed Consolidated Interim Financial Statements 31 March 2018

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Depreciation of Right of use assets analyzes as follows in the Consolidated Statement of Income:

	Q1
	2018
Cost of sales	0.5
Selling and marketing expenses	0.5
Research and development expenses	0.0
General and administrative expenses	1.2
	2.2

The following table shows the annual maturity of the lease liabilities:

	Q1
Annual maturity of lease liabilities	2018
Less than 1 year	(7.4)
Between 1 and 2 years	(11.7)
Between 2 and 3 years	(2.8)
Between 3 and 4 years	(2.9)
Between 4 and 5 years	(2.7)
After 5 years	(4.0)
	(31.5)

14 Goodwill

At 1 January 2018
Cost	643.9
Net book value	643.9
Opening net book value	643.9
Exchange differences	(0.9)
Closing net book value	643.0
At 31 March 2018
Cost	643.0
Net book value	643.0
At 1 January 2017
Cost	635.2
Net book value	635.2
Year ended 31 December 2017
Opening net book value	635.2
Business combinations, note 5	12.6
Exchange differences	(3.9)
Closing net book value	643.9
At 31 December 2017
Cost	643.9
Net book value	643.9

Impairment testing

The Group tested at the end of 2017 whether goodwill had suffered any impairment. The conclusion was there were no triggers indicating that impairment was necessary. At the end of Q1 2018, there is no reason to deviate from the conclusions taken at year-end.

Condensed Consolidated Interim Financial Statements 31 March 2018

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15 Intangible assets

	Technology & development costs	Customer relations, patents & trademarks	Other intangibles	Total
At 1 January 2018
Cost	232.4	171.6	73.3	477.3
Accumulated amortization	(117.7)	(46.2)	(50.7)	(214.6)
Net book value	114.7	125.4	22.6	262.7
Three months ended 31 March 2018
Opening net book value	114.7	125.4	22.6	262.7
Exchange differences	(0.1)	(0.4)	(0.1)	(0.6)
Additions	3.9	-	2.3	6.2
Impairment charge	(1.1)	-	-	(1.1)
Amortization charge	(3.9)	(2.7)	(1.1)	(7.7)
Closing net book value	113.5	122.3	23.7	259.5
At 31 March 2018
Cost	234.6	170.7	75.2	480.5
Accumulated amortization	(121.1)	(48.4)	(51.5)	(221.0)
Net book value	113.5	122.3	23.7	259.5
	Technology & development costs	Customer relations, patents & trademarks	Other intangibles	Total
At 1 January 2017
Cost (including transfers between categories)	218.9	172.8	63.9	455.6
Accumulated amortization (including transfers between categories)	(102.1)	(39.2)	(36.8)	(178.1)
Net book value	116.8	133.6	27.1	277.5
Year ended 31 December 2017
Opening net book value	116.8	133.6	27.1	277.5
Business combinations, note 5	0.4	3.2	0.1	3.7
Exchange differences	(2.2)	(0.4)	(0.1)	(2.7)
Additions	15.5	-	8.4	23.9
Amortization charge	(15.8)	(11.0)	(12.9)	(39.7)
Closing net book value	114.7	125.4	22.6	262.7
At 31 December 2017
Cost	232.4	171.6	73.3	477.3
Accumulated amortization	(117.7)	(46.2)	(50.7)	(214.6)
Net book value	114.7	125.4	22.6	262.7

Condensed Consolidated Interim Financial Statements 31 March 2018

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Business combinations for 2017 relate to the acquisition of Sulmaq. Further information on the acquisitions is disclosed in note 5 of the Condensed Consolidated Interim Financial Statements.

The additions for 2018 predominantly comprise internally generated assets of EUR 6.2 million (31 December 2017: EUR 23.9 million) for product development and for development of software products.

The impairment charge in the intangible assets analyzes as follows in the Consolidated Statement of Income:

	Q1 2018	Q1 2017
Research and development expenses	1.1	-
	1.1	-

Amortization of intangible assets and amortization of acquisition-related intangible assets analyzes as follows in the Consolidated Statement of Income:

	Q1 2018	Q1 2017
Cost of sales	0.0	0.0
Selling and marketing expenses	0.4	0.4
Research and development expenses	3.4	3.4
General and administrative expenses	1.6	1.8
	5.4	5.6
Amortization of acquisition-related intangible assets	2.3	6.2
	7.7	11.8

Impairment testing

The Group tested at the end of 2017 whether infinite intangible assets had suffered any impairment. The conclusion was there were no triggers indicating that impairment was necessary. At the end of Q1 2018 there is no reason to deviate from the conclusions taken at year-end.

16 Deferred income tax

Deferred income taxes are calculated in full on temporary differences under the liability method.

The gross movement on the deferred income tax account is as follows:

At 31 December 2017	(56.9)
Impact IFRS 9 & 15	1.8
At 1 January 2018	(55.1)
Exchange differences and changes within the Group	0.0
Consolidated Statement of Income charge (excluding tax rate change)	1.4
Effect of change in tax rates	(0.1)
Hedge reserve & translation reserve recognized in Other Comprehensive Income	(0.1)
At 31 March 2018	(53.9)
At 1 January 2017	(56.2)
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Exchange differences and changes within the Group	0.1
Consolidated Statement of Income charge (excluding tax rate change)	0.2
Effect of change in tax rates	1.1
Business combinations, note 5	(1.7)
Hedge reserve & translation reserve recognized in Other Comprehensive Income	(0.4)
At 31 December 2017	(56.9)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.

The deferred tax charge recognized in the Consolidated Statement of Financial Position is as follows:

	31/03	31/12
	2018	2017
Deferred income tax assets	0.2	4.4
Deferred income tax liabilities	(54.1)	(61.3)
	(53.9)	(56.9)

Condensed Consolidated Interim Financial Statements 31 March 2018

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17 Inventories

There were no material reversals of write-downs to net realizable value. The write-downs recognized following a recoverability analysis are included in Cost of sales.

18 Equity

Share Capital	Ordinary shares (thousands)	Treasury shares (thousands)	Outstanding number of shares (thousands)
At 1 January 2018	735,569	(41,747)	693,822
Treasury shares - purchased	-	(10,000)	(10,000)
At 31 March 2018	735,569	(51,747)	683,822
	100.00%	7.03%	92.97%
At 1 January 2017	735,569	(21,543)	714,026
Treasury shares - purchased	-	(22,200)	(22,200)
Treasury shares - sold	-	1,996	1,996
At 31 December 2017	735,569	(41,747)	693,822
	100.00%	5.68%	94.32%
		31/03	31/12
Class of share capital		2018	2017
Nominal value		6.3	6.3
Share premium reserve		198.1	228.2
Reserve for share based payments		1.7	1.4
Total share premium reserve		199.8	229.6

The total authorized number of ordinary shares is 735.6 million shares (31 December 2017: 735.6 million shares) with a par value of ISK 1 per share. All issued shares are fully paid. Holders of ordinary shares are entitled to dividends as declared from time to time and are entitled to one vote per share at shareholders meetings of the Company. All rights attached to the Company's treasury shares are suspended until those shares are sold again.

Dividends

In March 2018 a dividend of EUR 28.7 million (EUR 4.19 cents per share) was declared for the operational year 2017 of which EUR 25.9 million was paid in Q1 2018 and EUR 2.8 million will be paid in Q2 2018 (in 2017, a dividend of EUR 15.3 million (EUR 2.14 cents per share) was declared and paid for the operational year 2016).

Share premium reserve

The Share premium reserve comprises of payment in excess of par value of ISK 1 per share that shareholders have paid for shares sold by the Company, less payments in excess of par value that the Company has paid for treasury shares.

According to the Icelandic Companies Act, 25% of the nominal value share capital must be held in reserve which cannot be paid out as dividend to shareholders. Marel is compliant with this requirement.

Other reserves

Other reserves in Shareholder's equity include the following reserves:

• Hedge reserve: comprises revaluations on derivatives, on which hedge accounting is applied. The value of 31 March 2018 and 31 December 2017 relates to derivatives for the Group, the interest rate swap contracts.
• Translation reserve: comprises the translation results of the consolidation of subsidiaries reporting in foreign currencies, as well as a currency revaluation related to financing of subsidiaries.

	Hedge reserve	Translation reserve	Total other reserves
Balance at 1 January 2018	0.6	(8.8)	(8.2)
Total other comprehensive income	0.5	(2.0)	(1.5)
Balance at 31 March 2018	1.1	(10.8)	(9.7)
Balance at 1 January 2017	(0.8)	(1.3)	(2.1)
Total other comprehensive income	1.4	(7.5)	(6.1)
Balance at 31 December 2017	0.6	(8.8)	(8.2)

Limitation in the distribution of Shareholders' equity

As at 31 March 2018, pursuant to Icelandic law, certain limitations exist relating to the distribution of Shareholders' equity. Such limitations relate to legal reserves required by Icelandic law included under Retained earnings for capitalized intangible assets related to product development projects and for legal reserves relating to any legal or economic restrictions to the ability of affiliated companies to transfer funds to the parent company in the form of dividends.

Condensed Consolidated Interim Financial Statements 31 March 2018

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The legal reserve included under Retained earnings for capitalized intangible assets related to product development projects amounted to EUR 64.8 million as at 31 March 2018 (31 December 2017: EUR 65.3 million).

Since the profits retained in Marel hf.'s subsidiaries can be distributed and received in Iceland, no legal reserve for any legal or economic restrictions to the ability of affiliated companies to transfer funds to the parent company in the form of dividends is required.

The amount of the legal reserve for the share of profit of affiliates is reduced by dividends received from those companies and those dividends from them which can be claimed.

Therefore Marel could, based on its control as the parent company, decide to let its subsidiaries pay dividends. The dividends would lower the amount of legal reserves within equity and therefore leave more room for Marel to make dividend payments to its shareholders. The new provision of the act does not prevent Marel from making dividend payments to its shareholders in 2018 since the Company has sufficient retained earnings from previous years. The legal reserves as required by Icelandic law are required as of effective date 1 January 2016.

Non-controlling interests

Non-controlling interests ("NCI") relate to minority shares held by third parties in consolidated Group companies. The net income attributable to NCI amounted to EUR 0.0 million for the three-month period in 2018 (31 March 2017: EUR 0.0 million).

The NCI relates to MPS France S.A.R.L., France, in which the managing director of MPS France holds an ownership percentage of 24%.

Condensed Consolidated Interim Financial Statements 31 March 2018

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19 Bank borrowings and lease liabilities

| | 31/03
2018 | 31/12
2017 |
| --- | --- | --- |
| Bank borrowings | 381.5 | 370.5 |
| Lease liabilities | 24.1 | 0.2 |
| Non-current | 405.6 | 370.7 |
| Bank borrowings excluding bank overdrafts | 24.3 | 26.2 |
| Lease liabilities | 7.4 | - |
| Current | 31.7 | 26.2 |
| Total borrowings and lease liabilities | 437.3 | 396.9 |
| Bank borrowings | 405.8 | 396.7 |
| Lease liabilities | 31.5 | 0.0 |
| Total borrowings and lease liabilities | 437.3 | 396.7 |

As of 31 March 2018, interest bearing debt amounted to EUR 434.8 million including lease liabilities (31 December 2017: EUR 411.6 million), of which for 31 March 2018 and 31 December 2017 nothing is secured against shares that Marel hf. holds in certain subsidiaries. Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

The Group loan agreements contain restrictive covenants, relating to interest cover and leverage. At 31 March 2018 and at year end 2017 the Group complies with all restrictive covenants.

The Group has the following headroom in committed ancillary facilities:

	31/03	31/12
Floating rate	2018	2017
Expiring within one year	-	-
Expiring beyond one year	119.9	150.2
	119.9	150.2
Liabilities in currency recorded in EUR	Bank loans / revolver	Capitalized finance charges
---	---	---
Liabilities in EUR	358.0	(9.2)
Liabilities in USD	59.8	(1.7)
Liabilities in other currencies	1.7	0.0
	419.5	(10.9)
Current maturities	28.8	(3.5)
	390.7	(7.4)
31/03/2018
---	---	---
Annual maturity of non-current bank borrowings	Bank loans / revolver	Capitalized finance charges
Between 1 and 2 years	28.8	(3.5)
Between 2 and 3 years	28.7	(3.5)
Between 3 and 4 years	30.4	(0.4)
Between 4 and 5 years	302.3	-
After 5 years	0.5	-
	390.7	(7.4)
31/12/2017
---	---	---
Annual maturity of non-current bank borrowings	Bank loans / revolver	Capitalized finance charges
Between 1 and 2 years	30.3	(3.5)
Between 2 and 3 years	30.4	(3.5)
Between 3 and 4 years	30.4	(1.3)
Between 4 and 5 years	289.2	-
After 5 years	0.5	-
	380.8	(8.3)

Condensed Consolidated Interim Financial Statements 31 March 2018

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20 Provisions

	Guarantee commitments	Pension commitments	Other provisions	Total
Balance at 1 January 2018	7.9	8.3	1.5	17.7
Additions	0.4	0.4	0.1	0.9
Used	(0.2)	(0.1)	(0.0)	(0.3)
Release	(1.2)	(0.0)	(0.0)	(1.2)
Balance at 31 March 2018	6.9	8.6	1.6	17.1
	Guarantee commitments	Pension commitments	Other provisions	Total
---	---	---	---	---
Balance at 1 January 2017	9.0	7.6	3.9	20.5
Additions	1.3	1.0	0.1	2.4
Business combinations, note 5	0.3	0.1	0.2	0.6
Used	(2.1)	(0.2)	(2.2)	(4.5)
Release	(0.6)	(0.2)	(0.5)	(1.3)
Balance at 31 December 2017	7.9	8.3	1.5	17.7

1 Including the provision for early retirement rights, which has increased to EUR 5.3 million at 31 March 2018 (31 December 2017: EUR 5.0 million).

	31/03	31/12
Analysis of total provisions	2018	2017
Current	9.6	9.1
Non-current	7.5	8.6
	17.1	17.7

21 Financial instruments and risks

Interest-rate swap

To protect Marel from fluctuations in Euribor-EUR-Reuters/Libor-BBA ("British Bankers Association") and in accordance with the interest hedge policy Marel has entered into interest rate swaps (the hedging instruments) to receive floating interest and to pay fixed interest.

This is in line with Marel's risk management policy to have 50 - 70% of core debt fixed for 3 - 5 years.

The notional principal amount of the outstanding active interest rate swap contracts at 31 March 2018 was EUR 247.7 million (31 December 2017: EUR 248.7 million).

31/03 2018	Currency	Principal	Maturity	Interest %
Interest rate SWAP	EUR	50.0	2020	-0.1%
Interest rate SWAP	EUR	40.0	2018	0.2%
Interest rate SWAP	EUR	50.0	2020	-0.1%
Interest rate SWAP	EUR	50.0	2020	-0.1%
Interest rate SWAP	USD	10.0	2020	1.3%
Interest rate SWAP	USD	60.0	2018	2.2%
Forward starting interest rate SWAP	EUR	80.0	2022	0.4%
Forward starting interest rate SWAP	EUR	40.0	2022	0.4%
Forward starting interest rate SWAP	USD	60.0	2020	1.6%
Forward starting interest rate SWAP	USD	50.0	2022	2.3%
Embedded floor (0,00% cap on interest rates in financing agreements)	EUR	346.0	2022	0.0%
FX EUR DKK interest rate SWAP (EUR fixed, DKK floating)	EUR	1.1	2027	5.2%
31/12 2017	Currency	Principal	Maturity	Interest %
---	---	---	---	---
Interest rate SWAP	EUR	50.0	2020	-0.1%
Interest rate SWAP	EUR	40.0	2018	0.2%
Interest rate SWAP	EUR	50.0	2020	-0.1%
Interest rate SWAP	EUR	50.0	2020	-0.1%
Interest rate SWAP	USD	10.0	2020	1.3%
Interest rate SWAP	USD	60.0	2018	2.2%
Forward starting interest rate SWAP	EUR	80.0	2022	0.4%
Forward starting interest rate SWAP	EUR	40.0	2022	0.4%
Forward starting interest rate SWAP	USD	60.0	2020	1.6%
Forward starting interest rate SWAP	USD	50.0	2022	2.3%
Embedded floor (0,00% cap on interest rates in financing agreements)	EUR	346.0	2022	0.0%
FX EUR DKK interest rate SWAP (EUR fixed, DKK floating)	EUR	1.1	2027	5.2%

Condensed Consolidated Interim Financial Statements 31 March 2018

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22 Contingencies

Contingent liabilities

At 31 March 2018 the Group had contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of business from which it is anticipated that no material liabilities will arise. In the ordinary course of business the Group has given guarantees amounting to EUR 56.7 million (31 December 2017: EUR 50.3 million) to third parties.

Legal proceedings

As part of doing business and acquisitions the Group is involved in claims and litigations, under such indemnities and guarantees. These claims are pending and all are contested. Provisions are recognized when an outflow of economic benefits for settlement is probable and the amount can be estimated reliably. It should be understood that, in light of possible future developments, such as (a) potential additional lawsuits, (b) possible future settlements, and (c) rulings or judgments in pending lawsuits, certain cases may result in additional liabilities and related costs.

At this point in time, we cannot estimate any additional amount of loss or range of loss in excess of the recorded amounts with sufficient certainty to allow such amount or range of amounts to be meaningful. Moreover, if and to the extent that the contingent liabilities materialize, they are often resolved over a number of years and the timing of such payments cannot be predicted with confidence. While the outcome of said cases, claims and disputes cannot be predicted with certainty, we believe, based upon legal advice and information received, that the final outcome will not materially affect our consolidated financial position but could be material to our results of operations or cash flows in any one accounting period.

Environmental remediation

The Company and its subsidiaries are subject to environmental laws and regulations. Under these laws, the Company and/or its subsidiaries may be required to remediate the effects of certain chemicals on the environment.

23 Related party transactions

At 31 March 2018 and 31 December 2017 there are no loans to the members of the Board of Directors and the CEO. In addition, there were no transactions carried out (purchases of goods and services) between the Group and members of the Board of Directors or the CEO in the three-month period ended 31 March 2018 and the year 2017.

24 Subsequent events

No significant events have taken place since the reporting date, 31 March 2018.

Condensed Consolidated Interim Financial Statements 31 March 2018

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25 Quarterly results

| | 2018
Q1 | 2017
Q4 | 2017
Q3 | 2017
Q2 | 2017
Q1 |
| --- | --- | --- | --- | --- | --- |
| Revenue | 288.4 | 294.7 | 247.0 | 244.0 | 252.5 |
| Cost of sales | (176.9) | (177.9) | (153.0) | (147.6) | (153.0) |
| Gross profit | 111.5 | 116.8 | 94.0 | 96.4 | 99.5 |
| Selling and marketing expenses | (32.6) | (32.2) | (28.2) | (29.1) | (31.0) |
| Research and development expenses | (17.4) | (16.7) | (13.0) | (14.2) | (13.9) |
| General and administrative expenses | (17.7) | (21.6) | (15.3) | (17.2) | (16.9) |
| Adjusted result from operations) | 43.8 | 46.3 | 37.5 | 35.9 | 37.7 |
| Amortization of acquisition-related (in)tangible assets | (2.3) | (2.4) | (2.2) | (6.3) | (6.2) |
| Result from operations (EBIT) | 41.5 | 43.9 | 35.3 | 29.6 | 31.5 |
| Net finance costs | (6.0) | (4.4) | (5.4) | (6.7) | (3.8) |
| Result before income tax | 35.5 | 39.5 | 29.9 | 22.9 | 27.7 |
| Income tax | (7.2) | (5.7) | (6.8) | (4.3) | (6.4) |
| Result for the period | 28.3 | 33.8 | 23.1 | 18.6 | 21.3 |
| Result before depreciation & amortization (EBITDA) | 55.3 | 56.0 | 45.8 | 44.2 | 46.0 () |

Adjusted result from operations: result has been adjusted for amortization of acquisition-related (in)tangible assets.

Condensed Consolidated Interim Financial Statements 31 March 2018